Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement and Transaction
On March 2, 2021, Terra Tech Corp. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with UMBRLA, Inc., a Nevada corporation (“UMBRLA”), a diversified cannabis company with distribution, manufacturing and dispensary operations, Phoenix Merger Sub Corp., a Nevada corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Dallas Imbimbo, as the stockholder representative for the UMBRLA stockholders. Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and into UMBRLA (the “Merger”), with UMBRLA surviving the Merger as a wholly owned subsidiary of the Company. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
At the effective time of the Merger (the “Effective Time”): (a) each share of UMBRLA common stock outstanding immediately prior to the Effective Time (excluding shares held by UMBRLA, the Company or Merger Sub and dissenting shares) will be converted solely into the right to receive a number of shares of the Company’s common stock (the “Shares”) equal to the exchange ratio described below, (b) each outstanding UMBRLA stock option will be assumed by the Company, (c) each outstanding UMBRLA restricted stock award will be assumed by the Company, and (d) each outstanding UMBRLA warrant will be assumed by the Company. Approximately 10% of the Shares otherwise issuable to UMBRLA stockholders (the “Holdback Shares”) will be held back for a period of 12 months following the Closing to satisfy indemnification obligations. Under the exchange ratio formula in the Merger Agreement, and assuming the release of all Holdback Shares without setoff, the former UMBRLA stockholders immediately before the Merger are expected to own approximately 50% of the aggregate number of the outstanding shares of the Company’s common stock, and the stockholders of the Company immediately before the Merger are expected to own approximately 50% of the aggregate number of the outstanding shares of the Company’s common stock, as set forth in more detail in the Merger Agreement.
Francis Knuettel II will continue to serve as the Company’s Chief Executive Officer following the closing of the Merger (the “Closing”). Following the Closing, the board of directors of the Company (the “Company Board”) will consist of seven directors and will be comprised of (i) Nicholas Kovacevich, as Chairman, (ii) up to three members designated by the Company and (iii) up to three members designated by UMBRLA.
The Merger Agreement contains customary representations, warranties and covenants made by the Company and UMBRLA, including covenants relating to obtaining the requisite regulatory approvals, indemnification of directors and officers, the Company’s and UMBRLA’s conduct of their respective businesses between the date of signing of the Merger Agreement and the Closing.
The Closing is subject to satisfaction or waiver of certain conditions including, among other things, (i) the accuracy of the representations and warranties, subject to certain materiality qualifications, (ii) compliance by the parties with their respective covenants, and (iii) no law or order preventing the Merger and related transactions. The Merger Agreement includes customary termination rights for the Company and UMBRLA.
The Company expects that immediately prior to the Merger, Nicholas Kovacevich, the Chairman of the Company’s Board of Directors, along with members of his family and others, collectively will beneficially own, directly or indirectly, approximately 17% of UMBRLA’s issued and outstanding common stock.
In addition, Francis Knuettel II, the Company’s Chief Executive Officer, President and Director, serves as a consultant to UMBRLA, and Mr. Knuettel, together with his spouse, beneficially own, directly or indirectly, securities convertible into or exercisable for a de minimus amount of UMBRLA’s common stock.
Certain holders of the Company’s senior convertible promissory notes (the “Note Holders”) also hold convertible promissory notes, in the aggregate principal amount of $550,000, issued by UMBRLA, which are expected to convert into UMBRLA’s common stock immediately prior to the Merger. Certain of these Note Holders also hold UMBRLA common stock and warrants issued by UMBRLA, which will be exercisable for the Company’s common stock after the Merger.
As such, the Merger may be considered a related party transaction.
As of the date of the Merger Agreement and the date of this Current Report on Form 8-K, there are no other material relationships between the Company or any of the Company’s affiliates and UMBRLA, other than in respect of the Merger Agreement.
The Merger Agreement and the Merger were duly approved and authorized by the Company’s non-interested directors. Mr. Kovacevich and Mr. Knuettel, in their capacities as members of the Board of Directors of Company, abstained from voting on the Merger.
Lock-Up Agreements
Concurrently with the execution of the Merger Agreement, certain stockholders of UMBRLA and other parties, including Nicholas Kovacevich, Francis Knuettel II and the Note Holders, entered into or are expected to enter into, lock-up agreements (the “Lock-Up Agreements”), pursuant to which they accepted certain restrictions on transfers of the Shares following the Effective Time until January 24, 2022, subject to certain exceptions.
The foregoing descriptions of the Merger Agreement and the Lock-Up Agreements do not purport to be complete and are qualified in their entirety by reference to the full text of the Merger Agreement and the form of Lock-Up Agreement, which are filed as Exhibits 2.1 and 10.1 hereto, respectively, and incorporated herein by reference.
The Merger Agreement has been included to provide investors with information regarding its terms and is not intended to provide any financial or other factual information about the Company, Merger Sub or UMBRLA. In particular, the representations, warranties and covenants contained in the Merger Agreement (i) were made only for purposes of that agreement and as of specific dates, (ii) were made solely for the benefit of the parties to the Merger Agreement, (iii) may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties to the Merger Agreement rather than establishing those matters as facts and (iv) may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants contained in the Merger Agreement as characterizations of the actual state of facts or condition of the Company, Merger Sub or UMBRLA.