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Urban Communications Inc.(UBN.V)has entered into a definitive arrangement agreement dated Aug. 31, 2017, with Acme Communications Canada Inc., whereby Acme will acquire all of the issued and outstanding common shares of Urban by way of a statutory plan of arrangement under the Business Corporations Act (British Columbia). The arrangement is subject to customary closing conditions, including approval by holders of shares, options and warrants in Urban, court, and regulatory approvals. Assuming the timely receipt of such approvals, the arrangement is expected to close in October, 2017.

The arrangement agreement

Under the terms of the agreement, each shareholder will receive cash consideration of seven cents for each share held, which, together with anticipated debt being assumed at closing, results in an enterprise value being paid of $15.6-million on a fully diluted in-the-money basis. Urban currently has 109,909,941 shares outstanding, and it is intended that all of the shares are to be purchased by Acme through the process outlined in the agreement. The consideration payable to shareholders represents a premium of 16.7 per cent to Urban's closing share price on the TSX Venture Exchange on Aug. 31, 2017, and a 22.4-per-cent premium to Urban's 30-day volume-weighted average price ending on the same date. Acme is an arm's-length party to Urban.

The agreement provides for, among other things, a non-solicitation covenant on the part of Urban, subject to customary fiduciary-out provisions that entitle Urban to consider and accept a superior proposal, a right in favour of Acme to match any superior proposal, and, in certain circumstances, the payment of a $400,000 termination fee to Acme. The agreement also provides for the payment of an expense reimbursement fee of $400,000 in certain circumstances by Acme to Urban.

Under and subject to the terms of the agreement, Acme has agreed to extend a $500,000 loan to Urban as a contribution to Urban's working capital to assist in performing its business operations to the completion of the agreement.

A copy of the agreement will be available for review on the company's profile on SEDAR.

Benefits to shareholders

The agreement represents an opportunity for shareholders to realize an immediate cash premium to recent trading ranges of shares, being a premium of 16.7 per cent to Urban's closing share price on the TSX Venture Exchange on Aug. 31, 2017, and a 22.4-per-cent premium to Urban's 30-day VWAP on the same date. In addition, the consideration to be received by shareholders is within the fair value range considered by Evans & Evans Inc. in a fairness opinion provided to the company, as described below.

John Farlinger, chief executive officer of Urban, stated: "With the announcement today of Acme's all-cash offer for Urban, I believe there is an opportunity for shareholders of Urban to benefit from the immediate cash premium, while avoiding potential near-term dilution. The decision to accept this offer was made after careful consideration of the interests of shareholders, creditors and employees. Given the context that significant capital expenditures are required to enhance the company's market value and the need to replace term debt of $6-million within 12 months and the substantial dilution that would entail, this transaction has been determined to be the best value for all stakeholders."

Support for the arrangement and fairness opinions

A special committee of Urban's board of directors was constituted in December, 2016, to consider the arrangement and other financing opportunities available to the company, and recommended acceptance of the agreement with Acme.

The board received a fairness opinion from Evans & Evans, a recognized and experienced valuation firm, to the effect that, as of the date thereof, the consideration to be received by shareholders under the transaction is fair, from a financial point of view, to shareholders other than Acme and Acme's affiliates.

The board has also received continuing advice since April, 2016, from MVP Capital LLC, a premier investment banking firm that specializes in telecommunications transactions in North America. MVP analyzed this and other alternatives available to the company and recommended that the company proceed with the Acme arrangement.

The board, after receiving financial and legal advice and following receipt of the Evans fairness opinion and a unanimous recommendation from the special committee (as resolved following receipt of the Evans fairness opinion the and MVP process report), unanimously determined that the arrangement is fair, from a financial point of view, to the securityholders and that the arrangement is in the best interests of the company and recommends that securityholders vote in favour of the arrangement.

Securityholder approval

Completion of the arrangement will be subject to customary closing conditions, including receipt of the required approvals at a special meeting of securityholders expected to be held in October, 2017. The arrangement will be subject to the approval of at least two-thirds of votes cast by securityholders voting as a single class.

A management information circular providing a detailed description of the arrangement is expected to be mailed in September, 2017, to securityholders in connection with the meeting.

Advisers and counsel

Urban's financial adviser in relation to the arrangement is MVP Capital, a division of Financial Telesis Inc., and its legal adviser is DS Lawyers Canada LLP.

Squire Patton Boggs (U.S.) LLP and Siskinds LLP are acting as legal counsel to Acme.

About Acme Communications Canada Inc.

Acme Communications Canada has been formed to acquire telecommunications facilities throughout Canada and is affiliated with companies with considerable experience in providing telecommunications services in various countries.

About Urban Communications Inc.

Urban Communications, one of the country's first telecommunications company to deliver gigabit Internet service to the home, provides a full suite of Internet, voice, video and broadband application products over its 300-kilometre state-of-the-art carrier-grade fibre optic network in metro Vancouver and Victoria to commercial, residential and public sector customers.