Proxy Statement Pursuant to Section 14(a)
of The Securities Exchange Act of 1934
(Amendment No. )
ANNEX C FAIRNESS OPINION OF D.A. DAVIDSON &
CO.
ANNEX D CERTIFICATE OF CONVERSION
ANNEX E FORM OF DELAWARE CERTIFICATE OF INCORPORATION
The following are some questions that you,
as a shareholder of the Company, may have regarding the Merger and the Company’s Annual Meeting and brief answers to those
questions. We urge you to carefully read the remainder of this proxy statement because the information in this section does not
provide all the information that might be important to you with respect to the Merger and the Annual Meeting. Additional important
information is also contained in the Annexes to and the documents incorporated by reference into this proxy statement.
A: The Company and Hire Quest have agreed to the acquisition
of Hire Quest by the Company under the terms of the Merger Agreement, which is described in further detail under the caption “The
Merger Agreement” beginning on page 106 of this proxy statement. In order to complete the Merger, the Company’s shareholders
must approve an increase in the Company’s authorized capital stock and the issuance of the shares in connection with the
Merger resulting in a change of control pursuant to the Nasdaq listing rules, as further described in the Charter Amendment Proposal
and the Nasdaq Proposal contained herein. The Company will hold its Annual Meeting to seek these approvals and the approval of
certain additional proposals. These materials describe the Merger, the proposed share issuance and the other proposals, and are
being sent to the Company’s shareholders in connection with its Annual Meeting. This document is not a proxy statement or
information statement of Hire Quest in connection with any matter upon which Hire Quest may solicit proxies or consents from its
security holders.
This document contains important information
about the Merger, the Annual Meeting, the matters to be considered and voted upon by the Company’s shareholders at the Annual
Meeting and information about the Company and Hire Quest. You should read it carefully.
A: The Merger is the proposed transaction through which the
Company and Hire Quest will combine the two companies. The Merger will be accomplished under an Agreement and Plan of Merger by
and among the Company, Merger Sub 1, Merger Sub 2, Hire Quest and Richard Hermanns as the Member Representative, dated April 8,
2019. Pursuant to the terms of the Merger Agreement, (i) Merger Sub 1 will be merged with and into Hire Quest in the First Merger,
with Hire Quest being the first surviving entity, and (ii) immediately following the First Merger, the First Surviving Company
will be merged with and into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the surviving entity. A copy of the Merger
Agreement is attached to this proxy statement as
Annex A
.
A: The Company and Hire Quest believe that the Merger will
make the combined company more competitive and financially robust. The combined company will have a national footprint and be able
to compete for major national accounts in a manner that the Company could not otherwise do as a stand-alone company. Additionally,
the added scale is expected to lead to a more diverse set of customers, better negotiating leverage with insurers and other service
providers, and make the combined company more attractive to institutional investors.
A: The Company will issue 9,837,328 shares of the Company’s
Common Stock to Hire Quest’s security holders, representing approximately 68% of the Company’s outstanding stock (the
“Merger Consideration”) upon the closing of the Merger. Hire Quest membership interests have no established trading
market.
A. Each member of Hire
Quest will receive its pro rata share of the Merger Consideration, calculated in accordance with Hire Quest’s operating agreement.
A: The Company’s shareholders will be asked to consider
and to vote upon 9 proposals in connection with the Annual Meeting:
No separate approval of the Merger Agreement
or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon
the Merger Agreement or the Merger. However, if the Charter Amendment Proposal and the Nasdaq Proposal are not approved, the Company
will not be able to consummate the Merger. A vote in favor of the Charter Amendment Proposal and the Nasdaq Proposal shall be deemed
an approval of the Merger.
A: Our Board of Directors recommends that the Company’s
shareholders vote “FOR” each of the Board of Directors’ nominees that are standing for election to the Board
of Directors, “FOR” the Reincorporation Proposal, “FOR” the Charter Amendment Proposal, “FOR”
the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante & Moran, PLLC as the Company’s
independent registered public accounting firm for the fiscal year ending December 27, 2019, “FOR” the Say-on-Pay Proposal,
“FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal, “FOR” the Change of Control
Compensation Proposal, and “FOR” the Adjournment Proposal if necessary.
A: Yes. Pursuant to shareholder voting agreements entered
into with the Company and Hire Quest (the “Voting Agreements”), the Company’s directors, executive officers and
certain shareholders have agreed to vote their shares of the Company’s Common Stock in favor of the Reincorporation Proposal,
the Charter Amendment Proposal and the Nasdaq Proposal. The shares held by such directors, officers and shareholders collectively
represented approximately 24% of the outstanding shares of the Company’s Common Stock as of [●], 2019. For a more complete
description of these Voting Agreements, see “Voting Agreements” beginning on page 123 of this proxy statement. The
form of Voting Agreement is also attached to this proxy statement as
Annex B
.
A: If the Nasdaq Proposal is not approved, the Merger cannot
be completed because the Company will not be able to issue shares to Hire Quest security holders as consideration for the Merger.
A: If the Charter Amendment Proposal is not approved, the
Merger cannot be completed because the Company will not have a sufficient number of authorized shares of Common Stock to issue
to Hire Quest security holders as consideration for the Merger.
A: If the Reincorporation Proposal is not approved, the Company
will remain a Washington corporation and subject to Washington law, and its existing Articles of Incorporation and bylaws will
continue to apply. While the Merger Agreement requires the Company to use commercially reasonable efforts to obtain shareholder
approval of the Reincorporation Proposal, the approval of this proposal is not a condition to the completion of the Merger. If,
however, the Nasdaq Proposal and Charter Amendment Proposal are approved but the Reincorporation Proposal is not approved, following
the completion of the Merger, the Company’s existing Articles of Incorporation will be replaced with the amended articles
of incorporation attached to this proxy statement as
Annex H
.
A: If the Director Proposal is approved and the Company consummates
the Merger, the Company is obligated to appoint four directors selected by Hire Quest to the Company’s Board of Directors,
subject to compliance with applicable Nasdaq listing standards, and three of the Company’s current directors will remain
on the Board of Directors following the closing of the Merger. The Merger Agreement provides that, of the Company’s current
directors that will remain on the Board, one will remain on the Board until the 2022 annual meeting of shareholders, the second
will remain on the Board until the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual
meeting of shareholders.
A: The Company and Hire Quest currently expect to complete
the Merger on or after [●], 2019. Completion of the Merger will only be possible, however, after all conditions to the completion
of the Merger contained in the Merger Agreement are satisfied or waived, including shareholder approval of the Nasdaq Proposal
and the Charter Amendment Proposal. It is possible that factors outside of either company’s control could require them to
complete the Merger at a later time or not complete it at all.
A: The Merger is intended to qualify as a “reorganization”
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). See page 130 for a further description
of the certain material U.S. Federal income tax considerations relating to the Merger.
A: The Company’s shareholders will continue to hold
the same number of shares of the Company’s Common Stock after the Merger. The issuance of 9,837,328 shares of the Company’s
Common Stock to Hire Quest security holders in connection with the Merger will dilute the ownership of the Company’s existing
shareholders. The Merger Agreement also contemplates that concurrently with the filing of this proxy statement, the Company will
commence the Offer to purchase up to 1,500,000 shares of its Common Stock at a share price of $6.00 per share. The Offer is not
a condition to the closing of the Merger. The Company currently has 4,629,331 shares of Common Stock issued and outstanding. Assuming
that the Merger is consummated, and the Company purchases 1,500,000 shares of Common Stock in the Offer and the Company makes no
other issuances or repurchases of Common Stock, the Company will have 12,966,659 shares of Common Stock outstanding, in which case
the percentage ownership of Common Stock held by the Hire Quest security holders will increase to approximately 76%.
For a discussion of the effect on the ownership
of the Company’s shareholders, please see the section of this proxy statement entitled “Ownership of the Company Pre-
and Post-Merger” beginning on page 104.
A: Yes. You should carefully review the section entitled
“Risk Factors” beginning on page 18 of this proxy statement, which discusses risks and uncertainties related to the
Merger, the combined companies and the business and operations of each of the Company and Hire Quest. In addition, you are encouraged
to read the Company’s publicly filed documents incorporated by reference into this proxy statement.
A: The Annual Meeting will be held at [●] on [●],
2019 at [●], [●] time.
A: All the Company’s shareholders of record as of the
close of business on [●], 2019 may vote at the Annual Meeting. Each Company shareholder is entitled to one vote for each
share of the Company’s Common Stock owned as of that record date.
If your shares of the Company’s Common
Stock are registered directly in your name with the transfer agent, you are the shareholder of record with respect to those shares,
and the proxy statement and the Company’s proxy card are being sent directly to you. If you are a shareholder of record,
you may attend the Annual Meeting and vote your shares in person. However, even if you plan to attend the Annual Meeting in person,
please sign and return the enclosed proxy card or vote your shares by telephone or via the Internet to ensure that your shares
will be represented at the Annual Meeting if you are unable to attend.
If your shares of Common Stock are held
in a brokerage account or by another nominee, then you are considered the beneficial owner of shares that are held in “street
name,” and the proxy statement is being forwarded to you by your broker or other nominee together with a voting instruction
form for you to return to your broker or other nominee to direct them to vote on your behalf. As the beneficial owner, you are
also invited to attend the Annual Meeting. However, because a beneficial owner is not the shareholder of record, you may not vote
these shares in person at the Annual Meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares,
giving you the right to vote the shares at the Annual Meeting.
A: If you are a record holder of the Company’s Common
Stock, you should read this proxy statement carefully and then complete and sign the proxy card and return it in the enclosed envelope
or vote your shares by telephone or via the Internet. This will enable your shares to be represented at the Annual Meeting.
If your shares of the Company’s Common
Stock are held in “street name” by your broker or other nominee, you must instruct the broker or such other nominee
as to how to vote your shares by following the instructions that the broker or other nominee provides to you. Brokers usually offer
the ability for shareholders to submit voting instructions by mail by completing a voting instruction form, by telephone or over
the Internet. If you do not provide instructions to your broker or other nominee, your shares will not be voted on any proposal
on which your broker or other nominee does not have discretionary authority to vote. This is called a “broker non-vote.”
Except for the proposal ratifying the selection of the Company’s independent registered public accounting firm for the fiscal
year ending December 27, 2019, brokers will not have discretionary authority to vote on any of the proposals being submitted to
a vote of the Company’s shareholders at the Annual Meeting.
A: If you fail to send in a proxy card or vote at the Annual
Meeting or if your shares are held in “street name” and you fail to instruct your broker how to vote your shares (or
in the case of the ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public
accounting firm, the broker elects not to vote the shares), your shares will not be counted as present for the purpose of determining
the presence of a quorum, which is required to transact business at the Annual Meeting. If you fail to send in your proxy card
or fail to instruct your broker how to vote (resulting in a “broker non-vote”), this will have the same effect as voting
“AGAINST” the Charter Amendment Proposal and the Reincorporation Proposal. If you fail to send in your proxy card or
fail to instruct your broker how to vote (resulting in a “broker non-vote”), because no vote will have been cast, this
will have no effect on the outcome of the Director Proposal, the Nasdaq Proposal, the ratification of the selection of Plante &
Moran, PLLC as the Company’s independent registered public accounting firm, the Say-on-Pay Proposal, the Say-on-Frequency
Proposal, the Change of Control Compensation Proposal or the Adjournment Proposal.
An abstention occurs when a shareholder
attends a meeting, either in person or by proxy, but specifically indicates an abstention from voting on one or more of the proposals.
If you submit a proxy card or provide proxy instructions to your broker or other nominee and affirmatively elect to abstain from
voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the Annual Meeting, but
will not be voted at the Annual Meeting. As a result, your abstention will have the same effect as voting “AGAINST”
the Charter Amendment Proposal and the Reincorporation Proposal. If you abstain, since no vote will have been cast, this will have
no effect on the outcome of the Director Proposal, the Nasdaq Proposal, the Adjournment Proposal, the ratification of the selection
of Plante & Moran, PLLC as the Company’s independent registered public accounting firm, the Say-on-Pay Proposal, the
Change of Control Compensation Proposal or the Say-on-Frequency Proposal.
If you do not include any instructions on
a properly executed proxy or voting instruction form, your shares will be voted “FOR” each of the Board of Directors’
nominees that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR”
the Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of
Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December
27, 2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency
Proposal, “FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary.
A: Yes. If you are a holder of record of the Company’s
shares, you may change your vote at any time before your proxy is voted at the Annual Meeting by:
If your shares are held in a “street
name” you must contact your broker or other nominee to change your vote.
A: No. There are no dissenters’ rights, appraisal rights
or similar rights available to the Company’s shareholders in connection with any of the proposals or the Merger.
A: The Company will bear the cost of soliciting proxies for
the Annual Meeting. The Company’s directors, officers and employees may solicit proxies by telephone and facsimile, by mail,
over the Internet or in person. They will not be paid any additional amounts for soliciting proxies. The Company has retained InvestorCom,
LLC to assist it in the solicitation of proxies. The Company expects to pay InvestorCom, LLC a fee of $[●] for its services.
The Company also will request that banks, brokerage firms, custodians, trustees, nominees, fiduciaries and other similar record
holders forward the solicitation materials to the beneficial owners of Common Stock held of record by such person, and the Company
will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.
A: You may receive more than one set of voting materials
for the Annual Meeting, including multiple copies of this proxy statement and multiple proxy cards or voting instruction form.
For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction form for
each brokerage account in which you hold shares. If you are a holder of record of the Company’s Common Stock and your shares
are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy
card and voting instruction form that you receive.
A: Please contact the Company’s Corporate Secretary
at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235.
This summary highlights certain information
contained elsewhere in this proxy statement and may not contain all the information that is important to you. To better understand
the Merger and the matters to be considered and voted upon at the Annual Meeting, you should read this proxy statement carefully,
including the attached Annexes, and the other documents to which we have referred you. In addition, you should read the information
the Company has incorporated by reference into this proxy statement, which includes important information about the Company that
has been filed with the Securities and Exchange Commission (the “SEC”). See the section entitled “Where You Can
Find More Information” beginning on page 137, which describes how you may obtain the information incorporated by reference
into this proxy statement without charge. We have included page references in this summary to direct you to a more complete description
of the topics presented below.
In this proxy statement “the Company,”
“we,” “us,” and “our” refers to Command Center, Inc., and where appropriate, its subsidiaries,
“Hire Quest” refers to Hire Quest Holdings, LLC, and where appropriate, its subsidiaries, “Merger Sub 1”
refers to CCNI One, Inc., and “Merger Sub 2” refers to Command Florida, LLC. In addition, the “Merger”
refers to the proposed merger of Merger Sub 1 with and into Hire Quest immediately followed by the merger of Hire Quest with and
into Merger Sub 2 and the “Merger Agreement” refers to the Agreement and Plan of Merger, dated as of April 8, 2019,
by and among the Company, Merger Sub 1, Merger Sub 2, Hire Quest and Richard Hermanns. When this proxy statement refers to the
“combined company,” it means the Company and Hire Quest and their respective subsidiaries, collectively, after completion
of the Merger.
The Company is a staffing company, operating
primarily in the manual on-demand labor segment of the staffing industry. In 2018, we employed approximately 32,000 employees and
provided services to approximately 3,600 customers, primarily in the industrial/manufacturing/warehousing, construction, hospitality,
transportation, and retail industries. Our customers range in size from small businesses to large corporate enterprises. All of
our temporary staff, whom we refer to as “field team members,” are employed by us. Most of our work assignments are
short-term, and many are filled on little advanced notice from our customers. In addition to short and longer-term temporary work
assignments, we sometimes recruit and place workers in temp-to-hire positions.
As of [●], 2019, we owned and operated
67 on-demand labor locations, or branches, across 22 states. We currently operate as Command Center, Inc., and we are also known
in some locations as Command Labor. All financial information is consolidated and reported in our consolidated financial statements.
In prior years we were organized as Command
Staffing, LLC. We were organized as a limited liability company in December 2002 and commenced operations in 2003 as a franchisor
of on-demand labor businesses. In November 2005, Temporary Financial Services, Inc., a public company, acquired the assets of Command
Staffing, LLC and Harborview Software, Inc., an affiliated company that owned the software used in the operation of our on-demand
labor branches. The transaction was accounted for as if Command Staffing, LLC was the accounting acquirer, and our name changed
to Command Center, Inc.
Our Common Stock is traded on the NASDAQ
Capital Market under the symbol “CCNI.”
The principal executive offices of the Company
are located at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235, and its telephone number is (866) 464-5844.
For more information on the Company, see
the reports and other information the Company files with the SEC, including its Annual Report on Form 10-K for the year ended December
28, 2018. These filings may be viewed on the Internet at www.sec.gov. Additional information about the Company is included in the
documents incorporated by reference in this proxy statement. See “Where You Can Find More Information” beginning on
page 137.
Hire Quest is a temporary staffing company,
providing back-office support for Trojan Labor and Acrux Staffing franchised locations across the United States. Trojan Labor provides
temporary staffing services that include general labor, industrial, and construction personnel. Acrux Staffing provides temporary
staffing services that include skilled, semi-skilled, and general labor industrial personnel, as well as clerical and secretarial
personnel. As of April 30, 2019, Hire Quest’s franchisees owned and operated 98 branch locations in 21 states and the District
of Columbia. 83 branches operated under the Trojan Labor brand, and 15 branches operated under the Acrux Staffing brand. Hire Quest’s
corporate headquarters are located in Goose Creek, South Carolina.
Hire Quest is a private company and therefore
has no established trading market for its common stock.
The principal executive offices of Hire
Quest are located at 111 Springhall Drive, Goose Creek, South Carolina 29445, and its telephone number is (843) 723-7400.
Merger Sub 1 is a wholly-owned subsidiary
of the Company and was formed in Florida on March 25, 2019, solely for the purpose of facilitating the Merger. Merger Sub 1 has
not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection
with the transactions contemplated by the Merger Agreement.
Merger Sub 2 is a wholly-owned subsidiary
of the Company and was formed in Florida on February 27, 2019, solely for the purpose of facilitating the Merger. Merger Sub 2
has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection
with the transactions contemplated by the Merger Agreement.
The Merger will be accomplished pursuant
to the Merger Agreement. Pursuant to the terms of the Merger Agreement, (i) Merger Sub 1 will be merged with and into Hire Quest
in the First Merger, with Hire Quest being the First Surviving Company, and (ii) immediately following the First Merger, the First
Surviving Company will be merged with and into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the Surviving Company.
[The Surviving Company will change its name to [●].]
In the Merger, the Company will issue 9,837,328
shares of the Company’s Common Stock to Hire Quest’s security holders, representing approximately 68% of the Company’s
outstanding stock prior to the purchase of any shares of Common Stock by the Company in the Offer.
The Annual Meeting of the Company’s
shareholders will be held on [●], 2019 at [●], [●] time at [●]. All the Company’s shareholders of
record as of the close of business on [●], 2019 may vote at the Annual Meeting. Each shareholder is entitled to one vote
for each share of the Company’s Common Stock owned as of that record date.
At the Annual Meeting, the Company shareholders
will be asked to consider and to vote upon 9 proposals:
No separate approval of the Merger Agreement
or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon
the Merger Agreement or the Merger. If the Charter Amendment Proposal and the Nasdaq Proposal are not approved, the Merger will
not be completed. A vote in favor of the Charter Amendment Proposal and the Nasdaq Proposal shall be deemed an approval of the
Merger.
In evaluating the Merger, including the
issuance of the shares of the Company’s Common Stock in connection with the Merger, the Company’s Board consulted with
the Company’s management, and, in reaching its decision to recommend the issuance of shares of our Common Stock in connection
with the Merger and approving the Merger, the Board considered a number of factors including the following:
The Board also relied on the opinion of
D.A. Davidson & Co. (“D.A. Davidson”), dated April 5, 2019. See “Opinion of the Company’s Financial
Advisor” beginning on page 124 of this proxy statement.
After careful consideration, the Company’s
Board determined that: (i) electing the Company’s nominees for director, (ii) reincorporating in Delaware pursuant to the
Reincorporation Proposal, (iii) amending the Company’s Articles of Incorporation to increase the Company’s authorized
capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of Common Stock from 8,333,333
to 30,000,000 shares and the authorized shares of Preferred Stock from 416,666 to 1,000,000 shares, and to change the name of the
Company to “HireQuest, Inc.”, (iv) issuing shares of the Company’s Common Stock in connection with the Merger,
(v) ratifying the selection of our independent registered public accounting firm, (vi) approving in an advisory non-binding vote
the Company’s current executive compensation, (vii) determining in an advisory non-binding vote that future advisory votes
on executive compensation should be held every One Year, (viii) approving in an advisory non-binding vote certain compensation
arrangements that may be paid or become payable to our named executive officers upon completion of the Merger, and (ix) adjourning
the Annual Meeting, for any reason, including if necessary, to solicit additional proxies, are each in the best interest of the
Company and its shareholders. Our Board recommends that you vote “FOR” each of the Board of Directors’ nominees
that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR” the
Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante
& Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27,
2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal,
“FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary.
The Company retained D.A. Davidson
to deliver its opinion as to the fairness, from a financial point of view, of the consideration to be paid by the Company
to Hire Quest pursuant to the Merger Agreement. The aggregate fees paid to D.A. Davidson by the Company for its services
was $250,000. On April 7, 2019, D.A. Davidson provided its opinion,dated April 5, to the Board in connection with its
consideration of the transactions contemplated by the Merger Agreement and its opinion does not constitute a recommendation
as to how any holder of the Company’s Common Stock should vote with respect to approving the issuance of additional
shares of the Company’s Common Stock in connection with the proposed Merger or any other proposal to be considered and
voted upon at the Annual Meeting. The full text of the D.A. Davidson opinion, which sets forth assumptions made, matters
considered and limitations on and qualifications to the review undertaken by D.A. Davidson in connection with its opinion, is
attached as
Annex C
to this proxy statement.
Interests and Voting Power of Directors,
Executive Officers and their Affiliates (see page 56)
Neither the Company nor any of our executive
officers or directors beneficially owns any of Hire Quest’s outstanding securities. Three current directors of the Company,
and four current directors of Hire Quest, Richard Hermanns, Edward Jackson, Payne Browne and Kathleen Shanahan (or replacement
designees selected by Hire Quest), are expected to serve as directors of the Company after the closing of the Merger. In addition,
certain key employees of Hire Quest will enter into employment agreements with the Company effective as of the closing of the Merger,
providing them with base salaries and potential bonus compensation, the right to receive stock options and severance. Richard K.
Coleman, Jr., the Company’s President and Chief Executive Officer, will be appointed Chief Operating Officer of the Company
and Richard Hermanns will be appointed Chief Executive Officer of the Company (subject to the consummation of the Merger).
(1) Assumes that the Company
repurchases 1,500,000 shares of its Common Stock in the Offer.
The Company and Hire Quest currently expect
to complete the Merger promptly following the Annual Meeting. Completion of the Merger is subject to all conditions to closing
being satisfied or waived. It is possible that factors outside of either company’s control could require the Company and
Hire Quest to complete the Merger at a later time or not complete it at all.
Representations, Warranties and Covenants
in the Merger Agreement (see page 108)
The Company and Hire Quest have made customary
representations, warranties and covenants in the Merger Agreement. Subject to certain exceptions, each of the Company and Hire
Quest is required, among other things, to conduct its business in the ordinary course in all material respects during the interim
period between the execution of the Merger Agreement and the closing of the Merger.
The Merger Agreement provides that neither
the Company nor Hire Quest may solicit alternative business combination transactions and, subject to certain exceptions, may not
engage in discussions or negotiations regarding any alternative business combination transaction.
The obligations of the Company and Hire
Quest to complete the Merger are subject to the satisfaction (or waiver, where permitted) of the following conditions:
The Company and Hire Quest may mutually
agree to terminate the Merger Agreement at any time prior to effectiveness of the Merger. Either party may also terminate the Merger
Agreement if:
Generally, all fees and expenses incurred
in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring
those expenses.
If the Merger Agreement is terminated by
the Company prior to the receipt of shareholder approval of the proposals and in connection with entering into a different acquisition
agreement in respect of a superior proposal, then the Company shall pay to Hire Quest, at or prior to such termination, a termination
fee equal to $1.2 million (the “Termination Fee”). If the Merger Agreement is terminated by the Company because a governmental
entity prevents the commencement and completion of the Offer, then the Company shall pay to Hire Quest, at or prior to such termination,
an amount equal to 50% of the Termination Fee. If the Merger Agreement is terminated by Hire Quest under certain circumstances
further described in the Merger Agreement, including due to a breach by the Company or the Merger Subs of any representation, warranty,
covenant, or agreement that would cause the closing conditions of the Merger Agreement to not be satisfied, the Company shall pay
Hire Quest the Termination Fee.
You should carefully review the section
entitled “Risk Factors” beginning on page 18 of this proxy statement, which discusses risks and uncertainties related
to the Merger, the combined companies and the business and operations of each of the Company and Hire Quest.
Certain Material U.S. Federal Income
Tax Considerations (see page 131)
The Merger is intended to qualify as a “reorganization”
under Section 368(a) of the Code, as discussed below under “Certain Material U.S. Federal Income Tax Considerations”
on page 130.
Under Washington law, the holders of shares
of the Company’s Common Stock are not entitled to dissenters’ rights of appraisal in connection with any of the proposals
to be considered and acted upon at the Annual Meeting. In addition, because the Merger is not subject to the Company’s shareholder
approval under Washington law, the holders of shares of the Company’s Common Stock are not entitled to dissenters’
rights of appraisal in connection with the Merger.
Certain of the Company’s directors,
executive officers and shareholders have agreed to vote their shares of the Company’s Common Stock in favor of the Reincorporation
Proposal, the Charter Amendment Proposal and the Nasdaq Proposal. The shares held by these directors, officers and shareholders
collectively represented approximately 24% of the outstanding shares of the Company’s Common Stock as of [●], 2019.
In addition, each of the members of Hire Quest voted in favor of the approval and adoption of the Merger Agreement and approval
of the Merger.
On April 8, 2019, prior to the announcement
of the Merger after market close, the Company’s Common Stock closed at $3.92. On [●], 2019, the Company’s Common
Stock closed at $[●]. Following the consummation of the Merger, the Company’s Common Stock, including the shares issued
in connection with the Merger, is expected to continue to trade on the NASDAQ Capital Market. Following the Merger, the Company
currently intends to retain earnings, if any, to finance the growth and development of its business, but will evaluate its dividend
policy shortly after the completion of the Merger and business integration.
The Company must comply with applicable
securities laws in connection with the issuance of shares of the Company’s Common Stock in connection with the Merger.
This proxy statement and the documents incorporated
by reference into this proxy statement contain “forward-looking statements” within the meaning of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act.
All statements other than statements of historical facts, including statements regarding our future financial position, liquidity,
business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,”
“may,” “estimate,” “continue,” “anticipate,” “intend,” “should,”
“plan,” “could,” “target,” “potential,” “is likely,” “will,”
“expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have
based these forward-looking statements largely on our current expectations and projections about future events and financial trends
that we believe may affect our financial condition, results of operations, business strategy and financial needs. Specific forward-looking
statements include, without limitation, statements regarding the following:
The results anticipated by any or all of
these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ
materially from these forward-looking statements are contained in the risk factors that follow and elsewhere in this proxy statement
and the incorporated documents. We undertake no obligation to publicly update or revise any forward-looking statements, whether
as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties
of our business, see the risk factors that follow and or that are disclosed in our incorporated documents.
In addition to the other information included
and incorporated by reference in this proxy statement, you should carefully consider the following risks before deciding whether
to vote for the Nasdaq Proposal. See the section entitled “Where You Can Find More Information” beginning on page 137.
The Company and Hire Quest may not realize all of the anticipated
benefits of the Merger.
The success of the Merger will depend, in
large part, on the ability of the combined company to realize the anticipated benefits from combining the businesses of the Company
and Hire Quest. To realize the anticipated benefits of the Merger, the combined company must successfully integrate the businesses
of the Company and Hire Quest. This integration will be complex and time-consuming.
Potential difficulties the Company and Hire
Quest may encounter include, among others:
The Company has not completed a merger or
acquisition comparable in size or scope to the Merger. The failure of the combined company, after the Merger, to successfully integrate
the operations of the Company and Hire Quest or otherwise to realize any of the anticipated benefits of the Merger could cause
an interruption of, or a loss of momentum in, the activities of the combined company and could adversely affect its results of
operations. The integration process may be more difficult, costly or time-consuming than anticipated, which could cause the Company’s
stock price to decline.
The pendency of the Merger could adversely affect the Company’s
stock price and could adversely affect the Company’s and Hire Quest’s respective businesses, financial condition, results
of operations or business prospects.
While neither the Company nor Hire Quest
is aware of any significant adverse effects to date, the pendency of the Merger could disrupt either or both of their businesses
in a number of ways, including:
Provisions of the Merger Agreement limit the Company’s
and Hire Quest’s ability to pursue other business combinations and may deter third parties from proposing alternative transactions.
The Merger Agreement contains provisions
that make it difficult for the Company or Hire Quest to entertain a third-party proposal for an acquisition of the Company or Hire
Quest. These provisions include a general prohibition against solicitation or engaging in discussions or negotiations regarding
any alternative acquisition proposal by each of the Company and Hire Quest and a requirement that the Company pay the Termination
Fee to Hire Quest if the Merger Agreement is terminated under certain circumstances. See the Sections entitled “Termination
of the Merger Agreement” and “Fees and Expenses” beginning on pages 121 and 122, respectively.
These provisions might discourage a third
party that might otherwise be interested in making a proposal from considering or proposing an acquisition of either the Company
or Hire Quest, including an acquisition or similar transaction that may be deemed of greater value than the Merger to the Company’s
shareholders or Hire Quest security holders. In addition, even if a third party elected to propose an acquisition, the existence
of the Termination Fee may result in that third party offering a lower value than the third party might otherwise have offered.
Hire Quest is a private company, making it difficult to
determine its value.
Hire Quest is a private company and, as
such, there is no public trading market for its securities and no market price that may be used in valuing its securities. As a
result, Hire Quest’s value is difficult to determine. The number of shares of the Company’s Common Stock to be issued
to Hire Quest security holders was determined based on negotiations between the parties, and it may not be indicative of Hire Quest’s
actual value.
Future financial results of the combined company may differ
materially from the unaudited pro forma combined financial statements presented in this proxy statement and the financial forecasts
prepared in connection with discussions concerning the Merger.
The unaudited pro forma combined financial
information included in this proxy statement is derived from the Company’s and Hire Quest’s separate historical consolidated
financial statements. This pro forma financial information may not necessarily reflect what the Company’s results of operations
and financial position would have been had the Merger occurred during the periods presented in the pro forma combined financial
information, or what the Company’s results of operations and financial position will be in the future.
Failure to complete or delay of the Merger could negatively
impact the Company’s and Hire Quest’s respective businesses, financial condition or results of operations.
The completion of the Merger is subject
to a number of conditions, as described under “Conditions to Completion of the Merger” beginning on page 121, and
there can be no assurance that the conditions to the completion of the Merger will be satisfied. If the conditions are not satisfied
or waived, the Merger will not be completed or will be delayed. If the Merger is not completed or is delayed, the Company and Hire
Quest will be subject to several risks, including but not limited to:
In addition to these factors, failure to
complete the Merger will mean that the Company and Hire Quest will not obtain the anticipated benefits of combining the two companies.
If the Merger is not completed, the risks described above may materialize and materially adversely affect the Company’s business,
financial condition, results of operations and stock price.
The combined company’s future operating results will
be adversely affected if it does not effectively manage its expanded operations following the Merger.
Following the Merger, the size of the combined
company’s business will be significantly larger than the current businesses of the Company and Hire Quest. The future success
of the combined company will depend, in part, upon its ability to manage this expanded business, which will pose substantial challenges
for the combined company’s management. The Company cannot assure you that the combined company will be successful or that
the combined company will realize the expected operating efficiencies, synergies, and other benefits currently anticipated to result
from the Merger.
Converting the Company’s business model to a franchise
model following the Merger has multiple risks for our operations.
The market price of the Company’s Common Stock after
the Merger may be affected by factors different from those affecting the market price of the Company’s shares prior to the
Merger.
The businesses of the Company and Hire Quest
differ in important respects and, accordingly, the results of operations of the combined company and the market price of the Company’s
Common Stock following the Merger may be affected by factors different from those existing prior to the Merger. For a discussion
of the businesses of the Company and Hire Quest and of certain factors to consider in connection with those businesses, see the
documents incorporated by reference into this proxy statement referred to under the section entitled “Where You Can Find
More Information” and Hire Quest’s business description beginning on page 88.
The issuance of shares of the Company’s Common Stock
to Hire Quest security holders in connection with the Merger will significantly reduce the percentage ownership of the Company’s
current shareholders.
Current shareholders of the Company will
experience a significant reduction in the relative percentage ownership of the Company’s Common Stock upon completion of
the Merger. If the Merger is completed, 9,837,328 shares of the Company’s Common Stock will be issued to Hire Quest security
holders as consideration in the Merger. Following completion of the Offer, and assuming the Offer is fully subscribed, the Company
will have 12,966,659 shares of Common Stock outstanding, in which case the percentage ownership of Common Stock held by the Hire
Quest security holders will increase to approximately 76%.
Following the closing of the Merger, the ownership of the
Company’s Common Stock will be highly concentrated.
Following the completion of the Merger,
Hire Quest security holders will own approximately 68% of our Common Stock. Hire Quest security holders will not participate in
the Offer, which will further concentrate their ownership of the Company, from an aggregate of approximately 68% following the
closing of the Merger to approximately 76% of the issued and outstanding shares following the closing of the Offer, assuming the
Offer is fully subscribed. Concentrated ownership may limit the ability of our shareholders to influence corporate matters and
may also have the effect of delaying, preventing or defeating a change of control.
The future positive performance of the combined
company depends to a significant degree upon the continued service of key members of the Company’s management as well as
key personnel of Hire Quest’s management. The loss of one or more of these key personnel could have a material adverse effect
on our business, operating results, and financial condition before and after completion of the Merger. Certain key members of the
Company’s management possess knowledge and information that are exclusive to them, and the loss of this working and historical
knowledge could be deleterious moving forward. Additionally, key personnel within certain departments of the Company will be important
to the integration of the two companies, as well as maintaining certain systems and functional areas of operations. The loss of
any of these personnel could have a negative impact on the integration and operations of the Company or the combined company.
Given the low national unemployment rate
and the natural disruption created in the merger process, there is no certainty that we will be able to retain our key employees
or that we will be successful in attracting and retaining similarly situated personnel in the future. We believe the aforementioned
risks may be mitigated by the fact that key members of each company’s management teams possess similar skills, experience
and expertise, such that the loss of any single key person could be supplanted with a person of similar (although not necessarily
equal) ability and knowledge.
Similarly, in the event the Merger does
not close for any reason, the disruption created by the merger process could ultimately cause some or all key personnel to leave
their employment with the Company.
While not a condition to the closing of
the Merger, in the event the Offer is fully subscribed, the Company would likely utilize all or a significant portion of its available
cash. Additionally, the Company will likely incur a debt obligation to satisfy the purchase of a portion of the tendered shares,
in addition to utilizing all or a significant portion of the Company’s available cash in the process. This use of cash and
likely incurrence of debt will likely have a negative impact on the combined company’s financial condition and may have a
negative impact on the combined company’s financial performance after the completion of the Merger. For more information
regarding the Offer, please see section entitled “The Merger Agreement – The Offer.”
The Merger may be completed on different terms from those
contained in the Merger Agreement.
Prior to the completion of the Merger, the
Company and Hire Quest may amend or alter the terms of the Merger Agreement or waive compliance with the terms and conditions of
the Merger Agreement, including closing conditions. Although certain types of amendments, alterations or waivers may not be made
after the shareholder vote unless the votes of the Company’s shareholders and Hire Quest security holders are re-solicited,
most amendments, alterations and waivers will not require any re-solicitation. Any such amendments or alterations may have negative
consequences to the Company’s shareholders and/or Hire Quest security holders or adversely affect the operations of the combined
company.
Under the Code, a corporation that is a
“personal holding company” may be required to pay a personal holding company tax in addition to regular income taxes.
A corporation generally is considered a personal holding company if (1) at any time during the last half of the taxable year more
than 50% of the value of the corporation’s outstanding stock is owned, directly, indirectly or constructively, by or for
five or fewer individuals (the “Ownership Test”) and (2) at least 60% of the corporation’s “adjusted ordinary
gross income” constitutes “personal holding company income” (the “Income Test”). A corporation that
is considered a personal holding company is required to pay a personal holding company tax at a rate equal to 20% of such corporation’s
undistributed personal holding company income, which is generally taxable income with certain adjustments, including a deduction
for U.S. federal income taxes and dividends paid.
As a result of the Merger, the Company will
likely satisfy the Ownership Test in 2019. However, the Company does not expect to satisfy the Income Test in 2019. Accordingly,
the Company does not believe that it will be considered a personal holding company in 2019. However, because personal holding company
status is determined annually and is based on the nature of the Company’s income and the percentage of the Company’s
outstanding stock that is owned, directly, indirectly or constructively, by major shareholders, there can be no assurance that
the Company will not be a personal holding company in 2019 or become a personal holding company in any future taxable year. If
the Company were considered a personal holding company with undistributed personal holding company income in a taxable year, the
payment of personal holding company taxes would have an adverse effect on the Company’s cash flows, results of operations
and financial condition.
For a more detailed discussion of the personal
holding company rules, see the section below entitled “Certain Material U.S. Federal Income Tax Considerations.”
We have incurred and expect to incur significant,
non-recurring costs in connection with consummating the Merger. We may also incur additional costs to retain key employees throughout
the transition.
Some of the risks relating to the Merger
described above and relating to the Company described in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 28, 2018 and incorporated by reference may also apply to Hire Quest. In addition, Hire Quest faces the following risks
relating to its franchise system, which risks would be faced by the Company if and when the Merger closes:
With the exception of one company-owned
branch, Hire Quest’s branches are operated by its franchisees, which makes it dependent on the financial success and cooperation
of its franchisees. Hire Quest has limited control over how its franchisees’ businesses are run, and the inability of franchisees
to operate successfully could adversely affect its operating and financial results through decreased royalty payments. If its franchisees
incur too much debt, if their operating expenses increase or if economic or sales trends deteriorate such that they are unable
to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy.
If a significant franchisee or a significant number of franchisees become financially distressed, Hire Quest’s operating
and financial results could be impacted through reduced or delayed royalty payments. Hire Quest’s success also depends on
the willingness and ability of its franchisees to implement major initiatives, which may include financial investment. Its franchisees
may be unable to successfully implement strategies that Hire Quest believes are necessary for their further growth, which in turn
may harm the growth prospects and financial condition of Hire Quest.
Hire Quest’s franchisees are contractually
obligated to operate their branches in accordance with the operations standards set forth in Hire Quest’s agreements with
them and applicable laws. However, although Hire Quest attempts to properly train and support all its franchisees, they are independent
third parties whom it does not control. The franchisees own, operate, and oversee the daily operations of their branches, and their
core branch employees are not Hire Quest’s employees. Accordingly, their actions are outside of Hire Quest’s control.
Although Hire Quest has developed criteria to evaluate and screen prospective franchisees, it cannot be certain that its franchisees
will have the business acumen or financial resources necessary to operate successful franchises at their approved locations, and
state franchise laws may limit its ability to terminate or not renew these franchise agreements. Moreover, despite its training,
support and monitoring, franchisees may not successfully operate branches in a manner consistent with Hire Quest’s standards
and requirements or may not hire and adequately train qualified branch personnel. The failure of Hire Quest’s franchisees
to operate their franchises in accordance with its standards or applicable law, actions taken by their employees or a negative
publicity event at one of its branches or involving one of its franchisees could have a material adverse effect on Hire Quest’s
reputation, its brands, its ability to attract prospective franchisees, its company-owned branch, and its business, financial condition
or results of operations.
The opening of additional branches and expansion
into new markets depends, in part, upon the availability of prospective franchisees who meet Hire Quest’s criteria. Many
of Hire Quest’s franchisees open and operate multiple branches, and part of its growth strategy requires it to identify,
recruit and contract with new franchisees or rely on its existing franchisees to expand. Hire Quest may not be able to identify,
recruit or contract with suitable franchisees in its target markets on a timely basis or at all. If it is unable to recruit suitable
franchisees or if franchisees are unable or unwilling to open new branches, its growth may be slower than anticipated, which could
materially adversely affect its ability to increase its revenues and materially adversely affect its business, financial condition
and results of operations.
Hire Quest intends to continue opening new
franchised branches in its existing markets as a part of its growth strategy. Expansion in existing markets may be affected by
local economic and market conditions. Further, the customer target area of Hire Quest’s branches varies by location, depending
on a number of factors, including population density, area demographics and geography. As a result, the opening of a new branch
in or near markets in which its franchisees’ branches already exist could adversely affect the sales of these existing franchised
branches. Sales cannibalization between branches may become significant in the future as Hire Quest continues to expand its operations
and could affect sales growth, which could, in turn, materially adversely affect its business, financial condition or results of
operations. There can be no assurance that sales cannibalization will not occur or become more significant in the future as Hire
Quest increases its presence in existing markets.
Although Hire Quest believes it generally
enjoys a positive working relationship with its franchisees, the nature of the franchisor-franchisee relationship may give rise
to litigation with its franchisees. While Hire Quest does not engage in litigation with its franchisees in the ordinary course
of business, it is possible that it may experience litigation with some of its franchisees in the future. Hire Quest may engage
in future litigation with franchisees to enforce its contractual indemnification rights if it is brought into a matter involving
a third party due to the franchisee’s alleged acts or omissions. In addition, it may be subject to claims by its franchisees
relating to its franchise disclosure document, including claims based on financial information contained in its franchise disclosure
document. Engaging in such litigation may be costly and time-consuming and may distract management and materially adversely affect
its relationships with franchisees and its ability to attract new franchisees. Any negative outcome of these or any other claims
could materially adversely affect Hire Quest’s results of operations as well as its ability to expand its franchise system
and may damage its reputation and brands. Furthermore, existing and future franchise-related legislation could subject Hire Quest
to additional litigation risk in the event it terminates or fail to renew a franchise relationship.
The following unaudited pro forma financial information presents
the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of income based
upon the combined historical financial statements of the Company and Hire Quest, after giving effect to the proposed Merger of
Hire Quest into Merger Sub 2, a wholly-owned subsidiary of the Company, and the adjustments described in the accompanying notes.
The Merger will be accounted for as a reverse acquisition under the acquisition method of accounting, which requires determination
of the accounting acquirer. The accounting guidance for business combinations provides that in identifying the acquiring entity
in a combination effected through an exchange of equity interests, all pertinent facts and circumstances must be considered, including
but not limited to, the relative voting rights of the shareholders of the constituent companies in the combined company, the composition
of the board of directors and senior management of the combined company, the relative size of each company and the terms of the
exchange of equity securities in the business combination, including payment of any premium.
Because the Hire Quest security holders will be entitled to
designate the majority of the Board of Directors of the combined company and will receive a majority of the equity securities and
voting rights of the combined company upon closing of the Merger, Hire Quest is considered to be the acquirer of the Company for
accounting purposes. This means that Hire Quest will allocate the purchase price to the fair value of the Company’s assets
acquired and liabilities assumed on the acquisition date, with any excess purchase price being recorded as goodwill.
The unaudited pro forma condensed combined balance sheet as
of December 28, 2018 reflects the transaction as if it occurred on December 28, 2018. The unaudited pro forma condensed combined
statement of income for the year ended December 28, 2018 reflect the transaction as if it occurred on December 30, 2017, the
beginning of the earliest period presented.
The unaudited pro forma condensed combined financial information
is for informational purposes only and does not purport to present what our results would actually have been had these transactions
actually occurred on the dates presented or to project our results of operations or financial position for any future period. You
should read the information set forth below together with the notes to the pro forma condensed combined financial statements, the
Annual Report of the Company on Form 10-K for the fiscal year ended December 28, 2018, which are incorporated by reference in this
proxy statement, and the unaudited financial statements of Hire Quest for the years ended December 31, 2018 and 2017 included in
this proxy statement.
Other Information Concerning Hire Quest
Hire Quest is a private company and therefore
has no established trading market for its common stock. As of the date of this proxy statement, Hire Quest had approximately 5
members of record.
The principal executive offices of Hire
Quest are located at 111 Springhall Drive, Goose Creek, South Carolina 29445, and its telephone number is (843) 723-7400.
This proxy statement contains unaudited
financial statements of Hire Quest for the years ended December 31, 2018 and 2017.
Effects of the Merger
At the effective time of the Merger: (i)
Merger Sub 1 will be merged with and into Hire Quest in the First Merger, with Hire Quest being the First Surviving Company, and
(ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 in the Second
Merger, with Merger Sub 2 being the Surviving Company. [The Surviving Company will change its name to [●].]
Reasons for the Merger
In evaluating our proposed acquisition of
Hire Quest, including issuing shares of our Common Stock in connection with the Merger, our Board consulted with our management,
and, in reaching its decision to recommend the issuance of shares of our Common Stock in connection with the Merger and approving
the Merger, our Board considered a number of factors. These factors included the following:
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The Board considered the following factors related to Hire Quest and its business:
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Hire Quest’s superior financial performance over time on a combined company basis;
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Hire Quest’s higher levels of return on capital;
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Hire Quest’s more predictable earnings stream;
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Hire Quest’s management team with deeper sector expertise;
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Hire Quest’s strategic relationship with Dock Square;
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Hire Quest’s significantly larger operating revenues, lower management cost structure, and low to no leverage on balance
sheet;
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Hire Quest’s complementary geographic footprint and customer lists;
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Hire Quest’s experience in franchising and general regulatory experience in the labor sector;
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Hire Quest’s developed software.
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The current and historical market prices of our Common Stock;
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Our historical results of operations, financial condition, assets, liabilities, business strategy and prospects and the changing
nature of the industry in which we compete;
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The possible alternatives to the Merger, including maintaining the status quo, conducting a stock repurchase or undertaking
a recapitalization, which alternatives our Board determined were less favorable to our shareholders than the Merger given the potential
risks, rewards and uncertainties associated with those alternatives;
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The strategic and financial benefits that could potentially arise from the combination of Hire Quest and the Company;
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The expectation that the Merger will strengthen the Company’s financial liquidity and cash flow;
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A combined Hire Quest and Command Center will allow the Company’s shareholders to own shares in a combined company that
will have a significantly larger market capitalization, with the following associated benefits, each of which could offer the opportunity
of increased liquidity for the Company’s shares of Common Stock following the completion of the Merger:
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The combined company will have a stronger balance sheet compared to the Company on a stand-alone basis, with more working capital
and lower borrowing costs than the Company on a stand-alone basis;
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The potential of the combined company to receive greater interest from institutional investors; and
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Attract talent by being a larger public reporting entity.
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The significant value to the Company’s shareholders represented by the net income and cash flows of Hire Quest following
the completion of the Merger;
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The view of the Company’s management as to the expected realization of synergies by Hire Quest following completion of
the Merger;
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The ability of shareholders who disagree with the Board’s rationale and the strategic plan going forward to potentially
cash-out their stock ownership in the Company through the Offer; and
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The positive results of the due diligence investigations of Hire Quest by the Company’s management in consultation with
the Company’s financial and legal advisors.
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Our Board also considered the potential
risks of the share issuance and the Merger, including the significant dilution to the Company’s current shareholders and
the risks set forth in the section of this proxy statement entitled “Risk Factors.” Finally, our Board obtained
and relied upon an opinion from D.A. Davidson as to the fairness of the Merger Consideration from a financial point of view.
The foregoing discussion of the information
and factors considered by our Board is not intended to be exhaustive, but is believed to include the material factors considered
by our Board. In view of the wide variety of factors considered by our Board in connection with its evaluation of the share issuance
and the Merger, our Board did not consider it practical to, and did not, quantify, rank or otherwise assign specific weights to
the factors that it considered in reaching its determination and recommendation. In considering the factors described above and
other factors, individual members of our Board may have given different weight to different factors. Our Board considered this
information as a whole, and overall considered the information and factors to be favorable to, and in support of, its determinations
and recommendation.
This explanation of our Board’s reasoning
and all other information presented in this section are forward-looking in nature and, therefore, you should read them in light
of the factors discussed in the section of this proxy statement entitled “Special Note Regarding Forward-Looking Statements.”
The combination of the two companies is
expected to provide the Company greater growth prospects and higher shareholder value than if the Company continued to operate
alone.
Background of the Merger
The Board and management have continually
evaluated the Company’s business, strategy and financial plans. As part of this evaluation, the Board has at various times
considered a variety of strategic alternatives in an effort to enhance value for the Company’s shareholders.
On February 15, 2017, the Company received
an unsolicited summary of proposed terms from a public company in a similar business as the Company. The proposed terms included
a proposal to exchange the competitor company’s stock for Company Common Stock as compensation to the Company’s shareholders.
The Board reviewed this proposal and determined that the proposal provided for a relatively low valuation of the Company.
The Company received a notice of intent
to nominate directors dated March 2, 2017, from activist shareholder Ephraim Fields of Echo Lake Capital.
On March 24, 2017, Mr. Fields issued a press
release critical of the Board.
During the first part of 2017, given the
unsolicited interest to purchase the Company and the stated shareholder concerns, the Board and management reviewed the Company’s
performance in the industrial staffing and day labor segment (operationally, financially, and as a public company) and determined
it would be in the best interests of shareholders to explore a transformative transaction or alternative path to maximize value
and increase returns. In 2017, the Company had minimal revenue growth and increasing costs. Small acquisition opportunities were
evaluated; however, the Company did not believe they were competitively priced and felt this course of action would cause disproportional
integration risks.
Due to the subscale nature of the Company
and consistent lack of return to shareholders, the Board formed a Strategic Alternatives Committee (the “Committee”)
to evaluate all options that might increase the Company’s scale and improve value for shareholders. To this end, the Committee
and the full Board worked to engage the services of an investment banking firm to explore strategic alternatives for the Company.
The Committee contacted ten investment banking
firms to solicit proposals. The Committee evaluated proposals from the firms based on reputation, capability, and other relevant
factors. The Committee invited two finalists to make in-person presentations to the Board and the Company’s management team.
After the presentations and reference checks,
the Board engaged the services of Wunderlich Securities, LLC (“Wunderlich”), due to the experience that Wunderlich’s
principals had working with small cap companies. An initial engagement letter was executed on July 25, 2017. Thereafter, Wunderlich
was purchased by a larger firm, and the principals working on the Company’s project later moved to investment banking firm
D.A. Davidson. Subsequently, the Company executed a new engagement letter with D.A. Davidson dated November 30, 2017, that contained
terms substantially similar to those contained in the Wunderlich agreement.
On September 15, 2017, the Company received
another notice of intent to nominate directors from activist shareholder Ephraim Fields of Echo Lake Capital.
Due to the ongoing activist shareholder
activities and related Board discussions, the Board suspended activities related to the strategic alternatives process from approximately
late September of 2017 through April of 2018.
On March 28, 2018, the Company entered into
a severance agreement with then Chief Executive Officer, Frederick (Bubba) Sandford. Mr. Sandford also agreed to resign as a member
of the Board of Directors and from all other positions with the Company effective April 1, 2018.
On April 2, 2018, the Company announced
the appointment of Richard Coleman as the new Chief Executive Officer and as a director.
On April 16, 2018, the Company announced
the settlement agreement with activist investor, Ephraim Fields. As part of the settlement agreement, the Company appointed Lawrence
Hagenbuch to its Board of Directors effective April 16, 2018.
Following the settlement with Echo Lake
Capital, the Company and D.A. Davidson re-evaluated whether the Company should consider strategic alternatives, including, a possible
sale of the Company, acquisitions, and other strategic transactions. As part of its evaluation of strategic alternatives, the Board
authorized and directed D.A. Davidson to conduct a broad contact of potential partners including strategic operating companies
as well as prospective financial buyers to explore potential strategic opportunities.
From late June and continuing into October
2018, D.A. Davidson had preliminary no-name discussions with a variety of operating companies and prospective financial buyers
to gauge interest in a potential transaction with the Company. D.A. Davidson contacted over 220 parties by providing a “teaser”
document to each party. These contacts included parties in both the strategic and financial categories of possible partnerships.
As a result of these discussions, approximately 60 potentially interested parties entered into a non-disclosure agreement with
the Company and received confidential information related to the Company. Over this period D.A. Davidson conducted telephonic meetings
with and provided additional information to potentially interested parties to facilitate their due diligence efforts.
On September 7, 2018, the Company entered
into a non-disclosure agreement with Hire Quest, who was subsequently provided confidential information related to the Company.
On September 7, 2018, D.A. Davidson had a telephonic meeting with Richard Hermanns, CEO of Hire Quest, to discuss the confidential
information provided as well as discuss potential business collaboration opportunities between Hire Quest and the Company.
Following the call on September 7, 2018,
and prior to September 17, 2018, D.A. Davidson conducted a number of telephonic meetings with Hire Quest to discuss due diligence
questions as well as potential transaction options.
On September 17, 2018, Hire Quest submitted
a non-binding written expression of interest outlining a potential merger between Hire Quest and the Company. Between September
17, 2018 and September 20, 2018, D.A. Davidson had multiple conversations and communications with Mr. Hermanns about the proposal,
and subsequently, on September 21, 2018, Hire Quest submitted a non-binding revised written expression of interest, which was then
discussed with the Committee on September 27, 2018.
On September 28, 2018, D.A. Davidson sent
Mr. Hermanns a request for the diligence information on Hire Quest, including corporate, operational and financial information
to assist in the evaluation of a potential merger. Also, on September 28, 2018, Party A entered into a non-disclosure agreement
with the Company and was provided with confidential information related to the Company. D.A. Davidson engaged in multiple conversations
with Party A regarding the information and Party A’s potential interest in a transaction.
On October 3, 2018, Mr. Hermanns met in
person with Mr. Coleman, the Company’s CEO, to discuss the benefits of a potential merger between the Company and Hire Quest.
On October 12, 2018, Party A submitted a
written indication of interest outlining a potential acquisition of the Company. Also on this day, D.A. Davidson had a phone call
with Hire Quest’s financial advisor, Raymond James, to discuss Hire Quest’s written expression of interest, and additional
diligence information requested by the Company.
On October 15, 2018, D.A. Davidson had a
phone call with Party A to discuss their written indication of interest submitted on October 12, 2018 and potential revisions thereto.
On October 17, 2018, Party A submitted a
revised written indication of interest outlining a potential cash acquisition of the Company.
On October 25, 2018, the Committee, together
with the other members of the Company’s Board and management discussed the updated proposals received from both Hire Quest
and Party A. As a result, the Company decided to pursue in-person meetings with both parties.
On November 13, 2018, Hire Quest’s
financial advisor, Raymond James, submitted a revised written indication of interest outlining the proposed terms of a merger of
Hire Quest and the Company.
On November 19, 2018, Party A attended an
in-person meeting with representatives from the Company’s management team and D.A. Davidson in Denver, Colorado.
Party A’s offer was contingent on
obtaining adequate financing to complete the transaction. After the in-person management meeting, given the concentrated customer
base, widespread geographic branch locations, and relatively high turnover of the Company, in addition to the then current turmoil
in the financial markets, Party A believed they would be unable to obtain financing on terms that would make the transaction advisable
to its shareholders.
On December 5, 2018, representatives from
Hire Quest and their financial advisor attended an in-person meeting with representatives from the Company’s management team
and D.A. Davidson in Denver, Colorado.
On December 6, 2018, the Committee met and
discussed Hire Quest’s then current proposal and the results of the management meeting. The Committee authorized the Company’s
management to pursue a non-binding letter of intent with Hire Quest to include revised terms.
On December 11, 2018, Hire Quest submitted
a formal letter of intent outlining their proposed terms for a merger with the Company, including a proposed self-tender by the
combined company to be completed subsequent to the closing of a transaction, but contingent on closing of the transaction.
On December 17, 2018, the Company’s
Board met to review Hire Quest’s letter of intent. The Board discussed pursuing a potential transaction with Hire Quest relative
to other alternatives. D.A. Davidson and the Company’s legal counsel were present and advised the Board members of their
fiduciary duties. The Board agreed that the Company should make a counter proposal to Hire Quest, including that Hire Quest be
debt-free at closing.
On December 21, 2018, the Company executed
a non-binding letter of intent to pursue a stock for stock merger with Hire Quest. The letter of intent included, among other things,
a 45-day exclusivity provision from December 21, 2018.
On January 10, 2019, Hire Quest provided
the Company and its advisors with access to a virtual data room in order for the Company to continue to perform more detailed business,
legal and financial due diligence in connection with a potential transaction.
On January 16, 2019, Company’s executive
management, co-chairman of the Board, Rimmy Malhotra, Raymond James and D.A. Davidson attended an in-person due diligence meeting
with Hire Quest at Hire Quest’s corporate headquarters in Goose Creek, South Carolina. During this meeting, the parties discussed
the benefits and possible risks associated with a potential transaction. The parties also began to outline plans to complete mutual
due diligence and contemplate integration obstacles.
On January 22, 2019, Hire Quest’s
legal counsel, Hill Ward Henderson (“Hill Ward”), delivered an initial draft of the Merger Agreement to the Company’s
legal counsel, Olshan Frome Wolosky LLP (“Olshan”).
On January 29, 2019, Hire Quest and the
Company extended the letter of intent’s exclusivity period to February 25, 2019.
On January 29, 2019, Company shareholder
Jerry Smith signed a nondisclosure agreement to further the goal of obtaining a signed Voting Agreement from Mr. Smith.
On February 5, 2019, the Company retained
BDO USA, LLP (“BDO”) to perform financial diligence of Hire Quest. BDO subsequently received access to Hire Quest’s
virtual data room and over the course of several weeks conducted multiple telephonic and in-person meetings with Hire Quest. On
February 28, 2019, BDO sent the Company a presentation discussing their due diligence of Hire Quest, which confirmed representations
Hire Quest had made to the Company.
From February through early April
2019, the Company and Hire Quest along with their respective advisors continued to perform due diligence in relation to the
potential transaction including multiple telephonic and in-person meetings. The Company’s management, D.A. Davidson and
the Company’s legal counsel provided multiple periodic updates to the Board during this period to discuss the
transaction including due diligence and documentation updates.
During such time, the Committee
also met formally and informally to address issues that arose from the discussions between Messrs. Malhotra, Coleman and Hermanns.
During such time,
co-chairman of the Board, Rimmy Malhotra, Company’s CEO, Richard Coleman, and Hire Quest’s CEO, Richard Hermanns, had
multiple phone calls to discuss items related to the Merger and finalizing the terms of the definitive Merger Agreement.
On February 13, 2019, Olshan sent Hill Ward
comments to the tax sections of the Merger Agreement and on February 15, 2019, Hill Ward sent Olshan a revised draft of the Merger
Agreement.
Hill Ward sent Olshan an initial draft of
Hire Quest’s disclosure letter on February 20, 2019.
February 19-21, 2019, Board members Steve
Bathgate and Rimmy Malhotra met with Hire Quest CEO, Richard Hermanns, in Tampa, Florida, to discuss the proposed merger further,
and visited Hire Quest branches. At these meetings, Hermanns indicated his desire to change some terms of the letter of intent,
based on due diligence and a continued deterioration in the Company’s financial performance. Mr. Bathgate and Mr. Malhotra
advised that they would have to take such items back to the Board for consideration. Mr. Bathgate and Mr. Malhotra communicated
the need for safeguards considering the related party transactions within the Hire Quest family of franchisees. Such safeguards
were ultimately incorporated into the Merger Agreement.
On February 21, 2019, Olshan and Hill Ward
spoke via telephone regarding certain open issues in the Merger Agreement and exchanged emails regarding such open issues.
On February 27, 2019, Olshan sent Hill Ward
a revised draft of the Merger Agreement.
On February 28, 2019, Hill Ward and Olshan
exchanged emails regarding due diligence open items.
On March 1, 2019, Olshan and Hill Ward spoke
on the phone regarding certain open issues in the Merger Agreement and the need to extend the exclusivity period in the letter
of intent. As a result, on March 1, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity period to
March 23, 2019.
On March 1, 2019, Olshan sent Hill Ward
an initial draft of the Company’s disclosure letter.
On March 4, 2019, Hill Ward sent Olshan
a revised draft of Hire Quest’s disclosure letter, and on March 6, 2019, Hill Ward sent Olshan a revised draft of the Merger
Agreement.
On March 5, 2019, the Board held a regularly
scheduled meeting during which D.A. Davidson and Olshan updated the Board on the status of the transaction and due diligence process.
On March 8, 2019, Olshan sent comments on
the Hire Quest disclosure letter to Hill Ward.
On March 11, 2019, Hill Ward sent Olshan
a draft of the proposed employment term sheet for Richard Hermanns, Hire Quest’s Chief Executive Officer, and Hill Ward and
Olshan exchanged emails regarding open diligence questions. Also on March 11, 2019, Olshan sent Hill Ward a revised draft of the
Merger Agreement.
On March 12, 2019, Olshan sent Hill Ward
comments to the Hire Quest disclosure letter as well as a revised draft of the Company’s disclosure letter.
On March 12, 2019, the Board had a meeting
during which Olshan provided updates regarding open items relating to the Merger Agreement and the proposed timeline for the closing
of the Merger.
From March 12, 2019 through March 15, 2019,
Hill Ward and Olshan exchanged emails discussing open items in the Merger Agreement, including the structure of the Merger for
tax purposes and the composition of the Company’s Board of Directors following the closing of the Merger.
On March 13, 2019, Company shareholder Ephraim
Fields signed a nondisclosure agreement to further the goal of obtaining a signed Voting Agreement from Mr. Fields.
On March 15, 2019, Olshan sent Hill Ward
a draft term sheet regarding the non-competition and non-solicitation provisions applicable to Hire Quest security holders. Also
on March 15, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement and a draft term sheet for the Pre-Closing Reorganization
(as defined below) and the Dock Square consulting arrangement.
On March 18, 2019, Hill Ward sent Olshan
a revised draft of the Hire Quest disclosure letter.
From March 19, 2019 through March 21, 2019,
Olshan and Hill Ward exchanged emails and discussed various open items related to the Merger Agreement and the ancillary documents.
On March 21, 2019, Hill Ward sent Olshan
a revised draft of the Hire Quest disclosure letter, and on March 22, 2019, Hill Ward sent Olshan comments to the non-competition
term sheet.
On March 21, 2019, Olshan sent Hill Ward
a revised draft of the Merger Agreement and an updated draft of the Company’s disclosure letter.
On March 22, 2019, Olshan and Hill Ward
exchanged emails regarding certain open issues in the Merger Agreement and the need to timely extend the exclusivity period in
the letter of intent. As a result, on March 22, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity
period to March 30, 2019.
On March 24, 2019, Hill Ward sent Olshan
a revised draft of the Merger Agreement.
On March 26, 2019, Hill Ward sent Olshan
a revised draft of the Hire Quest disclosure letter and on March 26, 2019, Olshan sent Hill Ward comments to such Hire Quest disclosure
letter and an updated draft of the Company’s disclosure letter.
On March 27, 2019, Olshan sent Hill Ward
a revised draft of the Merger Agreement and another updated draft of the Company’s disclosure letter.
On March 28, 2019, Hill Ward sent Olshan
comments to the non-competition term sheet.
On March 29, 2019, Olshan and Hill Ward
exchanged emails regarding certain open issues in the Merger Agreement, as well as open due diligence items, and the need to extend
the exclusivity period in the letter of intent. On March 29, 2019, Hire Quest and the Company extended the letter of intent’s
exclusivity period to April 6, 2019.
On April 3, 2019, Hill Ward sent Olshan
a revised draft of the Merger Agreement.
On April 4, 2019, Olshan sent Hill Ward
a revised draft of the Merger Agreement. On April 4, 2019, Hill Ward sent to Olshan a revised draft of the employment term sheet
for Mr. Hermanns and a revised draft of the Merger Agreement. Olshan provided comments to the employment term sheet for Mr. Hermanns
as well as revised drafts of the Hire Quest disclosure letter and the Company’s disclosure letter. Hill Ward then sent a
further revised draft on April 4, 2019, as well as a revised draft of the Hire Quest disclosure letter.
On April 5, 2019, the Committee held a
meeting during which, they agreed to unanimously recommended that the Board approve the Merger, the Merger Agreement and the
related transactions.
On April 5, 2019, Hill Ward sent Olshan
a revised draft of the Hire Quest disclosure letter.
On April 5, 2019, Hire Quest and the Company
extended the letter of intent’s exclusivity period to April 13, 2019.
On April 5, 2019, Olshan and Hill Ward exchanged
emails regarding the exhibits to the Merger Agreement and other ancillary documents and confirmed that these documents were in
final form.
On April 5, 2019, Hill Ward sent Olshan
a further revised draft of the Merger Agreement. Olshan then sent Hill Ward a revised draft of the Merger Agreement, as well as
revised drafts of the Hire Quest disclosure letter and the Company’s disclosure letter.
On April 6, 2019, Hill Ward sent Olshan
a revised draft of the Merger Agreement and an updated draft of the Hire Quest disclosure letter.
Olshan and Hill Ward exchanged emails discussing
certain changes to the Merger Agreement and on April 7, 2019, Hill Ward sent Olshan a final draft of the Merger Agreement.
On April 7, 2019, D.A. Davidson delivered
to the Board an oral opinion, which was confirmed by delivery of a written opinion dated April 5, 2019, to the effect that, as
of the date of such written opinion and based upon and subject to various assumptions made, procedures followed, matters considered
and qualifications and limitations upon the review undertaken in preparing its opinion as set forth in such written opinion, the
consideration to be paid by the Company in the transaction is fair, from a financial point of view, to the Company.
On April 7, 2019, the Board met to consider
and approve the Merger Agreement, the Merger and certain related matters. Olshan advised the board of its fiduciary duties. Following
the Board meeting, Olshan sent an email to Hill Ward stating that the Board had unanimously approved the Merger Agreement and the
related transactions.
On April 8, 2019, Hire Quest and the Company
executed the Merger Agreement. Later that day, following the close of the market on April 8, 2019, the Company issued a press release
announcing the transaction. Shortly thereafter, on April 9, 2019, the Company filed a Current Report on Form 8-K with the SEC (i)
summarizing the material terms of the Merger Agreement and filing the Merger Agreement as an exhibit, and (ii) attaching as an
exhibit to such Current Report on Form 8-K the press release announcing the Company’s entrance into the transaction.
On April 9, 2019 the Company filed its Annual
Report on Form 10-K, which among other things disclosed a decrease in the Company’s net income.
Financing of the Merger
On April 17, 2019, the Company, certain
of its subsidiaries, and Hire Quest (the “Borrower”) entered into a commitment letter with BB&T Bank, pursuant
to which BB&T Bank committed to extend a revolving line of credit in the maximum initial amount of $30,000,000 with a $15,000,000
letter of credit sublimit and $20,000,000 uncommitted accordion feature to the Borrower for the financing of the Offer and to provide
ongoing working capital needs. The entry into this credit facility is a closing condition to the Merger.
Interests of the Company’s Directors
and Executive Officers in the Merger
Neither the Company nor any of our executive
officers or directors beneficially owns any of Hire Quest’s outstanding securities.
Interests of Hire Quest Directors and
Executive Officers in the Merger
Because officers and directors receive part
of the Merger Consideration, their interests are aligned with all other Hire Quest security holders. However, certain key employees
of Hire Quest will enter into employment agreements with the Company upon the consummation of the Merger providing them with base
salaries and potential bonus compensation, the right to receive stock options and severance. Finally, the Company has agreed to
indemnify Hire Quest’s members, officers, directors and managers in accordance with Hire Quest’s articles of organization,
operating agreement and indemnification agreements. Additionally, these officers and directors will be entitled to directors and
officers liability insurance protection for a period of time in the event that a claim is made against them by any Hire Quest member.
Three current directors of the Company,
referred to as the Company Directors, and four nominees designated by Hire Quest (or replacement designees selected by Hire Quest)
are expected to serve as directors of the Company after the Merger. In addition, the Merger Agreement provides that, of the Company
Directors, one will remain on the Board until the 2022 annual meeting of shareholders, the second will remain on the Board until
the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual meeting of shareholders.
Mr. Coleman will be named Chief Operating Officer of the Company and Mr. Hermanns will be named Chief Executive Officer of the
Company. At the closing of the Merger, the Company and Mr. Hermanns will enter into an employment agreement which will be effective
upon the closing of the Merger. Under the proposed employment agreement terms, Mr. Hermanns will receive, among other things, an
annual base salary of $360,000, a $240,000 cash bonus for the fiscal year ending December 27, 2019, certain other cash bonus opportunities
as well as equity-based compensation to be negotiated among the parties.
Board of Directors Post-Merger
Upon closing of the Merger, the Company’s
Board will be comprised of seven members, of whom four members will be designees of Hire Quest and three members will be the Company
Directors. See the Section entitled “New Directors of the Company Post Merger” below. In addition, the Merger Agreement
provides that, of the Company Directors, one will remain on the Board until the 2022 annual meeting of shareholders, the second
will remain on the Board until the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual
meeting of shareholders.
Because the Company currently has seven
directors and the Board has not at the present time made a determination regarding who will resign from the Board and which three
directors will remain as the Company Directors, each current director of the Company has delivered a conditional letter of resignation
from the Board, to be effective as of the Effective Time, which resignation may otherwise be rejected by the Board as determined
in its discretion.
New Directors of the Company Post-Merger
Richard Hermanns
(55) is a director designee and President and Chief Executive Officer, as well as a member, of Hire Quest Holdings, LLC.
Mr. Hermanns has nearly thirty years of experience in the temporary staffing industry. He has served as Chief Executive Officer
and Secretary of Hire Quest, LLC since the Company’s founding in 2002. He served in the same capacities for predecessor
entities since July 1991. He is also Chairman of the Board of Directors and President of Hirequest Insurance Company and has been
since its founding in 2010. He has been Chief Executive Officer of Hire Quest Financial, LLC since its founding in 2006. Together
with Edward Jackson, Mr. Hermanns owns a majority stake in Bass Underwriters, Inc., a large managing general insurance agent.
Prior to founding Hire Quest and its related entities, Mr. Hermanns served as Chief Financial Officer of Outsource International,
and as an Assistant Vice President for NCNB National Bank (now Bank of America). Mr. Hermanns obtained his Bachelor of Science
degree in Economics and Finance from Barry University, and his Masters of Business Administration in Finance from the University
of Southern California. Mr. Hermanns is also active in the charitable realm. Among his charitable pursuits, he founded the Higher
Quest Foundation, a non-profit organization dedicated to fighting global hunger in a more sustainable way.
Edward Jackson
(54) is a
director designee and a member of Hire Quest Holdings, LLC. Mr. Jackson has more than 35 years of experience in the insurance
industry. He is currently the President of Bass Underwriters, Inc., a large managing general insurance agent (“Bass”),
in which he and Mr. Hermanns own a majority stake. In his capacity as President of Bass he oversees all management operations,
marketing strategies, underwriting reviews, and claims procedures. He also has diverse business holdings in industries other than
insurance. He is a member of and consultant to Hire Quest Holdings, LLC and its related family of companies, he owns and is President
of one of the largest Haagen Dazs franchise stores in North America, and he founded a company that provides inspection services
for insurance carriers nationwide. He holds a Bachelor of Science degree in Risk Management and Insurance from Florida State University.
He holds insurance licenses in General Lines (Property & Casualty), and Surplus Lines, Health, and Life.
Payne Browne
(56) is a director
designee of Hire Quest. Mr. Brown currently serves as the President of THINK450, a for-profit innovation engine of the National
Basketball Players Association. In this role, he is charged with creating disruptive and substantive business relationships for
the most marketable athletes on the planet. THINK450 represents every current NBA player and works with leading companies and brands
across all industries to help its members capitalize on growth opportunities in the areas of content, marketing, technology, and
licensing. Prior to becoming President of THINK450, Mr. Brown was the Managing Partner of Econet Media Partners, a licensor of
sports content and production investor in video content in Sub-Saharan Africa. He has also served as Managing Director of Highbridge
Principal Strategies, an alternative investment management organization founded in 1992, with a diversified investment platform
including hedge funds, traditional investment management products, and credit and equity investments with longer-term holding periods.
Mr. Brown serves on the Board of Directors of REVOLT TV, a multimedia platform founded by Sean “Diddy” Combs. He has
been the Chief of Staff to Dick Parsons during his time as interim CEO of the Los Angeles Clippers. Mr. Brown has also been a Vice
President of Strategic Initiatives and a corporate officer at Comcast Corporation. He has served on numerous boards including the
Philadelphia Urban League, Project Home, and the Board of Advisors for the Philadelphia chapter of the National Association for
Multi-Ethnicity in Communications. He has been named among CAbleFax Magazine’s “Most Influential Minorities in Cable,”
Ebony Magazine’s “Power 100,” and Uptown Professional Magazine’s “100 Top Executives in America.”
Mr. Brown received a
Juris Doctor
degree from George Washington University and his Bachelor of Science degree in Management
from Purdue University.
Kathleen Shanahan
(60) is Co-Chief Executive Officer of Turtle & Hughes, Inc. Established in 1923, Turtle & Hughes ranks among the nation’s
top twenty electrical distribution companies serving the industrial, construction, commercial, electrical contracting, export,
and utility industries. Turtle & Hughes operates in the United States, Canada, Mexico, and Puerto Rico and is a certified women-owned
business. Ms. Shanahan is currently Chair, and was previously Chair and Chief Executive Officer, of Ground Works Solutions, formerly
URETEK Holdings, Inc., a corporation focused on soil stabilization and densification through a patented polymer-based application
process. She has also been the CEO and Chairman of WRSCompass, an environmental engineering and contracting company with a national
footprint. She served as Chief of Staff for Florida Governor Jeb Bush, Chief of Staff for Vice President-elect Dick Cheney, Deputy
Secretary of the California Trade and Commerce Agency for Governor Wilson, Special Assistant to then Vice President George H. W.
Bush, and Staff Assistant to President Ronald Reagan’s National Security Council. Ms. Shanahan currently serves and has served
in the past on several other boards of public and private corporations as well as government and civic organizations. She currently
serves on the board of Great Lakes Dredge & Dock Corporation
.
She received her undergraduate degree in Nutrition and
Biochemistry from the University of California, San Diego, Revelle College, and her Masters in Business Administration from New
York University.
The Company expects its Board to determine
that Payne Browne and Kathleen Shanahan, once appointed, will be independent directors in accordance with the NASDAQ listing rules.
Ownership of the Company Pre- and Post-Merger
The following table sets forth the number
of shares of the Company’s voting stock beneficially owned as of the record date, pre- and post-Merger as well as following
the closing of the Offer by (i) those persons known by the Company to be beneficial owners of more than 5% of the Company’s
voting stock, (ii) each director (including the Hire Quest designees who will become the Company’s directors upon the closing
of the Merger), (iii) each of our Named Executive Officers, and (iv) all executive officers and directors as a group. Unless otherwise
specified in the notes to this table, the address for each person is: c/o Command Center, Inc., 3609 S. Wadsworth Blvd., Suite
250, Lakewood, Colorado 80235.
Name and Address of Beneficial Owner
|
|
Amount of beneficial ownership prior to Merger (1)
|
|
Percent beneficially owned prior to Merger (1)
|
|
Amount of beneficial ownership Post-Merger (1)
|
|
Percent beneficially owned Post-Merger (1)
|
|
Percent beneficially owned Post-Offer (1) (2)
|
Jerry Smith (3)
|
|
|
479,725
|
|
|
|
10.4
|
%
|
|
|
479,725
|
|
|
|
3.3
|
%
|
|
|
3.7
|
%
|
Barbara Rydesky (4)
|
|
|
555,253
|
|
|
|
12.0
|
%
|
|
|
555,253
|
|
|
|
3.8
|
%
|
|
|
4.3
|
%
|
Ephraim Fields (5)
|
|
|
340,782
|
|
|
|
7.4
|
%
|
|
|
340,782
|
|
|
|
2.4
|
%
|
|
|
2.6
|
%
|
Richard K. Coleman, Jr. (6)
|
|
|
57,143
|
|
|
|
1.2
|
%
|
|
|
100,000
|
|
|
|
*
|
|
|
|
*
|
|
Brendan Simaytis (7)
|
|
|
17,958
|
|
|
|
*
|
|
|
|
17,958
|
|
|
|
*
|
|
|
|
*
|
|
Cory Smith (8)
|
|
|
3,333
|
|
|
|
*
|
|
|
|
3,333
|
|
|
|
*
|
|
|
|
*
|
|
JD Smith (9)
|
|
|
42,274
|
|
|
|
*
|
|
|
|
42,274
|
|
|
|
*
|
|
|
|
*
|
|
Steven P. Oman (10)
|
|
|
8,442
|
|
|
|
*
|
|
|
|
8,442
|
|
|
|
*
|
|
|
|
*
|
|
R. Rimmy Malhotra (11)
|
|
|
140,510
|
|
|
|
3.0
|
%
|
|
|
140,510
|
|
|
|
1.0
|
%
|
|
|
1.1
|
%
|
Steven Bathgate (12)
|
|
|
114,445
|
|
|
|
2.5
|
%
|
|
|
114,445
|
|
|
|
*
|
|
|
|
*
|
|
Galen Vetter (13)
|
|
|
10,581
|
|
|
|
*
|
|
|
|
10,581
|
|
|
|
*
|
|
|
|
*
|
|
Lawrence F. Hagenbuch (14)
|
|
|
10,303
|
|
|
|
*
|
|
|
|
10,303
|
|
|
|
*
|
|
|
|
*
|
|
All Officers and Directors as a group (nine persons)
|
|
|
404,989
|
|
|
|
8.7
|
%
|
|
|
447,846
|
|
|
|
3.1
|
%
|
|
|
3.5
|
%
|
Frederick Sandford (15)
|
|
|
16,250
|
|
|
|
*
|
|
|
|
16,250
|
|
|
|
*
|
|
|
|
*
|
|
Richard Hermmans(16)
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
[5,647,020]
|
|
|
|
39.0
|
%
|
|
|
43.6
|
%
|
Edward Jackson(17)
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
[2,456,774]
|
|
|
|
17.0
|
%
|
|
|
18.9
|
%
|
Payne Browne(18)
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Kathleen Shanahan(19)
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
—
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
* Less than 1%
|
(1)
|
Applicable percentages, as well as amounts for Messrs. Hermanns and Jackson, are based
on [
4,629,331]
shares of Common Stock outstanding pre-Merger and 14,466,659
shares of Common Stock outstanding post-Merger, adjusted as required by rules of the SEC. Beneficial ownership is calculated
in accordance with Rule 13d-3(d)(1) of the Exchange Act, and includes shares held outright, shares held by entity(s) controlled
by NEOs and/or directors, and shares issuable upon exercise of options or warrants which are exercisable on or within 60 days of
[●], 2019. See also footnote (16).
|
|
(2)
|
Assumes that the Company repurchased all 1,500,000 shares of Common Stock in the Offer and that none of the Company’s
directors, 5% holders and executive officers tendered shares in the Offer.
|
|
(3)
|
The number of shares comprising Mr. Smith’s beneficial ownership is based upon the written representations of his legal
counsel.
|
|
(4)
|
The number of shares comprising Mrs. Rydesky’s beneficial ownership is based upon the written representations of Barbara
Rydesky. Mrs. Rydesky’s address is: 3238 Pine Lake Road, Orchard Lake, Michigan 48234.
|
|
(5)
|
The number of shares comprising Mr. Fields' beneficial ownership, over which Mr. Fields has sole
voting and sole dipositive power, is based upon the Schedule 13G/A filed by Ephraim Fields on February 11, 2019. Mr. Fields' address
is: care of Echo Lake Capital, 501 Madison Avenue, Floor 12A, New York, New York 10022.
|
|
(6)
|
Mr. Coleman is an executive officer. Consists of options to purchase shares.
|
|
(7)
|
Mr. Simaytis is an executive officer. Includes 6,500 shares held outright and options to purchase
11,458 shares.
|
|
(8)
|
Mr. Smith is an executive officer. Includes 1,250 shares held outright and options to purchase
2,083 shares.
|
|
(9)
|
Mr. Smith is a director and the Co-Chairman of the Board. Includes 30,191 shares held outright
and options to purchase 12,083 shares.
|
|
(10)
|
Mr. Oman is a director. Shares held outright.
|
|
(11)
|
Mr. Malhotra is a director and the Co-Chairman of the Board. Includes 12,191 shares held outright,
123,944 shares held indirectly through the Nicoya Fund and a managed account, and options to purchase 4,375 shares. The shares
held by the Nicoya Fund are directly owned by the Nicoya Fund LLC, a Delaware limited liability company. This reporting person
is the managing member and a co-owner of Nicoya Capital LLC, which is the managing member and owner of the Nicoya Fund.
|
|
(12)
|
Mr. Bathgate is a director. Includes 27,155 shares held outright, 82,915 shares held indirectly,
including 66,666 by Mr. Bathgate’s spouse, 7,916 by the Bathgate Family Partnership and 8,333 by Viva Co., LLC, and options
to purchase 4,375 shares.
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|
(13)
|
Mr. Vetter is a director. Includes 8,303 shares held outright and 2,278 shares held indirectly
by Vetter Community Resources, LLC.
|
|
(14)
|
Mr. Hagenbuch is a director. Shares held outright.
|
|
(15)
|
Shares held outright.
|
|
(16)
|
Mr. Hermanns is a Hire Quest director designee. Not reflected in the table as being beneficially
owned by Mr. Hermanns are 1,095,901 shares with respect to which Mr. Hermanns, John McAnnar and Hire Quest may be deemed to share
voting power pursuant to the Voting Agreements and irrevocable proxies executed by the directors, officers and certain beneficial
owners of more than 5% of the Company’s voting stock on April 8, 2019.
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|
(17)
|
Mr. Jackson is a Hire Quest director designee.
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|
(18)
|
Mr. Browne is a Hire Quest director designee.
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|
(19)
|
Ms. Shanahan is a Hire Quest director designee.
|
Effect of Merger on Shares Held by Certain
Hire Quest Affiliates
The following table shows the effect of
the Merger on the amount and percentage of Hire Quest securities owned by each current Hire Quest director (of which there are
none), each Hire Quest director designee and each person who will be the beneficial owner of more than 5% of Hire Quest’s
securities immediately prior to the closing of the Merger.
Name and Address of Beneficial Owner
|
|
Percent of Membership Interest in Hire Quest Holdings, LLC Beneficially
Owned Prior
To Merger
|
|
Percent of Membership Interest in Hire Quest Holdings, LLC Beneficially
Owned Post- Merger
|
Richard Hermanns*
|
|
|
57.40
|
%
|
|
|
—
|
|
Edward Jackson*
|
|
|
24.97
|
%
|
|
|
—
|
|
Paul Kroncke
|
|
|
5.32
|
%
|
|
|
—
|
|
Payne Browne*
|
|
|
—
|
|
|
|
—
|
|
Kathleen Shanahan*
|
|
|
—
|
|
|
|
—
|
|
*Hire Quest Director Designee
Employment Agreement
with the Company
In connection with entering into the Merger
Agreement, the Company agreed to have Mr. Hermanns named Chief Executive Officer of the Company. At the closing of the Merger,
the Company and Mr. Hermanns will enter into an employment agreement which will be effective upon the closing of the Merger. Under
the proposed employment agreement terms, Mr. Hermanns will receive, among other things, an annual base salary of $360,000, a $240,000
cash bonus for the fiscal year ending December 27, 2019, certain other cash bonus opportunities as well as equity-based compensation
to be negotiated among the parties.
Hire Quest Transactions with Related
Party Franchisees
In 2018 and 2017, Hire Quest received royalty
payments from franchisees in which Hire Quest director designees and persons who will be the beneficial owner of more than 5% of
Hire Quest’s securities immediately prior to the closing of the Merger had an interest.
During the years ended December 31, 2018
and 2017, Hire Quest received approximately $5.9 million and $5.3 million, respectively, in franchise royalties from such franchisees.
Richard Hermanns and members of his immediate family have a combined 61.4% ownership interest in such franchisees. Edward Jackson
has a 26.7% ownership interest in such franchisees and Paul Kroncke has a 5.7% ownership interest in such franchisees.
THE MERGER AGREEMENT
The following section summarizes material
provisions of the Merger Agreement, which is included in this proxy statement as
Annex A
and is incorporated herein by reference
in its entirety. The summary does not purport to describe all of the terms of the Merger Agreement and is qualified in its entirety
by reference to the complete text of the Merger Agreement. The rights and obligations of the Company and Hire Quest are governed
by the express terms and conditions of the Merger Agreement and not by this summary or any other information contained in this
proxy statement. This summary may not contain all of the information about the Merger Agreement that is important to you. You should
read the Merger Agreement carefully and in its entirety as well as this proxy statement for details of the transaction and the
terms and conditions of the Merger Agreement.
The Merger Agreement is included in this
proxy statement to provide you with information regarding its terms and is not intended to provide any factual information about
the Company or Hire Quest. The Merger Agreement contains representations and warranties by each of the parties to the Merger Agreement.
These representations and warranties were made only for purposes of the Merger Agreement and solely for the benefit of the other
parties to the Merger Agreement and may be subject to limitations agreed upon by the parties, including:
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·
|
that such representations and warranties may not be intended to establish matters as facts, but rather for the purpose of allocating
the risk between the parties in the event the statements therein prove to be inaccurate;
|
|
·
|
that such representations and warranties may be qualified by certain disclosures that were made between the parties in connection
with the negotiation of the Merger Agreement, which disclosures are not reflected in the Merger Agreement itself;
|
|
·
|
that information concerning the subject matter of such representations and warranties may have changed after the date of the
Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company; and
|
|
·
|
that such representations and warranties may apply standards of materiality in a way that is different from what may be viewed
as material by you or other investors.
|
Accordingly, you should not rely on the
representations, warranties, and covenants or any description thereof as characterizations of the actual state of facts or condition
of the Company or Hire Quest or their respective businesses. The representations and warranties and other provisions of the Merger
Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement
and in the documents incorporated by reference into this proxy statement. See “Where You Can Find More Information”
beginning on page 137.
General
Pursuant to the Merger Agreement, and subject
to its terms and conditions, (i) Merger Sub 1 will be merged with and into Hire Quest in the First Merger, with Hire Quest being
the First Surviving Company, and (ii) immediately following the First Merger, the First Surviving Company will be merged with and
into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the Surviving Company. [The Surviving Company will change its name
to [●]] and will succeed to and assume all the rights and obligations of Hire Quest. Hire Quest security holders will receive
the consideration described below. The closing of the Merger will follow the satisfaction or waiver (if permitted) of all of the
conditions to closing specified in the Merger Agreement. The First Merger will become effective as of the date and time specified
in the certificate of merger filed by the parties with the Secretary of State of the State of Florida (the “First Merger
Certificate”) or such other date and time the parties agree in writing. The Second Merger will become effective as of the
date and time specified in the certificate of merger filed by the parties with the Secretary of State of the State of Florida (the
“Second Merger Certificate”) or such other date and time the parties agree in writing. The filing of the First Merger
Certificate and the Second Merger Certificate will occur on the closing date of the Merger or as soon as practicable thereafter.
Merger Consideration
The Merger Consideration will be paid pro
rata to the holders of Hire Quest’s membership interests.
Payment and Exchange Procedures
At or prior to the effective time of the
Merger, the Company will enter into an agreement with a bank or trust company to act as the exchange agent in connection with the
payment of the Merger Consideration by the Company to Hire Quest security holders. In addition, at or prior to the effective time
of the Merger, the Company will deposit with the exchange agent the number of shares of the Company’s Common Stock to be
distributed to Hire Quest security holders as of the closing.
Promptly after the effective time of the
First Merger, the Company shall send to each record holder of Hire Quest’s securities a letter of transmittal and instructions
(which letter of transmittal will be in customary form and have such provisions as the Company may reasonably specify) for use
in effecting the surrender of Hire Quest securities in exchange for the applicable number of shares of the Company’s Common
Stock. Promptly following its receipt of an executed letter of transmittal from a Hire Quest security holder and any other documents
reasonably requested by the Company and set forth in the letter of transmittal, the Company shall deliver to such Hire Quest security
holder Company certificates (or confirmation of direct registration) evidencing that number of shares of the Company’s Common
Stock issuable to such Hire Quest security holder. The exchange agent is entitled to deduct and withhold from the Merger Consideration
otherwise payable to each Hire Quest security holder all amounts as may be required to be deducted or withheld therefrom under
applicable tax laws or pursuant to any other applicable legal requirement.
Representations and Warranties
The Merger Agreement contains customary
representations and warranties made by Hire Quest to the Company and representations and warranties made by the Company, Merger
Sub 1 and Merger Sub 2 to Hire Quest. In many cases, the representations and warranties are generally reciprocal, and many of them
are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential
disclosure schedules exchanged between the parties. Specifically, the representations and warranties of each of the Company and
Hire Quest relate to the following subject matters, among other things:
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·
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Organization, standing and power and authority;
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·
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Capital structure and ownership of subsidiaries;
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|
·
|
Required regulatory filings and consents and approvals of governmental entities;
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·
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Board approval and recommendation of the Merger Agreement and execution of the Voting Agreements;
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|
·
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Compliance with applicable laws and permits;
|
|
·
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Financial statements and internal controls and disclosure controls and procedures;
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|
·
|
Absence of undisclosed liabilities;
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|
·
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Absence of certain changes and events since December 31, 2018;
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·
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Absence of discussions or negotiations;
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·
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Outstanding contracts and commitments;
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·
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Labor matters and employee benefit plans;
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·
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Intellectual property rights;
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·
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Related person transactions;
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·
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Real property and environmental matters.
|
In addition, the Company has made representations
and warranties regarding, among other things:
|
·
|
Receipt of a fairness opinion.
|
All representations and warranties of the
parties expire and will be of no further force or effect after the effective time of the Merger.
Material Adverse Effect
Several of the representations, warranties,
covenants, closing conditions and termination provisions contained in the Merger Agreement refer to the concept of a “Material
Adverse Effect.” In some cases, that concept applies to the Company (which is referred to in the Merger Agreement as a “Parent
Material Adverse Effect”), and in other cases, that concept applies to Hire Quest (which is referred to in the Merger Agreement
as a “Company Material Adverse Effect”).
For purposes of the Merger Agreement, a
“Parent Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or would reasonably
be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, financial
condition, or assets of the Company and its subsidiaries, taken as a whole; or (b) the ability of the Company to consummate the
transactions contemplated by the Merger Agreement or the Voting Agreements on a timely basis; provided, however, that, for the
purposes of clause (a), a Parent Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions
or changes arising out of, relating to or resulting from: (i) changes generally affecting the economy, financial, or securities
markets; (ii) the announcement of the transactions contemplated by the Merger Agreement; (iii) any outbreak or escalation of war
or any act of terrorism; or (iv) general conditions in the industry in which the Company and its subsidiaries operate; provided
further, however, that any event, change, and effect referred to in clauses (i), (iii), or (iv) immediately above shall be taken
into account in determining whether a Parent Material Adverse Effect has occurred or would reasonably be expected to occur to
the extent that such event, change, or effect has a disproportionate effect on the Company and its subsidiaries, taken as a whole,
compared to other participants in the industries in which the Company and its subsidiaries conduct their businesses.
For the purposes of the Merger Agreement,
a “Company Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or would reasonably
be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, financial
condition, or assets of Hire Quest and its subsidiaries, taken as a whole; or (b) the ability of Hire Quest to consummate the transactions
contemplated by the Merger Agreement on a timely basis; provided, however, that, for the purposes of clause (a), a Company Material
Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or
resulting from: (i) changes generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions
contemplated by the Merger Agreement; (iii) any outbreak or escalation of war or any act of terrorism; or (iv) general conditions
in the industry in which Hire Quest and its subsidiaries operate; provided further, however, that any event, change, and effect
referred to in clauses (i), (iii), or (iv) immediately above shall be taken into account in determining whether a Company Material
Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate
effect on Hire Quest and its subsidiaries, taken as a whole, compared to other participants in the industries in which Hire Quest
and its subsidiaries conduct their businesses.
Conduct of Business Prior to the Effective
Time of the Merger
Each of the Company and Hire Quest has agreed
to certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and
the effective time of the Merger. In general, each of the Company and Hire Quest has agreed to: (i) conduct its business in the
ordinary course of business consistent with past practice, (ii) use its reasonable best efforts to preserve substantially intact
its and its subsidiaries’ business organization, (iii) keep available the services of its and its subsidiaries’ current
officers and employees, and (iv) preserve its and its subsidiaries’ present relationships with customers, suppliers, distributors,
licensors, licensees, and other persons having business relationships with it.
In addition, the Company and Hire Quest
have agreed to specific restrictions relating to the conduct of their businesses between the date of the Merger Agreement and the
effective time of the Merger, including, but not limited to, refraining from the following actions (subject, in each case, to exceptions
specified below and in the Merger Agreement):
|
·
|
amend or propose to amend its organizational documents, except as disclosed in this proxy statement;
|
|
·
|
split, combine, or reclassify any of its or its subsidiaries’ securities;
|
|
·
|
repurchase, redeem, or otherwise acquire, or offer to repurchase, redeem, or otherwise acquire, any of its or its subsidiaries’
securities;
|
|
·
|
declare, set aside, or pay any dividend or distribution (whether in cash, stock, property, or otherwise) in respect of, or
enter into any contract with respect to the voting of, any shares of its capital stock (other than dividends from its direct or
indirect wholly-owned subsidiaries);
|
|
·
|
issue, sell, pledge, dispose of, or encumber any of its or its subsidiaries’ securities;
|
|
·
|
except as required by applicable law or by any employee plan or contract in effect as of the date of the Merger Agreement (i)
increase the compensation payable or that could become payable by it or any of its subsidiaries to directors, officers, or employees,
other than increases in compensation made to non-officer employees in the ordinary course of business consistent with past practice,
(ii) promote any officers or employees, except in connection with its annual or quarterly compensation review cycle or as the result
of the termination or resignation of any officer or employee, or (iii) establish, adopt, enter into, amend, terminate, exercise
any discretion under, or take any action to accelerate rights under any employee plans or any plan, agreement, program, policy,
trust, fund, or other arrangement that would be an employee plan if it were in existence as of the date of the Merger Agreement,
or make any contribution to any employee plan, other than contributions required by law, the terms of such employee plans as in
effect on the date of the Merger Agreement, or that are made in the ordinary course of business consistent with past practice;
|
|
·
|
acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or person or division thereof
or make any loans, advances, or capital contributions to or investments in any person;
|
|
·
|
transfer, license, sell, lease, or otherwise dispose of (whether by way of merger, consolidation, sale of stock or assets,
or otherwise) or pledge, encumber, or otherwise subject to any lien (other than a Permitted Lien, as defined in the Merger Agreement),
any assets, including the capital stock or other equity interests in any subsidiary or any of its real estate;
|
|
·
|
adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;
|
|
·
|
repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue
or sell any debt securities or options, warrants, calls, or other rights to acquire any of its or its subsidiaries’ debt
securities, guarantee any debt securities of another person, enter into any “keep well” or other contract to maintain
any financial statement condition of any other person (other than any wholly-owned subsidiary of it) or enter into any arrangement
having the economic effect of any of the foregoing, other than in connection with the financing of ordinary course trade payables
consistent with past practice;
|
|
·
|
enter into or amend or modify in any material respect, or consent to the termination of (other than at its stated expiry date),
any material contract or any real estate lease or any other contract or lease that, if in effect as of the date hereof would constitute
a material contract or real estate lease;
|
|
·
|
institute, settle, or compromise any legal action involving the payment of monetary damages, other than (i) any legal action
brought against it arising out of its breach or alleged breach of the Merger Agreement, and (ii) the settlement of claims, liabilities,
or obligations reserved against on its balance sheet;
|
|
·
|
make any material change in any method of financial accounting principles or practices, in each case except for any such change
required by a change in generally accepted accounting principles or applicable law;
|
|
·
|
(i) settle or compromise any material tax claim, audit, or assessment for an amount materially in excess of the amount reserved
or accrued on its balance sheet, (ii) make or change any material tax election, change any annual tax accounting period, or adopt
or change any method of tax accounting, (iii) amend any material tax returns or file claims for material tax refunds, or (iv) enter
into any material closing agreement, surrender in writing any right to claim a material tax refund, offset or other reduction in
tax liability or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment;
|
|
·
|
enter into any material agreement, agreement in principle, letter of intent, memorandum of understanding, or similar contract
with respect to any joint venture, strategic partnership, or alliance;
|
|
·
|
take any action to exempt any person from, or make any acquisition of its securities by any person not subject to, any state
takeover statute or similar statute or regulation that applies to it with respect to a Takeover Proposal (as defined in the Merger
Agreement) or otherwise, except for the other party or any of its subsidiaries or affiliates, or the transactions contemplated
by the Merger Agreement;
|
|
·
|
abandon, allow to lapse, sell, assign, transfer, grant any security interest in otherwise encumber or dispose of any intellectual
property, or grant any right or license to any intellectual property other than pursuant to non-exclusive licenses entered into
in the ordinary course of business consistent with past practice;
|
|
·
|
terminate or modify in any material respect, or fail to exercise renewal rights with respect to, any material insurance policy;
or
|
|
·
|
agree or commit to do any of the foregoing.
|
No Solicitation
Subject to certain exceptions specified
in the Merger Agreement and summarized below, the Company has agreed that, from and after the date of the Merger Agreement, the
Company and its subsidiaries will not, nor will they authorize or permit any of their respective directors, officers, employees,
advisors, agents, and investment bankers to, directly or indirectly, solicit, initiate, or knowingly take any action to facilitate
or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to
any Takeover Proposal, or, subject to exceptions: (A) conduct or engage in any discussions or negotiations with, disclose any non-public
information relating to the Company or any of its subsidiaries to, afford access to the business, properties, assets, books, or
records of the Company or any of its subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort
by, any third party that is seeking to make, or has made, any Takeover Proposal; (B) except where the Company’s Board makes
a good faith determination, after consultation with outside legal counsel, that the failure to do so would be inconsistent with
its fiduciary duties, amend or grant any waiver or release under any standstill or similar agreement with respect to any class
of equity securities of the Company or any of its subsidiaries; or (C) enter into any agreement in principle, letter of intent,
term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other
contract relating to any Takeover Proposal (each, a “Parent Acquisition Agreement”). Except as expressly permitted
by the Merger Agreement, the Company’s Board shall not effect a Parent Adverse Recommendation Change. The Company was also
required to cease and cause to be terminated any and all existing activities, discussions, or negotiations, if any, with any third
party conducted prior to the date hereof with respect to any Takeover Proposal and shall use its reasonable best efforts to cause
any such third party (or its agents or advisors) in possession of non-public information in respect of the Company or any of its
subsidiaries that was furnished by or on behalf of the Company and its subsidiaries to return or destroy (and confirm destruction
of) all such information.
However, prior to the receipt of the approval
of the Company’s shareholders of the proposals contained in this proxy statement, the Company’s Board, directly or
indirectly through any of its representatives, may, subject to certain notice requirements: (A) participate in negotiations or
discussions with any third party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that the
Board believes in good faith, after consultation with outside legal counsel and D.A. Davidson, constitutes a Superior Proposal;
(B) thereafter furnish to such third party non-public information relating to the Company or any of its subsidiaries pursuant to
an executed confidentiality agreement; (C) following receipt of and on account of a Superior Proposal, make a Parent Adverse Recommendation
Change; and/or (D) take any action that any court of competent jurisdiction orders the Company to take (which order remains unstayed),
but in each case referred to in the foregoing clauses (A) through (D), only if the Board determines in good faith, after consultation
with outside legal counsel, that the failure to take such action would cause the Board to be in breach of its fiduciary duties
under applicable law.
Subject to certain exceptions specified
in the Merger Agreement and summarized below, Hire Quest has agreed that, from and after the date of the Merger Agreement, Hire
Quest and its subsidiaries will not, nor will they authorize or permit any of their respective directors, officers, employees,
advisors, agents, and investment bankers to, directly or indirectly solicit, initiate, or knowingly take any action to facilitate
or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to
any Takeover Proposal, or: (i) conduct or engage in any discussions or negotiations with, disclose any non-public information relating
to Hire Quest or any of its subsidiaries to, afford access to the business, properties, assets, books, or records of Hire Quest
or any of its subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party that
is seeking to make, or has made, any Takeover Proposal; (ii) amend or grant any waiver or release under any standstill or similar
agreement with respect to any class of equity securities of Hire Quest or any of its subsidiaries; or (iii) enter into any agreement
in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement,
partnership agreement, or other contract relating to any Takeover Proposal. Hire Quest was also required to cease and cause to
be terminated any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the
execution of the Merger Agreement with respect to any Takeover Proposal and to use its reasonable best efforts to cause any such
third party (or its agents or advisors) in possession of non-public information in respect of Hire Quest or any of its subsidiaries
that was furnished by or on behalf of Hire Quest and its subsidiaries to return or destroy (and confirm destruction of) all such
information.
In addition to the requirements above, the
Company is required to notify Hire Quest if any proposal is received that the Company believes could lead to a Takeover Proposal
and provide the material terms and conditions of such proposal. The Company is required to keep Hire Quest informed of the status
and details of any such proposal and of its intent to make a Parent Adverse Recommendation Change or enter into a Parent Acquisition
Agreement.
The key definitions used in the summary
above are as follows:
“
Parent Adverse Recommendation
Change
” means the Company’s Board: (a) failing to make, withdraw, amend, modify, or materially qualify, in
a manner adverse to Hire Quest, the Parent Board Recommendation; (b) failing to include the Parent Board Recommendation in the
proxy statement; (c) recommending a Takeover Proposal; (d) failing to recommend against acceptance of any third party tender offer
or exchange offer for the shares of the Company’s Common Stock within ten business days after the commencement of such offer;
(e) failing to reaffirm (publicly, if so requested by Hire Quest) the Parent Board Recommendation within ten business days after
the date any Takeover Proposal (or material modification thereto) is first publicly disclosed by the Company or the person making
such Takeover Proposal; (f) making any public statement inconsistent with the Parent Board Recommendation; or (g) resolving or
agreeing to take any of the foregoing actions.
“
Parent Board Recommendation
”
means the Company’s Board recommendation, by resolutions duly adopted by a vote at a meeting of all directors of the Company
duly called and held and not subsequently rescinded or modified in any way, that it has unanimously (i) determined that the Merger
Agreement and the transactions contemplated thereby, including the reincorporation of the Company in Delaware and the Merger, upon
the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, the Company and the Company’s
shareholders; (ii) approved and declared advisable the Merger Agreement, including the execution, delivery, and performance thereof,
and the consummation of the transactions contemplated by the Merger Agreement, including the reincorporation of the Company in
Delaware and the Merger, upon the terms and subject to the conditions set forth therein; (iii) directed that the Reincorporation
Proposal, the Charter Amendment Proposal, and the Nasdaq Proposal be submitted to a vote of the Company’s shareholders for
approval at the Annual Meeting; and (iv) resolved to recommend that the Company’s shareholders vote in favor of such approval.
“
Superior Proposal
”
means a bona fide written Takeover Proposal involving the direct or indirect acquisition pursuant to a tender offer (other than
the Offer), exchange offer, merger, consolidation, or other business combination, of all or substantially all of a party’s
consolidated assets or at least a majority of the outstanding equity interests of such party, that such party’s board of
managers or board of directors determines in good faith (after consultation with outside legal counsel and such party’s financial
advisor) is more favorable from a financial point of view to the holders of such party’s equity interests than the transactions
contemplated by the Merger Agreement, taking into account: (a) all financial considerations; (b) the identity of the third party
making such Takeover Proposal; (c) the anticipated timing, conditions (including any financing condition or the reliability of
any debt or equity funding commitments) and prospects for completion of such Takeover Proposal; (d) the other terms and conditions
of such Takeover Proposal and the implications thereof on such party, including relevant legal, regulatory, and other aspects of
such Takeover Proposal deemed relevant by such board (including any termination or break-up fees and conditions to consummation);
and (e) any revisions to the terms of the Merger Agreement and the Merger proposed by the other party during the Superior Proposal
Notice Period (as defined in the Merger Agreement).
“
Takeover Proposal
”
means an inquiry, proposal, or offer from, or indication of interest in making a proposal or offer by, any person or group (other
than the other party to the Merger Agreement and its subsidiaries), relating to any transaction or series of related transactions,
involving any: (a) direct or indirect acquisition of assets of a party or its subsidiaries (including any voting equity interests
of subsidiaries, but excluding sales of assets in the ordinary course of business) equal to 15% or more of the fair market value
of such party’s consolidated assets or to which 15% or more of such party’s net revenues or net income on a consolidated
basis are attributable; (b) direct or indirect acquisition of 15% or more of the voting equity interests of a party; (c) tender
offer (other than the Offer) or exchange offer that if consummated would result in any person or group (as defined in Section 13(d)
of the Exchange Act) beneficially owning (within the meaning of Section 13(d) of the Exchange Act) 15% or more of the voting power
of a party; (d) merger, consolidation, other business combination, or similar transaction involving a party or any of its subsidiaries,
pursuant to which such person or group (as defined in Section 13(d) of the Exchange Act) would own 15% or more of the consolidated
assets, net revenues, or net income of such party and its subsidiaries, taken as a whole; (e) reorganization, liquidation, dissolution
(or the adoption of a plan of liquidation or dissolution), or recapitalization or other significant corporate reorganization of
a party or one or more of its subsidiaries which, individually or in the aggregate, generate or constitute 15% or more of the consolidated
assets, net revenues, or net income of a party and its subsidiaries, taken as a whole; or (f) any combination of the foregoing;
in each case including any financing thereof.
Annual Meeting of Shareholders
Under the Merger Agreement, the Company
has agreed to call and hold a meeting of its shareholders for the purpose of voting on the approval of the increase in the number
of authorized shares of the Company’s Common Stock, change in the name of the Company to “HireQuest, Inc.”, issuance
of Common Stock pursuant to the Merger Agreement and related change of control transaction, the reincorporation of the Company
in Delaware, the election of the Company’s directors and the ratification of the selection of the Company’s independent
auditors, and to use its reasonable best efforts to solicit from its shareholders proxies in favor of such proposals. The Company
may adjourn or postpone the meeting to the extent necessary to obtain a quorum of its shareholders, to allow reasonable additional
time after the filing and mailing of any supplemental or amended disclosures to the proxy statement for compliance with applicable
legal requirements, or to allow reasonable additional time for the additional solicitation of votes in order to obtain the requisite
shareholder approval.
Change in Board Recommendation
If prior to the Annual Meeting, the Board
determines in good faith, after consultation with its financial and legal advisors, that any Takeover Proposal constitutes a Superior
Proposal and the Board determines in its good faith judgment, after receiving advice of its outside legal counsel, that failing
to take such action with respect to the Superior Proposal would constitute a breach of its fiduciary duties under applicable law,
the Board is not prohibited from withholding, withdrawing, amending or modifying its recommendation in favor of the issuance of
shares in connection with the Merger, provided, that (i) the Company promptly notifies Hire Quest, in writing, of its intention
to make a Parent Adverse Recommendation Change or enter into (or cause a subsidiary to enter into) a Parent Acquisition Agreement
with respect to a Superior Proposal, which notice shall state expressly that the Company received a Takeover Proposal that the
Board intends to declare a Superior Proposal and that the Board intends to effect a Parent Adverse Recommendation Change and/or
the Company intends to enter into a Parent Acquisition Agreement; (ii) the Company attaches to such notice the most current version
of the proposed agreement (which version shall be updated on a prompt basis) and the identity of the third party making such Superior
Proposal; and (iii) the Company shall negotiate with Hire Quest in good faith to make such adjustments in the terms and conditions
of the Merger Agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Hire Quest, in its discretion,
proposes to make such adjustments. In the event the Board determines in good faith to withhold, withdraw, amend or modify its recommendation
in favor of the issuance of shares in connection with the Merger, the Company may terminate the Merger Agreement and, pay any applicable
termination fees. The Company must provide Hire Quest with at least 48 hours prior notice of any meeting of the Company’s
Board at which the Board is reasonably expected to consider any Takeover Proposal.
Stock Exchange Listing
The Company has agreed that prior to the
effective time of the Merger it will cause the shares of the Company’s Common Stock issuable, and shares required to be reserved
for issuance, in connection with the Merger to be eligible for trading on NASDAQ, subject to any transfer restrictions imposed
under applicable law, including Rule 144 under the Securities Act.
Public Announcements
The Company and Hire Quest have each agreed
to consult with the other as to the form and substance of any press release or any public statement with respect to the Merger
or any of the other transactions in connection with the Merger prior to issuing any such press release or public statement, and
to refrain from issuing any such press release or public statement without the prior consent of the other party, except as may
be required by applicable law or the rules or regulations of any applicable United States securities exchange or other governmental
entity to which the relevant party is subject or submits, in which case the party required to make the release or announcement
shall use its reasonable best efforts to allow the other party reasonable time to comment on such release or announcement in advance
of such issuance.
Notification of Certain Events
The Company and Hire Quest have each agreed
to give the other prompt notice of (i) any notice or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions contemplated by the Merger Agreement; (ii) any notice or
other communication from any governmental entity in connection with the transactions contemplated by the Merger Agreement; (iii)
any legal actions commenced, or to such party’s knowledge, threatened, against the Company or any of its subsidiaries or
Hire Quest or any of its subsidiaries, as applicable, that are related to the Merger or the other transactions contemplated by
the Merger Agreement; and (iv) any event, change, or effect between the date of the Merger Agreement and the effective time of
the Merger which causes or is reasonably likely to cause the failure of certain closing conditions of each party to be satisfied.
Indemnification
Pursuant to the Merger Agreement, the Company
has agreed its certificate of incorporation and bylaws after the effective time of the Merger shall contain provisions with respect
to exculpation and indemnification that are, to the extent permitted by the laws of the State of Delaware in the event the Reincorporation
Proposal is approved or by the laws of the State of Washington in the event the Reincorporation Proposal is not approved, at least
as favorable as those contained in the certificate of incorporation and bylaws of the Company immediately prior to the effective
time of the Merger, which provisions will not be amended, repealed or otherwise modified for a period of six years after the effective
time of the Merger in any manner that would adversely affect the rights thereunder of indemnified parties unless such modification
is required by law.
Additionally, for six years after the effective
time of the Merger and to the fullest extent permitted under applicable law, the Company has agreed to indemnify, defend, and hold
harmless each indemnified party against all losses, claims, damages, liabilities, fees, expenses, judgments, and fines arising
in whole or in part out of actions or omissions in their capacity as such occurring at or prior to the effective time of the Merger
(including in connection with the transactions contemplated by the Merger Agreement), and shall reimburse each indemnified party
for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any
such losses, claims, damages, liabilities, fees, expenses, judgments, and fines as such expenses are incurred, subject to the Company’s
receipt of an undertaking by such indemnified party to repay such legal and other fees and expenses paid in advance if it is ultimately
determined in a final and non-appealable judgment of a court of competent jurisdiction that such indemnified party is not entitled
to be indemnified under applicable law; provided, however, that the Company will not be liable for any settlement effected without
the Company’s prior written consent (which consent shall not be unreasonably withheld, conditioned, or delayed).
The Company has also agreed to maintain
in effect for a period of six years after the effective time of the Merger the current policies of directors’ and officers’
liability insurance maintained by Hire Quest immediately prior to the effective time of the Merger (provided, that the Company
may substitute the foregoing policies with policies of at least the same coverage and amounts and containing terms and conditions
that are not less advantageous to the directors and officers of Hire Quest and its subsidiaries when compared to the insurance
maintained by Hire Quest as of the execution of the Merger Agreement); or obtain as of the effective time of the Merger “tail”
insurance policies with a claims period of six years from the effective time of the Merger with at least the same coverage and
amounts and containing terms and conditions that are not less advantageous to the directors, managers and officers of Hire Quest
and its subsidiaries, in each case with respect to claims arising out of or relating to events which occurred before or at the
effective time of the Merger (including in connection with the transactions contemplated by the Merger Agreement). In the event
the Company or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing
or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties
and assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns shall
assume all of the indemnification obligations.
Tax Treatment
Each of the Company, Merger Sub 1, Merger
Sub 2 and Hire Quest agreed to use its reasonable best efforts to cause the Merger to qualify as a reorganization within the meaning
of the Code.
Employee Matters
All non-temporary employees of the Company
and of Hire Quest immediately prior to the effective time of the Merger shall be, immediately after the effective time of the Merger,
employees of a subsidiary of the Company to be formed prior to the effective time of the Merger (the “Employer of Record”).
All temporary employees of the Company and of Hire Quest immediately prior to the effective time of the Merger shall be, immediately
after the effective time of the Merger, employees of Hire Quest, LLC or of such other entity as Hire Quest may request. In addition,
as of the closing of the Merger or immediately thereafter, the Company shall (i) cause the Employer of Record to enter into an
employment agreement with Richard Hermanns, (ii) use commercially reasonable efforts to amend the employment agreements of non-temporary
employees of the Company to change the employer from the Company to the Employer of Record, (iii) amend the employment agreements,
if any, of temporary employees of the Company to change the employer from the Company to Hire Quest, LLC or such other employer
of record as may be requested by Hire Quest, (iv) have ready to implement such new compensation structures and responsibilities
for “national accounts” sales persons as Hire Quest may request, (v) have ready to implement such workers compensation
and liability policies, unemployment rate successions and ACA compliant insurance as Hire Quest may request, and (vi) use commercially
reasonable efforts to enter, or cause the relevant entity to enter, into employment agreements with certain other Hire Quest employees.
In collaboration and consultation with the
Company, Hire Quest will establish benefit plans, reasonably acceptable to the Company, for all employees of the Employer of Record
and of Hire Quest, LLC, with such benefit plans to be effective commencing immediately following the closing date of the Merger.
To the extent requested by Hire Quest, the Company has agreed to cause all Hire Quest employees to be eligible to participate in
the Company’s employee benefit plans, including without limitation the Company’s 2016 Plan, consistent with the eligibility
criteria applied by the Company to other employees of the Company, and Hire Quest’s employees shall receive full credit for
prior years of service with Hire Quest and shall not be subject to any preexisting conditions exclusions or limitations and shall
receive parity with the Company’s employees with respect to eligibility to participate in all Company employee benefit plans
to the extent permitted under the Company’s employee benefit plans.
Reincorporation in Delaware
The Company has agreed to use its commercially
reasonable efforts to obtain approval of its shareholders for, and upon receipt of such approval to promptly take all necessary
steps to cause, the Company to be reincorporated in the State of Delaware. One of the proposals included for shareholder action
in this proxy statement seeks shareholder approval of the reincorporation.
Pre-Closing Reorganization & Dock
Square Agreement
Dock Square HQ, LLC (“Dock Square”),
an affiliate of Dock Square Capital, LLC, is currently a strategic partner of, and 6.5% investor in, Hire Quest, LLC. Pursuant
to the terms of the Merger Agreement, Hire Quest and its subsidiary, Hire Quest, LLC, will cause the Pre-Closing Reorganization
to be completed no later than two days prior to the closing date of the Merger. For purposes of this proxy statement,
“Pre-Closing Reorganization” means (a) Dock Square’s distribution to its direct or indirect members of all of
its rights, title and interest in and to its membership interest in Hire Quest, LLC, followed by (b) each such members’ contribution
to Hire Quest of all of its respective rights, title and interest in and to its membership interest in Hire Quest, LLC as a capital
contribution in exchange for, in the aggregate, a 6.5% membership interest in Hire Quest. Immediately after the Pre-Closing
Reorganization and prior to the closing of the Merger, Hire Quest will own 100% of the membership interest in Hire Quest, LLC.
The Merger Agreement also contemplates that
the Company will enter, upon closing of the Merger, into a consulting arrangement with Dock Square. Pursuant to this consulting
arrangement, Dock Square would introduce prospective customers and expand relationships with existing customers of the Company in
return for which it would be eligible to receive unregistered shares of the Company’s Common Stock, subject to certain performance
metrics and vesting terms. The grant of any such shares by the Company would be based on the Company’s gross revenue generated
from the services of Dock Square as measured over a 12 month period. Upon the grant of any such shares, 50% of such granted shares
would vest immediately, and the remaining 50% of such granted shares would be subject to a vesting requirement linked to the Company’s
gross revenue generated from the services of Dock Square measured over a 3 year period. We refer to any such shares as the “Performance
Shares.” We anticipate the maximum number of Performance Shares issuable under the consulting arrangement would
not exceed 1,612,981, which assumes (i) the total outstanding shares of the Company’s Common Stock immediately after closing
the Merger is 14,466,659, and (ii) 1,500,000 shares of the Company’s Common Stock will subsequently be tendered in the Offer.
Any Performance Shares would be in addition to the pro rata portion of the shares of Company Common Stock that Dock Square would
receive as merger consideration at closing of the Merger along with the other investors in Hire Quest. Dock Square would
receive any declared and paid dividends on issued Performance Shares (including the unvested portion of such shares during the
3-year vesting measurement period), and the issued but unvested Performance Shares would vest on a change of control of the Company.
In addition, Dock Square would receive piggy-back registration rights with respect to its Performance Shares issued and vested
at the time of such registration.
The Offer
The Company has agreed that, provided that
the Merger Agreement shall not have been terminated, concurrently with the filing of the proxy statement or thereafter, the Company
shall commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer. It is contemplated that the completion of the
Offer shall occur immediately following the effective time of the Merger, or as otherwise required by SEC comments or applicable
law. Pursuant to the terms of the Merger Agreement, the Company expressly reserves the right, in its sole discretion, to
modify any of the terms or conditions of the Offer, including, without limitation, extending the expiration date of the Offer;
provided, however, that (a) the Company shall not modify the Offer price or the number of shares of Common Stock included in the
Offer without the prior written consent of Hire Quest and (b) the Company shall not make any other modification of the terms or
conditions of the Offer without first providing a reasonable opportunity for Hire Quest to review and comment on any such proposed
modification, but the Company shall be permitted to make any changes reasonably necessary to comply with SEC comments or applicable
law. In addition, the parties hereto agree that Hire Quest shall cause its members (other than the members of Dock Square who will
become members of Hire Quest as a result of the Pre-Closing Reorganization), and shall take reasonable best efforts to cause the
members of Dock Square who will become members of Hire Quest as a result of the Pre-Closing Reorganization, not to tender in the
Offer any shares of the Company’s Common Stock received as Merger Consideration. The Offer shall be completed pursuant
to its terms, and any decisions regarding the Offer following the effective time of the Merger shall require the consent of a majority
of the Company Directors, in addition to any other consents required. If the Offer is not commenced prior to the effective time
of the Merger, then all decisions regarding timing of the Offer shall be made by the Company Directors and the Offer shall proceed
on the terms described herein subject to any changes that may be approved by the Company Directors.
Pre-Closing Balance Sheet Adjustment
As of the effective time of the Merger,
Hire Quest’s Net Tangible Assets shall equal at least the Target Net Tangible Assets. The parties have agreed that, prior
to the effective time of the Merger, Hire Quest may make such adjustments to its balance sheet line items, and such related transfers
of assets and liabilities (including without limitation transfers to related parties), as it may deem necessary to ensure that
Net Tangible Assets at the effective time of the Merger equal Target Net Tangible Assets (collectively, the “Pre-Closing
Balance Sheet Adjustment”). Such adjustments and transfers may include without limitation the monetization of Hire Quest’s
accounts receivable, the repayment of debt to related parties, the transfer to Hire Quest security holders of any work opportunity
tax credits certified and earned prior to the closing of the Merger and the reimbursement of related parties for the pro rata portion
of pre-paid workers’ compensation insurance covering Hire Quest from and after the effective time of the Merger.
The key terms used in the summary above
are defined as follows:
“
Estimated Section 481 Adjustment
Liability
” means the estimated amount of corporate income tax required to be paid by the Company or the Surviving
Company by reason of the required inclusion in income under Section 481 of the Code (if any) arising from Hire Quest’s change
in method of accounting from the cash method to the accrual method after the closing of the Merger by reason of the Merger, which
shall be computed by Hire Quest as of the end of the month preceding the month that includes the closing date by multiplying (a)
the total estimated amount to be included in taxable income by reason of such adjustment under Section 481 of the Code (determined
as of such date on a pro-forma basis assuming that the Merger closed on such date and, prior to such closing, Hire Quest engaged
in the Pre-Closing Balance Sheet Adjustment to cause Net Tangible Assets to equal Target Net Tangible Assets), by (b) the effective
income tax rate applicable to such income as if Hire Quest was a “C corporation” (taking into account federal and applicable
state and local income taxes determined using Hire Quest’s most recent state apportionment, and the deductibility of state
and local income taxes for federal income tax purposes).
“
Net Tangible Assets
”
means, as of any relevant date, the amount calculated by subtracting all liabilities and all intangible assets of Hire Quest as
of such date from Hire Quest’s total assets as of such date, in each case determined in accordance with U.S. GAAP; provided,
that (a) no purchase accounting adjustments arising out of the transactions contemplated by the Merger Agreement shall be made,
(b) the Estimated Section 481 Adjustment Liability shall be treated as a liability of Hire Quest and (c) the value of Hire Quest’s
owned real estate shall be its fair market value, as determined on the basis of an appraisal, and not its book value.
“
Target Net Tangible Assets
”
means Fourteen Million Dollars ($14,000,000).
Covered Claim Indemnification
The Company has agreed to use reasonable
best efforts to secure insurance coverage for a Covered Claim (as defined in the Company’s disclosure letter to the Merger
Agreement). From and after the closing of the Merger, the Company shall pay to Richard Hermanns as the Member Representative for
the benefit of Hire Quest’s security holders, the following amounts: (i) the excess of any uninsured losses from a Covered
Claim (excluding any deductible amount paid by the Company) (ii) multiplied by sixty-eight percent (68%) (the “Indemnification
Amount”). The Indemnification Amount shall be paid to the Member Representative, for the benefit of Hire Quest’s security
holders, in cash, except that the Indemnification Amount (or a portion thereof) shall be paid in additional shares of the Company’s
Common Stock if and to the extent necessary to ensure that the Merger qualifies as a “reorganization” within the meaning
of Section 368(a) of the Code.
Franchise Purchase Agreement
Pursuant to the terms of the Merger Agreement,
the Company will use reasonable best efforts to enter into one or more agreements with existing franchisees of Hire Quest (collectively,
the “Franchisees”) pursuant to which the Company would sell to the Franchisees, and the Franchisees would purchase
from the Company, immediately following the closing of the Merger, location-specific assets at the Company’s offices located
in certain specified locations, in the case of each such specified location for a purchase price to be mutually agreed upon among
the parties in good faith, with the parties agreeing that such purchase price may be paid in such form as determined in the reasonable
discretion of the Franchisees.
Pre-Closing Transition
The parties agreed that, commencing immediately
following the execution of the Merger Agreement, Hire Quest will, in close collaboration and consultation with the Company;
(a) prepare for the conversion of as many
of the Company’s offices as practicable to franchises, including without limitation the preparation, negotiation and execution
of purchase and sale agreements in connection therewith, with such conversion to be completed immediately following the closing
of the Merger;
(b) prepare for the transition by the Company
from its current “Labor Commander” software, which shall remain in use by the Company prior to the closing of the Merger,
to the software in use by Hire Quest on the date hereof, with such transition to be effected immediately following the closing
of the Merger, or as soon as possible thereafter; and
(c) prepare for the transfer of the Company’s
California operations to a new, separate legal entity, to be effective immediately following the closing of the Merger, or as soon
as possible thereafter.
Pursuant to the Merger Agreement, the Company
will cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with Hire Quest in doing, all
things necessary, proper, or advisable to consummate and make effective, and to satisfy all conditions to, in the most expeditious
manner practicable, the taking of the actions set forth in (a) – (c) above. Without limiting the generality of the foregoing,
the Company has agreed to cooperate with Hire Quest and provide representatives of Hire Quest reasonable access to the Company’s
employees, facilities, IT infrastructure, files and documents, and supply Hire Quest with any information, including employee data,
that Hire Quest may reasonably request, in order to permit installation of Hire Quest’s software and the related training
of the Company’s employees, with the Company’s employees and customers to be entered into the new software prior to
the closing to ensure a smooth transition on the closing date of the Merger. In the event Hire Quest shall identify an issue regarding
the Company’s cooperation and assistance that is not being addressed in an appropriate and timely manner, Hire Quest shall
notify its counterparty at the Company of its concern, with a copy to the Chair of the Company’s Board of Directors.
The Company will have three (3) business days from the effective time of notice to cure the cited deficiencies by providing the
requested cooperation and assistance.
Other Covenants
The Company, Merger Sub 1, Merger Sub 2
and Hire Quest have agreed to use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done,
all things necessary, proper or appropriate, applicable laws and regulations to consummate and make effective the transactions
contemplated, including, without limitation, (i) to obtain all necessary governmental and private party consents, approvals or
waivers, and (ii) to lift any legal bar to the Merger.
Conditions to Completion of the Merger
The obligations of the Company and Hire
Quest to complete the Merger are subject to the satisfaction (or waiver, where permitted) of the following conditions:
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approval by the Company’s shareholders of the Nasdaq Proposal and the Charter Amendment Proposal;
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the entry into a credit facility for $30 million between the Company, Hire Quest and BB&T Bank;
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no material adverse effect (or any event, change or effect that would, individually or in the aggregate, reasonably be expected
to have a material adverse effect) shall have occurred with respect to the Company or Hire Quest;
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the representations and warranties of the other party in the Merger Agreement shall be true and correct in all material respects
(subject to certain limitations and exclusions);
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all agreements, covenants and obligations of the other party shall have been complied with in all material respects;
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no governmental entity having jurisdiction over any party shall have enacted, issued, promulgated, enforced, or entered any
laws or orders, whether temporary, preliminary, or permanent, that make illegal, enjoin, or otherwise prohibit consummation of
the Merger or the other transactions contemplated by the Merger Agreement;
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Hire Quest shall have delivered to the Company audited consolidated financial statements of Hire Quest for the year ended December
31, 2018 that are substantially similar to the unaudited financial statements delivered or made available to the Company prior
to the execution of the Merger Agreement;
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Each of the Hire Quest security holders will have signed an investor representation letter with respect to the receipt of the
Merger Consideration, including an agreement not to tender such shares of the Company’s Common Stock received as Merger Consideration
into the Offer;
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Hire Quest and Hire Quest, LLC will have caused the Pre-Closing Reorganization to be completed no later than two days prior
to the closing date of the Merger; and
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The Company shall have delivered to Hire Quest copies of executed resignations of certain directors of the Company, effective
at the effective time of the Merger.
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Termination of the Merger Agreement
The Company and Hire Quest may mutually agree to terminate the
Merger Agreement at any time prior to effectiveness of the Merger. Either party may also terminate the Merger Agreement if:
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the Merger is not consummated on or before the End Date, provided that the right to terminate the Merger Agreement shall not
be available to any party whose breach of any representation, warranty, covenant, or agreement set forth in the Merger Agreement
has been the cause of or resulted in the failure of the Merger to be consummated on or before such date;
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any governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced, or entered any law or
order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger or the other transactions
contemplated by the Merger Agreement, and such law or order shall have become final and nonappealable;
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any governmental entity prevents the commencement and completion of the Offer; or
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at the Annual Meeting, the shareholder approval of the Nasdaq Proposal and the Charter Amendment Proposal is not obtained.
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Hire Quest may also terminate the Merger Agreement if:
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a Parent Adverse Recommendation Change shall have occurred;
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the Company shall have breached or failed to perform in any material respect any of its covenants and agreements set forth
in Sections 5.05 or 5.06(a) of the Merger Agreement; or
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the Company or the Merger Subs have breached any of their representations or warranties or failed to perform any of the obligations
to be performed by and under the Merger Agreement and such breach or failure to perform (i) will result in the failure by the Company
to satisfy the closing conditions with respect to the accuracy of its representations and warranties or the performance of its
obligations and (ii) is incapable of being cured or has not been cured by the later of 30 days of written notice of the breach,
provided that Hire Quest may not terminate the Merger Agreement if it shall have materially breached the Merger Agreement and such
breach has not been cured.
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The Company may also terminate the Merger Agreement if:
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prior to the receipt of the shareholders’ vote at the Annual Meeting, the Company’s Board authorizes the Company,
after complying with the terms of the Merger Agreement, to enter into a Parent Acquisition Agreement in respect of a Superior Proposal;
or
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Hire Quest has breached any of its representations or warranties or failed to perform any of the obligations to be performed
by and under the Merger Agreement and such breach or failure to perform (i) will result in the failure by Hire Quest to satisfy
the closing conditions with respect to the accuracy of its representations and warranties or the performance of its obligations
and (ii) is incapable of being cured or has not been cured by the later of 30 days of written notice of the breach, provided that
the Company may not terminate the Merger Agreement if it shall have materially breached the Merger Agreement and such breach has
not been cured.
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Fees and Expenses
Under the Merger Agreement, all fees and
expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will generally
be paid by the party incurring those expenses, whether or not the Merger is consummated.
In the event that prior to the receipt of
the shareholders’ vote at the Annual Meeting, the Company’s Board authorizes the Company, after complying with the
terms of the Merger Agreement, to enter into a Parent Acquisition Agreement in respect of a Superior Proposal and the Company terminates
the Merger Agreement, the Company shall pay to Hire Quest the Termination Fee. If the Merger Agreement is terminated by the Company
because a governmental entity prevents the commencement and completion of the Offer, the Company shall pay to Hire Quest 50% of
the Termination Fee. If the Merger Agreement is terminated by Hire Quest
Further, in the event that (A) the Merger
Agreement is terminated by reason of a Company Triggering Event, (B) prior to such termination or the Annual Meeting, as applicable,
a Takeover Proposal shall have been publicly disclosed and not withdrawn, and (C) within 12 months following the termination, a
Takeover Proposal is consummated or the Company enters into an agreement with respect to any Takeover Proposal, the Company will
pay the Termination Fee to Hire Quest.
For purposes of the summary above, a “
Company
Triggering Event
” has occurred if: (a) the Company or the Merger Subs having breached any of their representations
or warranties or failing to perform any of the obligations to be performed by and under the Merger Agreement and such breach or
failure to perform (i) resulting in the failure by the Company to satisfy the closing conditions with respect to the accuracy of
its representations and warranties or the performance of its obligations and (ii) being incapable of being cured or not having
been cured by the later of 30 days of written notice of the breach; or (b) (i) the Merger is not consummated on or before the End
Date and the shareholders have not approved the Nasdaq Proposal and the Charter Amendment Proposal at the Annual Meeting or (ii)
at the Annual Meeting, the shareholder approval of the Nasdaq Proposal and the Charter Amendment Proposal is not obtained.
Amendment and Waiver
Subject to applicable legal requirements,
the Merger Agreement may be amended by the parties at any time prior to the effective time of the Merger by the written agreement
of the parties thereto. In addition, at any time prior to the effective time of the Merger, to the extent legally permitted, the
Company and Hire Quest may (i) extend the time for the performance of any of the obligations or other acts of the other party,
(ii) waive any inaccuracies in the representations and warranties made to the waiving party, or (iii) waive compliance with any
of the covenants, agreements or conditions. An agreement by a party to any extension or waiver must be in writing and signed on
behalf of that party. The failure of any party to assert any of its rights under the Merger Agreement or otherwise will not constitute
a waiver of such rights.
Voting Agreements
Certain Company directors, executive officers
and shareholders have executed Voting Agreements for the benefit of Hire Quest pursuant to which they have agreed to vote their
shares of the Company’s Common Stock in favor of the Nasdaq Proposal, the Reincorporation Proposal and the Charter Amendment
Proposal at the Annual Meeting. They have also agreed to vote their shares against approval of any proposal made in opposition
to, or in competition with, the Nasdaq Proposal, the Reincorporation Proposal or the Charter Amendment Proposal and against any
action which the Company is prohibited from taking under Section 5.02 of the Merger Agreement (with respect to the operation of
the Company’s business prior to the effective time of the Merger). The shares held by these Company directors, officers and
shareholders collectively represented approximately 24% of the outstanding shares of the Company’s Common Stock as of the
record date for the Annual Meeting.
Opinion of the Company’s Financial
Advisor
The Company retained D.A. Davidson as its
financial advisor in connection with the Merger. On April 5, 2019, D.A. Davidson rendered a written opinion, dated April 5, 2019,
to the Company’s Board to the effect that, as of such date and based upon and subject to various qualifications and assumptions
described therein, the aggregate consideration to be paid by the Company in the Merger was fair, from a financial point of view,
to the Company.
The full text of the aforementioned written
opinion of D.A. Davidson, dated April 5, 2019, which sets forth assumptions made, matters considered, and limits on the scope of
the review undertaken by D.A. Davidson, is attached as
Annex C
to this proxy statement. The summary of the opinion of D.A.
Davidson set forth in this proxy statement is qualified in its entirety by reference to the full text of such written opinion,
which is incorporated herein by reference. Holders of the Company’s Common Stock are encouraged to read the written opinion
in its entirety.
D.A. Davidson’s written opinion was
rendered to provide information for the Company’s Board (in its capacity as such) in connection with its consideration of
the Merger, and addressed only the fairness, from a financial point of view, to the Company of the aggregate consideration to be
paid by the Company in connection with the Merger. D.A. Davidson’s opinion does not constitute a recommendation to any holder
of the Company’s Common Stock as to how such shareholder should vote or act with respect to the Merger, any related transaction
or any matter relating thereto, including whether or not to tender shares of the Company’s Common Stock in the Offer.
In connection with preparing its opinion,
D.A. Davidson, among other things:
|
·
|
reviewed a draft of the Merger Agreement, dated April 4, 2019;
|
|
·
|
reviewed certain financial statements and other historical financial and business information about the Company and Hire Quest
made available to D.A. Davidson from published sources and/or from the internal records of the Company and Hire Quest that D.A.
Davidson deemed relevant;
|
|
·
|
reviewed financial projections for Hire Quest prepared by management of Hire Quest;
|
|
·
|
reviewed financial projections for the Company prepared by management of the Company;
|
|
·
|
reviewed the current market environment generally and the business services environment in particular;
|
|
·
|
compared certain financial results of Hire Quest and the Company with publicly available information concerning certain other
companies D.A. Davidson deemed relevant;
|
|
·
|
compared certain financial terms of the Merger with the publicly available financial terms of certain other transactions that
D.A. Davidson deemed relevant;
|
|
·
|
compared the relative contributions of the Company and Hire Quest to the combined company;
|
|
·
|
reviewed the current and historical market prices and trading activity of the Company’s Common Stock; and
|
|
·
|
performed, reviewed and/or considered such other financial studies, analyses and investigations and financial, economic and
market criteria and other information as D.A. Davidson considered relevant, including discussions with the managements and other
representatives and advisors of the Company and Hire Quest concerning the businesses, financial condition, results of operations
and prospects of the Company and Hire Quest.
|
In arriving at its opinion, D.A. Davidson,
with the consent of the Company, assumed and relied upon the accuracy and completeness of all information that was publicly available
or supplied or otherwise made available to, discussed with or reviewed by or for D.A. Davidson. D.A. Davidson did not independently
verify (nor did it assume responsibility for independently verifying) such information or its accuracy or completeness. D.A. Davidson
relied on the assurances of managements of the Company and Hire Quest that they were not aware of any facts or circumstances that
would make any of such information inaccurate or misleading. D.A. Davidson also assumed that the audited financial statements for
Hire Quest contemplated to be delivered to the Company following the date of D.A. Davidson’s opinion would not reflect any
material changes to such information. D.A. Davidson did not undertake and was not provided with any independent evaluation or appraisal
of any of the assets or liabilities (contingent or otherwise) of Hire Quest or the Company. In addition, D.A. Davidson did not
assume any obligation to conduct, nor did it conduct, any physical inspection of the properties or facilities of Hire Quest or
the Company, and was not provided with any reports of such physical inspections. D.A. Davidson assumed that there was no material
change in Hire Quest’s or the Company’s businesses, assets, financial condition, results of operations, cash flows
or prospects since the date of the most recent financial statements provided to D.A. Davidson.
With respect to the financial projections
reviewed by D.A. Davidson, D.A. Davidson was advised by managements of Hire Quest and the Company, and assumed with the consent
of the Company, that such projections were reasonably prepared on bases reflecting the best currently available estimates and good
faith judgments of the managements of Hire Quest and the Company, as the case may be, as to the future financial performance of
Hire Quest and the Company, and that the financial results reflected in such projections would be realized in the amounts and at
the times projected. D.A. Davidson assumed no responsibility for and expressed no opinion as to such projections or the assumptions
on which they were based. D.A. Davidson further relied on the assessments of the management of the Company as to the Company’s
ability to integrate the businesses of Hire Quest and the Company.
D.A. Davidson assumed that all of the representations
and warranties contained in the Merger Agreement and all related agreements were true and correct in all respects material to its
analysis, and that the Merger would be consummated in accordance with the terms of the Merger Agreement, without waiver, modification
or amendment of any term, condition or covenant thereof the effect of which would be in any respect material to its analysis. D.A.
Davidson also assumed that all material governmental, regulatory or other consents, approvals, and waivers necessary for the consummation
of the Merger would be obtained without any material adverse effect on Hire Quest or the Company or the contemplated benefits of
the Merger. Further, D.A. Davidson assumed that the executed Merger Agreement would not differ in any material respect from the
draft Merger Agreement reviewed by it.
D.A. Davidson assumed in all respects material
to its analysis that Hire Quest and the Company would remain as a going concern for all periods relevant to its analysis. D.A.
Davidson expressed no opinion regarding the liquidation value of Hire Quest, the Company or any other entity.
D.A. Davidson’s opinion was limited
to the fairness, from a financial point of view, to the Company of the aggregate consideration to be paid by the Company in the
Merger. D.A. Davidson did not express any view on, and its opinion did not address, any other term or aspect of the Merger Agreement,
the Merger (including, without limitation, the form or structure of the Merger) or any related transaction (including, without
limitation, the Offer) or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or entered
into in connection with the Merger, or as to the underlying business decision by the Company to engage in the Merger or any related
transaction. Furthermore, D.A. Davidson expressed no opinion with respect to the amount or nature of any compensation to any officers,
directors or employees of any party, or any class of such persons, relative to the aggregate consideration to be paid by the Company
in the Merger, or with respect to the fairness of any such compensation.
D.A. Davidson expressed no view as to, and
its opinion did not address, the relative merits of the Merger or any related transaction as compared to any alternative business
transactions or strategies, or whether such alternative transactions or strategies could be achieved or were available. In addition,
its opinion did not address any legal, regulatory, tax or accounting matters, as to which D.A. Davidson understood that the Company
obtained such advice as it deemed necessary from qualified professionals.
D.A. Davidson expressed no opinion as to
the offer price in the Offer, the actual value of the Company’s Common Stock when issued in the Merger or the prices at which
the Company’s Common Stock would trade following announcement of the Merger or at any future time.
D.A. Davidson did not evaluate the solvency
or fair value of Hire Quest or the Company under any state, federal or other laws relating to bankruptcy, insolvency or similar
matters. The opinion was not a solvency opinion and did not in any way address the solvency or financial condition of Hire Quest
or the Company. D.A. Davidson did not express any opinion as to the impact of the Merger on the solvency or viability of Hire Quest
or the Company or the ability of Hire Quest or the Company to pay their respective obligations when they come due.
D.A. Davidson’s opinion was reviewed
and approved by a D.A. Davidson & Co. Fairness Opinion Committee.
D.A. Davidson’s opinion was necessarily
based on economic, market and other conditions as in effect on, and the information made available to D.A. Davidson as of, the
date of its opinion. Events occurring after the date of D.A. Davidson’s opinion may affect the opinion and the assumptions
used in preparing it, and D.A. Davidson did not assume any obligation to update, revise or reaffirm its opinion.
The following summarizes the material financial
analyses discussed by D.A. Davidson in connection with the delivery of its opinion to the Company’s Board at its meeting
on April 7, 2019, which material financial analyses were considered by D.A. Davidson in rendering its written opinion.
The financial analyses summarized below include information
presented in tabular format. In order to fully understand the financial analyses performed by D.A. Davidson, the tables must be
read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses
performed by D.A. Davidson.
Comparable Company Analysis.
D.A. Davidson reviewed and compared certain
financial information for Hire Quest to corresponding financial information for the following publicly traded corporations operating
in the staffing industry or as a franchisor with substantial operations in North America (collectively, the “selected companies”):
Staffing
|
|
Franchisors
|
§
Adecco Group AG
|
|
§
Denny’s Corporation
|
§
BG Staffing, Inc.
|
|
§
Jack in the Box Inc.
|
§
GEE Group, Inc.
|
|
§
Planet Fitness, Inc.
|
§
Kelly Services, Inc.
|
|
§
Regis Corporation
|
§
ManpowerGroup Inc.
|
|
§
The Wendy’s Company
|
§
Mastech Digital, Inc.
|
|
§
Wingstop Inc.
|
§
Staffing 360 Solutions, Inc.
|
|
|
§
TrueBlue, Inc.
|
|
|
The analysis compared publicly available
financial and market trading information for the selected companies for the period ended December 31, 2018 and, to the extent publicly
available, also for 2019 based on average S&P Capital IQ consensus estimates, and the table below sets forth median and mean
enterprise value-to-LTM and 2019 EBITDA multiples for the selected companies using pricing data as of April 4, 2019.
Enterprise Value as a Multiple of:
|
|
|
|
Selected Companies
|
LTM EBITDA
|
|
Median:
Mean:
|
|
8.9x
14.0x
|
2019E EBITDA
|
|
Median:
Mean:
|
|
8.8x
13.4x
|
D.A. Davidson then applied a selected range
of multiples derived from the selected companies to calculate ranges of implied values for Hire Quest based on its historical LTM
EBITDA and also 2019 estimated EBITDA provided by Hire Quest’s management, as summarized below.
Enterprise Value as a Multiple of:
|
|
Range of Multiples
|
|
Implied Enterprise Values
|
LTM EBITDA
|
|
7.6x – 10.2x
|
|
$88.9 million -
$120.3 million
|
2019E EBITDA
|
|
7.5x – 10.1x
|
|
$87.0 million -
$117.6 million
|
D.A. Davidson compared the foregoing ranges
for Hire Quest to the implied values of the aggregate consideration of approximately $39.7 million based on the 20-day volume weighted
average price of the Company’s Common Stock for the period ended April 4, 2019 and $59.0 million based on the offer price
per share in the Offer.
Selected Transaction Analysis.
D.A. Davidson analyzed certain publicly
available information for the following selected transactions in the staffing industry and of franchisor businesses completed between
2011 and 2019 with transaction values of $10.0 million or more (collectively, the “selected transactions”):
Announcement Date
|
Target
|
Acquirer
|
Sep-18
|
Sonic Corp.
|
Inspire Brands, Inc.
|
Apr-17
|
SNI Companies Inc.
|
GEE Group, Inc.
|
Apr-17
|
Panera Bread Company
|
Rye Parent Corp.
|
Feb-17
|
Popeyes Louisiana Kitchen, Inc.
|
Restaurant Brands International Inc.
|
Dec-16
|
TriNet Group, Inc.
|
Atairos Group, Inc.
|
May-16
|
Krispy Kreme Doughnuts, Inc.
|
Cotton Parent, Inc.
|
Oct-15
|
Access Data Consulting Corporation
|
GEE Group, Inc.
|
Sep-14
|
Einstein Noah Restaurant Group, Inc.
|
BDT Capital Partners, LLC; JAB Beech Inc.
|
Jun-14
|
Seaton L.L.C.
|
TrueBlue, Inc.
|
Dec-12
|
Caribou Coffee Company, Inc.
|
BDT Capital Partners, LLC; JAB Beech Inc.
|
Oct-11
|
Staffmark Holdings, Inc.
|
Recruit Co., Ltd.
|
Jul-11
|
SFN Group, Inc.
|
Randstad North America, Inc.
|
For each of the selected transactions, D.A.
Davidson calculated and compared, among other things, the enterprise value implied by the transaction as a multiple of LTM EBITDA.
The following table sets forth median and mean enterprise value-to-LTM EBITDA multiples for the selected transactions:
Enterprise Value as a Multiple of:
|
|
Median
|
Mean
|
LTM EBITDA
|
|
11.3x
|
12.9x
|
D.A. Davidson then applied a selected range
of EV/LTM EBITDA multiples of 9.6x to 13.0x derived from the selected transactions to calculate a range of implied values for Hire
Quest based on the LTM EBITDA of Hire Quest provided by Hire Quest’s management. This analysis resulted in a range of implied
enterprise values for Hire Quest of approximately $112.9 million to $152.7 million, as compared to the implied values of the aggregate
consideration of approximately $39.7 million based on the 20-day volume weighted average price of the Company’s Common Stock
for the period ended April 4, 2019 and $59.0 million based on the offer price per share in the Offer.
Hire Quest Discounted Cash Flow Analysis
.
D.A. Davidson performed a discounted cash
flow analysis on Hire Quest to calculate a range of implied enterprise values (as of January 1, 2019) for Hire Quest. Using discount
rates ranging from 18.0% to 24.0%, D.A. Davidson discounted to present value as of January 1, 2019, (i) estimates of free cash
flow assumed to be generated by Hire Quest for 2019 through 2022 based on the projections prepared by Hire Quest management, and
(ii) a range of implied terminal values for Hire Quest, which were calculated by applying terminal EBITDA multiples ranging from
8.0x to 10.0x to a terminal year estimate of EBITDA for Hire Quest, as reflected in the projections prepared by Hire Quest management.
This analysis resulted in a range of implied enterprise values for Hire Quest of approximately $90.9 million to $124.1 million,
as compared to the implied values of the aggregate consideration of approximately $39.7 million based on the 20-day volume weighted
average price of the Company’s Common Stock for the period ended April 4, 2019 and $59.0 million based on the offer price
per share in the Offer.
Company Illustrative Discounted Cash Flow Analysis
.
D.A. Davidson performed a discounted cash
flow analysis on the Company to calculate a range of illustrative values (as of January 1, 2019) for the Company’s Common
Stock. Using discount rates ranging from 18.0% to 24.0%, D.A. Davidson discounted to present value as of January 1, 2019, (i) estimates
of free cash flow assumed to be generated by the Company for 2019 through 2021 based on the projections prepared by the Company’s
management, and (ii) a range of implied terminal values for the Company, which were calculated by applying terminal growth rates
ranging from 1.5% to 2.5% to a terminal year estimate of unlevered free cash flow for the Company, as reflected in the projections
prepared by the Company’s management. This analysis resulted in a range of implied per share values for the Company’s
Common Stock of approximately $5.46 to $6.92, as compared to the Company’s closing stock price on April 4, 2019 of $3.88,
the 20-day volume weighted average price of the Company’s Common Stock for the period ended April 4, 2019 of $4.04, and the
offer price per share in the Offer of $6.00.
Contribution Analysis
.
D.A. Davidson calculated the relative contributions
of the Company and Hire Quest to the Adjusted EBITDA of the combined company for the periods set forth below, based upon historical
financial information and the financial projections prepared by Hire Quest’s and the Company’s managements. D.A. Davidson
then compared such contributions to the pro forma equity ownership of the combined company. The following table summarizes the
results of this analysis.
|
Company Contribution
|
Hire Quest Contribution
|
Adjusted EBITDA (2018)
|
26.7%
|
73.3%
|
Adjusted EBITDA (Forecasted 2019)
|
26.8%
|
73.2%
|
|
|
|
|
Company Ownership
|
Hire Quest Ownership
|
Pro Forma Equity Ownership Split
|
32.0%
|
68.0%
|
Additional Considerations
.
In arriving at D.A. Davidson’s opinion,
D.A. Davidson performed a variety of financial analyses, the material portions of which are summarized above. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying D.A. Davidson's opinion. In arriving at its fairness determination, D.A. Davidson considered the
results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather,
D.A. Davidson made its determination as to fairness on the basis of its experience and professional judgment after considering
the results of all of its analyses. No company or transaction used in the above analyses as a comparison is identical to Hire Quest,
the Company or the Merger.
D.A. Davidson prepared these analyses for
purposes of D.A. Davidson providing its opinion to the Company’s Board as to the fairness, from a financial point of view,
to the Company of the aggregate consideration to be paid by the Company in the Merger. These analyses do not purport to be appraisals
nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than
suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors, none of the Company, Hire Quest, D.A. Davidson or any other
person assumes responsibility if future results are materially different from those forecasted. D.A. Davidson's opinion to the
Company Board was one of many factors taken into consideration by the Company Board in making its determination to approve the
Merger Agreement. The type and amount of consideration payable in the Merger were determined through negotiation between the Company
and Hire Quest. The foregoing summary does not purport to be a complete description of the analyses performed by D.A. Davidson
in connection with the fairness opinion.
D.A. Davidson as the Company’s financial
advisor in connection with the Merger will receive a fee for its services currently estimated to be approximately $1.2 million,
$250,000 of which became payable upon the rendering of D.A. Davidson’s opinion and the remainder of which is contingent upon
consummation of the Merger. In addition, the Company has agreed to reimburse D.A. Davidson’s reasonable expenses and indemnify
D.A. Davidson against certain liabilities arising out of D.A. Davidson’s engagement.
The Company selected D.A. Davidson as its
financial advisor because D.A. Davidson is a leading full-service investment bank with extensive transaction experience serving
middle market clients worldwide.
In the ordinary course of its business,
D.A. Davidson and its affiliates may actively trade or hold securities of the Company for its own accounts or for the accounts
of its customers and, accordingly, may at any time hold long or short positions in such securities. D.A. Davidson may seek to provide
investment banking or other financial services to the Company or Hire Quest in the future for which D.A. Davidson would expect
to receive compensation.
Certain Material U.S. Federal Income
Tax Considerations
Material U.S. Federal Income Tax Consequences
of the Merger to Company Shareholders
No Company shareholder will recognize any
gain or loss as a result of the Merger.
Material U.S. Federal Income Tax Consequences
of the Merger to the Company
The Merger is intended to qualify as a reorganization
within the meaning of Section 368(a) of the Code. In such case, the Company will not recognize any gain or loss as a result of
the Merger.
Personal Holding Company Rules
A corporation that is a “personal
holding company” (within the meaning of Section 542 of the Code) may be required to pay a personal holding company tax in
addition to regular income taxes. A corporation generally is considered a personal holding company if (1) at any time during the
last half of the taxable year more than 50% of the value of the corporation’s outstanding stock is owned, directly, indirectly
or constructively, by or for five or fewer individuals (the “Ownership Test”) and (2) at least 60% of the corporation’s
“adjusted ordinary gross income” constitutes “personal holding company income” (the “Income Test”).
For purposes of the Ownership Test, an individual
Company shareholder is treated as owning not only the Common Stock actually owned by such Company shareholder, but also the Common
Stock that is “constructively” owned (within the meaning of Section 544 of the Code) by such Company shareholder. In
very general terms, an individual Company shareholder may “constructively” own Common Stock owned by certain members
of such Company shareholder’s family and by certain entities (such as corporations, partnerships, trusts and estates) in
which such Company shareholder has an equity or beneficial interest, as well as any Common Stock such Company shareholder has an
option to purchase.
For purposes of the Income Test, “personal
holding company income” includes dividends, interest, royalties, annuities, rents, compensation for use of corporate property
by shareholders, personal service contracts, and income from estates and trusts (but does not include capital gains).
A corporation that is considered a personal
holding company is required to pay a personal holding company tax at a rate equal to 20% of such corporation’s “undistributed
personal holding company income.” In general, “undistributed personal holding company income” is a corporation’s
taxable income, less a deduction for U.S. federal income taxes, dividends paid, and net capital gains. In determining a corporation’s
“undistributed personal holding company income,” net operating losses are disallowed and certain other expenses and
deductions are limited or disallowed. Because the personal holding company tax is imposed only on “undistributed personal
holding company income,” a corporation that is considered a personal holding company can eliminate or reduce the liability
for the personal holding company tax by paying a dividend to its shareholders. However, if for liquidity or other business reasons,
the Company is not able to make a distribution or elects not to make a distribution, the Company may not be able to eliminate or
reduce the liability for the personal holding company tax.
As a result of the Merger, the Company will
likely satisfy the Ownership Test in 2019. However, the Company does not expect to satisfy the Income Test in 2019. Accordingly,
the Company does not believe that it will be considered a personal holding company in 2019. However, because personal holding company
status is determined annually and is based on the nature of the Company’s income and the percentage of the Company’s
outstanding stock that is owned, directly, indirectly or constructively, by major shareholders, there can be no assurance that
the Company will not be a personal holding company in 2019 or become a personal holding company in any future taxable year. If
the Company were considered a personal holding company with undistributed personal holding company income in a taxable year, the
payment of personal holding company taxes would have an adverse effect on the Company’s cash flows, results of operations
and financial condition.
Accounting Treatment of the Merger
In accordance with U.S. GAAP, we will account
for the acquisition using the acquisition method of accounting for business combinations.
Pre-emptive Rights
None of the shares which are being issued
in connection with the Nasdaq Proposal will have any pre-emptive rights.
OUR BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE “FOR” THE NASDAQ PROPOSAL
ANNUAL REPORT
The Company has sent
to all of its stockholders of record as of [•] the Company’s Annual Report on Form 10-K for the fiscal
year ended December 28, 2018. Such report contains the Company’s audited consolidated financial statements for the fiscal
year ended December 28, 2018 and as noted above shall be deemed incorporated by reference into this proxy statement.
HIRE QUEST, LLC UNAUDITED FINANCIAL STATEMENTS
HIRE QUEST, LLC
BALANCE SHEETS
December 31,
2018 and 2017
ASSETS
|
|
2018
|
|
2017
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,291,317
|
|
|
$
|
275,920
|
|
Trade accounts receivable
|
|
|
20,725,170
|
|
|
|
19,994,291
|
|
Current maturities of notes receivable - franchisees
|
|
|
92,521
|
|
|
|
—
|
|
Due from affiliates
|
|
|
202,664
|
|
|
|
749,801
|
|
Prepaid expenses and other current assets
|
|
|
—
|
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
22,311,672
|
|
|
|
21,021,398
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
Land
|
|
|
487,492
|
|
|
|
511,520
|
|
Buildings and improvements
|
|
|
1,305,280
|
|
|
|
1,985,068
|
|
Furniture, fixtures and equipment
|
|
|
377,110
|
|
|
|
615,488
|
|
Construction in Progress
|
|
|
157,350
|
|
|
|
—
|
|
Less accumulated depreciation
|
|
|
281,351
|
|
|
|
476,482
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,045,881
|
|
|
|
2,635,594
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
8,334
|
|
|
|
224,953
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
8,334
|
|
|
|
224,953
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
24,365,887
|
|
|
$
|
23,881,945
|
|
See notes to financial statements.
HIRE QUEST, LLC
BALANCE SHEETS
December 31,
2018 and 2017
LIABILITIES AND MEMBERS' CAPITAL
|
|
2018
|
|
2017
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
53,435
|
|
|
$
|
44,404
|
|
Due to affiliates
|
|
|
7,740,083
|
|
|
|
820,291
|
|
Due to franchisees
|
|
|
620,385
|
|
|
|
2,087,252
|
|
Accrued expenses
|
|
|
1 ,947,551
|
|
|
|
2,359,072
|
|
Payroll taxes and other payroll deductions payable
|
|
|
504,035
|
|
|
|
546,024
|
|
Current portion on debt
|
|
|
—
|
|
|
|
4,715,634
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,865,489
|
|
|
|
10,572,677
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES -
|
|
|
767,509
|
|
|
|
677,153
|
|
Security deposits, franchisees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
767,509
|
|
|
|
677,153
|
|
|
|
|
|
|
|
|
|
|
MEMBERS' CAPITAL
|
|
|
12,732,889
|
|
|
|
12,632,115
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND MEMBERS' CAPITAL
|
|
$
|
24,365,887
|
|
|
$
|
23,881,945
|
|
See notes to financial statements.
HIRE QUEST, LLC
STATEMENTS OF INCOME
AND MEMBERS' CAPITAL
For the Years Ended December
31, 2018, 2017 and 2016
|
|
2018
|
|
20 1 7
|
|
2016
|
REVENUE:
|
|
|
|
|
|
|
Franchise royalties
|
|
$
|
12,563,318
|
|
|
$
|
11,131,395
|
|
|
$
|
8,956,389
|
|
Labor services, owned locations
|
|
|
728,649
|
|
|
|
598,993
|
|
|
|
1,128,781
|
|
Total revenue
|
|
|
13,291,967
|
|
|
|
11,730,388
|
|
|
|
10,085,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE, OWNED LOCATIONS :
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue, owned locations
|
|
|
629,449
|
|
|
|
501,954
|
|
|
|
1,008,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,662,518
|
|
|
|
11,228,434
|
|
|
|
9,077,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
4,417,630
|
|
|
|
4,125,088
|
|
|
|
2,812,977
|
|
Office
|
|
|
468,991
|
|
|
|
408,678
|
|
|
|
327,984
|
|
Other
|
|
|
1,523,587
|
|
|
|
1,417,620
|
|
|
|
944,064
|
|
Depreciation and amortization
|
|
|
92,608
|
|
|
|
85,279
|
|
|
|
71,968
|
|
Management fees
|
|
|
249,292
|
|
|
|
3,400,355
|
|
|
|
2,985,760
|
|
Total operating expenses
|
|
|
6,752,108
|
|
|
|
9,437,020
|
|
|
|
7,142,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,910,410
|
|
|
|
1,791,414
|
|
|
|
1,934,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
103,372
|
|
|
|
130,105
|
|
|
|
253,404
|
|
Miscellaneous income
|
|
|
1,123,103
|
|
|
|
915,623
|
|
|
|
846,624
|
|
Interest expense
|
|
|
(19,697
|
)
|
|
|
(297
|
)
|
|
|
(2,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
1,206,778
|
|
|
|
1,045,431
|
|
|
|
1,097,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
7,117,188
|
|
|
|
2,836,844
|
|
|
|
3,031,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS' CAPITAL, beginning of year
|
|
|
12,632,115
|
|
|
|
10,968,481
|
|
|
|
7,936,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member distributions
|
|
|
(7,016,414
|
)
|
|
|
(1,173,210
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS' CAPITAL, end of year
|
|
$
|
12,732,889
|
|
|
$
|
12,632,115
|
|
|
$
|
10,968,481
|
|
See notes to financial statements.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
Note 1 – Nature of Business
and Summary of Significant Accounting Policies
Hire Quest, LLC was organized under the
laws of the State of Florida on June 14, 2002 as a limited liability company. For purposes of these notes, “Hire Quest”
shall refer to Hire Quest, LLC.
Nature of Business
Hire Quest provides various types of temporary
personnel through franchises and owned locations which are separated into two divisions operating under the trade names “Trojan
Labor” and “Acrux Staffing”. Trojan Labor specializes primarily in unskilled industrial and construction personnel.
Acrux Staffing specializes primarily in skilled, semi-skilled industrial personnel as well as clerical and secretarial personnel.
The terms of the franchise agreements provide, among other things, that Hire Quest will provide the franchisee with (1) training
of a designated manager prior to opening for business; (2) technical support; (3) continuing advisory services, including but not
limited to, promotional, marketing, business, and operational matters: and (4) access to Hire Quest’s confidential operating
manuals. Hire Quest provides staffing, marketing, funding, and administrative services to its franchisees and its owned temporary
labor locations.
The following is a summary of significant
accounting policies followed by
Hire Quest
in the preparation of the accompanying financial statements.
Receivables
Trade receivables -
Trade receivables
consist of amounts due from customers of franchises and of owned locations for labor services. At December 31, 2018, approximately
99% and 1% of the trade receivable balance were from franchises and owned locations, respectively.
Franchise trade receivables
–
Trade accounts receivable from regular and temporary employee placement services provided by the franchisee are the exclusive property
of Hire Quest who invoices and collects receivables. To the extent that franchisee receivables remain uncollected beyond forty-two
days after the invoice date, interest is charged to the franchise at one-half percent (1/2%) for each fourteen-day period over
forty-two days to a maximum of one and one-half percent (1 1/2%). Franchisee receivables that remain uncollected beyond eighty-four
days after the invoice date are charged back to the franchisee. At December 31, 2018, there is no allowance for uncollectible accounts
for franchise trade receivables.
Owned locations trade receivables -
Hire Quest extends credit to customers of its staffing locations in the normal course of business. Receivables are stated at
face amount less an allowance for doubtful accounts. The allowance for doubtful accounts is calculated based on management’s
review of the current accounts receivable outstanding. Customer balances are charged off when they are deemed uncollectible and
recoveries of receivables previously written off are recorded when received. At December 31, 2018, there is no allowance for uncollectible
accounts for its Corporate owned location receivables.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
Due (to) from franchisees
–
Due to franchisee primarily represents the amount of profit due the franchisee from franchise trade accounts receivable assigned
to Hire Quest, net of advances to franchisees and payment made on their behalf. Due from franchisee represents additional amounts
loaned to the franchisee in special situations such as cash flow problems or unexpected expenses. Allowance for uncollectible amounts
is based on management’s review of the balance, calculated on a consistent basis and represents the amounts deemed uncollectible
and amounted to $25,000 and $233,046 as of December 31, 2018 and 2017, respectively.
Notes receivable – franchisee
–
Notes receivable are advances to franchisees are due in weekly installments including interest ranging from 0% to 12%
per annum. There were three open lines of credit and two notes receivable from franchisees at December 31, 2018.
Property and equipment
Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets of five to thirty-nine
years.
Expenditures for property and equipment
which substantially increase useful lives are capitalized. Maintenance, repairs, and minor replacement are charged to expense when
incurred. Depreciation and amortization expense were $92,608, $85,279, and $74,968 in 2018, 2017 and 2016, respectively.
Revenue recognition
On January 1, 2019, we adopted new
revenue recognition guidance using the modified retrospective method for all open contracts and related amendments. Results
for reporting periods beginning after January 1, 2019 are presented under the new revenue recognition guidance, while prior
period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. The adoption of
this new guidance did not have a material impact on our consolidated financial statements.
We account for revenue when both parties
to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified,
and collectability of consideration is probable. Our primary source of revenue is royalties earned from franchisees from providing
temporary contract labor to customers. Revenue is recognized at the time we satisfy our performance obligation. Our contracts have
a single performance obligation, which is the transfer of services. Because our customers receive and consume the benefits of our
services simultaneously, our performance obligations are typically satisfied when our services are provided. Customers are invoiced
every week and we do not require payment prior to the delivery of service.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
Use of estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Accordingly,
actual results could differ from those estimates.
Cash
For purposes of the statements of cash flows, Hire Quest considers
all highly liquid investments available for current use with a maturity of three months or less to be cash equivalents.
Fair value of financial instruments
The carrying amounts reflected in the balance
sheets for cash, accounts and notes receivable, accounts payable, and notes payable approximate the respective fair values due
to the short maturities of those instruments.
Advertising Expense
Advertising expense is charged to income
during the year in which it is incurred. Advertising expense for the years ended December 31, 2018 and 2017 was $6,619 and $18,637,
respectively.
Income Taxes
Hire Quest is not a tax paying entity for
purposes of federal and state income taxes. Income of Hire Quest is taxed to the members on their individual returns. Therefore,
no provision or liability for income taxes has been included in the accompanying financial statements. However, some states that
Hire Quest operates in impose a filing fee on limited liability companies which is recognized as incurred.
Tax return years that remain open for Federal
and state purposes are 2017, 2016 and 2015.
Concentration of risks
Financial instruments that potentially
subject Hire Quest to credit risk consist principally of trade and notes receivables. In general, Hire Quest extends credit terms
to its customers and franchisees on an unsecured basis.
Hire Quest maintains its cash balances
in regional financial institutions. At December 31, 2018 cash balances exceeded the Federal Deposit Insurance Corporation (FDIC)
limit of $250,000 by $438,779.
Reclassifications
Certain amounts in the 2017 and 2016 financial
statements have been reclassified to conform to the 2018 presentation. Such reclassification had no effect on net income or members’
capital as previously reported.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
Note 2 – Analysis of Franchise
Locations
At December 31, 2018, Hire Quest had ninety-two
(92) franchise locations under sixty-nine (69) franchise agreements and one (1) Company owned location.
The following is an analysis of changes in the number of franchised
and owned branch locations:
|
|
2018
|
|
2017
|
|
2016
|
Franchised branches:
|
|
|
|
|
|
|
|
|
|
|
|
|
In operation, beginning of year
|
|
|
79
|
|
|
|
73
|
|
|
|
67
|
|
Franchises opened or acquired during the year
|
|
|
18
|
|
|
|
9
|
|
|
|
9
|
|
Owned operations sold as franchises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Franchises sold/merged
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Franchises closed
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
In operation, end of year
|
|
|
92
|
|
|
|
79
|
|
|
|
7
|
|
Note
3 – Related Party Transactions
The nature of related parties to Hire Quest
for which there were material transactions are as follows.
Hire Quest shares common ownership with
Hire Quest Financial LLC (HF), Hire Quest Insurance LLC (HQI), Hire Quest LTS (LTS) and Quadrant Enterprises LLC (QE).
E. Jackson, a member of Hire Quest, is
majority owner of Jackson Insurance Agency and he and R. Hermanns own a majority of Bass Underwriters.
Members of Hire Quest owned forty-eight
of the ninety-two and thirty-nine of the seventy-nine franchisee branch locations at December 31, 2018 and 2017, respectively and
relatives of Hire Quest members owned twenty-seven franchise locations at December 31, 2018.
Hire Quest Resources, Inc. (HRI) offers
information technology services and is owned 50% by the members of Hire Quest.
The following related party transactions
occurred during the years ended December 31, 2018, 2017 and 2016:
Hire Quest Financial LLC (HF)
Prior to March 20, 2018, Hire Quest had
an agreement with HF to provide finance and insurance related services and a line of credit (see note 4). The management fees which
includes the interest charge on the line of credit are 2% of the franchisee’s sales or $249,292 and $3,400,355 for 2018 and
2017, respectively and are included in the statement of income and members’ capital.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
During the year ended December 31, 2018,
Hire Quest transferred to HF accounts and notes receivable from franchisee’s at face value in the amount of $1,764,917 and
investments, property, and equipment in the amount of $599,670.
At December 31, 2018 and 2017, Hire Quest
owes HF $6,756,304 and $4,715,634, respectively.
Hire Quest Insurance LLC (HQI)
HQI is a commonly owned captive insurance
company. Effective March 1, 2010, Hire Quest purchased a deductible reimbursement insurance policy from HQI to cover losses up
to the $500,000 deductible on a workers’ compensation policy Hire Quest has with their insurance carrier.
Premiums paid by Hire Quest to HQI for
workers compensation insurance on the franchisee’s behalf in 2018, 2017 and 2016 were $7,453,030, $6,907,517, and $6,106,598,
respectively. Amounts due to HQI at December 31, 2018 and 2017 for workers compensation related matters were $681,811 and $631,299,
respectively.
Hire Quest LTS (LTS)
Hire Quest LTS is a commonly owned organization
which employed Hire Quest personnel during the year. Payroll service fees paid to LTS during the year ended December 31, 2018 and
2017 were $38,077 and $28,944, respectively and amounts due to LTS were $85,417 and $ 17,044 as of December 31, 2018 and 2017,
respectively.
Quadrant Enterprises LLC (QE)
Quadrant Enterprises LLC is a commonly
owned professional employer organization. At December 31, 2017, amounts due from QE were $235,137. There were no amounts due to
or from QE at December 31, 2018.
Hire Quest Resources, Inc. (HRI)
Amounts due from HRI at December 31, 2018
and 2017 were $147,496 and $403,496, respectively.
Jackson Insurance Agency and Bass
Underwriters
Jackson Insurance Agency handles Hire Quest
and its franchises’ property and casualty insurance. Premiums paid during the years ended 2018, 2017 and 2016 were $211,544,
$146,311, and $122,501, respectively.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
Members
Transactions and balances regarding franchisees
majority owned by members and relatives of members at and for the years ended December 31, 2018 and 2017 are included in the accompanying
financial statement captions as follows:
|
|
2018
|
|
2017
|
Due to(from) franchisees (balance sheet liability)
|
|
$
|
(254,943
|
)
|
|
$
|
(770,173
|
)
|
Franchise royalties (income statement revenue)
|
|
$
|
5,900,637
|
|
|
$
|
5,254,403
|
|
Distributions to members were $7,016,414
and $1,173,210 during the years ended December 31, 2018 and 2017, respectively.
Kildeer Farms LLC (KF)
At December 31, 2017, Hire Quest had an
investment in KF (owned 50% by Hire Quest and 50% by Bass Underwriters) in the amount of $216,619 which was included in
deposits
and other assets
on the accompanying balance sheets. On December 31, 2018 the investment in KF in the amount of $216,619 was
transferred to HF.
Note 4 – Debt
On March 20, 2018, Hire Quest entered into
a line of credit agreement with BB&T with maximum borrowings of $5,000,000, interest at 1.75% above the one-month LIBOR rate
(4.27% at December 31, 2018) and a maturity date of April 30, 2021. The line is collateralized by substantially all Hire Quest
assets and contains certain restrictive covenants. There were no borrowings on the line of credit at December 31, 2018.
Prior to March 20, 2018, Hire Quest had
a line of credit with HF (see note 3) with maximum borrowings of $16,000,000. The line was collateralized by substantially all
Hire Quest assets and the personal guarantee of the CEO of Hire Quest. In lieu of interest, use of the line of credit is included
in the management fee of 2% of franchisees sales. Amounts due on the line of credit with HF were $4,715,634 as of December 31,
2017.
Note 5 - Employee Retirement Plan
Hire Quest has a 401(k) Plan (the “Plan”)
for employees meeting certain eligibility requirements. The plan allows eligible employees to make annual pre-tax contributions
up to the lesser of 20% of their eligible compensation or the limit established by the Internal Revenue Service. Matching contributions
to the employees’ account were $49,831, $47,524, and $35,043 for 2018, 2017, and 2016, respectively.
Under the Plan, Hire Quest may also make
discretionary non-elective contributions. For the years ended December 31, 2018, 2017, and 2016, no discretionary non-elective
contributions were made by Hire Quest.
HIRE QUEST, LLC
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2018, 2017 and 2016
Note 6 – Subsequent Events
Hire Quest evaluated events and transactions
for potential recognition and disclosure through April 1, 2019.
******
Annex A
AGREEMENT AND PLAN OF MERGER
by and among
HIRE QUEST HOLDINGS, LLC,
COMMAND CENTER, INC.,
CCNI ONE, INC.,
COMMAND FLORIDA, LLC and
RICHARD HERMANNS, as Member Representative
Dated as of April 8, 2019
TABLE OF CONTENTS
ARTICLE I The Merger
|
3
|
Section 1.01 The Merger.
|
3
|
Section 1.02 Closing.
|
3
|
Section 1.03 Effective Time.
|
3
|
Section 1.04 Effects of the Merger.
|
4
|
Section 1.05 Articles of Incorporation; Articles of Organization and Operating Agreement.
|
5
|
Section 1.06 Directors and Officers.
|
5
|
ARTICLE II Effect of the Merger on Equity Interests
|
6
|
Section 2.01 Effect of the Merger on Equity Interests.
|
6
|
Section 2.02 Surrender and Exchange.
|
7
|
Section 2.03 Withholding Rights.
|
8
|
Section 2.04 Intended Tax Consequences.
|
8
|
ARTICLE III Representations and Warranties of the Company
|
8
|
Section 3.01 Organization; Standing and Power; Organizational Documents; Subsidiaries.
|
8
|
Section 3.02 Capital Structure; Assets and Operations.
|
9
|
Section 3.03 Authority; Non-Contravention; Governmental Consents; Board Approval; Anti-Takeover Statutes.
|
11
|
Section 3.04 Financial Statements; Undisclosed Liabilities; Off-Balance Sheet Arrangements.
|
13
|
Section 3.05 Absence of Certain Changes or Events.
|
13
|
Section 3.06 Taxes.
|
14
|
Section 3.07 Intellectual Property.
|
18
|
Section 3.08 Compliance; Permits.
|
19
|
Section 3.09 Litigation.
|
20
|
Section 3.10 Brokers’ and Finders’ Fees.
|
20
|
Section 3.11 Related Person Transactions.
|
21
|
Section 3.12 Employee Matters.
|
21
|
Section 3.13 Real Property and Personal Property Matters.
|
25
|
Section 3.14 Environmental Matters.
|
26
|
Section 3.15 Material Contracts.
|
27
|
Section 3.16 Insurance.
|
29
|
Section 3.17 Proxy Statement.
|
30
|
Section 3.18 Anti-Corruption Matters.
|
30
|
Section 3.19 Customers
|
30
|
ARTICLE IV Representations and Warranties of Parent and the Merger Subs
|
31
|
Section 4.01 Organization; Standing and Power; Charter Documents; Subsidiaries.
|
31
|
Section 4.02 Capital Structure.
|
32
|
Section 4.03 Authority; Non-Contravention; Governmental Consents; Board Approval; Anti-Takeover Statutes.
|
34
|
Section 4.04 SEC Filings; Financial Statements; Sarbanes-Oxley Act Compliance; Undisclosed Liabilities; Off-Balance
Sheet Arrangements.
|
36
|
Section 4.05 Absence of Certain Changes or Events.
|
39
|
Section 4.06 Taxes.
|
39
|
Section 4.07 Intellectual Property.
|
43
|
Section 4.08 Compliance; Permits.
|
44
|
Section 4.09 Litigation.
|
45
|
Section 4.10 Brokers’ and Finders’ Fees.
|
45
|
Section 4.11 Related Person Transactions.
|
45
|
Section 4.12 Employee Matters.
|
46
|
Section 4.13 Real Property and Personal Property Matters.
|
50
|
Section 4.14 Environmental Matters.
|
51
|
Section 4.15 Material Contracts.
|
51
|
Section 4.16 Insurance.
|
54
|
Section 4.17 Proxy Statement.
|
54
|
Section 4.18 Anti-Corruption Matters.
|
55
|
Section 4.19 Customers.
|
55
|
Section 4.20 Fairness Opinion.
|
55
|
ARTICLE V Covenants
|
56
|
Section 5.01 Conduct of Business of the Company.
|
56
|
Section 5.02 Conduct of Business of Parent and Merger Subs.
|
58
|
Section 5.03 Other Actions.
|
61
|
Section 5.04 Access to Information; Confidentiality.
|
61
|
Section 5.05 No Solicitation.
|
62
|
Section 5.06 Shareholders Meeting; Preparation of Proxy Materials.
|
65
|
Section 5.07 Notices of Certain Events.
|
67
|
Section 5.08 Employees; Severance; Benefit Plans.
|
67
|
Section 5.09 Directors’ and Officers’ Indemnification and Insurance.
|
69
|
Section 5.10 Reasonable Best Efforts.
|
71
|
Section 5.11 Public Announcements.
|
72
|
Section 5.12 Anti-Takeover Statutes.
|
72
|
Section 5.13 Other SEC Filings.
|
72
|
Section 5.14 Section 16 Matters.
|
73
|
Section 5.15 Further Assurances.
|
73
|
Section 5.16 The Conversion.
|
73
|
Section 5.17 Board of Directors.
|
74
|
Section 5.18 Stock Exchange Listing.
|
74
|
Section 5.19 The Offer
|
74
|
Section 5.21 Pre-Closing Balance Sheet Adjustment
|
77
|
Section 5.22 Dock Square Consulting Arrangement
|
77
|
Section 5.23 Covered Claim Indemnification
|
77
|
Section 5.24 Franchise Purchase Agreement
|
78
|
Section 5.25
Pre-Closing Transition
|
78
|
ARTICLE VI Conditions
|
79
|
Section 6.01 Conditions to Each Party’s Obligation to Effect the Merger.
|
79
|
Section 6.02 Conditions to Obligations of Parent and Merger Subs.
|
79
|
Section 6.03 Conditions to Obligation of the Company.
|
81
|
ARTICLE VII Termination, Amendment, and Waiver
|
82
|
Section 7.01 Termination By Mutual Consent.
|
82
|
Section 7.02 Termination By Either Parent or the Company.
|
82
|
Section 7.03 Termination By The Company.
|
83
|
Section 7.04 Termination By Parent.
|
83
|
Section 7.05 Notice of Termination; Effect of Termination.
|
84
|
Section 7.06 Fees and Expenses Following Termination.
|
84
|
Section 7.07 Amendment.
|
85
|
Section 7.08 Extension; Waiver.
|
85
|
ARTICLE VIII Miscellaneous
|
86
|
Section 8.01 Definitions.
|
86
|
Section 8.02 Interpretation; Construction.
|
99
|
Section 8.03 No Survival.
|
100
|
Section 8.04 Governing Law.
|
100
|
Section 8.05 Submission to Jurisdiction.
|
100
|
Section 8.06 Waiver of Jury Trial.
|
101
|
Section 8.07 Notices.
|
101
|
Section 8.08 Entire Agreement.
|
103
|
Section 8.09 No Third Party Beneficiaries.
|
103
|
Section 8.10 Severability.
|
103
|
Section 8.11 Assignment.
|
103
|
Section 8.12 Remedies.
|
103
|
Section 8.13 Specific Performance.
|
103
|
Section 8.14 Counterparts; Effectiveness.
|
104
|
Schedule
A – Voting Agreement Shareholders
Exhibit
A-1 – Form of Parent Articles of Amendment (Washington)
Exhibit A-2 – Form of Parent Certificate of Incorporation (Delaware)
Exhibit
B – Form of Parent Bylaws (Delaware)
Exhibit C – Form of Shareholder Voting Agreement
Exhibit
D – Form of Certificate of Conversion
Exhibit
E-1 – Form of First Merger Certificate
Exhibit
E-2 – Form of Second Merger Certificate
Exhibit
F – Permitted Encumbrances
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this
“
Agreement
”), is entered into as of April 8, 2019, by and among Hire Quest Holdings, LLC, a Florida limited
liability company (the “
Company
”), Command Center, Inc., a Washington corporation (“
Parent
”),CCNI
One, Inc., a Florida corporation (“
Merger Sub 1
”), Command Florida, LLC, a Florida limited liability company
(“
Merger Sub 2
” and, together with Merger Sub 1, the “
Merger Subs
”), and, solely for purposes
of Sections 5.20(c), 5.20(e) and 5.23 hereof, Richard Hermanns, as the representative of the members of the Company (the “
Member
Representative
”). Capitalized terms used herein (including in the immediately preceding sentence) and not otherwise defined
herein shall have the meanings set forth in Section 8.01 hereof.
RECITALS
WHEREAS, Parent has formed the Merger Subs
for the purpose of effecting the Merger (as defined herein);
WHEREAS, the parties intend that, at the
Effective Time, Merger Sub 1 be merged with and into the Company (the “
First Merger
”), with the Company surviving
the First Merger on the terms and subject to the conditions set forth herein;
WHEREAS, the parties intend that, immediately
following the First Merger, the Company as the surviving company of the First Merger will merge with and into Merger Sub 2 (the
“
Second Merger
” and, together with the First Merger, the “
Merger
”), with Merger Sub 2 surviving
the Second Merger on the terms and subject to the conditions set forth herein;
WHEREAS, the parties intend that, promptly
after the Merger and subject to the approval of Parent’s shareholders, Parent be converted to a Delaware corporation;
WHEREAS, in the Merger, upon the terms and
subject to the conditions of this Agreement, all of the membership interests of the Company Members in the Company (the “
Company
Membership Interests
”) will be converted into the right to receive the Merger Consideration, except as otherwise provided
in this Agreement;
WHEREAS, the Company Members as of the date
hereof have unanimously: (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, upon
the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, the Company and the Company
Members; (b) approved and declared advisable this Agreement, including the execution, delivery, and performance thereof, and the
consummation of the transactions contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions
set forth herein; and (c) resolved, subject to the terms and conditions set forth in this Agreement, to approve and adopt this
Agreement on behalf of the Company, in each case in accordance with the FRLLCA;
WHEREAS, Parent, as sole member or sole
shareholder, as applicable, of each of the Merger Subs, has: (a) determined that this Agreement and the transactions contemplated
hereby, including the Merger, upon the terms and subject to the conditions set forth herein, are fair to, and in the best interests
of, the Merger Subs and Parent; and (b) approved and declared advisable this Agreement, including the execution, delivery, and
performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Merger, upon the terms
and subject to the conditions set forth herein, in each case in accordance with the FRLLCA;
WHEREAS, the Board of Directors of Parent
(the “
Parent Board
”) has unanimously: (a) determined that this Agreement and the transactions contemplated hereby,
including the Conversion and the Merger, upon the terms and subject to the conditions set forth herein, are fair to, and in the
best interests of, Parent and Parent’s shareholders; (b) approved and declared advisable this Agreement, including the execution,
delivery, and performance thereof, and the consummation of the transactions contemplated by this Agreement, including the Conversion
and the Merger, upon the terms and subject to the conditions set forth herein; (c) directed that the Conversion, the amendment
of Parent’s articles of incorporation to increase the authorized shares of Parent Common Stock and change the name of Parent
to “HireQuest, Inc.”, the issuance of shares of Parent Common Stock pursuant to this Agreement and the related change
of control pursuant to Nasdaq listing rules be submitted to a vote of the Parent shareholders for approval at the Parent Shareholders
Meeting; and (d) resolved to recommend that Parent shareholders vote in favor of such approval in accordance with the WBCA;
WHEREAS, concurrently with the execution
and delivery of this Agreement, the shareholders of Parent set forth on
Schedule A
are entering into voting agreements with
the Company with respect to the Merger in substantially the form attached hereto as
Exhibit C
(the “
Shareholder
Voting Agreements
”);
WHEREAS, it is contemplated that, contemporaneously
with Parent seeking the Requisite Parent Vote at the Parent Shareholders Meeting, Parent shall commence a self-tender offer (the
“
Offer
”) to purchase up to 1,500,000 shares of Parent Common Stock at a price per share of $6.00 as provided
herein; and
WHEREAS, the parties desire to make certain
representations, warranties, covenants, and agreements in connection with the Merger and the other transactions contemplated by
this Agreement and also to prescribe certain terms and conditions to the Merger.
NOW, THEREFORE, in consideration of the
foregoing and of the representations, warranties, covenants and agreements contained in this Agreement, the parties, intending
to be legally bound, agree as follows:
ARTICLE I
The Merger
Section
1.01
The Merger.
(a)
On the terms and subject to the conditions set forth in this Agreement, and in accordance with the FBCA and the FRLLCA,
as applicable, at the Effective Time: (i) Merger Sub 1 will merge with and into the Company; (ii) the separate corporate existence
of Merger Sub 1 will cease; and (iii) the Company will continue its limited liability company existence under the FRLLCA as the
surviving company in the First Merger (sometimes referred to herein as the “
First Surviving Company
”).
(b)
On the terms and subject to the conditions set forth in this Agreement, and in accordance with the FRLLCA, at the Second
Merger Effective Time: (i) the First Surviving Company will merge with and into Merger Sub 2; (ii) the separate limited liability
company existence of the First Surviving Company will cease; and (iii) Merger Sub 2 will continue its limited liability company
existence under the FRLLCA as the surviving company in the Second Merger (sometimes referred to herein as the “
Surviving
Company
”).
Section 1.02
Closing.
Upon the terms
and subject to the conditions set forth herein, the closing of the Merger (the “
Closing
”) will take place at
9:00 a.m., Eastern time, as soon as practicable (and, in any event, within three Business Days) after the satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger set forth in ARTICLE VI (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted hereunder, waiver
of all such conditions), unless this Agreement has been terminated pursuant to its terms or unless another time or date is agreed
to in writing by the parties hereto. The Closing shall be held at the offices of Hill, Ward & Henderson, P.A., 101 E. Kennedy
Blvd., Suite 3700, Tampa, Florida 33602 or remotely via the electronic exchange of documents, or at such other place as agreed
to in writing by the parties hereto, and the actual date of the Closing is hereinafter referred to as the “
Closing Date
.”
Section 1.03
Effective Time.
(a)
Subject to the provisions of this Agreement, at the Closing, the Company and Merger Sub 1 shall cause a certificate of merger
substantially in the form attached hereto as Exhibit E-1 (the “
First Merger Certificate
”) to be executed, acknowledged,
and filed with the Secretary of State of the State of Florida to effect the merger of Merger Sub 1 with and into the Company in
accordance with the relevant provisions of the FBCA and the FRLLCA, and shall make all other filings or recordings required under
the FBCA and the FRLLCA in connection therewith. If the Secretary of State of the State of Florida requires any changes in the
First Merger Certificate as a condition to filing or issuing a certificate to the effect that the First Merger is effective, the
Company and/or Merger Sub 1 shall execute any necessary document incorporating such changes, provided such changes are not inconsistent
with and do not result in any material change in the terms of this Agreement. The First Merger will become effective at such time
as the First Merger Certificate has been duly filed with the Secretary of State of the State of Florida or at such later date or
time as may be agreed by the Company and Parent in writing and specified in the First Merger Certificate in accordance with the
FBCA and the FRLLCA; provided that such time shall be on the same date as, but effective prior to, the Second Merger Effective
Time (the effective time of the First Merger being hereinafter referred to as the “
Effective Time
”).
(b)
Immediately following the Effective Time, the First Surviving Company and Merger Sub 2 shall cause a certificate of merger
substantially in the form attached hereto as Exhibit E-2 (the “
Second Merger Certificate
”) to be executed, acknowledged,
and filed with the Secretary of State of the State of Florida to effect the merger of the First Surviving Company with and into
Merger Sub 2 in accordance with the relevant provisions of the FRLLCA, and shall make all other filings or recordings required
under the FRLLCA in connection therewith. If the Secretary of State of the State of Florida requires any changes in the Second
Merger Certificate as a condition to filing or issuing a certificate to the effect that the Second Merger is effective, the First
Surviving Company and/or Merger Sub 2 shall execute any necessary document incorporating such changes, provided such changes are
not inconsistent with and do not result in any material change in the terms of this Agreement. The Second Merger will become effective
at such time as the Second Merger Certificate has been duly filed with the Secretary of State of the State of Florida or at such
later date or time as may be agreed by the Company and Parent in writing and specified in the Second Merger Certificate in accordance
with the FRLLCA; provided that such time shall be on the same date as, but effective after, the Effective Time (the effective time
of the Second Merger being hereinafter referred to as the “
Second Merger Effective Time
”).
Section 1.04
Effects of the Merger.
The Merger shall have the effects set forth in this Agreement, the First Merger Certificate, the Second Merger Certificate and
the applicable provisions of the FRLLCA. Without limiting the generality of the foregoing, and subject thereto, (a) from and after
the Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses, and authority of the Company and
Merger Sub 1 shall vest in the First Surviving Company, and all debts, liabilities, obligations, restrictions, and duties of each
of the Company and Merger Sub 1 shall become the debts, liabilities, obligations, restrictions, and duties of the First Surviving
Company; and (b) from and after the Second Merger Effective Time, all property, rights, privileges, immunities, powers, franchises,
licenses, and authority of the First Surviving Company and Merger Sub 2 shall vest in the Surviving Company, and all debts, liabilities,
obligations, restrictions, and duties of each of the First Surviving Company and Merger Sub 2 shall become the debts, liabilities,
obligations, restrictions, and duties of the Surviving Company.
Section 1.05
Articles of Incorporation; Articles
of Organization and Operating Agreement.
(a)
At the Effective Time, the articles of incorporation of Parent shall be amended by the Articles of Amendment substantially
in the form attached hereto as Exhibit A-1, and, as so amended, shall be the articles of incorporation of Parent until thereafter
amended in accordance with the terms thereof or as provided by applicable Law.
(b)
At the Effective Time, (i) the articles of organization of the Company as in effect immediately prior to the Effective Time
shall be the articles of organization of the First Surviving Company until thereafter amended as provided by the FRLLCA and such
articles of organization, and (ii) the operating agreement of the Company as in effect immediately prior to the Effective Time
shall be the operating agreement of the First Surviving Company until thereafter amended as provided by the FRLLCA, such articles
of organization and such operating agreement.
(c)
At the Second Merger Effective Time, (i) the articles of organization of Merger Sub 2 as in effect immediately prior
to the Second Merger Effective Time shall be the articles of organization of the Surviving Company until thereafter amended as
provided by the FRLLCA and such articles of organization, and (ii) the operating agreement of Merger Sub 2 as in effect immediately
prior to the Second Merger Effective Time shall be the operating agreement of the Surviving Company until thereafter amended as
provided by the FRLLCA, such articles of organization and such operating agreement.
Section 1.06
Directors and Officers.
The initial number of members of the Board of Directors of Parent shall be fixed at seven. Parent shall cause four of its current
directors to resign at the Effective Time (the “
Resigning Directors
”), and four directors to be selected by
the Company shall fill the resulting vacancies until their successors have been duly elected or appointed and qualified or until
their earlier death, resignation, or removal in accordance with the certificate of incorporation and bylaws of Parent; provided
that such directors selected by the Company shall meet the requirements of NASDAQ, or the securities exchange on which the Parent
Common Stock is then listed, and of the Bank, and the Company shall have delivered to Parent any reasonably requested disclosures
and documents. The individuals specified in Section 1.06 of the Parent Disclosure Letter shall be the chief executive officer and
chief operating officer, respectively, of the Parent, in each case commencing at the Effective Time, and shall hold office in accordance
with the certificate of incorporation and bylaws of Parent, the rules or regulations of NASDAQ or the securities exchange on which
the Parent Common Stock is then listed, and their respective employment agreements (if any), until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation, or removal in accordance with the certificate of
incorporation and bylaws of the Parent, the rules or regulations of NASDAQ or the securities exchange on which the Parent Common
Stock is then listed, and their respective employment agreements (if any). The remaining officers of Parent, as well as the officers
of the Merger Subs, shall be mutually agreed upon by the parties prior to the filing of the preliminary Proxy Statement.
ARTICLE II
Effect of the Merger on Equity Interests
Section 2.01
Effect of the Merger on Equity
Interests.
(a)
At the Effective Time, as a result of the First Merger and without any action on the part of Parent, Merger Sub 1, Merger
Sub 2, the Company or the holder of any capital stock of Parent or of Merger Sub 1 or membership interests in the Company or in
Merger Sub 2:
(i)
Conversion of Company Membership Interests
. All Company Membership Interests as of immediately prior to the Effective
Time shall be converted into the right to receive an aggregate of a number of shares of Parent Common Stock payable at Closing
representing 68.00% of the shares of Parent Common Stock outstanding immediately after the Effective Time but prior to giving effect
to the purchase of Parent Common Stock pursuant to the Offer (the “
Merger Consideration
”). Section 2.01(a) of
the Company Disclosure Letter sets forth to whom and in what denominations the Merger Consideration is to be allocated amongst
the Company Members, with each Company Member receiving its pro rata share of the Merger Consideration calculated in accordance
with the Company’s operating agreement (each such share, the “
Pro Rata Merger Consideration
”). Notwithstanding
the foregoing, no fractional shares of Parent Common Stock shall be issued as part of the Merger Consideration and instead, fractional
shares that would otherwise be issued hereunder shall be rounded up to the next whole number.
(ii)
Cancellation of Company Membership Interests
. At the Effective Time, all Company Membership Interests shall no longer
be outstanding and shall be cancelled and retired and shall cease to exist, and each holder of a Company Membership Interest shall
cease to have any rights with respect thereto, except the right to receive its Pro Rata Merger Consideration, without interest,
in accordance with Section 2.02 hereof.
(iii)
Conversion of Merger Sub 1 Capital Stock
. All Merger Sub 1 Capital Stock as of immediately prior to the Effective
Time shall be converted into and become membership interests of the First Surviving Company, with the same rights, powers, and
privileges as the capital stock so converted (and the membership interests of the First Surviving Company into which the Merger
Sub 1 Capital Stock are so converted shall be the only membership interests of the First Surviving Company immediately after the
Effective Time).
(b)
At the Second Merger Effective Time, as a result of the Second Merger and without any action on the part of Parent, Merger
Sub 1, Merger Sub 2, the Company, the First Surviving Company or the holder of any capital stock of Parent or of Merger Sub 1 or
membership interests in the Company, the First Surviving Company or Merger Sub 2:
(i)
Cancellation of First Surviving Company Membership Interests
. All First Surviving Company Membership Interests as
of immediately prior to the Second Merger Effective Time shall no longer be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a First Surviving Company Membership Interest shall cease to have any rights with respect
thereto.
(ii)
Conversion of Merger Sub 2 Membership Interests
. All Merger Sub 2 Membership Interests as of immediately prior to
the Second Merger Effective Time shall be converted into and become membership interests of the Surviving Company, with the same
rights, powers, and privileges as the membership interests so converted (and the membership interests of the Surviving Company
into which the Merger Sub 2 Membership Interests are so converted shall be the only membership interests of the Surviving Company
immediately after the Second Merger Effective Time).
(c)
Transfer Restrictions
. The parties acknowledge that the shares of Parent Common Stock to be issued to the Company
Members as Merger Consideration pursuant to Section 2.01(a)(i) will be issued under an exemption from registration under the Securities
Act and may not be disposed of by such Company Members without registration or the availability of an exemption therefrom.
Section
2.02
Surrender and Exchange.
(a)
Procedures for Delivery of Parent Common Stock
. Promptly after the Effective Time, Parent shall send to each record
holder of Company Membership Interests converted pursuant to Section 2.01(a)(i), a letter of transmittal and instructions (which
letter of transmittal will be in customary form and have such provisions as Parent may reasonably specify) for use in such exchange.
Promptly following its receipt of an executed letter of transmittal from a Company Member and any other documents reasonably requested
by Parent and set forth in the letter of transmittal, Parent shall deliver to such Company Member Parent Certificates (or confirmation
of direct registration) evidencing that number of shares of Parent Common Stock issuable to such Company Member in accordance with
this ARTICLE II in respect of the Company Membership Interests.
(b)
Full Satisfaction
. The Pro Rata Merger Consideration delivered upon the surrender of Company Membership Interests
in accordance with the terms hereof shall be deemed to have been delivered in full satisfaction of all rights pertaining to the
Company Membership Interests. If, after the Effective Time, Company Membership Interests are presented to Parent, they shall be
cancelled and exchanged for the Pro Rata Merger Consideration provided for, and in accordance with the procedures set forth, in
this ARTICLE II.
Section 2.03
Withholding Rights.
Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this ARTICLE
II such amounts as may be required to be deducted and withheld with respect to the making of such payment under any Tax Laws; provided,
that Parent shall, prior to withholding, provide written notice to the applicable Person of its intent to withhold and provide
such Person with the reasonable opportunity to provide such forms or other evidence as may reduce, eliminate or mitigate such withholding.
To the extent that amounts are so deducted and withheld by Parent and paid to the appropriate taxing authority, such amounts shall
be treated for all purposes of this Agreement as having been delivered to the Person in respect of which Parent made such deduction
and withholding.
Section 2.04
Intended Tax Consequences.
Each of the parties hereto intends that, for United States federal and applicable
state and local income tax purposes, the First Merger and the Second Merger, taken together, will constitute an
integrated plan described in Rev. Rul. 2001-46, 2001-2 C.B. 321 (the “
Integrated Transaction
”)
and qualify as a “reorganization” within the meaning of Section 368(a) of the Code and that this Agreement constitute
a “plan of reorganization” for purposes of Sections 354, 361 and 368 of the Code within the meaning of Treasury Regulations
Sections 1.368-2(g) and 1.368-3.
ARTICLE III
Representations and Warranties of the Company
Except as set forth in the correspondingly
numbered Section of the disclosure letter, dated as of the date hereof and delivered by the Company to Parent concurrently with
the execution of this Agreement (the “
Company Disclosure Letter
”), the Company hereby represents and warrants
to Parent as of the date hereof and as of the Closing Date, except to the extent that certain representations and warranties are
limited to a certain date set forth in the applicable Section, as follows:
Section
3.01
Organization; Standing and Power; Organizational
Documents; Subsidiaries.
(a)
Organization; Standing and Power
. The Company and each of its Subsidiaries is a corporation, limited liability company,
or other legal entity duly organized, validly existing, and in good standing under the Laws of its jurisdiction of organization
set forth in Section 3.01(a) of the Company Disclosure Letter, and has the requisite corporate, limited liability company, or other
organizational, as applicable, power and authority to own, lease, and operate its assets and to carry on its business as now conducted.
Each of the Company and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability
company, or other legal entity and is in good standing in each jurisdiction where the character of the assets and properties owned,
leased, or operated by it or the nature of its business makes such qualification or license necessary, except where the failure
to be so qualified or in good standing would not, individually or in the aggregate, have a Company Material Adverse Effect.
(b)
Organizational Documents
. The Company has delivered or made available to Parent a true and correct copy of the articles
of organization, operating agreement or like organizational documents, each as amended to date (collectively, the “
Organizational
Documents
”), of the Company and each of its Subsidiaries. Neither the Company nor any of its Subsidiaries is in violation
of any of the provisions of its Organizational Documents.
(c)
Subsidiaries
. Section 3.01(c)(i) of the Company Disclosure Letter lists each of the Subsidiaries of the Company as
of the date hereof and its place of organization. Section 3.01(c)(ii) of the Company Disclosure Letter sets forth, for each Subsidiary
that is not, directly or indirectly, wholly-owned by the Company: (i) the number and type of any membership interests of, or other
equity or voting interests in, such Subsidiary that is outstanding as of the date hereof; and (ii) the number and type of membership
interests of, or other equity or voting interests in, such Subsidiary that, as of the date hereof, are owned, directly or indirectly,
by the Company. All of the outstanding membership interests of, or other equity or voting interests in, each Subsidiary of the
Company that is owned directly or indirectly by the Company have been validly issued, were issued free of pre-emptive rights, are
fully paid and non-assessable, and are free and clear of all Liens, including any restriction on the right to vote, sell, or otherwise
dispose of such membership interests or other equity or voting interests, except for any Liens: (A) imposed by applicable securities
Laws; or (B) arising pursuant to the Organizational Documents of any non-wholly-owned Subsidiary of the Company. Except for the
membership interests of, or other equity or voting interests in, its Subsidiaries, the Company does not own, directly or indirectly,
any membership interests of, or other equity or voting interests in, any Person.
Section
3.02
Capital Structure; Assets and Operations.
(a)
Membership Interests
. As of the date of this Agreement, the membership interests of the Company Members in the Company
(the “
Company Membership Interests
”) are as set forth in Section 3.02(a) of the Company Disclosure Letter. Except
as set forth in Section 3.02(a) of the Company Disclosure Letter, none of such Company Membership Interests are subject to any
pre-emptive rights. No Subsidiary of the Company owns any Company Membership Interests.
(b)
Convertible Securities; Equity Awards
.
(i)
Except as set forth in Section 3.02(b) of the Company Disclosure Letter, as of the date hereof, there are no outstanding:
(A) securities of the Company or any of its Subsidiaries convertible into or exchangeable for Company Membership Interests; (B)
options, warrants, or other agreements or commitments to acquire from the Company or any of its Subsidiaries, or obligations of
the Company or any of its Subsidiaries to issue, any Voting Debt, Company Membership Interests or securities convertible into or
exchangeable for Company Membership Interests; or (C) restricted units, appreciation rights, performance units, profit participation
rights, contingent value rights, “phantom” equity, or similar securities or rights that are derivative of, or provide
economic benefits based, directly or indirectly, on the value or price of, any Company Membership Interests, in each case that
have been issued by the Company or its Subsidiaries (the items in clauses (A), (B), and (C), together with the Company Membership
Interests, being referred to collectively as “
Company Securities
”). All outstanding Company Membership Interests
and all outstanding membership interests, voting securities, or other ownership interests in any Subsidiary of the Company, have
been issued or granted, as applicable, in compliance in all material respects with all applicable securities Laws.
(ii)
There are no outstanding Contracts requiring the Company or any of its Subsidiaries to repurchase, redeem, or otherwise
acquire any Company Securities or Company Subsidiary Securities. Except for their respective operating agreements, neither the
Company nor any of its Subsidiaries is a party to any voting agreement with respect to any Company Securities or Company Subsidiary
Securities.
(c)
Voting Debt
. No bonds, debentures, notes, or other indebtedness issued by the Company or any of its Subsidiaries:
(i) having the right to vote on any matters on which members of the Company or any of its Subsidiaries may vote (or which is convertible
into, or exchangeable for, securities having such right); or (ii) the value of which is directly based upon or derived from the
capital stock, voting securities, or other ownership interests of the Company or any of its Subsidiaries, are issued or outstanding
(collectively, “
Voting Debt
”).
(d)
Company Subsidiary Securities
. Except as set forth in Section 3.02(d) of the Company Disclosure Letter, as of the
date hereof, there are no outstanding: (i) securities of the Company or any of its Subsidiaries convertible into or exchangeable
for Voting Debt, membership interests, voting securities, or other ownership interests in any Subsidiary of the Company; (ii) options,
warrants, or other agreements or commitments to acquire from the Company or any of its Subsidiaries, or obligations of the Company
or any of its Subsidiaries to issue, any Voting Debt, membership interests, voting securities, or other ownership interests in
(or securities convertible into or exchangeable for membership interests, voting securities, or other ownership interests in) any
Subsidiary of the Company; or (iii) restricted units, appreciation rights, performance units, profit participation rights, contingent
value rights, “phantom” equity, or similar securities or rights that are derivative of, or provide economic benefits
based, directly or indirectly, on the value or price of, any membership interests or voting securities of, or other ownership interests
in, any Subsidiary of the Company, in each case that have been issued by a Subsidiary of the Company (the items in clauses (i),
(ii), and (iii), together with the membership interests, voting securities, or other ownership interests of such Subsidiaries,
being referred to collectively as “Company Subsidiary Securities”).
(e)
Assets and Operations
. As of the date hereof, the Company has no operations and, except for the membership interests
of, or other equity or voting interests in, its Subsidiaries, the Company does not own, directly or indirectly, any other assets.
Section
3.03
Authority; Non-Contravention; Governmental Consents;
Board Approval; Anti-Takeover Statutes.
(a)
Authority
. The Company has all requisite limited liability company power and authority to enter into and deliver
this Agreement and the Shareholder Voting Agreements, to perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated by this Agreement and the Shareholder Voting Agreements. The execution and delivery of this Agreement
and the Shareholder Voting Agreements by the Company and the consummation by the Company of the transactions contemplated hereby
and thereby have been duly authorized by all necessary limited liability company action on the part of the Company and no other
limited liability company proceedings on the part of the Company are necessary to authorize the execution and delivery of this
Agreement and the Shareholder Voting Agreements or to consummate the Merger and the other transactions contemplated hereby or thereby.
No further vote or consent of the holders of any class or series of the Company Membership Interests is necessary to approve and
adopt this Agreement or the Shareholder Voting Agreements, approve the Merger, and consummate the Merger and the other transactions
contemplated hereby or thereby. This Agreement has been duly executed and delivered by the Company and, assuming due execution
and delivery by Parent and the Merger Subs, constitutes the legal, valid, and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar Laws of general applicability relating to or affecting creditors’ rights and remedies and to general equitable principles
(the “
Bankruptcy and Equity Exception
”).
(b)
Non-Contravention
. The execution, delivery, and performance of this Agreement and the Shareholder Voting Agreements
by the Company, and the consummation by the Company of the transactions contemplated hereunder and thereunder, including the Merger,
do not and will not: (i) contravene or conflict with, or result in any violation or breach of, the Organizational Documents of
the Company or any of its Subsidiaries; (ii) assuming that all Consents contemplated by clauses (i) through (iii) of Section 3.03(c)
have been obtained or made, conflict with or violate any Law applicable to the Company, any of its Subsidiaries, or any of their
respective properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the Company’s or any of its Subsidiaries’ loss of any benefit
or the imposition of any additional payment or other liability under, or alter the rights or obligations of any third party under,
or give to any third party any rights of termination, amendment, acceleration, or cancellation, or require any Consent under, any
Contract to which the Company or any of its Subsidiaries is a party or otherwise bound as of the date hereof; or (iv) result in
the creation of a Lien (other than Permitted Liens) on any of the properties or assets of the Company or any of its Subsidiaries.
(c)
Governmental Consents
. No consent, approval, order, or authorization of, or registration, declaration, or filing
with, or notice to (any of the foregoing being a “
Consent
”), any supranational, national, state, municipal,
local, or foreign government, any instrumentality, subdivision, court, administrative agency or commission, or other governmental
authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority
(a “
Governmental Entity
”) is required to be obtained or made by the Company in connection with the execution,
delivery, and performance by the Company of this Agreement or the consummation by the Company of the Merger and other transactions
contemplated hereby, except for: (i) the filing of the First Merger Certificate with the Secretary of State of the State of Florida;
(ii) the filing of the Second Merger Certificate with the Secretary of State of the State of Florida; (iii) the filing of the Certificate
of Conversion with the Secretary of State of the State of Delaware and the Secretary of State of the State of Washington in connection
with the Conversion, if the Conversion Vote is attained; and (iv) the other Consents of Governmental Entities listed in Section
3.03(c) of the Company Disclosure Letter (the “
Other Company Governmental Approvals
”).
(d)
Member Approval
. The Company Members as of the date hereof, by unanimous written consent have: (i) determined that
this Agreement and the transactions contemplated hereby, including the Conversion and the Merger, upon the terms and subject to
the conditions set forth herein, are fair to, and in the best interests of, the Company and the Company Members; (ii) approved
and declared advisable this Agreement, including the execution, delivery, and performance thereof, and the consummation of the
transactions contemplated by this Agreement, including the Conversion and the Merger, upon the terms and subject to the conditions
set forth herein; and (iii) approved and adopted this Agreement in accordance with the FRLLCA.
(e)
Anti-Takeover Statutes
. No “fair price,” “moratorium,” “control share acquisition,”
“supermajority,” “affiliate transactions,” “business combination,” or other similar anti-takeover
statute or regulation enacted under any Laws applicable to the Company is applicable to this Agreement, the Merger, or any of the
other transactions contemplated by this Agreement.
Section
3.04
Financial Statements; Undisclosed Liabilities; Off-Balance
Sheet Arrangements.
(a)
Company Financial Statements
. The unaudited consolidated financial statements (including, in each case, any notes
and schedules thereto) dated December 31, 2018 (the “
Company Financial Statements
”) made available to Parent
on or prior to the date hereof: (i) were prepared in accordance with United States generally accepted accounting principles (“
GAAP
”)
applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto); and (ii) fairly
presented in all material respects the consolidated financial position and the results of operations, changes in owners’
equity, and cash flows of the Company and its consolidated Subsidiaries as of the date of and for the periods referred to in such
Company Financial Statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments
as permitted by GAAP (but only if the effect of such adjustments would not, individually or in the aggregate, be material).
(b)
Undisclosed Liabilities
. The unaudited balance sheet of the Company dated as of December 31, 2018 included in the
Company Financial Statements is hereinafter referred to as the “Company Balance Sheet.” Neither the Company nor any
of its Subsidiaries has any Liabilities other than Liabilities that: (i) are reflected or reserved against in the Company Balance
Sheet (including in the notes thereto); (ii) were incurred since the date of the Company Balance Sheet in the ordinary course of
business consistent with past practice (but solely to the extent not to any Affiliate or related party); or (iii) are incurred
in connection with the transactions contemplated by this Agreement.
(c)
Off-Balance Sheet Arrangements
. Except as set forth in Section 3.04(c) of the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to: (i) any joint venture, off balance
sheet partnership, or any similar Contract or arrangement (including any Contract or arrangement relating to any transaction or
relationship between or among the Company or any of its Subsidiaries, on the one hand, and any other Person, including any structured
finance, special purpose, or limited purpose Person, on the other hand); or (ii) any “off balance sheet arrangements”
(as defined in Item 303(a) of Regulation S-K under the Exchange Act).
Section 3.05
Absence of Certain Changes or
Events.
Since the date of the Company Balance Sheet, except in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and except as set forth in Section 3.05 of the Company Disclosure
Letter, the business of the Company and each of its Subsidiaries has been conducted in the ordinary course of business consistent
with past practice and there has not been or occurred:
(a)
any Company Material Adverse Effect or any event, condition, change, or effect that could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect; or
(b)
any event, condition, action, or effect that, if taken during the period from the date of this Agreement through the Effective
Time, would constitute a breach of Section 5.01.
Section 3.06
Taxes.
(a)
Tax Returns and Payment of Taxes
. The Company and each of its Subsidiaries have duly and timely filed or caused to
be filed (taking into account any valid extensions) all material Tax Returns required to be filed by them. Such Tax Returns are
true, complete, and correct in all material respects. Neither the Company nor any of its Subsidiaries is currently the beneficiary
of any extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the
ordinary course of business consistent with past practice. All material Taxes due and owing by the Company or any of its Subsidiaries
(whether or not shown on any Tax Return) have been timely paid or, where payment is not yet due, the Company has made an adequate
provision for such Taxes in the Company Financial Statements (in accordance with GAAP). The Company Financial Statements reflect
an adequate reserve (in accordance with GAAP) for all material Taxes payable by the Company and its Subsidiaries through the date
of such financial statements. Neither the Company nor any of its Subsidiaries has incurred any material Liability for Taxes since
the date of the Company Financial Statements outside of the ordinary course of business or otherwise inconsistent with past practice.
The Company and each of its Subsidiaries has (i) filed all reports and has created and retained all records required under Code
Section 6038A with respect to its ownership by, and transactions with, related parties, and (ii) the Company and each of its Subsidiaries
that files U.S. federal income tax returns has disclosed on its U.S. federal income tax returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within the meaning of Section 6662 of the Code. Neither the
Company nor any of its Subsidiaries is, or is required to be, registered as a taxable person for purpose of value added Taxes or
any similar indirect Tax. The Company and each Subsidiary has timely collected and properly maintained all resale certificates
and other documentation required for any exemption from the collection of any applicable sales or use or similar Taxes that is
claimed by the Company or applicable Subsidiary.
(b)
Availability of Tax Returns
. The Company has made available to Parent complete and accurate copies of all federal,
state, local, and foreign income, franchise, and other material Tax Returns filed by or on behalf of the Company or its Subsidiaries
for any Tax period ending after January 1, 2017.
(c)
Withholding
. The Company and each of its Subsidiaries have withheld and timely paid each material Tax required to
have been withheld and paid in connection with amounts paid or owing to any Company Employee, creditor, customer, shareholder,
or other party (including, but not limited to, any withholding obligations arising out of or relating to the Pre-Closing Reorganization),
and materially complied with all information reporting and backup withholding provisions of applicable Law.
(d)
Liens
. There are no Liens for material Taxes upon the assets of the Company or any of its Subsidiaries other than
for current Taxes not yet due and payable or for Taxes that are being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP has been made in the Company Financial Statements.
(e)
Tax Deficiencies and Audits
. No deficiency for any material amount of Taxes which has been proposed, asserted, or
assessed in writing by any taxing authority against the Company or any of its Subsidiaries remains unpaid. There are no waivers
or extensions of any statute of limitations currently in effect with respect to Taxes of the Company or any of its Subsidiaries.
There are no audits, suits, proceedings, investigations, claims, examinations, or other administrative or judicial proceedings
ongoing or pending with respect to any material Taxes of the Company or any of its Subsidiaries.
(f)
Tax Jurisdictions
. No claim has ever been made in writing by any taxing authority in a jurisdiction where the Company
and its Subsidiaries do not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to Tax in that jurisdiction.
(g)
Tax Rulings
. Neither the Company nor any of its Subsidiaries has requested or is the subject of or bound by any private
letter ruling, technical advice memorandum, or similar ruling or memorandum with any taxing authority with respect to any material
Taxes, nor is any such request outstanding.
(h)
Closing Agreements
. Neither the Company nor any of its Subsidiaries is a party to any agreement with any Governmental
Entity with respect to Taxes (including, but not limited to, any closing agreement within the meaning of Section 7121 of the Code).
(i)
Consolidated Groups, Transferee Liability, and Tax Agreements
. Neither the Company nor any of its Subsidiaries: (i)
has been a member of a group filing Tax Returns on a consolidated, combined, unitary, or similar basis; (ii) has any material liability
for Taxes of any Person (other than the Company or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
comparable provision of local, state, or foreign Law), as a transferee or successor, by Contract, or otherwise; or (iii) is a party
to, bound by or has any material liability under any Tax sharing, allocation, or indemnification agreement or arrangement (other
than customary Tax indemnifications contained in credit or other commercial agreements the primary purpose of which agreements
does not relate to Taxes).
(j)
Change in Accounting Method
. Except as set forth in Section 3.06(j) of the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries has agreed to make, nor is it required to make, any material adjustment under Section 481(a)
of the Code or any comparable provision of state, local, or foreign Tax Laws by reason of a change in accounting method or otherwise.
(k)
Post-Closing Tax Items
. The Company and its Subsidiaries will not be required to include any material item of income
in, or exclude any material item of deduction from, taxable income for (i) any taxable period (or portion thereof) ending after
the Closing Date as a result of any: (A) “closing agreement” as described in Section 7121 of the Code (or any corresponding
or similar provision of state, local or foreign income Tax Law) executed on or prior to the Closing Date; (B) installment sale
or open transaction disposition made on or prior to the Closing Date; (C) prepaid amount received on or prior to the Closing Date;
(D) election under Section 108(i) of the Code; or (E), except as set forth in Section 3.06(k)(E) of the Company Disclosure Letter,
a change of method of accounting, or use of an improper method of accounting made or used on or prior to the Closing Date, or (ii)
any Tax period (or portion thereof) as a result of any deferred foreign income within the meaning of Section 965 of the Code.
(l)
Prior Activities
. Neither the Company nor any of its Subsidiaries has been a “distributing corporation”
or a “controlled corporation” in connection with a distribution described in Section 355 of the Code and no election
under Section 338 of the Code or any similar provision of applicable Law has been made or is required to be made by or with respect
to the Company or its Subsidiaries.
(m)
Reportable Transactions
. Neither the Company nor any of its Subsidiaries has been a party to, or a material advisor
with respect to, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations
Section 1.6011-4(b).
(n)
FIRPTA
. Neither the Company nor any of its Subsidiaries is, nor has ever been, a “United States real property
holding corporation” within the meaning of Section 897(c)(2) of the Code at any time during the applicable period specified
in Section 897(c)(l)(A)(ii) of the Code. No Company Member is a “foreign person” within the meaning of Sections 1445
and 7701 of the Code.
(o)
Foreign Activities
. Neither the Company nor any of its Subsidiaries (i) has (or has ever had) any (A) place of management,
(B) branch, (C) office (or any other place of business), (D) operations of employees, (E) agent with binding authority or (F) other
activities, in each case that gives rise to a permanent establishment or taxable presence in any country other than the country
where the Company or such Subsidiary was organized, (ii) has ever entered into a gain recognition agreement pursuant to Treasury
Regulation 1.367(a)-8, and (iii) has ever transferred an intangible the transfer of which would be subject to the rules of Section
367(d) of the Code. Neither the Company nor any of its Subsidiaries has any item of income that could constitute (i) subpart F
income within the meaning of Section 952 of the Code or (ii) global intangible low-taxed income within the meaning of Section 951A
of the Code, in each case, for the period commencing on the first day of any Straddle Period and ending at the close of business
on the Closing Date. No Company Subsidiary that is a controlled foreign corporation holds assets that constitute U.S. property
within the meaning of Section 956 of the Code.
(p)
Transfer Pricing
. The Company and each of its Subsidiaries is in compliance in all material respects with all applicable
transfer pricing laws and regulations (including Section 482 of the Code and its corresponding Treasury Regulations and any corresponding
provision of non-U.S. Laws), including the maintenance of contemporaneous documentation substantiating the transfer pricing practices
and methodology of the Company and each Subsidiary.
(q)
Unclaimed Property
. The Company and each of its Subsidiaries has (i) filed or caused to be filed with the appropriate
Governmental Entity all material unclaimed property reports required to be filed and has remitted to the appropriate Governmental
Entity all material unclaimed property required to be remitted, or (ii) delivered or paid all material unclaimed property to its
original or proper recipient.
(r)
Leases of Property
. No asset of the Company or any of its Subsidiaries is (i) required to be treated as being owned
by any other Person pursuant to any provision of applicable Law (including, but not limited to, the “safe harbor” leasing
provisions of Section 168(f)(8) of the Code, as in effect prior to the repeal of those “safe harbor” leasing provisions),
(ii) subject to Section 168(g)(1)(A) of the Code, or (iii) subject to a disqualified leaseback or long-term lease agreement as
defined in Section 467 of the Code.
(s)
“S Corporation” Status
. The Company (and any predecessor of the Company) has been a validly electing
“S corporation” within the meaning of Sections 1361 and 1362 of the Code (and under any analogous state or local Law)
at all times since its inception and shall continue to be a valid “S corporation” for all Tax purposes up to the Merger.
The Company has no potential liability for any Tax under Section 1374 of the Code and shall not be subject to Tax under Section
1374 of the Code in connection with the transactions contemplated by this Agreement. During the past 5 years, the Company has not
(A) acquired assets from another corporation in a transaction in which the Company’s Tax basis for the acquired assets was
determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the
transferor or (B) acquired the stock of any corporation that is a "qualified subchapter S subsidiary" within the meaning
of Section 1361(b)(3)(B) of the Code, except as set forth in Section 3.06(s) of the Company Disclosure Letter.
(t)
Joint Ventures
. Other than the Company’s joint venture with Dock Square, neither the Company nor any of its
Subsidiaries is a party to any joint venture, partnership or other agreement, contract or arrangement (whether written or oral)
that could be treated as a partnership for U.S. federal income tax purposes, other than an entity that is wholly-owned, directly
or indirectly, by the Company or any of its Subsidiaries.
(u)
Tax-Exempt Property
. Neither the Company nor any of its Subsidiaries has “tax-exempt bond-financed property”
or “tax-exempt use property,” within the meaning of Section 168(h) of the Code or any similar provision of applicable
Law.
(v)
Employment Considerations
. Neither the Company nor any of its Subsidiaries is a party to any contract, agreement
or other arrangement that (i) results or could result in any amount that is not deductible under Sections 162, 280G, or 404 of
the Code, or any similar provision of applicable Law or (ii) is or could become subject to Section 409A of the Code or any similar
provision of applicable Law.
(w)
Subsidiaries
. Each Company Subsidiary, at all times since its inception, has been classified as a partnership or
a disregarded entity for U.S. federal income tax purposes. Except as set forth in Section 3.06(w) of the Company Disclosure Letter,
the Company does not have, and has never had, a subsidiary that is a "qualified subchapter S subsidiary" within the meaning
of Section 1361(b)(3)(B) of the Code.
(x)
Intended Tax Treatment
. Neither the Company nor any of its Subsidiaries has taken or agreed to take any action, or
is aware of the existence of any facts or circumstances, that could reasonably be expected to impede or prevent the Merger from
qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
Section
3.07
Intellectual Property.
(a)
Scheduled Company-Owned and Company-Licensed IP
. Section 3.07(a) of the Company Disclosure Letter contains a true
and complete list, as of the date hereof, of all: (i) Company-Owned IP that is the subject of any issuance, registration, certificate,
application, or other filing by, to or with any Governmental Entity or authorized private registrar, including Patent registrations
and patent applications for registration, Trademark registrations and pending applications for registration, Copyright registrations
and pending applications for registration, social media accounts and usernames and internet domain names; (ii) material unregistered
Company-Owned IP; and (iii) Company-Licensed IP.
(b)
Right to Use; Title
. The Company or one of its Subsidiaries is the sole and exclusive legal and beneficial owner
of all right, title, and interest in and to the Company-Owned IP, and has the valid and enforceable right to use all other Intellectual
Property, including all Company-Licensed IP, used or held for use in or necessary for the conduct of the business of the Company
and its Subsidiaries as currently conducted and as proposed to be conducted (“
Company IP
”), in each case, free
and clear of all Liens other than Permitted Liens.
(c)
Validity and Enforceability
. The Company and its Subsidiaries’ rights in the Company-Owned IP are valid, subsisting,
and enforceable. The Company and each of its Subsidiaries have taken reasonable steps to maintain the Company IP and to protect
and preserve the confidentiality of all trade secrets included in the Company IP.
(d)
Non-Infringement
. The conduct of the businesses of the Company and all of its Subsidiaries has not infringed, misappropriated,
or otherwise violated, and is not infringing, misappropriating, or otherwise violating, any Intellectual Property of any other
Person. To the Knowledge of the Company, no third party is infringing upon, violating, or misappropriating any Company IP.
(e)
IP Legal Actions and Orders
. There are no Legal Actions pending or, to the Knowledge of the Company, threatened:
(i) alleging any infringement, misappropriation, or violation of the Intellectual Property of any Person by the Company or any
of its Subsidiaries; or (ii) challenging the validity, enforceability, or ownership of any Company-Owned IP or the Company or any
of its Subsidiaries’ rights with respect to any Company IP. The Company and its Subsidiaries are not subject to any outstanding
Order that restricts or impairs the use of any Company-Owned IP.
(f)
Information Systems
. The software and other information technology that is owned or controlled by the Company and
its Subsidiaries: (i) are in satisfactory working order, are substantially free from reproducible programming errors and from
defects in workmanship and materials (other than customary bugs), and are scalable to meet current and reasonably anticipated capacity;
(ii) have reasonably appropriate security, backups, disaster recovery arrangements, and hardware and software support and maintenance
to minimize the risk of material error, breakdown, failure, or security breach occurring; (iii) are configured and maintained in
accordance with accepted business practices to minimize the effects of viruses and malware; (iv) do not contain any malicious code,
protective feature designed to prevent its use, including, without limitation, any computer virus, worm, software lock, drop dead
device, Trojan horse routine, trap door, bomb or any other code or instruction created or inserted by or on behalf of the Company
and its Subsidiaries that may be used to access, modify, delete, damage or disable it; and (v) have not suffered any error,
breakdown, failure, or security breach that has caused disruption or damage to the operation of the business of Company and its
Subsidiaries.
Section
3.08
Compliance; Permits.
(a)
Compliance
. The Company and each of its Subsidiaries is and has been in compliance with all Laws or Orders applicable
to the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries or any of their respective businesses
or properties is bound in all material respects. Since January 1, 2017, no Governmental Entity has issued any notice or notification
stating that the Company or any of its Subsidiaries is not in compliance with any Law. Neither the Company nor any of its Subsidiaries
has received written notice (or to the Knowledge of the Company, any other notice) from any Person asserting that it has failed
to comply with such Person’s rules, protocols, policies and procedures relating to privacy and data use and protection. Except
as set forth in Section 3.08(a) of the Company Disclosure Letter, no investigation by any state or federal regulatory agency has
been commenced to the Knowledge of the Company. No action has been asserted or, to the Knowledge of the Company, threatened against
the Company or its Subsidiaries alleging a violation of any Person’s privacy or personal information or data rights.
(b)
Permits
. The Company and its Subsidiaries hold, to the extent necessary to operate their respective businesses as
such businesses are being operated as of the date hereof, all permits, licenses, registrations, variances, clearances, consents,
commissions, franchises, exemptions, orders, authorizations, and approvals from Governmental Entities (collectively, “
Permits
”).
No suspension, cancellation, non-renewal, or adverse modifications of any Permits of the Company or any of its Subsidiaries is
pending or, to the Knowledge of the Company, threatened. The Company and each of its Subsidiaries is and has been in compliance
with the terms of all Permits.
Section 3.09
Litigation.
Except
as set forth in Section 3.09 of the Company Disclosure Letter, there is no Legal Action pending, or to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries or any of their respective properties or assets or, to the Knowledge
of the Company, any officer or director of the Company or any of its Subsidiaries in their capacities as such other than any such
Legal Action that: (a) does not involve an amount in controversy in excess of $50,000; and (b) does not seek material injunctive
or other material non-monetary relief. None of the Company or any of its Subsidiaries or any of their respective properties or
assets is subject to any order, writ, assessment, decision, injunction, decree, ruling, or judgment (“
Order
”)
of a Governmental Entity or arbitrator, whether temporary, preliminary, or permanent. To the Knowledge of the Company, there are
no governmental inquiries or investigations, or internal investigations pending or, to the Knowledge of the Company, threatened,
in each case regarding any accounting practices of the Company or any of its Subsidiaries or any malfeasance by any officer or
director of the Company.
Section 3.10
Brokers’ and Finders’
Fees.
Except for fees payable to Raymond James & Associates, Inc. (the “
Company Financial Advisor
”),
including (if applicable) attorneys’ fees, pursuant to an engagement letter listed in Section 3.10 of the Company Disclosure
Letter, a correct and complete copy of which has been made available to Parent, neither the Company nor any of its Subsidiaries
has incurred, nor will it incur, directly or indirectly, any liability for investment banker, brokerage, or finders’ fees
or agents’ commissions, or any similar charges in connection with this Agreement or any transaction contemplated by this
Agreement.
Section 3.11
Related Person Transactions.
Except as set forth in Section 3.11 of the Company Disclosure Letter, there are, and since January 1, 2017, there have been, no
Contracts, transactions, arrangements, or understandings between the Company or any of its Subsidiaries, on the one hand, and any
Affiliate (including any director, officer, or employee) thereof or any holder of 5% or more of any Company Securities.
Section 3.12
Employee Matters.
(a)
Schedule
. Section 3.12(a) of the Company Disclosure Letter contains a true and complete list, as of the date hereof,
of each plan, program, policy, agreement, collective bargaining agreement, or other arrangement providing for compensation, severance,
deferred compensation, performance awards, equity or equity-based awards, fringe, retirement, death, disability, or medical benefits
or other employee benefits or remuneration of any kind, including each employment, termination, severance, retention, change in
control, or consulting or independent contractor plan, program, arrangement, or agreement, in each case whether written or unwritten
or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA,
whether or not subject to ERISA, which is or has been sponsored, maintained, contributed to, or required to be contributed to,
by the Company or any of its Subsidiaries for the benefit of any current or former employee, independent contractor, consultant,
or director of the Company or any of its Subsidiaries (each, a “
Company Employee
”), or with respect to which
the Company or any Company ERISA Affiliate has or may have any Liability (collectively, the “
Company Employee Plans
”).
(b)
Documents
. The Company has made available to Parent correct and complete copies (or, if a plan is not written, a
written description) of all Company Employee Plans and amendments thereto, and, to the extent applicable: (i) all related trust
agreements, funding arrangements, and insurance contracts now in effect or required in the future as a result of the transactions
contemplated by this Agreement or otherwise; (ii) the most recent determination letter received regarding the tax-qualified status
of each Company Employee Plan; (iii) the most recent financial statements for each Company Employee Plan; (iv) the Form 5500 Annual
Returns/Reports and Schedules for the most recent plan year for each Company Employee Plan; (v) the current summary plan description
for each Company Employee Plan; and (vi) all actuarial valuation reports related to any Company Employee Plans.
(c)
Employee Plan Compliance
. (i) Each Company Employee Plan (including any multiemployer plans within the meaning of
Section 3(37) of ERISA (each a “
Multiemployer Plan
”)) has been established, administered, and maintained in
all material respects in accordance with its terms and in material compliance with applicable Laws, including but not limited to
ERISA and the Code; (ii) all the Company Employee Plans that are intended to be qualified under Section 401(a) of the Code are
so qualified and have received timely determination letters from the IRS and no such determination letter has been revoked nor
has any such revocation been threatened, or with respect to a prototype plan, can rely on an opinion letter from the IRS to the
prototype plan sponsor, to the effect that such qualified retirement plan and the related trust are exempt from federal income
taxes under Sections 401(a) and 501(a), respectively, of the Code, and no circumstance exists that is likely to result in the loss
of such qualified status under Section 401(a) of the Code; (iii) the Company and its Subsidiaries, where applicable, have timely
made all contributions, benefits, premiums, and other payments required by and due under the terms of each Company Employee Plan
and applicable Law and accounting principles, and all benefits accrued under any unfunded Company Employee Plan have been paid,
accrued, or otherwise adequately reserved to the extent required by, and in accordance with GAAP; (iv) except to the extent limited
by applicable Law, each Company Employee Plan can be amended, terminated, or otherwise discontinued in accordance with its terms,
without material liability to Parent, the Merger Subs, the Company, or any of their respective Subsidiaries (other than ordinary
administration expenses and in respect of accrued benefits thereunder); (v) there are no investigations, audits, inquiries, or
Legal Actions pending or threatened by the IRS, U.S. Department of Labor, Health and Human Services, Equal Employment Opportunity
Commission, or any similar Governmental Entity with respect to any Company Employee Plan; (vi) there are no material Legal Actions
pending, or threatened with respect to any Company Employee Plan (in each case, other than routine claims for benefits); and (vii)
neither the Company nor any of its Company ERISA Affiliates has engaged in a transaction that could subject the Company or any
Company ERISA Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(d)
Plan Liabilities
. Neither the Company nor any Company ERISA Affiliate has: (i) incurred or reasonably expects to
incur, either directly or indirectly, any liability under Title I or Title IV of ERISA, or related provisions of the Code or foreign
Law relating to any Company Employee Plan and nothing has occurred that could reasonably be expected to constitute grounds under
Title IV of ERISA to terminate, or appoint a trustee to administer, any Company Employee Plan; (ii) except for payments of premiums
to the Pension Benefit Guaranty Corporation (“
PBGC
”) which have been timely paid in full, not incurred any liability
to the PBGC in connection with any Company Employee Plan covering any active, retired, or former employees or directors of the
Company or any Company ERISA Affiliate, including, without limitation, any liability under Sections 4069 or 4212(c) of ERISA or
any penalty imposed under Section 4071 of ERISA, or ceased operations at any facility, or withdrawn from any such Company Employee
Plan in a manner that could subject it to liability under Sections 4062, 4063 or 4064 of ERISA; (iii) failed to comply with Section
601 et. seq. of ERISA and Section 4980B of the Code; or (iv) incurred any withdrawal liability (including any contingent or secondary
withdrawal liability) within the meaning of Sections 4201 or 4204 of ERISA to any Multiemployer Plan and nothing has occurred that
presents a material risk of the occurrence of any withdrawal from or the partition, termination, reorganization, or insolvency
of any such Multiemployer Plan which could result in any liability of the Company or any Company ERISA Affiliate to any such Multiemployer
Plan. No complete or partial termination of any Company Employee Plan has occurred or is expected to occur.
(e)
Certain Company Employee Plans
. Except as set forth in Section 3.12(e) of the Company Disclosure Letter, with respect
to each Company Employee Plan:
(i)
no such plan is a Multiemployer Plan or a “multiple employer plan” within the meaning of Section 413(c) of the
Code and neither the Company nor any of its Company ERISA Affiliates has now or at any time within the previous six years contributed
to, sponsored, maintained, or had any liability or obligation in respect of any such Multiemployer Plan or multiple employer plan;
(ii)
no Legal Action has been initiated by the PBGC to terminate any such Company Employee Plan or to appoint a trustee for any
such Company Employee Plan;
(iii)
no Company Employee Plan is subject to the minimum funding standards of Section 302 of ERISA or Sections 412, 418(b), or
430 of the Code, and none of the assets of the Company or any Company ERISA Affiliate is, or may reasonably be expected to become,
the subject of any lien arising under Section 303 of ERISA or Sections 430 or 436 of the Code; and
(iv)
no “reportable event,” as defined in Section 4043 of ERISA, has occurred, or is reasonably expected to occur,
with respect to any such Company Employee Plan.
(f)
No Post-Employment Obligations
. Except as set forth in Section 3.12(f) of the Company Disclosure Letter, no Company
Employee Plan provides post-termination or retiree health benefits to any person for any reason, except as may be required by COBRA
or other applicable Law, and neither the Company nor any Company ERISA Affiliate has any Liability to provide post-termination
or retiree health benefits to any person or ever represented, promised, or contracted to any Company Employee (either individually
or to Company Employees as a group) or any other person that such Company Employee(s) or other person would be provided with post-termination
or retiree health benefits, except to the extent required by COBRA or other applicable Law.
(g)
Potential Governmental or Lawsuit Liability
. Other than routine claims for benefits: (i) there are no pending or
threatened claims by or on behalf of any participant in any Company Employee Plan, or otherwise involving any Company Employee
Plan or the assets of any Company Employee Plan; and (ii) no Company Employee Plan is presently or has within the three years prior
to the date hereof, been the subject of an examination or audit by a Governmental Entity or is the subject of an application or
filing under, or is a participant in, an amnesty, voluntary compliance, self-correction, or similar program sponsored by any Governmental
Entity.
(h)
Section 409A Compliance
. Each Company Employee Plan that is subject to Section 409A of the Code has been operated
in compliance with such section and all applicable regulatory guidance (including, without limitation, proposed regulations, notices,
rulings, and final regulations).
(i)
Health Plan Compliance
. Each of the Company and its Subsidiaries complies in all material respects with the applicable
requirements of COBRA or any similar state statute with respect to each Company Employee Plan that is a group health plan within
the meaning of Section 5000(b)(1) of the Code or such state statute.
(j)
Effect of Transaction
. Neither the execution or delivery of this Agreement, the consummation of the Merger, nor any
of the other transactions contemplated by this Agreement will (either alone or in combination with any other event): (i) entitle
any current or former director, employee, contractor, or consultant of the Company to severance pay or any other payment; (ii)
accelerate the timing of payment, funding, or vesting, or increase the amount of compensation due to any such individual; (iii)
limit or restrict the right of the Company to merge, amend, or terminate any Company Employee Plan; or (iv) increase the amount
payable or result in any other material obligation pursuant to any Company Employee Plan. The Company Members have not authorized
any payment to be made on completion of or in connection with the execution or delivery of this Agreement, the consummation of
the Merger, or other transactions contemplated by this Agreement, and no such payments will be due or obligation incurred.
(k)
Employment Law Matters
. Except as set forth in Section 3.12(k) of the Company Disclosure Letter, the Company and
each of its Subsidiaries is in compliance with all applicable Laws and agreements regarding hiring, employment, collective bargaining,
termination of employment, plant closing and mass layoff, employment discrimination, harassment, retaliation, and reasonable accommodation,
leaves of absence, terms and conditions of employment, wages and hours of work, employee classification, employee health and safety,
leasing and supply of temporary and contingent staff, engagement of independent contractors, including proper classification of
same, payroll taxes, and immigration with respect to Company Employees and contingent workers.
(l)
Labor
. Neither Company nor any of its Subsidiaries is party to, or subject to, any collective bargaining agreement
or other agreement with any labor organization, work council, or trade union with respect to any of its or their operations. No
material work stoppage, slowdown, or labor strike against the Company or any of its Subsidiaries with respect to employees who
are employed within the United States is pending, threatened, or has occurred in the last two years, and, to the Knowledge of the
Company, no material work stoppage, slowdown, or labor strike against the Company or any of its Subsidiaries with respect to employees
who are employed outside the United States is pending, threatened, or has occurred in the last two years. None of the Company Employees
is represented by a labor organization, work council, or trade union and, to the Knowledge of the Company, there is no organizing
activity, Legal Action, election petition, union card signing or other union activity, or union corporate campaigns of or by any
labor organization, trade union, or work council directed at the Company or any of its Subsidiaries, or any Company Employees.
There are no Legal Actions, government investigations, or labor grievances pending, or, to the Knowledge of the Company, threatened
relating to any employment related matter involving any Company Employee or applicant, including, but not limited to, charges of
unlawful discrimination, retaliation or harassment, failure to provide reasonable accommodation, denial of a leave of absence,
failure to provide compensation or benefits, unfair labor practices, or other alleged violations of Law.
Section
3.13
Real Property and Personal Property Matters.
(a)
Owned Real Estate
. The Company or one or more of its Subsidiaries has good and marketable fee simple title to the
Company-Owned Real Estate free and clear of any Liens other than Permitted Encumbrances. Section 3.13(a) of the Company Disclosure
Letter contains a true and complete list by address and legal description of the Company-Owned Real Estate as of the date hereof.
The Company has delivered to Parent a true and complete copy of all books and records maintained by the Company and the Company’s
property manager in connection with the operation of the Company-Owned Real Estate reflected in Section 3.13(a) of the Company
Disclosure Letter as remaining with the Company at Closing, including, without limitation, copies of all building plans, engineering,
zoning, environmental and title reports, title policies and surveys, relating to the Company-Owned Real Estate. Such title policies
will continue after the Effective Time, with Merger Sub 1 and Merger Sub 2, as applicable, being covered as insured under such
policies as successors to the Company. Neither the Company nor any of its Subsidiaries: (i) lease or grant any Person the right
to use or occupy all or any part of the Company-Owned Real Estate, except as set forth in Section 3.13(a)(i) of the Company Disclosure
Letter; (ii) has granted any Person an option, right of first offer, or right of first refusal to purchase such Company-Owned Real
Estate or any portion thereof or interest therein; or (iii) has received written notice of any violations or any pending, and to
the Knowledge of the Company threatened, condemnation proceeding affecting any Company-Owned Real Estate or any portion thereof
or interest therein. Neither the Company nor any Subsidiary is a party to any agreement or option to purchase any real property
or interest therein.
(b)
Leased Real Estate
. The Company does not as of the date hereof lease any real property. Neither the Company nor any
Subsidiary is a party to any agreement or option to lease any real property or interest therein.
(c)
Real Estate Used in the Business
. The Company-Owned Real Estate identified in Section 3.13(a) of the Company Disclosure
Letter and the Company-Leased Real Estate identified in Section 3.13(b) of the Company Disclosure Letter comprise all of the real
property used or intended to be used in, or otherwise related to, the business of the Company or any of its Subsidiaries.
(d)
Personal Property
. The Company and each of its Subsidiaries are in possession of and have good and marketable title
to, or valid leasehold interests in or valid rights under contract to use, the machinery, equipment, furniture, fixtures, and other
tangible personal property and assets owned, leased, or used by the Company or any of its Subsidiaries, free and clear of all Liens
other than Permitted Liens.
Section
3.14
Environmental Matters.
(a)
The Company and its Subsidiaries are, and have been, in compliance with all Environmental Laws, which compliance includes
the possession, maintenance of, compliance with, or application for, all Permits required under applicable Environmental Laws for
the operation of the business of the Company and its Subsidiaries as currently conducted.
(b)
Neither the Company nor any of its Subsidiaries has disposed of, released, or discharged any Hazardous Substances on, at,
under, in, or from any real property currently or, to the Knowledge of the Company, formerly owned, leased, or operated by it or
any of its Subsidiaries or at any other location that is: (i) currently subject to any investigation, remediation, or monitoring;
or (ii) reasonably likely to result in liability to the Company or any of its Subsidiaries, in either case of (i) or (ii) under
any applicable Environmental Laws.
(c)
Neither the Company nor any of its Subsidiaries has: (i) produced, processed, manufactured, generated, transported, treated,
handled, used, or stored any Hazardous Substances, except in compliance with Environmental Laws, at any Real Estate; or (ii) exposed
any employee or any third party to any Hazardous Substances under circumstances reasonably expected to give rise to any material
Liability or obligation under any Environmental Law.
(d)
Neither the Company nor any of its Subsidiaries has received written notice of and there is no Legal Action pending, or
to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries, alleging any Liability or responsibility
under or non-compliance with any Environmental Law or seeking to impose any financial responsibility for any investigation, cleanup,
removal, containment, or any other remediation or compliance under any Environmental Law. Neither the Company nor any of its Subsidiaries
is subject to any Order, settlement agreement, or other written agreement by or with any Governmental Entity or third party imposing
any material Liability or obligation with respect to any of the foregoing.
(e)
Neither the Company nor any of its Subsidiaries has expressly assumed or retained any Liabilities under any applicable Environmental
Laws of any other Person, including in any acquisition or divestiture of any property or business.
Section
3.15
Material Contracts.
(a)
Material Contracts
. For purposes of this Agreement, “
Company Material Contract
” shall mean the
following to which the Company or any of its Subsidiaries is a party or any of the respective assets are bound (excluding any Leases):
(i)
any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K);
(ii)
any employment or consulting Contract (in each case with respect to which the Company or any of its Subsidiaries has continuing
obligations as of the date hereof) with any current or former (A) officer of the Company or any of its Subsidiaries, (B) Company
Member as of the date hereof, or (C) Company Employee providing for an annual base salary or payment in excess of $100,000;
(iii)
any Contract providing for indemnification or any guaranty by the Company or any Subsidiary thereof, in each case that is
material to the Company and its Subsidiaries, taken as a whole, other than (A) any guaranty by the Company or a Subsidiary thereof
of any of the obligations of (1) the Company or another wholly-owned Subsidiary thereof or (2) any Subsidiary (other than a wholly-owned
Subsidiary) of the Company that was entered into in the ordinary course of business pursuant to or in connection with a customer
Contract, or (B) any Contract providing for indemnification of customers or other Persons pursuant to Contracts entered into in
the ordinary course of business;
(iv)
any Contract that purports to limit in any material respect the right of the Company or any of its Subsidiaries (or, at
any time after the consummation of the Merger, the Surviving Company or any of its Subsidiaries) to (A) engage in any line of business,
(B) compete with any Person or solicit any client or customer, or (C) operate in any geographical location;
(v)
any Contract entered into on or after January 1, 2017 relating to the disposition or acquisition, directly or indirectly
(by merger, sale of equity, sale of assets, or otherwise), by the Company or any of its Subsidiaries of assets or membership interests
or other equity interests of any Person, in each case with a fair market value in excess of $100,000;
(vi)
any Contract that grants any right of first refusal, right of first offer, or similar right with respect to any material
assets, rights, or properties of the Company or any of its Subsidiaries;
(vii)
any Contract that contains any provision that requires the purchase of all or a material portion of the Company’s
or any of its Subsidiaries’ requirements for a given product or service from a given third party, which product or service
is material to the Company and its Subsidiaries, taken as a whole;
(viii)
any Contract that obligates the Company or any of its Subsidiaries to conduct business on an exclusive or preferential basis
or that contains a “most favored nation” or similar covenant with any third party or upon consummation of the Merger
will obligate Company, the Surviving Company, or any of their respective Subsidiaries to conduct business on an exclusive or preferential
basis or that contains a “most favored nation” or similar covenant with any third party;
(ix)
any partnership, joint venture, limited liability company agreement, or similar Contract relating to the formation, creation,
operation, management, or control of any material joint venture, partnership, or limited liability company, other than any such
Contract solely between the Company and its wholly-owned Subsidiaries or among the Company’s wholly-owned Subsidiaries;
(x)
any mortgages, indentures, guarantees, loans, or credit agreements, security agreements, or other Contracts, in each case
relating to indebtedness for borrowed money, whether as borrower or lender, in each case in excess of $100,000, other than (A)
accounts receivables and payables, and (B) loans to Affiliates of the Company;
(xi)
any employee collective bargaining agreement or other Contract with any labor union;
(xii)
any Company IP Agreement;
(xiii)
any license or similar Contract with respect to any Company or Subsidiary location;
(xiv)
any other Contract under which the Company or any of its Subsidiaries is obligated to make payment or incur costs in excess
of $100,000 in any year and which is not otherwise described in clauses (i)–(xii) above;
(xv)
any material Contracts with Company Selected Customers; or
(xvi)
any Contract which is not otherwise described in clauses (i)-(xiii) above that is material to the Company and its Subsidiaries,
taken as a whole.
(b)
Schedule of Material Contracts; Documents
. Section 3.15(b) of the Company Disclosure Letter sets forth a true and
complete list as of the date hereof of all Company Material Contracts. The Company has made available to Parent true, correct and
complete copies of all Company Material Contracts, including any amendments thereto. Except as set forth in Section 3.15(b) of
the Company Disclosure Letter, none of the Company or its Subsidiaries will have any responsibilities, obligations or liabilities,
contractual or otherwise, arising under any change of control provision of any Contract as a result of any of the transactions
contemplated hereunder, including the Merger.
(c)
No Breach
. (i) All the Company Material Contracts are valid, legal, and binding on the Company or its applicable
Subsidiary, enforceable against it in accordance with its terms, and is in full force and effect; (ii) neither the Company nor
any of its Subsidiaries nor, to the Knowledge of the Company, any third party has violated any provision of, or failed to perform
any obligation required under the provisions of, any Company Material Contract; (iii) neither the Company nor any of its Subsidiaries
nor, to the Knowledge of the Company, any third party is in breach, or has received written notice of breach, of any Company Material
Contract; and (iv) neither the Company nor any of its Subsidiaries has received written notice of termination, cancellation, material
reduction of services or non-renewal that is currently in effect with respect to any Material Contract and, to the Knowledge of
the Company, no other party to a Material Contract plans to terminate, cancel or not renew, or materially reduce the services provided
to it under, any such Material Contract.
Section
3.16
Insurance.
Section 3.16 of the Company
Disclosure Letter sets forth (a) a list of each insurance policy and fidelity bond which covers the Company, its Subsidiaries,
their respective properties and assets (including in respect of Real Estate) or any director, officer or employee of the Company
or its Subsidiaries, including without limitation each workers’ compensation policy (the “
Company Policies
”)
and (b) a list of all pending claims and the claims history for the Company and its Subsidiaries since January 1, 2017. There
are no pending claims under any of the Company Policies as to which coverage has been questioned, denied or disputed by the insurer
or in respect of which the insurer has reserved its rights. All premiums due under the Company Policies have been paid in full
or, with respect to premiums not yet due, accrued. The Company does not have any Liability to any Person with respect to the Company
Policies or insurance policies issued in its favor at any time previously. All of the Company Policies are in full force and effect
and provide insurance in such amounts and against such risks as the Company reasonably has determined to be prudent, taking into
account the industries in which the Company and its Subsidiaries operate, and as is sufficient to comply with applicable Law. Neither
the Company nor any of its Subsidiaries is in breach or default, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action which, with notice or the lapse of time, would constitute such a breach or default, or
permit termination or modification of, any of the Company Policies. To the Knowledge of the Company: (i) no insurer of the Company
Policies has been declared insolvent or placed in receivership, conservatorship, or liquidation; and (ii) no notice of cancellation
or termination, other than pursuant to the expiration of a term in accordance with the terms thereof, has been received with respect
to any of the Company Policies, nor has the Company received any notice that an insurer intends to materially reduce the level
of coverage under any Company Policy. To the Company’s Knowledge, the consummation of the transactions contemplated by this
Agreement is not reasonably likely to adversely affect the relationship of the Company with any of its insurers.
Section 3.17
Proxy Statement.
None
of the information furnished by the Company to Parent expressly for inclusion or incorporation by reference in the letter to the
shareholders, notice of meeting, proxy statement, and forms of proxy (collectively, the “
Proxy Statement
”),
to be filed by Parent with the SEC in connection with the Merger, will, at the date it is first mailed to Parent’s shareholders
or at the time of the Parent Shareholders Meeting or at the time of any amendment or supplement thereof, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
Section
3.18
Anti-Corruption Matters.
Since January
1, 2017, none of the Company, any of its Subsidiaries or any director, officer or, to the Knowledge of the Company, employee or
agent of the Company or any of its Subsidiaries has: (i) used any funds for unlawful contributions, gifts, entertainment, or other
unlawful payments relating to an act by any Governmental Entity; (ii) made any unlawful payment to any foreign or domestic government
official or employee or to any foreign or domestic political party or campaign or violated any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iii) made any other unlawful payment under any applicable Law relating to anti-corruption,
bribery, or similar matters. Since January 1, 2017, neither the Company nor any of its Subsidiaries has disclosed to any Governmental
Entity that it violated or may have violated any Law relating to anti-corruption, bribery, or similar matters. To the Knowledge
of the Company, no Governmental Entity is investigating, examining, or reviewing the Company’s compliance with any applicable
provisions of any Law relating to anti-corruption, bribery, or similar matters.
Section 3.19
Customers
. Section 3.19 of the Company Disclosure Letter sets forth a complete and accurate list of the ten (10)
largest customers of the Company and its Subsidiaries based on revenues during the year ended December 31, 2018 (the “
Company
Selected Customers
”). Such revenue amounts are also set forth on Section 3.19 of the Company Disclosure Letter.
Since June 30, 2018, no Company Selected Customer has canceled or terminated its relationship with, or materially reduced its level
of business with, the Company and its Subsidiaries or notified the Company or its Subsidiaries in writing of an intent to cancel,
terminate its relationship or, to the Company’s Knowledge (without the requirement of inquiry to the Company Selected Customer),
intends to materially reduce its level of business with the Company and its Subsidiaries. To the Company’s Knowledge, the
consummation of the transactions contemplated by this Agreement is not reasonably expected to adversely affect the relationship
of the Company and its Subsidiaries with any of the Company Selected Customers.
ARTICLE IV
Representations and Warranties of Parent and the Merger Subs
Except as set forth in the correspondingly
numbered Section of the disclosure letter, dated as of the date hereof and delivered by Parent to the Company concurrently with
the execution of this Agreement (the “
Parent Disclosure Letter
”), Parent and the Merger Subs hereby represent
and warrant to the Company as of the date hereof and as of the Closing Date, except to the extent that certain representations
and warranties are limited to a certain date set forth in the applicable Section, as follows:
Section
4.01
Organization; Standing and Power; Charter Documents;
Subsidiaries.
(a)
Organization; Standing and Power
. Parent and each of its Subsidiaries is a corporation, limited liability company,
or other legal entity duly organized, validly existing, and in good standing under the Laws of its jurisdiction of organization
set forth in Section 4.01(a) of the Parent Disclosure Letter, and has the requisite corporate, limited liability company, or other
organizational, as applicable, power and authority to own, lease, and operate its assets and to carry on its business as now conducted.
Each of Parent and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability company,
or other legal entity and is in good standing in each jurisdiction where the character of the assets and properties owned, leased,
or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so
qualified or in good standing would not, individually or in the aggregate, have a Parent Material Adverse Effect.
(b)
Charter Documents and Settlement Agreement
. Parent has delivered or made available to the Company a true and correct
copy of the articles of incorporation, articles of organization, bylaws, operating agreement or like organizational documents,
each as amended to date (collectively, the “
Charter Documents
”), of Parent and each of its Subsidiaries. Neither
Parent nor any of its Subsidiaries is in violation of any of the provisions of its Charter Documents. Parent has delivered or made
available to the Company a true and correct copy of the Settlement Agreement. Neither Parent nor any of its Subsidiaries is in
violation of any of the provisions of the Settlement Agreement. Parent will have no further obligations under the Settlement Agreement
at the Effective Time.
(c)
Subsidiaries
. Section 4.01(c)(i) of the Parent Disclosure Letter lists each of the Subsidiaries of Parent as of the
date hereof and its place of organization. Section 4.01(c)(ii) of the Parent Disclosure Letter sets forth, for each Subsidiary
that is not, directly or indirectly, wholly-owned by Parent: (i) the number and type of any capital stock of, or other equity or
voting interests in, such Subsidiary that is outstanding as of the date hereof; and (ii) the number and type of shares of capital
stock of, or other equity or voting interests in, such Subsidiary that, as of the date hereof, are owned, directly or indirectly,
by Parent. All of the outstanding shares of capital stock of, or other equity or voting interests in, each Subsidiary of Parent
that is owned directly or indirectly by Parent have been validly issued, were issued free of pre-emptive rights, are fully paid
and non-assessable, and are free and clear of all Liens, including any restriction on the right to vote, sell, or otherwise dispose
of such capital stock or other equity or voting interests, except for any Liens: (A) imposed by applicable securities Laws; or
(B) arising pursuant to the Charter Documents of any non-wholly-owned Subsidiary of Parent. Except for the capital stock of, or
other equity or voting interests in, its Subsidiaries, Parent does not own, directly or indirectly, any capital stock of, or other
equity or voting interests in, any Person.
(d)
Merger Sub 1 and Merger Sub 2
. Each of Merger Sub 1 and Merger Sub 2 (i) was formed solely
for the purpose of entering into the transactions contemplated by this Agreement, (ii) since the date of its formation,
has not carried on any business, conducted any operations or incurred any liabilities or obligations other
than the execution of this Agreement, the performance of its obligations hereunder and matters ancillary thereto
and (iii) solely with respect to Merger Sub 2, since the date of its formation, has been properly treated as disregarded
as an entity separate from its owner for United States federal and applicable state and local income tax purposes, and no election
has ever been made under Treasury Regulations Section 301.7701–3, or any similar provision of state or local Tax law,
to treat Merger Sub 2, as an association taxable as a corporation for income Tax purposes.
Section
4.02
Capital Structure.
(a)
Capital Stock
. The authorized capital stock of Parent consists of: (i) 8,333,333 shares of Parent Common Stock; and
(ii) 416,666 shares of preferred stock, par value $0.001 per share (the “
Parent Preferred Stock
”). As of the
close of business on the date prior to the date of this Agreement: (A) 4,629,331 shares of Parent Common Stock were issued and
outstanding; (B) 3,704,002 shares of Parent Common Stock were authorized but unissued; (C) no shares of Parent Preferred Stock
were issued and outstanding; and (D) no shares of Parent Preferred Stock were authorized but unissued. All of the outstanding shares
of capital stock of Parent are, and all shares of capital stock of Parent which may be issued as contemplated or permitted by this
Agreement will be, when issued, duly authorized, validly issued, fully paid, and non-assessable, and not subject to any pre-emptive
rights. No Subsidiary of Parent owns any shares of Parent Common Stock. The Merger Sub 1 Capital Stock and the Merger Sub 2 Membership
Interests are as set forth in Section 4.02(a) of the Parent Disclosure Letter. None of such Merger Sub 1 Capital Stock or Merger
Sub 2 Membership Interests are subject to any pre-emptive rights. No Subsidiary of Merger Sub 1 owns any Merger Sub 1 Capital Stock.
No Subsidiary of Merger Sub 2 owns any Merger Sub 2 Membership Interests.
(b)
Convertible Securities; Stock Awards
.
(i)
As of the date hereof, except as set forth in Section 4.02(b) of the Parent Disclosure Letter, there are no outstanding:
(A) securities of Parent or any of its Subsidiaries convertible into or exchangeable for Voting Debt or shares of capital stock
of Parent; (B) options, warrants, or other agreements or commitments to acquire from Parent or any of its Subsidiaries, or obligations
of Parent or any of its Subsidiaries to issue, any Voting Debt or shares of capital stock of (or securities convertible into or
exchangeable for shares of capital stock of) Parent; or (C) restricted shares, restricted stock units, stock appreciation rights,
performance shares, profit participation rights, contingent value rights, “phantom” stock, or similar securities or
rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares
of capital stock of Parent, in each case that have been issued by Parent or its Subsidiaries (the items in clauses (A), (B), and
(C), together with the capital stock of Parent, being referred to collectively as “
Parent Securities
”). All
outstanding shares of Parent Common Stock and all outstanding shares of capital stock, voting securities, or other ownership interests
in any Subsidiary of Parent, have been issued or granted, as applicable, in compliance in all material respects with all applicable
securities Laws.
(ii)
There are no outstanding Contracts requiring Parent or any of its Subsidiaries to repurchase, redeem, or otherwise acquire
any Parent Securities or Parent Subsidiary Securities. Except for the Shareholder Voting Agreements, neither Parent nor any of
its Subsidiaries is a party to any voting agreement with respect to any Parent Securities or Parent Subsidiary Securities.
(c)
Voting Debt
. No bonds, debentures, notes, or other indebtedness issued by Parent or any of its Subsidiaries: (i)
having the right to vote on any matters on which shareholders or equityholders of Parent or any of its Subsidiaries may vote (or
which is convertible into, or exchangeable for, securities having such right); or (ii) the value of which is directly based upon
or derived from the capital stock, voting securities, or other ownership interests of Parent or any of its Subsidiaries, are issued
or outstanding (collectively, “
Voting Debt
”).
(d)
Parent Subsidiary Securities
. As of the date hereof, 100% of the Merger Sub 1 Capital Stock and of the Merger Sub
2 Membership Interests are owned by Parent. As of the date hereof, there are no outstanding: (i) securities of Parent or any of
its Subsidiaries convertible into or exchangeable for Voting Debt, capital stock, voting securities, or other ownership interests
in any Subsidiary of Parent; (ii) options, warrants, or other agreements or commitments to acquire from Parent or any of its Subsidiaries,
or obligations of Parent or any of its Subsidiaries to issue, any Voting Debt, capital stock, voting securities, or other ownership
interests in (or securities convertible into or exchangeable for capital stock, voting securities, or other ownership interests
in) any Subsidiary of Parent; or (iii) restricted shares, restricted stock units, stock appreciation rights, performance shares,
profit participation rights, contingent value rights, “phantom” stock, or similar securities or rights that are derivative
of, or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock or voting securities
of, or other ownership interests in, any Subsidiary of Parent, in each case that have been issued by a Subsidiary of Parent (the
items in clauses (i), (ii), and (iii), together with the capital stock, voting securities, or other ownership interests of such
Subsidiaries, being referred to collectively as “
Parent Subsidiary Securities
”).
(e)
Assets, Liabilities and Operations
. As of the date hereof, the Merger Subs have no operations and do not have, directly
or indirectly, any assets or liabilities.
Section
4.03
Authority; Non-Contravention; Governmental Consents;
Board Approval; Anti-Takeover Statutes.
(a)
Authority
. Each of Parent, Merger Sub 1 and Merger Sub 2 has all requisite corporate or limited liability company
power and authority, as applicable, to enter into and deliver this Agreement, to perform its obligations hereunder, subject to,
in the case of the consummation of the Merger, the affirmative vote or consent of the holders of a majority of the outstanding
shares of Parent Common Stock approving the amendment of Parent’s articles of incorporation to increase the authorized shares
of Parent Common Stock and change the name of Parent to “HireQuest, Inc.”, the issuance of the Parent Common Stock
pursuant to this Agreement and the resulting change of control pursuant to Nasdaq listing rules (collectively, the “
Requisite
Parent Vote
”), and, in the case of the Conversion, the affirmative vote or consent of the holders of a majority of the
outstanding shares of Parent Common Stock approving the Conversion (the “
Conversion Vote
”), to consummate the
transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and the Merger Subs, and the
consummation by Parent and the Merger Subs of the Merger and the other transactions contemplated hereby have been duly authorized
by all necessary corporate action or limited liability company action on the part of Parent and the Merger Subs, as applicable,
and no other corporate or limited liability company proceeding on the part of Parent or the Merger Subs, as applicable, are necessary
to authorize the execution and delivery of this Agreement or to consummate the Merger and the other transactions contemplated hereby,
subject only to the receipt of the Requisite Parent Vote and the Conversion Vote. The Requisite Parent Vote is the only vote or
consent of the holders of any class or series of Parent’s capital stock necessary to approve the Merger and consummate the
Merger and the other transactions contemplated hereby (except for the Conversion). The Conversion Vote is the only vote necessary
to approve the Conversion, but is not required or necessary to consummate the Merger. This Agreement has been duly executed and
delivered by Parent and the Merger Subs and, assuming due execution and delivery by the Company, constitutes the legal, valid,
and binding obligation of Parent and the Merger Subs, enforceable against Parent and the Merger Subs in accordance with its terms,
subject to the Bankruptcy and Equity Exception.
(b)
Non-Contravention
. The execution, delivery, and performance of this Agreement by Parent and the Merger Subs, and
the consummation by Parent and the Merger Subs of the transactions contemplated by this Agreement, including the Merger and the
Shareholder Voting Agreements, do not and will not: (i) subject to obtaining the Requisite Parent Vote, contravene or conflict
with, or result in any violation or breach of, the Charter Documents of Parent or any of its Subsidiaries or the Settlement Agreement;
(ii) assuming that all Consents contemplated by clauses (i) through (iii) of Section 4.03(c) have been obtained or made and, in
the case of the consummation of the Merger, obtaining the Requisite Parent Vote, conflict with or violate any Law applicable to
Parent, any of its Subsidiaries, or any of their respective properties or assets; (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a default) under, result in Parent’s or any of
its Subsidiaries’ loss of any benefit or the imposition of any additional payment or other liability under, or alter the
rights or obligations of any third party under, or give to any third party any rights of termination, amendment, acceleration,
or cancellation, or require any Consent under, any Contract to which Parent or any of its Subsidiaries is a party or otherwise
bound as of the date hereof; or (iv) result in the creation of a Lien (other than Permitted Liens) on any of the properties or
assets of Parent or any of its Subsidiaries.
(c)
Governmental Consents
. No Consent of any Governmental Entity is required to be obtained or made by Parent or the
Merger Subs in connection with the execution, delivery, and performance by Parent or the Merger Subs of this Agreement or the consummation
by Parent or the Merger Subs of the Merger and other transactions contemplated hereby, except for: (i) the filing of the First
Merger Certificate with the Secretary of State of the State of Florida; (ii) the filing of the Second Merger Certificate with the
Secretary of State of the State of Florida; (iii) the filing of the Certificate of Conversion with the Secretary of State of the
State of Delaware and the Secretary of State of the State of Washington in connection with the Conversion, if the Conversion Vote
is attained; (iv) the filing and acceptance of the Proxy Statement in definitive form with the Securities and Exchange Commission
(“
SEC
”) in accordance with the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”),
and such reports under the Exchange Act as may be required in connection with this Agreement, the Merger, and the other transactions
contemplated by this Agreement; and (v) the other Consents of Governmental Entities listed in Section 4.03(c) of the Parent Disclosure
Letter (the “Other Parent Governmental Approvals”).
(d)
Board Approval
. The Parent Board, by resolutions duly adopted by a vote at a meeting of all directors of Parent duly
called and held and, not subsequently rescinded or modified in any way, has unanimously: (i) determined that this Agreement and
the transactions contemplated hereby, including the Conversion and the Merger, upon the terms and subject to the conditions set
forth herein, are fair to, and in the best interests of, Parent and Parent’s shareholders; (ii) approved and declared advisable
this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated
by this Agreement, including the Conversion and the Merger, upon the terms and subject to the conditions set forth herein; (iii)
directed that the Conversion, the amendment of Parent’s articles of incorporation to increase the authorized shares of Parent
Common Stock and to change the name of Parent to “HireQuest, Inc.”, the issuance of shares of Parent Common Stock pursuant
to this Agreement and the related change of control pursuant to Nasdaq listing rules be submitted to a vote of the Parent shareholders
for approval at the Parent Shareholders Meeting; and (iv) resolved to recommend that Parent shareholders vote in favor of such
approval in accordance with the WBCA (collectively, the “
Parent Board Recommendation
”).
(e)
Merger Subs Approval
. Parent, as sole member or sole shareholder, as applicable, of each of the Merger Subs, has:
(i) determined that this Agreement and the transactions contemplated hereby, including the Merger, upon the terms and subject to
the conditions set forth herein, are fair to, and in the best interests of, the Merger Subs and Parent; and (ii) approved and declared
advisable this Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions
contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions set forth herein, in each case
in accordance with the FBCA and the FRLLCA;
(f)
Anti-Takeover Statutes
. No “fair price,” “moratorium,” “control share acquisition,”
“supermajority,” “affiliate transactions,” “business combination,” or other similar anti-takeover
statute or regulation enacted under any Laws applicable to Parent is applicable to this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement.
Section
4.04
SEC Filings; Financial Statements; Sarbanes-Oxley
Act Compliance; Undisclosed Liabilities; Off-Balance Sheet Arrangements.
(a)
SEC Filings
. Parent has timely filed with or furnished to, as applicable, the SEC all registration statements, prospectuses,
reports, schedules, forms, statements, and other documents (including exhibits and all other information incorporated by reference)
required to be filed or furnished by it with the SEC since January 1, 2016 (the “
Parent SEC Documents
”). True,
correct, and complete copies of all Parent SEC Documents are publicly available in the Electronic Data Gathering, Analysis, and
Retrieval database of the SEC (“
EDGAR
”). To the extent that any Parent SEC Document available on EDGAR contains
redactions pursuant to a request for confidential treatment or otherwise, Parent has made available to the Company the full text
of all such Parent SEC Documents that it has so filed or furnished with the SEC. As of their respective filing dates or, if amended
or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing
(and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant
meetings, respectively), each of the Parent SEC Documents complied as to form in all material respects with the applicable requirements
of the Securities Act of 1933, as amended (the “
Securities Act
”), the Exchange Act, and the Sarbanes-Oxley Act
of 2002 (including the rules and regulations promulgated thereunder, the “
Sarbanes-Oxley Act
”), and the rules
and regulations of the SEC thereunder applicable to such Parent SEC Documents. None of the Parent SEC Documents, including any
financial statements, schedules, or exhibits included or incorporated by reference therein at the time they were filed (or, if
amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding
filing), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except
as set forth in Section 4.04(a) of the Parent Disclosure Letter, to the Knowledge of Parent, none of the Parent SEC Documents is,
nor is Parent, the subject of ongoing SEC review or outstanding SEC investigation and there are no outstanding or unresolved comments
received from the SEC with respect to any of the Parent SEC Documents. None of Parent's Subsidiaries is required to file or furnish
any forms, reports, or other documents with the SEC.
(b)
Financial Statements
. Each of the consolidated financial statements (including, in each case, any notes and schedules
thereto) contained in or incorporated by reference into the Parent SEC Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in
the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q); and (iii)
fairly presented in all material respects the consolidated financial position and the results of operations, changes in shareholders’
equity, and cash flows of Parent and its consolidated Subsidiaries as of the respective dates of and for the periods referred to
in such financial statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments
as permitted by GAAP and the applicable rules and regulations of the SEC (but only if the effect of such adjustments would not,
individually or in the aggregate, be material).
(c)
Internal Controls
. Parent has established and maintains a system of “internal controls over financial reporting”
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is sufficient to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP
including policies and procedures that: (i) require the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of Parent and its Subsidiaries; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts
and expenditures of Parent and its Subsidiaries are being made only in accordance with appropriate authorizations of Parent’s
management and the Parent Board; and (iii) provide assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of assets of Parent and its Subsidiaries.
(d)
Disclosure Controls and Procedures
. Parent’s “disclosure controls and procedures” (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to ensure that all information (both financial and non-financial)
required to be disclosed by Parent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the rules and forms of the SEC, and that all such information is accumulated
and communicated to Parent’s management as appropriate to allow timely decisions regarding required disclosure and to make
the certifications of the chief executive officer and chief financial officer of Parent required under the Exchange Act with respect
to such reports. Neither Parent nor, to the Knowledge of Parent, Parent’s independent registered public accounting firm has
identified or been made aware of: (i) any “significant deficiency” or “material weakness” (each as defined
in Rule 12b-2 of the Exchange Act) in the system of internal control over financial reporting utilized by Parent and its Subsidiaries
that has not been subsequently remediated; or (ii) any fraud that involves Parent’s management or other employees who have
a role in the preparation of financial statements or the internal control over financial reporting utilized by Parent and its Subsidiaries.
(e)
Undisclosed Liabilities
. The unaudited balance sheet of Parent dated as of December 28, 2018 which has been delivered
to the Company is hereinafter referred to as the “
Parent Balance Sheet
.” Neither Parent nor any of its Subsidiaries
has any Liabilities other than Liabilities that: (i) are reflected or reserved against in Parent Balance Sheet (including in the
notes thereto); (ii) were incurred since the date of Parent Balance Sheet in the ordinary course of business consistent with past
practice; or (iii) are incurred in connection with the transactions contemplated by this Agreement.
(f)
Off-Balance Sheet Arrangements
. Except as described in Parent SEC Documents filed as of the date that is two business
days prior to the date of this Agreement, neither Parent nor any of its Subsidiaries is a party to, or has any commitment to become
a party to: (i) any joint venture, off balance sheet partnership, or any similar Contract or arrangement (including any Contract
or arrangement relating to any transaction or relationship between or among Parent or any of its Subsidiaries, on the one hand,
and any other Person, including any structured finance, special purpose, or limited purpose Person, on the other hand); or (ii)
any “off balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K under the Exchange Act).
(g)
Sarbanes-Oxley Compliance
. Each of the principal executive officer and the principal financial officer of Parent
(or each former principal executive officer and each former principal financial officer of Parent, as applicable) has made all
certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act with
respect to Parent SEC Documents, and the statements contained in such certifications are true and accurate in all material respects.
For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have
the meanings given to such terms in the Sarbanes-Oxley Act. Parent is also in compliance with all of the other applicable provisions
of the Sarbanes-Oxley Act.
Section 4.05
Absence of Certain Changes or
Events.
Since the date of Parent Balance Sheet, except in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, the business of Parent and each of its Subsidiaries has been conducted
in the ordinary course of business consistent with past practice and there has not been or occurred:
(a)
any Parent Material Adverse Effect or any event, condition, change, or effect that could reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect; or
(b)
any event, condition, action, or effect that, if taken during the period from the date of this Agreement through the Effective
Time, would constitute a breach of Section 5.01.
Section
4.06
Taxes.
(a)
Tax Returns and Payment of Taxes
. Parent and each of its Subsidiaries have duly and timely filed or caused to be
filed (taking into account any valid extensions) all material Tax Returns required to be filed by them. Such Tax Returns are true,
complete, and correct in all material respects. Neither Parent nor any of its Subsidiaries is currently the beneficiary of any
extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the ordinary
course of business consistent with past practice. All material Taxes due and owing by Parent or any of its Subsidiaries (whether
or not shown on any Tax Return) have been timely paid or, where payment is not yet due, Parent has made an adequate provision for
such Taxes in Parent’s financial statements included in the Parent SEC Documents (in accordance with GAAP). Parent’s
most recent financial statements included in the Parent SEC Documents reflect an adequate reserve (in accordance with GAAP) for
all material Taxes payable by Parent and its Subsidiaries through the date of such financial statements. Neither Parent nor any
of its Subsidiaries has incurred any material Liability for Taxes since the date of Parent’s most recent financial statements
included in the Parent SEC Documents outside of the ordinary course of business or otherwise inconsistent with past practice. Parent
and each of its Subsidiaries has (i) filed all reports and has created and retained all records required under Code Section 6038A
with respect to its ownership by, and transactions with, related parties, and (ii) Parent and each of its Subsidiaries that files
U.S. federal income tax returns has disclosed on its U.S. federal income tax returns all positions taken therein that could give
rise to a substantial understatement of federal income tax within the meaning of Section 6662 of the Code. Neither Parent nor any
of its Subsidiaries is, or is required to be, registered as a taxable person for purpose of value added Taxes or any similar indirect
Tax. Parent and each Subsidiary has timely collected and properly maintained all resale certificates and other documentation required
for any exemption from the collection of any applicable sales or use or similar Taxes that is claimed by Parent or applicable Subsidiary.
(b)
Availability of Tax Returns
. Parent has made available to the Company complete and accurate copies of all federal,
state, local, and foreign income, franchise, and other material Tax Returns filed by or on behalf of Parent or its Subsidiaries
for any Tax period ending after January 1, 2017.
(c)
Withholding
. Parent and each of its Subsidiaries have withheld and timely paid each material Tax required to have
been withheld and paid in connection with amounts paid or owing to any Parent Employee, creditor, customer, shareholder, or other
party, and materially complied with all information reporting and backup withholding provisions of applicable Law.
(d)
Liens
. There are no Liens for material Taxes upon the assets of Parent or any of its Subsidiaries other than for
current Taxes not yet due and payable or for Taxes that are being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP has been made in Parent’s most recent financial statements included in Parent SEC
Documents.
(e)
Tax Deficiencies and Audits
. No deficiency for any material amount of Taxes which has been proposed, asserted, or
assessed in writing by any taxing authority against Parent or any of its Subsidiaries remains unpaid. There are no waivers or extensions
of any statute of limitations currently in effect with respect to Taxes of Parent or any of its Subsidiaries. There are no audits,
suits, proceedings, investigations, claims, examinations, or other administrative or judicial proceedings ongoing or pending with
respect to any material Taxes of Parent or any of its Subsidiaries.
(f)
Tax Jurisdictions
. Except as set forth in Section 4.06(f) of the Parent Disclosure Letter, no claim has ever been
made in writing by any taxing authority in a jurisdiction where Parent and its Subsidiaries do not file Tax Returns that Parent
or any of its Subsidiaries is or may be subject to Tax in that jurisdiction.
(g)
Tax Rulings
. Neither Parent nor any of its Subsidiaries has requested or is the subject of or bound by any private
letter ruling, technical advice memorandum, or similar ruling or memorandum with any taxing authority with respect to any material
Taxes, nor is any such request outstanding.
(h)
Closing Agreements
. Neither Parent nor any of its Subsidiaries is a party to any agreement with any Governmental
Entity with respect to Taxes (including, but not limited to, any closing agreement within the meaning of Section 7121 of the Code).
(i)
Consolidated Groups, Transferee Liability, and Tax Agreements
. Neither Parent nor any of its Subsidiaries: (i) has
been a member of a group filing Tax Returns on a consolidated, combined, unitary, or similar basis; (ii) has any material liability
for Taxes of any Person (other than Parent or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any comparable
provision of local, state, or foreign Law), as a transferee or successor, by Contract, or otherwise; or (iii) is a party to, bound
by or has any material liability under any Tax sharing, allocation, or indemnification agreement or arrangement (other than customary
Tax indemnifications contained in credit or other commercial agreements the primary purpose of which agreements does not relate
to Taxes).
(j)
Change in Accounting Method
. Neither Parent nor any of its Subsidiaries has agreed to make, nor is it required to
make, any material adjustment under Section 481(a) of the Code or any comparable provision of state, local, or foreign Tax Laws
by reason of a change in accounting method or otherwise.
(k)
Post-Closing Tax Items
. Parent and its Subsidiaries will not be required to include any material item of income in,
or exclude any material item of deduction from, taxable income for (i) any taxable period (or portion thereof) ending after the
Closing Date as a result of any: (A) “closing agreement” as described in Section 7121 of the Code (or any corresponding
or similar provision of state, local or foreign income Tax Law) executed on or prior to the Closing Date; (B) installment sale
or open transaction disposition made on or prior to the Closing Date; (C) prepaid amount received on or prior to the Closing Date;
or (D) election under Section 108(i) of the Code; or (E) a change of method of accounting, or use of an improper method of accounting
made or used on or prior to the Closing Date, or (ii) any Tax period (or portion thereof) as a result of any deferred foreign income
within the meaning of Section 965 of the Code.
(l)
Prior Activities
. Neither Parent nor any of its Subsidiaries has been a “distributing corporation” or
a “controlled corporation” in connection with a distribution described in Section 355 of the Code and no election under
Section 338 of the Code or any similar provision of applicable law has been made or required to be made by or with respect to Parent
or its Subsidiaries.
(m)
Reportable Transactions
. Neither Parent nor any of its Subsidiaries has been a party to, or a material advisor with
respect to, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations
Section 1.6011-4(b).
(n)
FIRPTA
. Neither Parent nor any of its Subsidiaries is, nor has ever been, a “United States real property holding
corporation” within the meaning of Section 897(c)(2) of the Code at any time during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code.
(o)
Foreign Activities
. Neither Parent nor any of its Subsidiaries (i) has (or has ever had) any (A) place of management,
(B) branch, (C) office (or any other place of business), (D) operations of employees, (E) agent with binding authority or (F) other
activities, in each case that gives rise to a permanent establishment or taxable presence in any country other than the country
where Parent or such Subsidiary was organized, (ii) has never entered into a gain recognition agreement pursuant to Treasury Regulation
1.367(a)-8, and (iii) has never transferred an intangible the transfer of which would be subject to the rules of Section 367(d)
of the Code. Neither Parent nor any of its Subsidiaries has any item of income that could constitute (i) subpart F income within
the meaning of Section 952 of the Code or (ii) global intangible low-taxed income within the meaning of Section 951A of the Code,
in each case, for the period commencing on the first day of any Straddle Period and ending at the close of business on the Closing
Date. No Parent Subsidiary that is a controlled foreign corporation holds assets that constitute U.S. property within the meaning
of Section 956 of the Code.
(p)
Transfer Pricing
. Parent and each of its Subsidiaries is in compliance in all material respects with all applicable
transfer pricing laws and regulations (including Section 482 of the Code and its corresponding Treasury Regulations and any corresponding
provision of non-U.S. Law), including the maintenance of contemporaneous documentation substantiating the transfer pricing practices
and methodology of Parent and each Subsidiary.
(q)
Unclaimed Property
. Parent and each of its Subsidiaries has (i) filed or caused to be filed with the appropriate
Governmental Entity all material unclaimed property reports required to be filed and has remitted to the appropriate Governmental
Entity all material unclaimed property required to be remitted, or (ii) delivered or paid all material unclaimed property to its
original or proper recipient.
(r)
Leases of Property
. No asset of Parent or any of its Subsidiaries is (i) required to be treated as being owned by
any other Person pursuant to any provision of applicable Law (including, but not limited to, the “safe harbor” leasing
provisions of Section 168(f)(8) of the Code, as in effect prior to the repeal of those “safe harbor” leasing provisions),
(ii) subject to Section 168(g)(1)(A) of the Code, or (iii) subject to a disqualified leaseback or long-term lease agreement as
defined in Section 467 of the Code.
(s)
Joint Ventures
. Neither Parent nor any of its Subsidiaries is a party to any joint venture, partnership or other
agreement, contract or arrangement (whether written or oral) that could be treated as a partnership for federal income tax purposes,
other than an entity that is wholly-owned, directly or indirectly, by Parent or any of its Subsidiaries.
(t)
Tax-Exempt Property
. Neither Parent nor any of its Subsidiaries has “tax-exempt bond-financed property”
or “tax-exempt use property,” within the meaning of Section 168(h) of the Code or any similar provision of applicable
Law.
(u)
Employment Considerations
. Neither Parent nor any of its Subsidiaries is a party to any contract, agreement or other
arrangement that (i) results or could result in any amount that is not deductible under Sections 162, 280G, or 404 of the Code,
or any similar provision of applicable Law or (ii) violates Section 409A of the Code or any similar provision of applicable Law.
(v)
Intended Tax Treatment
. Neither Parent nor any of its Subsidiaries has taken or agreed to take any action, or is
aware of the existence of any facts or circumstances, that could reasonably be expected to impede or prevent the Merger from qualifying
as a “reorganization” within the meaning of Section 368(a) of the Code.
Section
4.07
Intellectual Property.
(a)
Scheduled Parent-Owned and Parent-Licensed IP
. Section 4.07(a) of the Parent Disclosure Letter contains a true and
complete list, as of the date hereof, of all: (i) Parent-Owned IP that is the subject of any issuance, registration, certificate,
application, or other filing by, to or with any Governmental Entity or authorized private registrar, including Patent registrations
and pending applications for registration, Trademark registrations and pending applications for registration, Copyright registrations
and pending applications for registration, social media accounts and usernames and internet domain names; (ii) material unregistered
Parent-Owned IP; and (iii) Parent-Licensed IP.
(b)
Right to Use; Title
. Parent or one of its Subsidiaries is the sole and exclusive legal and beneficial owner of all
right, title, and interest in and to Parent-Owned IP, and has the valid and enforceable right to use all other Intellectual Property,
including all Parent-Licensed IP, used or held for use in or necessary for the conduct of the business of Parent and its Subsidiaries
as currently conducted and as proposed to be conducted (“
Parent IP
”), in each case free and clear of all liens
other than Permitted Liens.
(c)
Validity and Enforceability
. Parent and its Subsidiaries’ rights in Parent-Owned IP are valid, subsisting,
and enforceable. Parent and each of its Subsidiaries have taken reasonable steps to maintain Parent IP and to protect and preserve
the confidentiality of all trade secrets included in Parent IP.
(d)
Non-Infringement
. The conduct of the businesses of Parent and all of its Subsidiaries has not infringed, misappropriated,
or otherwise violated, and is not infringing, misappropriating, or otherwise violating, any Intellectual Property of any other
Person. To the Knowledge of Parent, no third party is infringing upon, violating, or misappropriating any Parent IP.
(e)
IP Legal Actions and Orders
. There are no Legal Actions pending or, to the Knowledge of Parent, threatened: (i) alleging
any infringement, misappropriation, or violation of the Intellectual Property of any Person by Parent or any of its Subsidiaries;
or (ii) challenging the validity, enforceability, or ownership of any Parent-Owned IP or Parent or any of its Subsidiaries’
rights with respect to any Parent IP. Parent and its Subsidiaries are not subject to any outstanding Order that restricts or impairs
the use of any Parent-Owned IP.
(f)
Information Systems
. The software and other information technology that is owned or controlled by Parent and its
Subsidiaries: (i) are in satisfactory working order, are substantially free from reproducible programming errors and from
defects in workmanship and materials (other than customary bugs), and are scalable to meet current and reasonably anticipated capacity;
(ii) have reasonably appropriate security, backups, disaster recovery arrangements, and hardware and software support and maintenance
to minimize the risk of material error, breakdown, failure, or security breach occurring; (iii) are configured and maintained in
accordance with accepted business practices to minimize the effects of viruses and malware; (iv) do not contain any malicious code,
protective feature designed to prevent its use, including, without limitation, any computer virus, worm, software lock, drop dead
device, Trojan horse routine, trap door, bomb or any other code or instruction created or inserted by or on behalf of Parent and
its Subsidiaries that may be used to access, modify, delete, damage or disable it; and (v) have not suffered any error, breakdown,
failure, or security breach that has caused damage or significant disruption to the operation of the business of Parent and its
Subsidiaries.
Section
4.08
Compliance; Permits.
(a)
Compliance
. Except as set forth in Section 4.08 of the Parent Disclosure Letter, Parent and each of its Subsidiaries
is and has been, in all material respects, in compliance with, all Laws or Orders applicable to Parent or any of its Subsidiaries
or by which Parent or any of its Subsidiaries or any of their respective businesses or properties is bound. Except as set forth
in Section 4.08 of the Parent Disclosure Letter, since January 1, 2017, no Governmental Entity has issued any notice or notification
stating that Parent or any of its Subsidiaries is not in compliance with any Law. Neither Parent nor any of its Subsidiaries has
received written notice (or to the Knowledge of Parent, any other notice) from any Person asserting that it has failed to comply
with such Person’s rules, protocols, policies and procedures relating to privacy and data use and protection. Except as described
in Parent SEC Documents filed as of the date that is two business days prior to the date of this Agreement or as otherwise set
forth in Section 4.04(a) and Section 4.08 of the Parent Disclosure Letter, no investigation by any state or federal regulatory
agency has been commenced to the Knowledge of Parent. No action has been asserted or, to the Knowledge of Parent, threatened against
Parent or its Subsidiaries alleging a violation of any Person’s privacy or personal information or data rights.
(b)
Permits
. Parent and its Subsidiaries hold, to the extent necessary to operate their respective businesses as such
businesses are being operated as of the date hereof, all Permits. No suspension, cancellation, non-renewal, or adverse modifications
of any Permits of Parent or any of its Subsidiaries is pending or, to the Knowledge of Parent, threatened. Parent and each of its
Subsidiaries is and has been in compliance with the terms of all Permits.
Section 4.09
Litigation.
Except
as set forth in Section 4.09 of the Parent Disclosure Letter, there is no Legal Action pending, or to the Knowledge of Parent,
threatened against Parent or any of its Subsidiaries or any of their respective properties or assets or, to the Knowledge of Parent,
any officer or director of Parent or any of its Subsidiaries in their capacities as such other than any such Legal Action that:
(a) does not involve an amount in controversy in excess of $50,000; and (b) does not seek material injunctive or other material
non-monetary relief. None of Parent or any of its Subsidiaries or any of their respective properties or assets is subject to any
Order of a Governmental Entity or arbitrator, whether temporary, preliminary, or permanent. To the Knowledge of Parent, other than
as listed in Section 4.04(a) and Section 4.09 of the Parent Disclosure Letter, there are no SEC inquiries or investigations, other
governmental inquiries or investigations, or internal investigations pending or, to the Knowledge of Parent, threatened, in each
case regarding any accounting practices of Parent or any of its Subsidiaries or any malfeasance by any officer or director of Parent.
Section 4.10
Brokers’ and Finders’
Fees.
Except for fees payable to D.A. Davidson & Co. (the “
Parent Financial Advisor
”), including
(if applicable) attorneys’ fees, pursuant to an engagement letter listed in Section 4.10 of the Parent Disclosure Letter,
a correct and complete copy of which has been provided to the Company, neither Parent nor any of its Subsidiaries has incurred,
nor will it incur, directly or indirectly, any liability for investment banker, brokerage, or finders’ fees or agents’
commissions, or any similar charges in connection with this Agreement or any transaction contemplated by this Agreement.
Section 4.11
Related Person Transactions.
Except as described in Parent SEC Documents filed as of the date hereof, there are, and since January 1, 2017, there have been,
no Contracts, transactions, arrangements, or understandings between Parent or any of its Subsidiaries, on the one hand, and any
Affiliate (including any director, officer, or employee) thereof or any holder of 5% or more of the shares of Parent Common Stock,
but not including any wholly-owned Subsidiary of Parent, on the other hand, that would be required to be disclosed pursuant to
Item 404 of Regulation S-K promulgated by the SEC in Parent’s Form 10-K or proxy statement pertaining to an annual meeting
of shareholders.
Section
4.12
Employee Matters.
(a)
Schedule
. Section 4.12(a) of the Parent Disclosure Letter contains a true and complete list, as of the date hereof,
of each plan, program, policy, agreement, collective bargaining agreement, or other arrangement providing for compensation, severance,
deferred compensation, performance awards, stock or stock-based awards, fringe, retirement, death, disability, or medical benefits
or other employee benefits or remuneration of any kind, including each employment, termination, severance, retention, change in
control, or consulting or independent contractor plan, program, arrangement, or agreement, in each case whether written or unwritten
or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA,
whether or not subject to ERISA, which is or has been sponsored, maintained, contributed to, or required to be contributed to,
by Parent or any of its Subsidiaries for the benefit of any current or former employee, independent contractor, consultant, or
director of Parent or any of its Subsidiaries (each, a “
Parent Employee
”), or with respect to which Parent or
any Parent ERISA Affiliate has or may have any Liability (collectively, the “
Parent Employee Plans
”).
(b)
Documents
. Parent has made available to the Company correct and complete copies (or, if a plan is not written, a
written description) of all Parent Employee Plans and amendments thereto, and, to the extent applicable: (i) all related trust
agreements, funding arrangements, and insurance contracts now in effect or required in the future as a result of the transactions
contemplated by this Agreement or otherwise; (ii) the most recent determination letter received regarding the tax-qualified status
of each Parent Employee Plan; (iii) the most recent financial statements for each Parent Employee Plan; (iv) the Form 5500 Annual
Returns/Reports and Schedules for the most recent plan year for each Parent Employee Plan; (v) the current summary plan description
for each Parent Employee Plan; and (vi) all actuarial valuation reports related to any Parent Employee Plans.
(c)
Employee Plan Compliance
. (i) Each Parent Employee Plan (including any Multiemployer Plan) has been established,
administered, and maintained in all material respects in accordance with its terms and in material compliance with applicable Laws,
including but not limited to ERISA and the Code; (ii) all Parent Employee Plans that are intended to be qualified under Section
401(a) of the Code are so qualified and have received timely determination letters from the IRS and no such determination letter
has been revoked nor has any such revocation been threatened, or with respect to a prototype plan, can rely on an opinion letter
from the IRS to the prototype plan sponsor, to the effect that such qualified retirement plan and the related trust are exempt
from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no circumstance exists that is likely
to result in the loss of such qualified status under Section 401(a) of the Code; (iii) Parent and its Subsidiaries, where applicable,
have timely made all contributions, benefits, premiums, and other payments required by and due under the terms of each Parent Employee
Plan and applicable Law and accounting principles, and all benefits accrued under any unfunded Parent Employee Plan have been paid,
accrued, or otherwise adequately reserved to the extent required by, and in accordance with GAAP; (iv) except to the extent limited
by applicable Law, each Parent Employee Plan can be amended, terminated, or otherwise discontinued after the Effective Time in
accordance with its terms, without material liability to Parent, the Company, or any of their respective Subsidiaries (other than
ordinary administration expenses and in respect of accrued benefits thereunder); (v) there are no investigations, audits, inquiries,
or Legal Actions pending or threatened by the IRS, U.S. Department of Labor, Health and Human Services, Equal Employment Opportunity
Commission, or any similar Governmental Entity with respect to any Parent Employee Plan; (vi) there are no material Legal Actions
pending, or threatened with respect to any Parent Employee Plan (in each case, other than routine claims for benefits); and (vii)
neither Parent nor any of its Parent ERISA Affiliates has engaged in a transaction that could subject Parent or any Parent ERISA
Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(d)
Plan Liabilities
. Neither Parent nor any Parent ERISA Affiliate has: (i) incurred or reasonably expects to incur,
either directly or indirectly, any liability under Title I or Title IV of ERISA, or related provisions of the Code or foreign Law
relating to any Parent Employee Plan and nothing has occurred that could reasonably be expected to constitute grounds under Title
IV of ERISA to terminate, or appoint a trustee to administer, any Parent Employee Plan; (ii) except for payments of premiums to
the PBGC which have been timely paid in full, not incurred any liability to the PBGC in connection with any Parent Employee Plan
covering any active, retired, or former employees or directors of Parent or any Parent ERISA Affiliate, including, without limitation,
any liability under Sections 4069 or 4212(c) of ERISA or any penalty imposed under Section 4071 of ERISA, or ceased operations
at any facility, or withdrawn from any such Parent Employee Plan in a manner that could subject it to liability under Sections
4062, 4063 or 4064 of ERISA; (iii) failed to comply with Section 601 et. seq. of ERISA and Section 4980B of the Code; or (iv) incurred
any withdrawal liability (including any contingent or secondary withdrawal liability) within the meaning of Sections 4201 or 4204
of ERISA to any Multiemployer Plan and nothing has occurred that presents a material risk of the occurrence of any withdrawal from
or the partition, termination, reorganization, or insolvency of any such Multiemployer Plan which could result in any liability
of Parent or any Parent ERISA Affiliate to any such Multiemployer Plan. No complete or partial termination of any Parent Employee
Plan has occurred or is expected to occur.
(e)
Certain Parent Employee Plans
. With respect to each Parent Employee Plan:
(i)
no such plan is a Multiemployer Plan or a “multiple employer plan” within the meaning of Section 413(c) of the
Code and neither Parent nor any of its Parent ERISA Affiliates has now or at any time within the previous six years contributed
to, sponsored, maintained, or had any liability or obligation in respect of any such Multiemployer Plan or multiple employer plan;
(ii)
no Legal Action has been initiated by the PBGC to terminate any such Parent Employee Plan or to appoint a trustee for any
such Parent Employee Plan;
(iii)
no Parent Employee Plan is subject to the minimum funding standards of Section 302 of ERISA or Sections 412, 418(b), or
430 of the Code, and none of the assets of Parent or any Parent ERISA Affiliate is, or may reasonably be expected to become, the
subject of any lien arising under Section 303 of ERISA or Sections 430 or 436 of the Code; and
(iv)
no “reportable event,” as defined in Section 4043 of ERISA, has occurred, or is reasonably expected to occur,
with respect to any such Parent Employee Plan.
(f)
No Post-Employment Obligations
. Except as set forth in Section 4.12(f) of the Parent Disclosure Letter, no Parent
Employee Plan provides post-termination or retiree health benefits to any person for any reason, except as may be required by COBRA
or other applicable Law, and neither Parent nor any Parent ERISA Affiliate has any Liability to provide post-termination or retiree
health benefits to any person or ever represented, promised, or contracted to any Parent Employee (either individually or to Parent
Employees as a group) or any other person that such Parent Employee(s) or other person would be provided with post-termination
or retiree health benefits, except to the extent required by COBRA or other applicable Law.
(g)
Potential Governmental or Lawsuit Liability
. Other than routine claims for benefits: (i) there are no pending or
threatened claims by or on behalf of any participant in any Parent Employee Plan, or otherwise involving any Parent Employee Plan
or the assets of any Parent Employee Plan; and (ii) no Parent Employee Plan is presently or has within the three years prior to
the date hereof, been the subject of an examination or audit by a Governmental Entity or is the subject of an application or filing
under, or is a participant in, an amnesty, voluntary compliance, self-correction, or similar program sponsored by any Governmental
Entity.
(h)
Section 409A Compliance
. Each Parent Employee Plan that is subject to Section 409A of the Code has been operated
in compliance with such section and all applicable regulatory guidance (including, without limitation, proposed regulations, notices,
rulings, and final regulations).
(i)
Health Plan Compliance
. Each of Parent and its Subsidiaries complies in all material respects with the applicable
requirements of COBRA or any similar state statute with respect to each Parent Employee Plan that is a group health plan within
the meaning of Section 5000(b)(1) of the Code or such state statute.
(j)
Effect of Transaction
. Except as set forth in Section 4.12(j) of the Parent Disclosure Letter, neither the execution
or delivery of this Agreement, the consummation of the Merger, nor any of the other transactions contemplated by this Agreement
will (either alone or in combination with any other event): (i) entitle any current or former director, employee, contractor, or
consultant of Parent to severance pay or any other payment; (ii) accelerate the timing of payment, funding, or vesting, or increase
the amount of compensation due to any such individual; (iii) limit or restrict the right of Parent to merge, amend, or terminate
any Parent Employee Plan; or (iv) increase the amount payable or result in any other material obligation pursuant to any Parent
Employee Plan. The Parent Board has not authorized any payment to be made on completion of or in connection with the execution
or delivery of this Agreement, the consummation of the Merger, or other transactions contemplated by this Agreement, and, except
as set forth in Section 4.12(j) of the Parent Disclosure Letter, no such payments will be due or obligation incurred.
(k)
Employment Law Matters
. Except as set forth in Section 4.12(k) of the Parent Disclosure Letter, Parent and each of
its Subsidiaries is in compliance with all applicable Laws and agreements regarding hiring, employment, collective bargaining,
termination of employment, plant closing and mass layoff, employment discrimination, harassment, retaliation, and reasonable accommodation,
leaves of absence, terms and conditions of employment, wages and hours of work, employee classification, employee health and safety,
leasing and supply of temporary and contingent staff, engagement of independent contractors, including proper classification of
same, payroll taxes, and immigration with respect to Parent Employees and contingent workers.
(l)
Labor
. Neither Parent nor any of its Subsidiaries is party to, or subject to, any collective bargaining agreement
or other agreement with any labor organization, work council, or trade union with respect to any of its or their operations. No
material work stoppage, slowdown, or labor strike against Parent or any of its Subsidiaries with respect to employees who are employed
within the United States is pending, threatened, or has occurred in the last two years, and, to the Knowledge of Parent, no material
work stoppage, slowdown, or labor strike against Parent or any of its Subsidiaries with respect to employees who are employed outside
the United States is pending, threatened, or has occurred in the last two years. None of Parent Employees is represented by a labor
organization, work council, or trade union and, to the Knowledge of Parent, there is no organizing activity, Legal Action, election
petition, union card signing or other union activity, or union corporate campaigns of or by any labor organization, trade union,
or work council directed at Parent or any of its Subsidiaries, or any Parent Employees. Except as set forth in Section 4.12(l)
of the Parent Disclosure Letter, there are no Legal Actions, government investigations, or labor grievances pending, or, to the
Knowledge of Parent, threatened relating to any employment related matter involving any Parent Employee or applicant, including,
but not limited to, charges of unlawful discrimination, retaliation or harassment, failure to provide reasonable accommodation,
denial of a leave of absence, failure to provide compensation or benefits, unfair labor practices, or other alleged violations
of Law.
Section
4.13
Real Property and Personal Property Matters.
(a)
Owned Real Estate
. Parent does not as of the date hereof hold fee simple title to any real property. Neither Parent
nor any Subsidiary is a party to any agreement or option to purchase any real property or interest therein.
(b)
Leased Real Estate
. Section 4.13(b) of the Parent Disclosure Letter contains a true and complete list of any and
all Leases (including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto) as of the date
hereof for each such Parent-Leased Real Estate (including the date and name of the parties to such Lease). Parent has delivered
to the Company a true and complete copy of each such Lease. Except as set forth on Section 4.13(b) of the Parent Disclosure Letter,
with respect to each of the Leases: (i) such Lease is legal, valid, binding, enforceable, and in full force and effect; (ii) neither
Parent nor any of its Subsidiaries nor, to the Knowledge of Parent, any other party to the Lease, is in breach or default under
such Lease, and no event has occurred or circumstance exists which, with or without notice, lapse of time, or both, would constitute
a breach or default under such Lease; (iii) Parent’s or its Subsidiary’s possession and quiet enjoyment of the Parent-Leased
Real Estate under such Lease has not been disturbed, and to the Knowledge of Parent, there are no disputes with respect to such
Lease; and (iv) there are no Liens on the estate created by such Lease other than Permitted Liens. Neither Parent nor any of its
Subsidiaries has assigned, pledged, mortgaged, hypothecated, or otherwise transferred any Lease or any interest therein nor has
Parent or any of its Subsidiaries subleased, licensed, or otherwise granted any Person (other than another wholly-owned Subsidiary
of Parent) a right to use or occupy such Parent-Leased Real Estate or any portion thereof.
(c)
Real Estate Used in the Business
. The Parent-Leased Real Estate identified in Section 4.13(b) of the Parent Disclosure
Letter comprise all of the real property used or intended to be used in, or otherwise related to, the business of Parent or any
of its Subsidiaries.
(d)
Personal Property
. Parent and each of its Subsidiaries are in possession of and have good and marketable title to,
or valid leasehold interests in or valid rights under contract to use, the machinery, equipment, furniture, fixtures, and other
tangible personal property and assets owned, leased, or used by Parent or any of its Subsidiaries, free and clear of all Liens
other than Permitted Liens.
Section
4.14
Environmental Matters.
(a)
Parent and its Subsidiaries are, and have been, in compliance with all Environmental Laws, which compliance includes the
possession, maintenance of, compliance with, or application for, all Permits required under applicable Environmental Laws for the
operation of the business of Parent and its Subsidiaries as currently conducted.
(b)
Neither Parent nor any of its Subsidiaries has disposed of, released, or discharged any Hazardous Substances on, at, under,
in, or from any real property currently or, to the Knowledge of Parent, formerly owned, leased, or operated by it or any of its
Subsidiaries or at any other location that is: (i) currently subject to any investigation, remediation, or monitoring; or (ii)
reasonably likely to result in liability to Parent or any of its Subsidiaries, in either case of (i) or (ii) under any applicable
Environmental Laws.
(c)
Neither Parent nor any of its Subsidiaries has: (i) produced, processed, manufactured, generated, transported, treated,
handled, used, or stored any Hazardous Substances, except in compliance with Environmental Laws, at any Real Estate; or (ii) exposed
any employee or any third party to any Hazardous Substances under circumstances reasonably expected to give rise to any material
Liability or obligation under any Environmental Law.
(d)
Neither Parent nor any of its Subsidiaries has received written notice of and there is no Legal Action pending, or to the
Knowledge of Parent, threatened against Parent or any of its Subsidiaries, alleging any Liability or responsibility under or non-compliance
with any Environmental Law or seeking to impose any financial responsibility for any investigation, cleanup, removal, containment,
or any other remediation or compliance under any Environmental Law. Neither Parent nor any of its Subsidiaries is subject to any
Order, settlement agreement, or other written agreement by or with any Governmental Entity or third party imposing any material
Liability or obligation with respect to any of the foregoing.
(e)
Neither Parent nor any of its Subsidiaries has expressly assumed or retained any Liabilities under any applicable Environmental
Laws of any other Person, including in any acquisition or divestiture of any property or business.
Section
4.15
Material Contracts.
(a)
Material Contracts
. For purposes of this Agreement, “
Parent Material Contract
” shall mean the
following to which Parent or any of its Subsidiaries is a party or any of the respective assets are bound (excluding any Leases):
(i)
any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K), whether or not filed
by Parent with the SEC;
(ii)
any employment or consulting Contract (in each case with respect to which Parent or any of its Subsidiaries has continuing
obligations as of the date hereof) with any current or former (A) officer of Parent or any of its Subsidiaries, (B) member of the
Parent Board, or (C) Parent Employee providing for an annual base salary or payment in excess of $100,000;
(iii)
any Contract providing for indemnification or any guaranty by Parent or any Subsidiary thereof, in each case that is material
to Parent and its Subsidiaries, taken as a whole, other than (A) any guaranty by Parent or a Subsidiary thereof of any of the obligations
of (1) Parent or another wholly-owned Subsidiary thereof or (2) any Subsidiary (other than a wholly-owned Subsidiary) of Parent
that was entered into in the ordinary course of business pursuant to or in connection with a customer Contract, or (B) any Contract
providing for indemnification of customers or other Persons pursuant to Contracts entered into in the ordinary course of business;
(iv)
any Contract that purports to limit in any material respect the right of Parent or any of its Subsidiaries (or, at any time
after the consummation of the Merger, the Surviving Company or any of its Subsidiaries) to (A) engage in any line of business,
(B) compete with any Person or solicit any client or customer, or (C) operate in any geographical location;
(v)
any Contract entered into on or after January 1, 2017 relating to the disposition or acquisition, directly or indirectly
(by merger, sale of stock, sale of assets, or otherwise), by Parent or any of its Subsidiaries of assets or capital stock or other
equity interests of any Person, in each case with a fair market value in excess of $100,000;
(vi)
any Contract that grants any right of first refusal, right of first offer, or similar right with respect to any material
assets, rights, or properties of Parent or any of its Subsidiaries;
(vii)
any Contract that contains any provision that requires the purchase of all or a material portion of Parent’s or any
of its Subsidiaries’ requirements for a given product or service from a given third party, which product or service is material
to Parent and its Subsidiaries, taken as a whole;
(viii)
any Contract that obligates Parent or any of its Subsidiaries to conduct business on an exclusive or preferential basis
or that contains a “most favored nation” or similar covenant with any third party or upon consummation of the Merger
will obligate Parent, the Surviving Company, or any of their respective Subsidiaries to conduct business on an exclusive or preferential
basis or that contains a “most favored nation” or similar covenant with any third party;
(ix)
any partnership, joint venture, limited liability company agreement, or similar Contract relating to the formation, creation,
operation, management, or control of any material joint venture, partnership, or limited liability company, other than any such
Contract solely between Parent and its wholly-owned Subsidiaries or among Parent’s wholly-owned Subsidiaries;
(x)
any mortgages, indentures, guarantees, loans, or credit agreements, security agreements, or other Contracts, in each case
relating to indebtedness for borrowed money, whether as borrower or lender, in each case in excess of $100,000, other than (A)
accounts receivables and payables, and (B) loans to Affiliates of Parent;
(xi)
any employee collective bargaining agreement or other Contract with any labor union;
(xii)
any Parent IP Agreement;
(xiii)
any license or similar Contract with respect to any Parent or Subsidiary location;
(xiv)
any other Contract under which Parent or any of its Subsidiaries is obligated to make payment or incur costs in excess of
$100,000 in any year and which is not otherwise described in clauses (i)–(xii) above;
(xv)
any material Contracts with Parent Selected Customers; or
(xvi)
any Contract which is not otherwise described in clauses (i)-(xiii) above that is material to Parent and its Subsidiaries,
taken as a whole.
(b)
Schedule of Material Contracts; Documents
. Section 4.15(b) of the Parent Disclosure Letter sets forth a true and
complete list as of the date hereof of all Parent Material Contracts. Parent has made available to the Company correct and complete
copies of all Parent Material Contracts, including any amendments thereto. Except as set forth in Section 4.15(b) of the Parent
Disclosure Letter, none of the Parent, its Subsidiaries or the Surviving Company will have any responsibilities, obligations or
liabilities, contractual or otherwise, arising under any change of control provision of any Contract as a result of any of the
transactions contemplated hereunder, including the Merger.
(c)
No Breach
. (i) All the Parent Material Contracts are valid, legal, and binding on Parent or its applicable Subsidiary,
enforceable against it in accordance with its terms, and is in full force and effect; (ii) neither Parent nor any of its Subsidiaries
nor, to the Knowledge of Parent, any third party has violated any provision of, or failed to perform any obligation required under
the provisions of, any Parent Material Contract; (iii) neither Parent nor any of its Subsidiaries nor, to the Knowledge of Parent,
any third party is in breach, or has received written notice of breach, of any Parent Material Contract; and (iv) neither Parent
nor any of its Subsidiaries has received written notice of termination, cancellation, material reduction of services or non-renewal
that is currently in effect with respect to any Material Contract and, to the Knowledge of Parent, no other party to a Material
Contract plans to terminate, cancel or not renew, or materially reduce the services provided to it under, any such Material Contract.
Section
4.16
Insurance.
Section 4.16 of the Parent
Disclosure Letter sets forth (a) a list of each insurance policy and fidelity bond which covers Parent, its Subsidiaries,
their respective properties and assets (including in respect of Real Estate) or any director, officer or employee of Parent or
its Subsidiaries, including without limitation each workers’ compensation policy (the “
Parent Policies
”)
and (b) a list of all pending claims and the claims history for Parent and its Subsidiaries since January 1, 2017. Except
as set forth in Section 4.16 of the Parent Disclosure Letter, there are no pending claims under any of the Parent Policies as to
which coverage has been questioned, denied or disputed by the insurer or in respect of which the insurer has reserved its rights.
All premiums due under the Parent Policies have been paid in full or, with respect to premiums not yet due, accrued. Parent does
not have any Liability to any Person with respect to the Parent Policies or insurance policies issued in its favor at any time
previously, including to Freestone Insurance Company or the receiver appointed with respect to that company. All of the Parent
Policies are in full force and effect and provide insurance in such amounts and against such risks as Parent reasonably has determined
to be prudent, taking into account the industries in which Parent and its Subsidiaries operate, and as is sufficient to comply
with applicable Law. Neither Parent nor any of its Subsidiaries is in breach or default, and neither Parent nor any of its Subsidiaries
has taken any action or failed to take any action which, with notice or the lapse of time, would constitute such a breach or default,
or permit termination or modification of, any of the Parent Policies. To the Knowledge of Parent, except for Freestone Insurance
Company: (i) no insurer of the Parent Policies has been declared insolvent or placed in receivership, conservatorship, or liquidation;
and (ii) no notice of cancellation or termination, other than pursuant to the expiration of a term in accordance with the terms
thereof, has been received with respect to any of the Parent Policies, nor has the Parent received any notice that an insurer intends
to materially reduce the level of coverage under any Parent Policy. To Parent’s Knowledge, the consummation of the transactions
contemplated by this Agreement is not reasonably likely to adversely affect the relationship of Parent with any of its insurers.
Section 4.17
Proxy Statement.
None
of the information included or incorporated by reference in the Proxy Statement to be filed with the SEC in connection with the
Merger, will, at the date it is first mailed to Parent’s shareholders or at the time of the Parent Shareholders Meeting or
at the time of any amendment or supplement thereof, contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation or warranty is made by Parent with respect to statements made or incorporated
by reference therein based on information supplied by the Company expressly for inclusion or incorporation by reference in the
Proxy Statement. The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act.
Section
4.18
Anti-Corruption Matters.
Since January
1, 2017, none of Parent, any of its Subsidiaries or any director, officer or, to the Knowledge of Parent, employee or agent of
Parent or any of its Subsidiaries has: (i) used any funds for unlawful contributions, gifts, entertainment, or other unlawful payments
relating to an act by any Governmental Entity; (ii) made any unlawful payment to any foreign or domestic government official or
employee or to any foreign or domestic political party or campaign or violated any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended; or (iii) made any other unlawful payment under any applicable Law relating to anti-corruption, bribery,
or similar matters. Since January 1, 2017, neither Parent nor any of its Subsidiaries has disclosed to any Governmental Entity
that it violated or may have violated any Law relating to anti-corruption, bribery, or similar matters. To the Knowledge of Parent,
no Governmental Entity is investigating, examining, or reviewing Parent’s compliance with any applicable provisions of any
Law relating to anti-corruption, bribery, or similar matters.
Section
4.19
Customers.
(a)
Section 4.19(a) of the Parent Disclosure Letter sets forth a complete and accurate list of the ten (10) largest customers
of Parent and its Subsidiaries based on revenues during the fiscal year ended December 28, 2018 (the “
Parent Selected
Customers
”). Such revenue amounts are also set forth on Section 4.19(a) of the Parent Disclosure Letter.
(b)
Since June 30, 2018, the Parent Selected Customers set forth in Section 4.19(b) of the Parent Disclosure Letter have reduced
their level of business with Parent by at least 10%. However, no Parent Selected Customers have canceled or terminated their relationship
with Parent and its Subsidiaries or notified Parent or its Subsidiaries in writing of an intent to cancel or terminate its relationship
or, to Parent’s Knowledge (without the requirement of inquiry to the Parent Selected Customer), intends to materially reduce
its level of business with Parent and its Subsidiaries. To Parent’s Knowledge, the consummation of the transactions contemplated
by this Agreement is not reasonably expected to adversely affect the relationship of Parent and its Subsidiaries with any of the
Parent Selected Customers.
Section 4.20
Fairness Opinion.
The
Parent Board has received the opinion of Parent Financial Advisor (and Parent has provided a copy of such opinion to the Company
solely for information purposes), to the effect that, as of the date of such opinion and based upon and subject to the qualifications
and assumptions set forth therein, the Merger Consideration is fair, from a financial point of view, to Parent, and, as of the
date hereof, such opinion has not been withdrawn, revoked, or modified.
ARTICLE V
Covenants
Section 5.01
Conduct of Business of the Company.
The Company shall, and shall cause each of its Subsidiaries to, during the period from the date of this Agreement until the Effective
Time, except as expressly contemplated by this Agreement or as required by applicable Law or with the prior written consent of
Parent, conduct its business in the ordinary course of business consistent with past practice, and, to the extent consistent therewith,
the Company shall, and shall cause each of its Subsidiaries to, use its reasonable best efforts to preserve substantially intact
its and its Subsidiaries’ business organization, to keep available the services of its and its Subsidiaries’ current
officers and employees, and to preserve its and its Subsidiaries’ present relationships with customers, suppliers, distributors,
licensors, licensees, and other Persons having business relationships with it. Without limiting the generality of the foregoing,
between the date of this Agreement and the Effective Time, except as set forth in Section 5.01 of the Company Disclosure Letter
or as otherwise expressly contemplated by this Agreement (including to effectuate the Pre-Closing Reorganization, the Dock Square
Consulting Arrangement or the Pre-Closing Balance Sheet Adjustment) or as required by applicable Law, the Company shall not, nor
shall it permit any of its Subsidiaries to, without the prior written consent of Parent (which consent shall not be unreasonably
withheld, conditioned, or delayed):
(a)
amend or propose to amend its Organizational Documents;
(b)
(i) split, combine, or reclassify any Company Securities or Company Subsidiary Securities, (ii) repurchase, redeem, or otherwise
acquire, or offer to repurchase, redeem, or otherwise acquire, any Company Securities or Company Subsidiary Securities or (iii)
declare, set aside, or pay any dividend or distribution (whether in cash, stock, property, or otherwise) in respect of, or enter
into any Contract with respect to the voting of, any shares of its capital stock (other than dividends from its direct or indirect
wholly-owned Subsidiaries);
(c)
issue, sell, pledge, dispose of, or encumber any Company Securities or Company Subsidiary Securities;
(d)
except as required by applicable Law or by any Company Employee Plan or Contract in effect as of the date hereof (i) increase
the compensation payable or that could become payable by the Company or any of its Subsidiaries to directors, officers, or employees,
other than increases in compensation made to non-officer employees in the ordinary course of business consistent with past practice,
(ii) promote any officers or employees, except in connection with the Company’s annual or quarterly compensation review cycle
or as the result of the termination or resignation of any officer or employee, or (iii) establish, adopt, enter into, amend, terminate,
exercise any discretion under, or take any action to accelerate rights under any Company Employee Plans or any plan, agreement,
program, policy, trust, fund, or other arrangement that would be a Company Employee Plan if it were in existence as of the date
hereof, or make any contribution to any Company Employee Plan, other than contributions required by Law, the terms of such Company
Employee Plans as in effect on the date hereof, or that are made in the ordinary course of business consistent with past practice;
(e)
acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or Person or division thereof
or make any loans, advances, or capital contributions to or investments in any Person;
(f)
(i) transfer, license, sell, lease, or otherwise dispose of (whether by way of merger, consolidation, sale of stock or assets,
or otherwise) or pledge, encumber, or otherwise subject to any Lien (other than a Permitted Lien), any assets, including the capital
stock or other equity interests in any Subsidiary of the Company or any Real Estate; provided, that the foregoing shall not prohibit
the Company and its Subsidiaries from transferring, selling, leasing, or disposing of obsolete equipment or assets being replaced,
or granting non-exclusive licenses under the Company IP, in each case in the ordinary course of business consistent with past practice,
or (ii) adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;
(g)
repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue
or sell any debt securities or options, warrants, calls, or other rights to acquire any debt securities of the Company or any of
its Subsidiaries, guarantee any debt securities of another Person, enter into any “keep well” or other Contract to
maintain any financial statement condition of any other Person (other than any wholly-owned Subsidiary of it) or enter into any
arrangement having the economic effect of any of the foregoing, other than in connection with the financing of ordinary course
trade payables consistent with past practice;
(h)
enter into or amend or modify in any material respect, or consent to the termination of (other than at its stated expiry
date), any Company Material Contract or any Lease with respect to Real Estate or any other Contract or Lease that, if in effect
as of the date hereof would constitute a Company Material Contract or Lease with respect to Real Estate hereunder;
(i)
institute, settle, or compromise any Legal Action involving the payment of monetary damages by the Company or any of its
Subsidiaries, other than (i) any Legal Action brought against the Company arising out of a breach or alleged breach of this Agreement
by the Company, and (ii) the settlement of claims, liabilities, or obligations reserved against on the Company Balance Sheet; provided,
that neither the Company nor any of its Subsidiaries shall settle or agree to settle any Legal Action which settlement involves
a conduct remedy or injunctive or similar relief or has a restrictive impact on the Company’s business;
(j)
make any material change in any method of financial accounting principles or practices, in each case except for any such
change required by a change in GAAP or applicable Law;
(k)
(i) settle or compromise any material Tax claim, audit, or assessment for an amount materially in excess of the amount reserved
or accrued on the Company Balance Sheet, (ii) make or change any material Tax election, change any annual Tax accounting period,
or adopt or change any method of Tax accounting, (iii) amend any material Tax Returns or file claims for material Tax refunds,
or (iv) enter into any material closing agreement, surrender in writing any right to claim a material Tax refund, offset or other
reduction in Tax liability or consent to any extension or waiver of the limitation period applicable to any material Tax claim
or assessment relating to the Company or its Subsidiaries;
(l)
enter into any material agreement, agreement in principle, letter of intent, memorandum of understanding, or similar Contract
with respect to any joint venture, strategic partnership, or alliance;
(m)
take any action to exempt any Person from, or make any acquisition of securities of the Company by any Person not subject
to, any state takeover statute or similar statute or regulation that applies to the Company with respect to a Takeover Proposal
or otherwise, except for Parent or any of its Subsidiaries or Affiliates, or the transactions contemplated by this Agreement;
(n)
abandon, allow to lapse, sell, assign, transfer, grant any security interest in otherwise encumber or dispose of any Company
IP, or grant any right or license to any Company IP other than pursuant to non-exclusive licenses entered into in the ordinary
course of business consistent with past practice;
(o)
terminate or modify in any material respect, or fail to exercise renewal rights with respect to, any material insurance
policy; or
(p)
agree or commit to do any of the foregoing.
Section 5.02
Conduct of Business of Parent
and Merger Subs.
Parent and the Merger Subs shall, and shall cause each of its respective Subsidiaries to, during the
period from the date of this Agreement until the Effective Time, except as expressly contemplated by this Agreement or as required
by applicable Law or with the prior written consent of the Company, conduct its business in the ordinary course of business consistent
with past practice, and, to the extent consistent therewith, Parent and the Merger Subs shall, and shall cause each of its respective
Subsidiaries to, use its reasonable best efforts to preserve substantially intact its and its respective Subsidiaries’ business
organization, to keep available the services of its and its respective Subsidiaries’ current officers and employees (subject
to the amendment or modification of certain employment agreements as set forth on Section 5.02 of the Parent Disclosure Letter),
to preserve its and its respective Subsidiaries’ present relationships with customers, suppliers, distributors, licensors,
licensees, and other Persons having business relationships with it. Without limiting the generality of the foregoing, between the
date of this Agreement and the Effective Time, except as set forth in Section 5.02 of the Parent Disclosure Letter or as otherwise
expressly contemplated by this Agreement (including to effectuate the Dock Square Consulting Arrangement) or as required by applicable
Law, Parent and the Merger Subs shall not, nor shall either permit any of its respective Subsidiaries to, without the prior written
consent of the Company (which consent shall not be unreasonably withheld, conditioned, or delayed):
(a)
amend or propose to amend its Charter Documents;
(b)
(i) split, combine, or reclassify any Parent Securities or Parent Subsidiary Securities, (ii) repurchase, redeem, or otherwise
acquire, or offer to repurchase, redeem, or otherwise acquire, any Parent Securities or Parent Subsidiary Securities, other than
in connection with the Offer, or (iii) declare, set aside, or pay any dividend or distribution (whether in cash, stock, property,
or otherwise) in respect of, or enter into any Contract with respect to the voting of, any shares of its capital stock (other than
dividends from its direct or indirect wholly-owned Subsidiaries);
(c)
issue, sell, pledge, dispose of, or encumber any Parent Securities or Parent Subsidiary Securities;
(d)
except as required by applicable Law or by any Parent Employee Plan or Contract in effect as of the date hereof or as set
forth in Section 5.02(d) of the Parent Disclosure Letter, (i) increase the compensation payable or that could become payable by
Parent or any of its Subsidiaries to directors, officers, or employees, other than increases in compensation made to non-officer
employees in the ordinary course of business consistent with past practice, (ii) promote any officers or employees, except in connection
with Parent’s annual or quarterly compensation review cycle or as the result of the termination or resignation of any officer
or employee, or (iii) establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate
rights under any Parent Employee Plans or any plan, agreement, program, policy, trust, fund, or other arrangement that would be
a Parent Employee Plan if it were in existence as of the date hereof, or make any contribution to any Parent Employee Plan, other
than contributions required by Law, the terms of such Parent Employee Plans as in effect on the date hereof, or that are made in
the ordinary course of business consistent with past practice;
(e)
acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or Person or division thereof
or make any loans, advances, or capital contributions to or investments in any Person;
(f)
(i) transfer, license, sell, lease, or otherwise dispose of (whether by way of merger, consolidation, sale of stock or assets,
or otherwise) or pledge, encumber, or otherwise subject to any Lien (other than a Permitted Lien), any assets, including the capital
stock or other equity interests in any Subsidiary of Parent or any Real Estate; provided, that the foregoing shall not prohibit
Parent and its Subsidiaries from transferring, selling, leasing, or disposing of obsolete equipment or assets being replaced, or
granting non-exclusive licenses under the Parent IP, in each case in the ordinary course of business consistent with past practice,
or (ii) adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;
(g)
repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue
or sell any debt securities or options, warrants, calls, or other rights to acquire any debt securities of Parent or any of its
Subsidiaries, guarantee any debt securities of another Person, enter into any “keep well” or other Contract to maintain
any financial statement condition of any other Person (other than any wholly-owned Subsidiary of it) or enter into any arrangement
having the economic effect of any of the foregoing, other than in connection with the financing of ordinary course trade payables
consistent with past practice;
(h)
except as set forth in Section 5.02(h) of the Parent Disclosure Letter, enter into or amend or modify in any material respect,
or consent to the termination of (other than at its stated expiry date), any Parent Material Contract or any Lease with respect
to Real Estate or any other Contract or Lease that, if in effect as of the date hereof would constitute a Parent Material Contract
or Lease with respect to Real Estate hereunder;
(i)
institute, settle, or compromise any Legal Action involving the payment of monetary damages by Parent or any of its Subsidiaries,
other than (i) any Legal Action brought against Parent arising out of a breach or alleged breach of this Agreement by Parent, (ii)
the settlement of claims, liabilities, or obligations reserved against on the Parent Balance Sheet; and (iii) the settlement of
or payments related to any disputes or claims concerning accounts receivable or workers’ compensation claims (including the
payment of ongoing workers’ compensation claims costs) in the ordinary course of business, provided, that neither Parent
nor any of its Subsidiaries shall settle or agree to settle any Legal Action which settlement involves a conduct remedy or injunctive
or similar relief or has a restrictive impact on Parent’s business;
(j)
make any material change in any method of financial accounting principles or practices, in each case except for any such
change required by a change in GAAP or applicable Law;
(k)
(i) settle or compromise any material Tax claim, audit, or assessment for an amount materially in excess of the amount reserved
or accrued on the Parent Balance Sheet (or most recent consolidated balance sheet included in the Parent SEC Documents), (ii) make
or change any material Tax election, change any annual Tax accounting period, or adopt or change any method of Tax accounting,
(iii) amend any material Tax Returns or file claims for material Tax refunds, or (iv) enter into any material closing agreement,
surrender in writing any right to claim a material Tax refund, offset or other reduction in Tax liability or consent to any extension
or waiver of the limitation period applicable to any material Tax claim or assessment relating to Parent or its Subsidiaries;
(l)
enter into any material agreement, agreement in principle, letter of intent, memorandum of understanding, or similar Contract
with respect to any joint venture, strategic partnership, or alliance;
(m)
except in connection with actions permitted by Section 5.05 hereof, take any action to exempt any Person from, or make any
acquisition of securities of Parent by any Person not subject to, any state takeover statute or similar statute or regulation that
applies to Parent with respect to a Takeover Proposal or otherwise, except for the Company or any of its Subsidiaries or Affiliates,
or the transactions contemplated by this Agreement;
(n)
abandon, allow to lapse, sell, assign, transfer, grant any security interest in otherwise encumber or dispose of any Parent
IP, or grant any right or license to any Parent IP other than pursuant to non-exclusive licenses entered into in the ordinary course
of business consistent with past practice;
(o)
terminate or modify in any material respect, or fail to exercise renewal rights with respect to, any material insurance
policy; or
(p)
agree or commit to do any of the foregoing.
Prior to the Effective Time, Parent shall exercise,
consistent with the terms and conditions of this Agreement, control and supervision over its and its Subsidiaries’ respective
operations.
Section 5.03
Other Actions.
From
the date of this Agreement until the earlier to occur of the Effective Time or the termination of this Agreement in accordance
with the terms set forth in ARTICLE VII, the Company, Parent and the Merger Subs shall not, and shall not permit any of their respective
Subsidiaries to, take, or agree or commit to take, any action (except as otherwise expressly permitted by Section 5.05 of this
Agreement) that would reasonably be expected to, individually or in the aggregate, prevent, materially delay, or materially impede
the consummation of the Merger or the other transactions contemplated by this Agreement.
Section
5.04
Access to Information; Confidentiality.
(a)
From the date of this Agreement until the earlier to occur of the Effective Time or the termination of this Agreement in
accordance with the terms set forth in ARTICLE VII, each party shall, and shall cause its Subsidiaries to, afford to the other
party and its Representatives reasonable access, at reasonable times and in a manner as shall not unreasonably interfere with the
business or operations of such first party or any Subsidiary thereof, to the officers, employees, accountants, agents, properties,
offices, and other facilities and to all books, records, contracts, and other assets of such first party and its Subsidiaries,
and each party shall, and shall cause its Subsidiaries to, furnish promptly to the other party such other information concerning
the business and properties of such first party and its Subsidiaries as such other party may reasonably request from time to time.
The parties and their Subsidiaries shall not be required to provide access to or disclose information where such access or disclosure
would jeopardize the protection of attorney-client privilege or contravene any Law (it being agreed that the parties shall use
their reasonable best efforts to cause such information to be provided in a manner that would not result in such jeopardy or contravention).
No investigation shall affect a party’s representations, warranties, covenants, or agreements contained herein, or limit
or otherwise affect the remedies available to the other party pursuant to this Agreement.
(b)
The Company and Parent shall comply with, and shall cause their respective Representatives to comply with, all of their
respective obligations under each of the Non-Disclosure Agreement dated January 7, 2019, between the Company and Parent and the
Confidentiality and Non-Disclosure Agreement dated September 7, 2018, between the Company and Parent (collectively, the “
Confidentiality
Agreements
”), which shall survive the termination of this Agreement in accordance with the terms set forth therein.
Section 5.05
No Solicitation.
(a)
The Company shall not, and shall cause its Subsidiaries not to, and shall not authorize or permit its and its Subsidiaries’
directors, officers, employees, advisors, agents, and investment bankers (with respect to any Person, the foregoing Persons are
referred to herein as such Person’s “
Representatives
”) to, directly or indirectly, solicit, initiate,
or knowingly take any action to facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that
could reasonably be expected to lead to any Takeover Proposal, or: (i) conduct or engage in any discussions or negotiations with,
disclose any non-public information relating to the Company or any of its Subsidiaries to, afford access to the business, properties,
assets, books, or records of the Company or any of its Subsidiaries to, or knowingly assist, participate in, facilitate, or encourage
any effort by, any third party that is seeking to make, or has made, any Takeover Proposal; (ii) amend or grant any waiver or release
under any standstill or similar agreement with respect to any class of equity securities of the Company or any of its Subsidiaries;
or (iii) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement,
joint venture agreement, partnership agreement, or other Contract relating to any Takeover Proposal. The Company shall, and shall
cause its Subsidiaries to cease immediately and cause to be terminated, and shall not authorize or knowingly permit any of its
or their Representatives to continue, any and all existing activities, discussions, or negotiations, if any, with any third party
conducted prior to the date hereof with respect to any Takeover Proposal and shall use its reasonable best efforts to cause any
such third party (or its agents or advisors) in possession of non-public information in respect of the Company or any of its Subsidiaries
that was furnished by or on behalf of the Company and its Subsidiaries to return or destroy (and confirm destruction of) all such
information.
(b)
(i) Parent shall not, and shall cause its Subsidiaries not to, and shall not authorize or permit its and its Subsidiaries’
Representatives to, directly or indirectly, solicit, initiate, or knowingly take any action to facilitate or encourage the submission
of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or,
subject to Section 5.05(b)(ii): (A) conduct or engage in any discussions or negotiations with, disclose any non-public information
relating to the Parent or any of its Subsidiaries to, afford access to the business, properties, assets, books, or records of Parent
or any of its Subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party that
is seeking to make, or has made, any Takeover Proposal; (B) except where the Parent Board makes a good faith determination, after
consultation with outside legal counsel, that the failure to do so would be inconsistent with its fiduciary duties, amend or grant
any waiver or release under any standstill or similar agreement with respect to any class of equity securities of Parent or any
of its Subsidiaries; or (C) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement, or other Contract relating to any Takeover Proposal
(each, a “
Parent Acquisition Agreement
”). Except as expressly permitted by this Section 5.05, the Parent Board
shall not effect a Parent Adverse Recommendation Change. Parent shall, and shall cause its Subsidiaries to cease immediately and
cause to be terminated, and shall not authorize or knowingly permit any of its or their Representatives to continue, any and all
existing activities, discussions, or negotiations, if any, with any third party conducted prior to the date hereof with respect
to any Takeover Proposal and shall use its reasonable best efforts to cause any such third party (or its agents or advisors) in
possession of non-public information in respect of Parent or any of its Subsidiaries that was furnished by or on behalf of Parent
and its Subsidiaries to return or destroy (and confirm destruction of) all such information.
(ii)
Notwithstanding Section 5.05(b)(i), prior to the receipt of the Requisite Parent Vote, the Parent Board, directly or indirectly
through any Representative, may, subject to Section 5.05(b)(iii): (A) participate in negotiations or discussions with any third
party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that the Parent Board believes in
good faith, after consultation with outside legal counsel and the Parent Financial Advisor, constitutes a Superior Proposal; (B)
thereafter furnish to such third party non-public information relating to Parent or any of its Subsidiaries pursuant to an executed
confidentiality agreement that constitutes an Acceptable Confidentiality Agreement (a copy of which confidentiality agreement shall
promptly (in all events within 24 hours) be provided for informational purposes only to the Company); (C) following receipt of
and on account of a Superior Proposal, make a Parent Adverse Recommendation Change; and/or (D) take any action that any court of
competent jurisdiction orders Parent to take (which order remains unstayed), but in each case referred to in the foregoing clauses
(A) through (D), only if the Parent Board determines in good faith, after consultation with outside legal counsel, that the failure
to take such action would cause the Parent Board to be in breach of its fiduciary duties under applicable Law. Nothing contained
herein shall prevent the Parent Board from disclosing to Parent’s shareholders a position contemplated by Rule 14d-9 and
Rule 14e-2(a) promulgated under the Exchange Act with regard to a Takeover Proposal, if Parent determines, after consultation with
outside legal counsel, that failure to disclose such position would constitute a violation of applicable Law.
(iii)
The Parent Board shall not take any of the actions referred to in clauses (A) through (D) of Section 5.05(b)(ii) unless
Parent shall have delivered to the Company a prior written notice advising the Company that it intends to take such action. Parent
shall notify the Company promptly (but in no event later than 24 hours) after it obtains Knowledge of the receipt by Parent (or
any of its Representatives) of any Takeover Proposal, any inquiry that could reasonably be expected to lead to a Takeover Proposal,
any request for non-public information relating to Parent or any of its Subsidiaries or for access to the business, properties,
assets, books, or records of Parent or any of its Subsidiaries by any third party. In such notice, Parent shall identify the third
party making, and details of the material terms and conditions of, any such Takeover Proposal, indication or request. Parent shall
keep the Company fully informed, on a current basis, of the status and material terms of any such Takeover Proposal, indication
or request, including any material amendments or proposed amendments as to price and other material terms thereof. Parent shall
provide the Company with at least 48 hours prior notice of any meeting of the Parent Board (or such lesser notice as is provided
to the members of the Parent Board) at which the Parent Board is reasonably expected to consider any Takeover Proposal. Parent
shall promptly provide the Company with a list of any non-public information concerning Parent’s and any of its Subsidiary’s
business, present or future performance, financial condition, or results of operations, provided to any third party, and, to the
extent such information has not been previously provided to the Company, copies of such information.
(iv)
Except as expressly permitted by this Section 5.05, the Parent Board shall not effect a Parent Adverse Recommendation Change
or enter into (or permit any Subsidiary to enter into) a Parent Acquisition Agreement. Notwithstanding the foregoing, at any time
prior to the receipt of the Requisite Parent Vote, the Parent Board may effect a Parent Adverse Recommendation Change or enter
into (or permit any Subsidiary to enter into) a Parent Acquisition Agreement, if: (A) Parent promptly notifies the Company, in
writing, at least five Business Days (the “
Superior Proposal Notice Period
”) before making a Parent Adverse
Recommendation Change or entering into (or causing a Subsidiary to enter into) a Parent Acquisition Agreement, of its intention
to take such action with respect to a Superior Proposal, which notice shall state expressly that Parent has received a Takeover
Proposal that the Parent Board intends to declare a Superior Proposal and that the Parent Board intends to effect a Parent Adverse
Recommendation Change and/or Parent intends to enter into a Parent Acquisition Agreement; (B) Parent attaches to such notice the
most current version of the proposed agreement (which version shall be updated on a prompt basis) and the identity of the third
party making such Superior Proposal; (C) Parent shall, and shall cause its Representatives to, during the Superior Proposal Notice
Period, negotiate with the Company in good faith to make such adjustments in the terms and conditions of this Agreement so that
such Takeover Proposal ceases to constitute a Superior Proposal, if the Company, in its discretion, proposes to make such adjustments
(it being agreed that in the event that, after commencement of the Superior Proposal Notice Period, there is any material revision
to the terms of a Superior Proposal, including, any revision in price, the Superior Proposal Notice Period shall be extended, if
applicable, to ensure that at least three Business Days remains in the Superior Proposal Notice Period subsequent to the time Parent
notifies the Company of any such material revision (it being understood that there may be multiple extensions)); and (D) the Parent
Board determines in good faith, after consulting with outside legal counsel and its Parent Financial Advisor, that such Takeover
Proposal continues to constitute a Superior Proposal after taking into account any adjustments made by the Company during the Superior
Proposal Notice Period in the terms and conditions of this Agreement.
Section
5.06
Shareholders Meeting; Preparation of Proxy Materials.
(a)
Parent shall use commercially reasonable efforts to duly call, give notice of, convene, and hold the Parent Shareholders
Meeting as soon as reasonably practicable after the date of this Agreement, and, in connection therewith, Parent shall mail the
Proxy Statement to the holders of Parent Common Stock in advance of such meeting, which mailing shall commence no later than the
25
th
day following the date hereof. Except to the extent that the Parent Board shall have effected a Parent Adverse
Recommendation Change as permitted by Section 5.05 hereof, the Proxy Statement shall include the Parent Board Recommendation. Subject
to Section 5.05 hereof, Parent shall use reasonable best efforts to: (i) solicit from the holders of Parent Common Stock proxies
in favor of the increase in the number of authorized shares of Parent Common Stock, change in the name of Parent to “HireQuest,
Inc.”, issuance of Parent Common Stock pursuant to this Agreement and related change of control transaction, the Conversion,
the election of Parent’s directors and the ratification of the selection of Parent’s independent auditors; and (ii)
take all other actions necessary or advisable to secure the vote or consent of the holders of Parent Common Stock required by applicable
Law to obtain such approvals. Parent shall not submit any other proposals for approval at the Parent Shareholders Meeting without
the prior written consent of the Company. Parent shall keep the Company updated with respect to proxy solicitation results as reasonably
requested by the Company. Once the Parent Shareholders Meeting has been called and noticed, Parent shall not postpone or adjourn
the Parent Shareholders Meeting without the consent of the Company (other than: (A) in order to obtain a quorum of its shareholders;
or (B) to allow reasonable additional time after the filing and mailing of any supplemental or amended disclosures to the Parent
Proxy Statement for compliance with applicable legal requirements; or (C) to allow reasonable additional time for the additional
solicitation of votes in order to obtain the Requisite Parent Vote). If the Parent Board makes a Parent Adverse Recommendation
Change, it will not alter the obligation of Parent to submit the Conversion, issuance of Parent Common Stock pursuant to this Agreement
and related change of control transaction to the holders of Parent Common Stock at the Parent Shareholders Meeting to consider
and vote upon, unless this Agreement shall have been terminated in accordance with its terms prior to the Parent Shareholders Meeting.
(b)
In connection with the Parent Shareholders Meeting, as soon as reasonably practicable following the date of this Agreement,
Parent shall prepare and file the Proxy Statement with the SEC. Parent and the Company will cooperate and consult with each other
in the preparation of the Proxy Statement. Without limiting the generality of the foregoing, the Company will furnish to Parent
the information relating to it required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth
in the Proxy Statement. Parent shall not file the Proxy Statement, or any amendment or supplement thereto, without providing the
Company a reasonable opportunity to review and comment thereon (which comments shall be reasonably considered by Parent). Parent
shall use its reasonable best efforts to cause the Proxy Statement at the date that it (and any amendment or supplement thereto)
is first published, sent, or given to the shareholders of Parent and at the time of the Parent Shareholders Meeting, to comply
as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder.
Parent shall use its reasonable best efforts to resolve, and each party agrees to consult and cooperate with the other party in
resolving, all SEC comments with respect to the Proxy Statement as promptly as practicable after receipt thereof and to cause the
Proxy Statement in definitive form to be cleared by the SEC and mailed to Parent shareholders as promptly as reasonably practicable
following filing with the SEC. Parent agrees to consult with the Company prior to responding to SEC comments with respect to the
preliminary Proxy Statement. Parent and the Company agree to correct any information provided by the parties for use in the Proxy
Statement which shall have become false or misleading and Parent shall as promptly as reasonably practicable prepare and mail to
its shareholders an amendment or supplement setting forth such correction. Parent shall as soon as reasonably practicable: (i)
notify the Company of the receipt of any comments from the SEC with respect to the Proxy Statement and any request by the SEC for
any amendment to the Proxy Statement or for additional information; and (ii) provide the Company with copies of all written correspondence
between Parent and its Representatives, on the one hand, and the SEC, on the other hand, with respect to the Proxy Statement.
Section 5.07
Notices of Certain Events.
Each party shall notify each other party promptly of: (a) any notice or other communication from any Person alleging that the consent
of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other
communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; (c) any Legal Actions
commenced, or to such party’s Knowledge, threatened, against Parent or any of its Subsidiaries or the Company or any of its
Subsidiaries, as applicable, that are related to the Merger or the other transactions contemplated by this Agreement; and (d) any
event, change, or effect between the date of this Agreement and the Effective Time which causes or is reasonably likely to cause
the failure of the conditions set forth in Section 6.02(a), Section 6.02(b), or Section 6.02(c) of this Agreement (in the case
of the Company and its Subsidiaries) or Section 6.03(a), Section 6.03(b), or Section 6.03(c) of this Agreement (in the case of
Parent and its Subsidiaries), to be satisfied. In no event shall: (i) the delivery of any notice by a party pursuant to this Section
5.07 limit or otherwise affect the respective rights, obligations, representations, warranties, covenants, or agreements of the
parties or the conditions to the obligations of the parties under this Agreement; (ii) disclosure by Parent be deemed to amend
or supplement the Parent Disclosure Letter or constitute an exception to any representation or warranty, or (iii) disclosure by
the Company be deemed to amend or supplement the Company Disclosure Letter or constitute an exception to any representation or
warranty. This Section 5.07 shall not constitute a covenant or agreement for purposes of Section 6.02(b) or Section 6.03(b).
Section
5.08
Employees; Severance; Benefit Plans.
(a)
All non-temporary employees of the Company and of Parent immediately prior to the Effective Time shall be, immediately after
the Effective Time, employees of a subsidiary of Parent to be formed prior to the Effective Time (the “
Employer of Record
”).
All temporary employees of the Company and of Parent immediately prior to the Effective Time shall be, immediately after the Effective
Time, employees of Hire Quest or of such other entity as the Company may request. As of the Closing, or immediately thereafter,
Parent shall (i) cause the Employer of Record to enter into an employment agreement with Richard Hermanns substantially in accordance
with the terms included in Section 5.08 of the Company Disclosure Letter, (ii) use commercially reasonable efforts to amend the
employment agreements of non-temporary employees of Parent to change the employer from Parent to the Employer of Record, (iii)
amend the employment agreements, if any, of temporary employees of Parent to change the employer from Parent to Hire Quest or such
other employer of record as may be requested by the Company, (iv) have ready to implement such new compensation structures and
responsibilities for “national accounts” sales persons as the Company may request, (v) have ready to implement such
workers compensation and liability policies, unemployment rate successions and ACA compliant insurance as the Company may request,
and (vi) use commercially reasonable efforts to enter, or cause the relevant entity to enter, into employment agreements with the
other Company employees listed in Section 5.08 of the Company Disclosure Letter.
(b)
In collaboration and consultation with Parent, the Company will establish benefit plans, reasonably acceptable to Parent,
for all employees of the Employer of Record and of Hire Quest, with such benefit plans to be effective commencing immediately following
the Closing Date. In furtherance of the foregoing, Parent will provide the Company expeditiously all employee data and other information
reasonably requested by the Company, and will otherwise cooperate with the Company, to procure benefit coverage for all employees
of the Employer of Record and of Hire Quest. To the extent requested by the Company, Parent agrees to cause all Company employees
to be eligible to participate in the Parent Employee Plans, including without limitation the Parent 2016 Stock Incentive Plan,
consistent with the eligibility criteria applied by Parent to other employees of Parent, and the Company Employees shall receive
full credit for prior years of service with the Company and shall not be subject to any preexisting conditions exclusions or limitations.
The Company Employees shall receive parity with Parent Employees with respect to eligibility to participate in all Parent Employee
Plans to the extent permitted under the Parent Employee Plans.
(c)
The Company shall (i) determine, prior to the date that is 30 days prior to the scheduled Closing Date, which of the Company
Employee Plans maintained by the Company or its Subsidiaries shall be terminated in connection with the Merger, (ii) notify Parent
of its determination in writing within one day of such determination, and (iii) terminate any such plans effective no later than
the day immediately preceding the Closing Date; provided, that such Company Employee Plans can be terminated in accordance with
their terms and applicable Law without any adverse consequences with respect to any Company ERISA Affiliate. No later than the
day immediately preceding the Closing Date, the Company shall provide Parent with evidence that any such Company Employee Plans
have been terminated.
(d)
This Section 5.08 shall be binding upon and inure solely to the benefit of each of the parties to this Agreement, and nothing
in this Section 5.08, express or implied, shall confer upon any Parent Employee or Company Employee, any beneficiary, or any other
Person any rights or remedies of any nature whatsoever under or by reason of this Section 5.08. Nothing contained herein, express
or implied: (i) shall be construed to establish, amend, or modify any benefit plan, program, agreement, or arrangement; (ii) shall
alter or limit the ability of the Parent, the Surviving Company or any of their respective Affiliates to amend, modify, or terminate
any benefit plan, program, agreement, or arrangement at any time assumed, established, sponsored, or maintained by any of them;
or (iii) shall prevent the Parent, the Surviving Company or any of their respective Affiliates from terminating the employment
of any Company Employee or Parent Employee following the Effective Time in accordance with the terms of any applicable employment
agreement(s). The parties hereto acknowledge and agree that the terms set forth in this Section 5.08 shall not create any right
in any Company Employee, Parent Employee or any other Person to any continued employment with the Parent, the Surviving Company
or any of its respective Subsidiaries or compensation or benefits of any nature or kind whatsoever, or otherwise alter any existing
at-will employment relationship between any Company Employee or Parent Employee, on the one hand, and the Parent or Surviving Company,
on the other hand.
(e)
With respect to matters described in this Section 5.08, neither the Company nor Parent will send any written notices or
other written communication materials to their employees without the prior written consent of the other party.
Section
5.09
Directors’ and Officers’ Indemnification
and Insurance.
(a)
Parent agrees that all rights to indemnification, advancement of expenses and exculpation by the Company now existing in
favor of each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time a
member, officer, director, or manager of the Company or any of its Subsidiaries (each an “
Indemnified Party
”)
as provided in the Organizational Documents of the Company, in each case as in effect on the date of this Agreement, or pursuant
to any other Contracts in effect on the date hereof and disclosed in Section 5.09 of the Company Disclosure Letter, shall be assumed
by the Surviving Company in the Merger, without further action, at the Effective Time and shall survive the Merger and shall remain
in full force and effect in accordance with their terms, and, in the event that any proceeding is pending or asserted or any claim
made during such period, until the final disposition of such proceeding or claim.
(b)
The certificate of incorporation and bylaws of Parent after the Effective Time shall contain provisions with respect to
exculpation and indemnification that are, to the extent permitted by the Laws of the State of Delaware in the event the Conversion
is consummated or by the Laws of the State of Washington in the event the Conversion is not consummated, at least as favorable
as those contained in the certificate of incorporation and bylaws of Parent immediately prior to the Effective Time, which provisions
will not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of Indemnified Parties unless such modification is required by law. For six years after
the Effective Time, to the fullest extent permitted under applicable Law, the Parent (the “
Indemnifying Party
”)
shall indemnify, defend, and hold harmless each Indemnified Party against all losses, claims, damages, liabilities, fees, expenses,
judgments, and fines arising in whole or in part out of actions or omissions in their capacity as such occurring at or prior to
the Effective Time (including in connection with the transactions contemplated by this Agreement), and shall reimburse each Indemnified
Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending
any such losses, claims, damages, liabilities, fees, expenses, judgments, and fines as such expenses are incurred, subject to the
Parent’s receipt of an undertaking by such Indemnified Party to repay such legal and other fees and expenses paid in advance
if it is ultimately determined in a final and non-appealable judgment of a court of competent jurisdiction that such Indemnified
Party is not entitled to be indemnified under applicable Law; provided, however, that the Parent will not be liable for any settlement
effected without the Parent’s prior written consent (which consent shall not be unreasonably withheld, conditioned, or delayed).
(c)
The Parent shall (i) maintain in effect for a period of six years after the Effective Time the current policies of directors’
and officers’ liability insurance maintained by the Company immediately prior to the Effective Time (provided, that the Parent
may substitute therefor policies, of at least the same coverage and amounts and containing terms and conditions that are not less
advantageous to the directors and officers of the Company and its Subsidiaries when compared to the insurance maintained by the
Company as of the date hereof); or (ii) obtain as of the Effective Time “tail” insurance policies with a claims period
of six years from the Effective Time with at least the same coverage and amounts and containing terms and conditions that are not
less advantageous to the directors, managers and officers of the Company and its Subsidiaries, in each case with respect to claims
arising out of or relating to events which occurred before or at the Effective Time (including in connection with the transactions
contemplated by this Agreement).
(d)
The obligations of the Parent under this Section 5.09 shall survive the consummation of the Merger and shall not be terminated
or modified in such a manner as to adversely affect any Indemnified Party to whom this Section 5.09 applies without the consent
of such affected Indemnified Party (it being expressly agreed that the Indemnified Parties to whom this Section 5.09 applies shall
be third party beneficiaries of this Section 5.09, each of whom may enforce the provisions of this Section 5.09).
(e)
In the event the Parent or any of its successors or assigns: (i) consolidates with or merges into any other Person and shall
not be the continuing or surviving corporation or entity in such consolidation or merger; or (ii) transfers all or substantially
all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that the successors
and assigns of the Parent shall assume all of the obligations set forth in this Section 5.09. The agreements and covenants contained
herein shall not be deemed to be exclusive of any other rights to which any Indemnified Party is entitled, whether pursuant to
Law, Contract, or otherwise. Nothing in this Agreement is intended to, shall be construed to or shall release, waive, or impair
any rights to directors’ and officers’ insurance claims under any policy that is or has been in existence with respect
to the Company or its officers, directors, managers and employees, it being understood and agreed that the indemnification provided
for in this Section 5.09 is not prior to, or in substitution for, any such claims under any such policies.
Section
5.10
Reasonable Best Efforts.
(a)
Upon the terms and subject to the conditions set forth in this Agreement (including those contained in this Section 5.10),
each of the parties hereto shall, and shall cause its Subsidiaries to, use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary,
proper, or advisable to consummate and make effective, and to satisfy all conditions to, in the most expeditious manner practicable,
the transactions contemplated by this Agreement, including: (i) the obtaining of all necessary Permits, waivers, and actions or
nonactions from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental
Entities) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding
by, any Governmental Entities; (ii) the obtaining of all necessary consents or waivers from third parties; and (iii) the execution
and delivery of any additional instruments necessary to consummate the Merger and to fully carry out the purposes of this Agreement.
The Company and Parent shall, subject to applicable Law, promptly: (A) cooperate and coordinate with the other in the taking of
the actions contemplated by clauses (i), (ii), and (iii) immediately above; and (B) supply the other with any information that
may be reasonably required in order to effectuate the taking of such actions. Each party hereto shall promptly inform the other
party or parties hereto, as the case may be, of any communication from any Governmental Entity regarding any of the transactions
contemplated by this Agreement. If the Company, Parent or either of the Merger Subs receives a request for additional information
or documentary material from any Governmental Entity with respect to the transactions contemplated by this Agreement, then it shall
use reasonable best efforts to make, or cause to be made, as soon as reasonably practicable and after consultation with the other
party, an appropriate response in compliance with such request, and, if permitted by applicable Law and by any applicable Governmental
Entity, provide the other party’s counsel with advance notice and the opportunity to attend and participate in any meeting
with any Governmental Entity in respect of any filing made thereto in connection with the transactions contemplated by this Agreement.
(b)
In the event that any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by
a Governmental Entity or private party challenging the Merger or any other transaction contemplated by this Agreement, or any other
agreement contemplated hereby, the Company and Parent shall cooperate in all respects with each other and shall use their reasonable
best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any Order,
whether temporary, preliminary, or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the
transactions contemplated by this Agreement.
(c)
Notwithstanding anything to the contrary set forth in this Agreement, none of the Company, Parent or the Merger Subs or
any of their respective Subsidiaries shall be required to, and none of the Company, Parent or the Merger Subs may, without the
prior written consent of the other parties, become subject to, consent to, or offer or agree to, or otherwise take any action with
respect to, any requirement, condition, limitation, understanding, agreement, or order to: (i) sell, license, assign, transfer,
divest, hold separate, or otherwise dispose of any assets, business, or portion of business of the Company, the Merger Subs, the
Surviving Company, Parent or any of their respective Subsidiaries; (ii) conduct, restrict, operate, invest, or otherwise change
the assets, business, or portion of business of the Company, the Merger Subs, the Surviving Company, Parent or any of their respective
Subsidiaries in any manner; or (iii) impose any restriction, requirement, or limitation on the operation of the business or portion
of the business of the Company, the Merger Subs, the Surviving Company, Parent or any of their respective Subsidiaries.
Section 5.11
Public Announcements.
The initial press release with respect to this Agreement and the transactions contemplated hereby shall be a release mutually agreed
to by the Company and Parent. Thereafter, each of the Company and Parent agrees that no public release or announcement concerning
the transactions contemplated hereby shall be issued by any party without the prior written consent of the Company and Parent (which
consent shall not be unreasonably withheld, conditioned, or delayed), except as may be required by applicable Law or the rules
or regulations of any applicable United States securities exchange or other Governmental Entity to which the relevant party is
subject or submits, in which case the party required to make the release or announcement shall use its reasonable best efforts
to allow the other party reasonable time to comment on such release or announcement in advance of such issuance. Notwithstanding
the foregoing, the restrictions set forth in this Section 5.11 shall not apply to any release or announcement made or proposed
to be made in connection with and related to a Parent Adverse Recommendation Change or in compliance with Section 5.05.
Section 5.12
Anti-Takeover Statutes.
If any “control share acquisition,” “fair price,” “moratorium,” or other anti-takeover Law
becomes or is deemed to be applicable to Parent, the Merger Subs, the Company, the Merger, or any other transaction contemplated
by this Agreement, then each of Parent and the Company shall grant such approvals and take such actions as are necessary so that
the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise
act to render such anti-takeover Law inapplicable to the foregoing.
Section 5.13
Other SEC Filings.
Parent shall file with the SEC all annual, quarterly and current reports required to be filed by
Parent under the Exchange Act for any and all periods ending prior to the Effective Time, which such annual, quarterly and current
reports shall (i) be made on a timely basis pursuant to the requirements applicable to each such type of report and (ii) comply
in all material respects with the rules and regulations of the SEC applicable to each such type of report.
Section 5.14
Section 16 Matters.
Prior to the Effective Time, Parent and the Company shall take all such steps as may be required to cause to be exempt under Rule
16b-3 promulgated under the Exchange Act any acquisitions of shares of Parent Common Stock (including derivative securities with
respect to such shares) that are treated as acquisitions under such rule and result from the transactions contemplated by this
Agreement by individuals who will become subject to the reporting requirements of Section 16(a) of the Exchange Act as a result
of the Merger by reason of the fact that they will serve as directors or officers of Parent immediately after the Effective Time.
Section 5.15
Further Assurances.
At and after the Effective Time, the directors and officers of the Parent, acting on behalf of the Parent as sole member-manager
of the Surviving Company, and the officers of the Surviving Company, shall each be authorized to execute and deliver, in the name
and on behalf of the Company, any deeds, bills of sale, assignments, or assurances and to take and do, in the name and on behalf
of the Company any other actions and things to vest, perfect, or confirm of record or otherwise in the Surviving Company any and
all right, title, and interest in, to and under any of the rights, properties, or assets of the Company acquired or to be acquired
by the Surviving Company as a result of, or in connection with, the Merger.
Section
5.16
The
Conversion.
(a)
Subject to the provisions of this Agreement, promptly following the Closing, Parent shall cause a certificate of conversion
substantially in the form attached hereto as Exhibit D (the “
Certificate of Conversion
”) to be executed, acknowledged
and filed with the Secretary of State of the State of Delaware and the Secretary of State of the State of Washington to effect
its conversion from a Washington corporation to a Delaware corporation in accordance with the relevant provisions of the DGCL and
the WBCA, as applicable (the “
Conversion
”). If the Secretary of State of the State of Delaware or the Secretary
of State of the State of Washington require any changes in the Certificate of Conversion as a condition to filing or issuing a
certificate to the effect that such Conversion is effective, Parent shall execute any necessary document incorporating such changes,
provided such changes are not inconsistent with and do not result in any material change in the terms of this Agreement. The Conversion
will become effective at such time as the Certificate of Conversion has been duly filed with the Secretary of State of the State
of Delaware or at such later date or time as may be agreed by the Company and Parent in writing and specified in the Certificate
of Conversion in accordance with the DGCL.
(b)
At the effective time of the Conversion: (i) the articles of incorporation of Parent shall be replaced with the certificate
of incorporation substantially in the form attached hereto as Exhibit A-2, and, as so replaced, shall be the certificate of incorporation
of Parent until thereafter amended in accordance with the terms thereof or as provided by applicable Law; and (ii) the bylaws of
Parent shall be replaced with the bylaws substantially in the form attached hereto as Exhibit B, and, as so replaced, shall be
the bylaws of Parent until thereafter amended in accordance with the terms thereof, the certificate of incorporation of Parent,
or as provided by applicable Law.
(c)
For United States federal and applicable state and local income tax purposes, it is intended by the parties hereto that
the Conversion qualify as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code and that this Agreement
constitute a “plan of reorganization” for purposes of Sections 354, 361 and 368 of the Code within the meaning of Treasury
Regulations Sections 1.368-2(g) and 1.368-3.
Section 5.17
Board of Directors.
Parent shall take such action as may be necessary to appoint the four directors to be selected by
the Company as set forth in Section 1.06 hereof (or such replacement designees as may be selected by the Company) to Parent’s
seven (7) member Board of Directors commencing as of the Effective Time, subject to compliance with the requirements of NASDAQ.
The parties agree that of the three (3) directors selected by Parent to remain on the Parent Board (the “
Parent Directors
”),
one shall remain on the Parent Board until the 2022 annual meeting of shareholders of Parent, the second shall remain on the Parent
Board until the 2021 annual meeting of shareholders of Parent and the third shall remain on the Parent Board until the 2020 annual
meeting of shareholders of Parent, in each case subject to compliance with the requirements of NASDAQ. The parties agree that they
shall take all actions as are necessary to cause the Parent Directors to remain on the Parent Board for the terms set forth above,
including, without limitation, nominating them for election in connection with annual shareholder meetings, subject to compliance
with the requirements of NASDAQ. In addition, the parties agree that the Audit Committee or the Nominating and Governance Committee
of the Parent retain the sole authority to review and approve or ratify all related party transactions involving Parent that are
required to be disclosed in Parent’s annual proxy statement pursuant to Item 404 of SEC Regulation S-K through the 2022 annual
meeting of shareholders, with at least one (1) member of such committee being a Parent Director, subject to compliance with the
requirements of NASDAQ.
Section 5.18
Stock Exchange Listing.
Prior to the Effective Time, Parent shall cause to make such filings with NASDAQ
as may be required to enable the shares of Parent Common Stock issuable, and those required to be reserved for issuance in connection
with the Merger, to be eligible for trading on NASDAQ subject to any transfer restrictions imposed under applicable Law, including
Rule 144 under the Securities Act.
Section 5.19
The Offer.
Provided that this Agreement shall not have been terminated in accordance with ARTICLE VII, concurrently
with the filing of the Proxy Statement or thereafter, Parent shall commence (within the meaning of Rule 14d-2 under the Exchange
Act) the Offer. It is contemplated that the completion of the Offer shall occur immediately following the Effective Time, or as
otherwise required by SEC comments or applicable Law. Parent expressly reserves the right, in its sole discretion, to modify
any of the terms or conditions of the Offer, including, without limitation, extending the expiration date of the Offer; provided,
however, that (a) Parent shall not modify the Offer price or the number of shares of Parent Common Stock included in the Offer
without the prior written consent of the Company and (b) Parent shall not make any other modification of the terms or conditions
of the Offer without first providing a reasonable opportunity for the Company to review and comment on any such proposed modification,
but Parent shall be permitted to make any changes reasonably necessary to comply with SEC comments or applicable Law. In addition,
the parties hereto agree that the Company shall cause the Company Members (other than the members of Dock Square who will become
members of the Company as a result of the Pre-Closing Reorganization), and shall take reasonable best efforts to cause the members
of Dock Square who will become Company Members as a result of the Pre-Closing Reorganization, not to tender in the Offer any shares
of Parent Common Stock received as Merger Consideration. The Offer shall be completed pursuant to its terms, and any decisions
regarding the Offer following the Effective Time shall require the consent of a majority of the Parent Directors, in addition to
any other consents required. If the Offer is not commenced prior to the Effective Time, then all decisions regarding timing of
the Offer shall be made by the Parent Directors and the Offer shall proceed on the terms described herein subject to any changes
that may be approved by the Parent Directors.
Section 5.20 Tax Matters.
(a)
Tax Treatment
. The parties intend that, for United States federal and applicable state and local income tax purposes,
the First Merger and the Second Merger (taken together as the Integrated Transaction), will constitute an integrated
plan described in Rev. Rul. 2001-46, 2001-2 C.B. 32, 1 and qualify as a “reorganization” within the
meaning of Section 368(a) of the Code and the Treasury Regulations. Each of Parent, the Merger Subs and
the Company (together with each of its respective Subsidiaries) shall use its reasonable best efforts to cause the Merger to qualify,
and shall not take any action or fail to take any action that could reasonably be expected to impede or prevent the Merger from
qualifying, as a “reorganization” within the meaning of Section 368(a) of the Code. Each of Parent, the Merger Subs
and the Company (together with each of its respective Subsidiaries) agrees to file each of its respective Tax Returns in a manner
that is consistent with the Merger qualifying as a “reorganization” within the meaning of Section 368(a) of the Code
and shall not otherwise take any Tax position that is inconsistent therewith, unless otherwise required by applicable Law. The
parties hereby adopt this Agreement as a “plan of reorganization” for purposes of Sections 354, 361 and 368 of the
Code within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3.
(b)
S Corp Status
. The Company shall not revoke or permit the revocation of the Company’s election to be treated
as an “S corporation” within the meaning of Sections 1361 and 1362 of the Code. Other than pursuant to the Merger,
the Company shall not take or permit any action to be taken that could result in the termination of the Company’s status
as a validly electing “S corporation” within the meaning of Sections 1361 and 1362 of the Code.
(c)
Tax Returns
. The Member Representative shall, at the Company Members’ sole expense, prepare or cause to be
prepared, in accordance with applicable Law and in a manner consistent with past practice of the Company (or as otherwise deemed
necessary to reflect the transactions contemplated by this Agreement), all Company Pass-Through Tax Returns that relate to a Pre-Closing
Tax Period, whether or not any such Company Pass-Through Tax Returns are due before, on or after the Closing Date. The Member Representative
shall deliver to Parent all such Company Pass-Through Tax Returns (along with supporting work papers) at least fifteen days prior
to the filing due date thereof (taking into account any valid extension) for Parent’s review and comment and Member Representative
shall consider in good faith any reasonable comments made by Parent no later than ten (10) days prior to the date on which any
such Company Pass-Through Tax Return is due (taking into account any valid extension). If any such Company Pass-Through Tax Return
is required to be filed by Parent or any of its Subsidiaries after the Closing, such Tax Return shall be filed by such Person in
the form approved by Member Representative. Parent shall prepare and timely file all other Tax Returns with respect to the Company
or any of its Subsidiaries that are due on or after the Closing Date.
(d)
Allocation of Taxes
. For purposes of Section 5.20(c),
(i)
except as otherwise provided in subparagraph (ii), all Taxes with respect to the Company for a Straddle Period shall be
apportioned between the portion of the period ending on the Closing Date and the portion of the period commencing on the day immediately
following the Closing Date, based on the actual operations of the Company, as the case may be, by a closing of the books of the
Company, as if the Closing Date were the end of a Tax year, and each such portion of such period shall be deemed to be a taxable
period (whether or not it is in fact a taxable period). For purposes of computing the Taxes attributable to the two portions of
a taxable period pursuant to this Section 5.20(d)(i), the amount of any item that is taken into account only once for each taxable
period shall be allocated between the two portions of the period in proportion to the number of days in each portion; and
(ii)
all Taxes with respect to the Company for a Straddle Period that are based on capitalization, debt or shares of stock authorized,
issued or outstanding, or any real property, personal property or similar ad valorem Taxes, the portion of such Tax which relates
to the portion of such taxable period ending on the Closing Date shall be deemed to be the amount of such Tax for the entire taxable
period multiplied by a fraction, the numerator of which is the number of days in the taxable period ending on (and including) the
Closing Date and the denominator of which is the number of days in the entire taxable period.
(e)
Transfer Taxes
. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and
fees (including any penalties and interest) incurred in connection with this Agreement (including any real property transfer Tax
and any other similar Tax) shall be borne and paid by Parent when due. Parent shall, at its own expense, timely file any Tax Return
or other document with respect to such Taxes or fees (and the Member Representative shall cooperate with respect thereto as necessary).
(f)
Cooperation
. Each of Parent, the Merger Subs and the Company shall, and shall each cause their respective Affiliates
and Subsidiaries to, provide to the other parties such cooperation and information, as and to the extent reasonably requested,
in connection with preparing, reviewing and filing any Tax Return, claim for refund, or in conducting any audit, suit, proceeding,
investigation, claim, examination, or other administrative or judicial proceedings with respect to Taxes, in each case, at the
expense of the requesting party. Such cooperation and information shall include providing copies of all relevant portions of relevant
Tax Returns of the Company or any of its Subsidiaries, together with relevant work papers, or other documents relating to rulings
and other determinations by Governmental Entities relating to Taxes, and relevant records concerning the ownership and Tax basis
of property, which any such party may possess.
Section 5.21
Pre-Closing Balance Sheet Adjustment.
As of the Effective Time, the Company’s Net Tangible Assets shall equal
at least the Target Net Tangible Assets. Prior to the Effective Time, the Company may make such adjustments to its balance sheet
line items, and such related transfers of assets and liabilities (including without limitation transfers to related parties), as
it may deem necessary to ensure that Net Tangible Assets at the Effective Time equal Target Net Tangible Assets (collectively,
the “
Pre-Closing Balance Sheet Adjustment
”). Such adjustments and transfers may include without limitation the
monetization of the Company’s accounts receivable, the repayment of Company debt to related parties, the transfer to Company
Members of any work opportunity tax credits certified and earned prior to Closing and the reimbursement of related parties for
the pro rata portion of pre-paid workers’ compensation insurance covering the Company from and after the Effective Time.
Section 5.22
Dock Square Consulting Arrangement.
Each of Parent and the Company shall use its reasonable best efforts to negotiate
the consulting agreement to be entered into between Parent and Dock Square upon Closing substantially in accordance with the terms
included in Section 3.05 of the Company Disclosure Letter (the “
Dock Square Consulting Arrangement
”).
Section 5.23
Covered Claim Indemnification.
Parent will use reasonable best efforts to secure insurance coverage for a Covered Claim.
From and after the Closing, Parent shall pay to the Member Representative for the benefit of the Company Members, the following
amounts: (i) the excess of any uninsured Losses from a Covered Claim (excluding any deductible amount paid by Parent) (ii) multiplied
by sixty-eight percent (68%) (the “
Indemnification Amount
”). The Indemnification Amount shall be paid to the
Member Representative, for the benefit of the Company Members, in cash, except that the Indemnification Amount (or a portion thereof)
shall be paid in additional shares of Parent Common Stock if and to the extent necessary to ensure that the Merger qualifies as
a “reorganization” within the meaning of Section 368(a) of the Code.
Section 5.24
Franchise Purchase Agreement.
Parent will use reasonable best efforts to enter into one or more agreements with existing
franchisees of the Company (collectively, the “
Franchisees
”) pursuant to which Parent would sell to the Franchisees,
and the Franchisees would purchase from Parent, immediately following the Closing, location-specific assets at the Specified Locations,
in the case of each such Specified Location for a purchase price to be mutually agreed upon among the parties in good faith, with
the parties agreeing that such purchase price may be paid in such form as determined in the reasonable discretion of the Franchisees.
Section 5.25
Pre-Closing Transition.
The parties hereto agree that, commencing immediately following execution of this Agreement,
the Company will, in close collaboration and consultation with Parent,
(a) prepare for the conversion
of as many of Parent’s offices as practicable to franchises, including without limitation the preparation, negotiation and
execution of purchase and sale agreements in connection therewith, with such conversion to be completed immediately following the
Closing;
(b) prepare for the transition
by Parent from its current “Labor Commander” software, which shall remain in use by Parent prior to Closing, to the
software in use by the Company on the date hereof, with such transition to be effected immediately following the Closing, or as
soon as possible thereafter; and
(c) prepare for the transfer of
Parent’s California operations to a new, separate legal entity, to be effective immediately following the Closing, or as
soon as possible thereafter.
Parent will cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the Company in doing, all things necessary, proper, or advisable
to consummate and make effective, and to satisfy all conditions to, in the most expeditious manner practicable, the taking of the
actions set forth in (a) – (c) above. Without limiting the generality of the foregoing, Parent will cooperate with the Company
and provide representatives of the Company reasonable access to Parent’s employees, facilities, IT infrastructure, files
and documents, and supply the Company with any information, including employee data, that Company may reasonably request, in order
to permit installation of the Company’s software and the related training of Parent’s employees, with Parent’s
employees and customers to be entered into the new software prior to Closing to ensure a smooth transition on the Closing Date.
Each party agrees to keep the other party informed of progress and status with respect to the actions required hereunder. The parties
will provide such necessary and reasonable suppo
rt to one another in complying with the obligations
provided for in this Section 5.25. In the event the Company shall identify an issue regarding the Parent’s cooperation and
assistance under this Section 5.25 that is not being addressed in an appropriate and timely manner, the Company shall notify its
counterparty at the Parent of its concern, with a copy to the Chair of Parent’s Board of Directors. The Parent will
have three (3) Business Days from the effective time of notice to cure the cited deficiencies by providing the requested cooperation
and assistance.
ARTICLE VI
Conditions
Section 6.01
Conditions to Each Party’s
Obligation to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger is
subject to the satisfaction or waiver (where permissible pursuant to applicable Law) on or prior to the Closing Date of each of
the following conditions:
(a)
Parent Shareholder Approval
. The Requisite Parent Vote shall have been obtained in accordance with the WBCA.
(b)
Credit Facility
. The Credit Facility shall have been entered into between Parent, the Company and the Bank.
(c)
No Injunctions, Restraints, or Illegality
. No Governmental Entity having jurisdiction over any party hereto shall
have enacted, issued, promulgated, enforced, or entered any Laws or Orders, whether temporary, preliminary, or permanent, that
make illegal, enjoin, or otherwise prohibit consummation of the Merger or the other transactions contemplated by this Agreement.
Section 6.02
Conditions to Obligations of Parent
and Merger Subs.
The obligations of Parent and the Merger Subs to effect the Merger are also subject to the satisfaction
or waiver (where permissible pursuant to applicable Law) by Parent and the Merger Subs on or prior to the Closing Date of the following
conditions:
(a)
Representations and Warranties
. (i) The representations and warranties of the Company contained in Section 3.01(c)
and Section 3.02 of this Agreement shall be true and correct in all respects when made and as of immediately prior to the Effective
Time, as if made at and as of such time (except those representations and warranties that address matters only as of a particular
date, which shall be true and correct in all respects as of that date); (ii) the representations and warranties of the Company
contained in Section 3.01(a), Section 3.03(a), Section 3.03(c), Section 3.03(d), Section 3.03(e), and Section 3.10 or in any certificate
or other writing delivered by the Company pursuant hereto with respect thereto (disregarding all materiality and Company Material
Adverse Effect qualifications contained therein) shall be true in all material respects at and as of the date hereof and as of
the Effective Time as if made at and as of such time (other than such representations and warranties that by their terms address
matters only as of another specified time, which shall be true and correct only as of such time); and (iii) the other representations
and warranties of the Company contained in this Agreement or in any certificate or other writing delivered by the Company pursuant
hereto (disregarding all materiality and Company Material Adverse Effect qualifications contained therein) shall be true at and
as of the date hereof and the Effective Time as if made at and as of such time (other than representations and warranties that
by their terms address matters only as of another specified time, which shall be true only as of such time), with, in the case
of this clause (iii), only such exceptions as have not had and would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b)
Performance of Covenants
. The Company shall have performed in all material respects all obligations, and complied
in all material respects with the agreements and covenants, in this Agreement required to be performed by or complied with by it
at or prior to the Closing.
(c)
Company Material Adverse Effect
. Since the date of this Agreement, there shall not have been any Company Material
Adverse Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(d)
Officer’s Certificate
. Parent will have received a certificate, signed by the chief executive officer or chief
financial officer of the Company, certifying as to the matters set forth in Section 6.02(a), Section 6.02(b), and Section 6.02(c)
hereof, and providing a schedule of any fixed assets and other classes of assets and liabilities that will be transferred in connection
with the Pre-Closing Balance Sheet Adjustment.
(e)
Audited Financial Statements
. The Company will have delivered to Parent audited consolidated financial statements
of the Company for the year ended December 31, 2018 that are substantially similar to the Company Financial Statements delivered
or made available to Parent prior to the date hereof.
(f)
Investor Representation Letters
. Each of the Company Members will have signed a standard investor representation
letter with respect to the Company Member’s receipt of the Parent Common Stock, including an agreement not to tender Parent
Common Stock shares into the Offer.
(g)
Non-Competition Agreements
. Each of the Company Members, other than the members of Dock Square who will become members
of the Company pursuant to the Pre-Closing Reorganization, will have signed non-competition agreements with respect to the operations
of Hire Quest Financial Holdings, LLC, Hirequest Insurance Company, and Hire Quest Financial, LLC, in a form reasonably acceptable
to Parent.
(h)
Pre-Closing Reorganization
. The Company and Hire Quest will have caused the Pre-Closing Reorganization to be completed
no later than two days prior to the Closing Date.
Section 6.03
Conditions to Obligation of the
Company.
The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company
on or prior to the Closing Date of the following conditions:
(a)
Representations and Warranties
. (i) The representations and warranties of Parent and the Merger Subs contained in
Section 4.01(c), Section 4.02 and Section 4.20 of this Agreement shall be true and correct in all respects when made and as of
immediately prior to the Effective Time, as if made at and as of such time (except those representations and warranties that address
matters only as of a particular date, which shall be true and correct in all respects as of that date); (ii) the representations
and warranties of Parent and the Merger Subs contained in Section 4.01(a), Section 4.03(a), Section 4.03(c), Section 4.03(d), Section
4.03(f), and Section 4.10 or in any certificate or other writing delivered by Parent pursuant hereto with respect thereto (disregarding
all materiality and Parent Material Adverse Effect qualifications contained therein) shall be true in all material respects at
and as of the date hereof and as of the Effective Time as if made at and as of such time (other than such representations and warranties
that by their terms address matters only as of another specified time, which shall be true and correct only as of such time); and
(iii) the other representations and warranties of Parent and the Merger Subs contained in this Agreement or in any certificate
or other writing delivered by the Company pursuant hereto (disregarding all materiality and Parent Material Adverse Effect qualifications
contained therein) shall be true at and as of the date hereof and the Effective Time as if made at and as of such time (other than
representations and warranties that by their terms address matters only as of another specified time, which shall be true only
as of such time), with, in the case of this clause (iii), only such exceptions as have not had and would not reasonably be expected
to have, individually or in the aggregate, a Parent Material Adverse Effect.
(b)
Performance of Covenants
. Parent and the Merger Subs shall have performed in all material respects all obligations,
and complied in all material respects with the agreements and covenants, of this Agreement required to be performed by or complied
with by it at or prior to the Closing.
(c)
Parent Material Adverse Effect
. Since the date of this Agreement, there shall not have been any Parent Material Adverse
Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Parent Material
Adverse Effect.
(d)
Officer’s Certificate
. The Company will have received a certificate, signed by an officer of Parent and the
Merger Subs, certifying as to the matters set forth in Section 6.03(a), Section 6.03(b), and Section 6.03(c) hereof.
(e)
Audited Financial Statements
. Parent will have delivered to the Company audited consolidated financial statements
of Parent for the year ended December 28, 2018 that are substantially similar to the Parent Financial Statements delivered or made
available to the Company prior to the date hereof.
(f)
Resignation of Directors
. Parent shall have delivered to the Company copies of executed resignations, effective at
the Effective Time, of the Resigning Directors.
ARTICLE VII
Termination, Amendment, and Waiver
Section 7.01
Termination By Mutual Consent.
This Agreement may be terminated at any time prior to the Effective Time (whether before or after the receipt of the Requisite
Parent Vote) by the mutual written consent of the Company and Parent by action of the Company Members (with respect to the Company)
and the Parent Board (with respect to the Parent).
Section 7.02
Termination By Either Parent or
the Company.
This Agreement may be terminated by any of the Company or Parent at any time prior to the Effective Time
(whether before or after the receipt of the Requisite Parent Vote):
(a)
if the Merger has not been consummated on or before the 150th day following the date of this Agreement (the “
End
Date
”); provided, further, that the right to terminate this Agreement pursuant to this Section 7.02(a) shall not be available
to any party whose breach of any representation, warranty, covenant, or agreement set forth in this Agreement, such that the conditions
to the Closing of the Merger set forth in Section 6.02(a) or Section 6.02(b), or Section 6.03(a) or Section 6.03(b), as applicable,
would not be satisfied, has been the cause of, or resulted in, the failure of the Merger to be consummated on or before the End
Date;
(b)
if any Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced, or entered any Law
or Order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger or the other
transactions contemplated by this Agreement, and such Law or Order shall have become final and nonappealable, or if any Governmental
Entity prevents the commencement and completion of the Offer; provided, however, that the right to terminate this Agreement pursuant
to this Section 7.02(b) shall not be available to any party whose breach of any representation, warranty, covenant, or agreement
set forth in this Agreement, such that the conditions to the Closing of the Merger set forth in Section 6.02(a) or Section 6.02(b),
or Section 6.03(a) or Section 6.03(b), as applicable, would not be satisfied, and has been the cause of, or resulted in, the issuance,
promulgation, enforcement, or entry of any such Law or Order; or
(c)
if at the duly convened Parent Shareholders Meeting, the Requisite Parent Vote shall not have been obtained (unless such
Parent Shareholders Meeting has been adjourned or postponed, in which case at the final adjournment or postponement thereof).
Section 7.03
Termination By The Company.
This Agreement may be terminated by the Company at any time prior to the Effective Time:
(a)
If (i) a Parent Adverse Recommendation Change shall have occurred or (ii) Parent shall have breached or failed to perform
in any material respect any of its covenants and agreements set forth in Section 5.05 or Section 5.06(a); or
(b)
if there shall have been a breach of any representation, warranty, covenant, or agreement on the part of Parent or the Merger
Subs set forth in this Agreement such that the conditions to the Closing of the Merger set forth in Section 6.02(a) or Section
6.02(b), as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date;
provided that the Company shall have given Parent at least 30 days written notice prior to such termination stating the Company’s
intention to terminate this Agreement pursuant to this Section 7.03(b); provided further, that the Company shall not have the right
to terminate this Agreement pursuant to this Section 7.03(b) if the Company is then in material breach of any representation, warranty,
covenant, or obligation hereunder, which breach has not been cured.
Section 7.04
Termination By Parent.
This Agreement may be terminated by Parent at any time prior to the Effective Time:
(a)
if prior to the receipt of the Requisite Parent Vote at the Parent Shareholders Meeting, the Parent Board authorizes Parent,
in full compliance with the terms of this Agreement, including Section 5.05 hereof, to enter into a Parent Acquisition Agreement
(other than an Acceptable Confidentiality Agreement) in respect of a Superior Proposal; provided, that Parent shall have paid any
amounts due pursuant to Section 7.06(a) hereof in accordance with the terms, and at the times specified therein; and provided further,
that in the event of such termination, Parent substantially concurrently enters into such Parent Acquisition Agreement; or
(b)
if there shall have been a breach of any representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement such that the conditions to the Closing of the Merger set forth in Section 6.03(a) or Section 6.03(b),
as applicable, would not be satisfied and, in either such case, such breach is incapable of being cured by the End Date; provided,
that Parent shall have given the Company at least 30 days written notice prior to such termination stating Parent’s intention
to terminate this Agreement pursuant to this Section 7.04(b); provided further, that Parent shall not have the right to terminate
this Agreement pursuant to this Section 7.04(b) if Parent is then in material breach of any representation, warranty, covenant,
or obligation hereunder, which breach has not been cured.
Section 7.05
Notice of Termination; Effect
of Termination.
The party desiring to terminate this Agreement pursuant to this ARTICLE VII (other than pursuant to
Section 7.01) shall deliver written notice of such termination to the other party hereto specifying with particularity the reason
for such termination, and any such termination in accordance with this Section 7.05 shall be effective immediately upon delivery
of such written notice to the other party. If this Agreement is terminated pursuant to this ARTICLE VII, it will become void and
of no further force and effect, with no liability on the part of any party to this Agreement (or any shareholder, director, member,
manager, officer, employee, agent, or Representative of such party) to the other party hereto, provided, that, (a) if such termination
shall result from (i) the intentional or willful failure of either party to perform a covenant or obligation of such party
set forth in this Agreement, including without limitation the conditions set forth in ARTICLE VI, (ii) material breach by
either party of any representation and warranty set forth in this Agreement or (iii) fraud by either party, such party shall be
fully liable for any and all liabilities and damages incurred or suffered by the other party as a result of such failure; and (b)
such termination shall not relieve any party hereto from any obligation to pay, if applicable, the Termination Fee. The provisions
of Section 5.04(b), this Section 7.05, Section 7.06, and ARTICLE VIII (and any related definitions contained in any such Sections
or Article) shall survive any termination hereof and remain in full force and effect.
Section
7.06
Fees and Expenses Following Termination.
(a)
If this Agreement is terminated by Parent pursuant to Section 7.04(a), then Parent shall pay to the Company (by wire transfer
of immediately available funds), at or prior to such termination, the Termination Fee. If this Agreement is terminated by Parent
pursuant to Section 7.02(b) (because a Governmental Entity prevents the commencement and completion of the Offer), then Parent
shall pay to the Company (by wire transfer of immediately available funds), at or prior to such termination, an amount equal to
50% of the Termination Fee.
(b)
If this Agreement is terminated by (i) the Company pursuant to Section 7.03(b), or (ii) the Company or Parent pursuant to
(A) Section 7.02(a) hereof and provided, that the Requisite Parent Vote shall not have been obtained at the Parent Shareholders
Meeting (including any adjournment or postponement thereof), or (B) Section 7.02(c) hereof, and, in the case of clauses (i) and
(ii) immediately above, (1) prior to such termination (in the case of a termination pursuant to Section 7.02(a) or 7.03(b)) or
the Parent Shareholders Meeting (in the case of a termination pursuant to Section 7.02(c)), a Takeover Proposal shall (x) in the
case of a termination pursuant to Section 7.02(a) or Section 7.02(c), have been publicly disclosed and not withdrawn, or (y) in
the case of a termination pursuant to Section 7.03(b), have been publicly disclosed and not withdrawn or otherwise made or communicated
to Parent or the Parent Board, and (2) within 12 months following the date of such termination of this Agreement Parent shall have
entered into a definitive agreement with respect to any Takeover Proposal, or any Takeover Proposal shall have been consummated
(in each case whether or not such Takeover Proposal is the same as the original Takeover Proposal made, communicated, or publicly
disclosed), then in any such event Parent shall pay to the Company (by wire transfer of immediately available funds) immediately
prior to and as a condition to consummating such transaction, the Termination Fee (it being understood for all purposes of this
Section 7.06(b), all references in the definition of Takeover Proposal to 15% shall be deemed to be references to “more than
50%” instead). If a Person (other than the other party to this Agreement) makes a Takeover Proposal that has been publicly
disclosed and subsequently withdrawn prior to such termination or the relevant member or shareholder vote, as applicable, and,
within 12 months following the date of the termination of this Agreement, such Person or any of its controlled Affiliates makes
a Takeover Proposal that is publicly disclosed, such initial Takeover Proposal shall be deemed to have been “not withdrawn”
for purposes of clauses (x) and (y) of this paragraph (b).
(c)
If this Agreement is terminated by the Company pursuant to Section 7.03(a), Parent shall pay the Termination Fee to the
Company by wire transfer of same day funds concurrently with such termination.
(d)
Each party acknowledges and hereby agrees that the provisions of this Section 7.06 are an integral part of the transactions
contemplated by this Agreement (including the Merger), and that, without such provisions, the other party to this Agreement would
not have entered into this Agreement. If a party shall fail to pay in a timely manner the amounts due pursuant to this Section
7.06, and, in order to obtain such payment, the other party makes a claim against the first party that results in a judgment against
such first party, such first party shall pay to the other party the reasonable costs and expenses of such other party (including
its reasonable attorneys’ fees and expenses) incurred or accrued in connection with such suit. The parties acknowledge and
agree that in no event shall a party be obligated to pay the Termination Fee on more than one occasion.
(e)
Except as expressly set forth in this Section 7.06, all Expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such Expenses.
Section 7.07
Amendment.
At any time
prior to the Effective Time, this Agreement may be amended or supplemented in any and all respects, whether before or after the
Requisite Parent Vote, by written agreement signed by each of the parties hereto;
provided, however,
that following the
receipt of the Requisite Parent Vote, there shall be no amendment or supplement to the provisions of this Agreement which by Law
or in accordance with the rules of any relevant self-regulatory organization would require further approval by the holders of Parent
Common Stock without such approval.
Section 7.08
Extension; Waiver.
At any time prior to the Effective Time, the Company, on the one hand, or Parent, on the other hand, may: (a) extend the time for
the performance of any of the obligations of the other party or parties, as applicable; (b) waive any inaccuracies in the representations
and warranties of the other party or parties, as applicable, contained in this Agreement or in any document delivered under this
Agreement; or (c) unless prohibited by applicable Law, waive compliance with any of the covenants, agreements, or conditions contained
in this Agreement. Any agreement on the part of a party to any extension or waiver will be valid only if set forth in an instrument
in writing signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise will not
constitute a waiver of such rights.
ARTICLE VIII
Miscellaneous
Section 8.01
Definitions.
For purposes
of this Agreement, the following terms will have the following meanings when used herein with initial capital letters:
“
Acceptable Confidentiality Agreement
”
means a confidentiality and standstill agreement that contains confidentiality and standstill provisions that are no less favorable
to the Company or Parent, as the case may be, than those contained in the Confidentiality Agreements.
“
Affiliate
” means, with
respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with,
such first Person. For the purposes of this definition, “control” (including, the terms “controlling,”
“controlled by,” and “under common control with”), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the
ownership of voting securities, by Contract, or otherwise.
“
Agreement
” has the meaning
set forth in the Preamble.
“
Bank
” means Branch
Banking & Trust Company.
“
Business Day
” means
any day, other than Saturday, Sunday, or any day on which banking institutions located in New York City are authorized or required
by Law or other governmental action to close.
“
Certificate of Conversion
”
has the meaning set forth in Section 5.16(a).
“
Charter Documents
” has
the meaning set forth in Section 4.01(a).
“
Closing
” has the meaning
set forth in Section 1.02.
“
Closing Date
” has the
meaning set forth in Section 1.02.
“
COBRA
” means the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Section 4980B of the Code and Section 601
et. seq
.
of ERISA.
“
Code
” means the Internal
Revenue Code of 1986, as amended.
“
Company
” has the meaning
set forth in the Preamble.
“
Company Balance Sheet
”
has the meaning set forth in Section 3.04(b).
“
Company Disclosure Letter
”
has the meaning set forth in the introductory language in ARTICLE III.
“
Company Employee
” has
the meaning set forth in Section 3.12(a).
“
Company Employee Plans
”
has the meaning set forth in Section 3.12(a).
“
Company ERISA Affiliate
”
means all employers, trades, or businesses (whether or not incorporated) that would be treated together with Parent or any of its
Affiliates as a “single employer” within the meaning of Section 414 of the Code.
“
Company Financial Advisor
”
has the meaning set forth in Section 3.10.
“
Company Financial Statements
”
has the meaning set forth in Section 3.04(a).
“
Company IP
” has the
meaning set forth in Section 3.07(b).
“
Company IP Agreements
”
means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers,
releases, permissions, and other Contracts, whether written or oral, relating to Intellectual Property and to which the Company
or any of its Subsidiaries is a party, beneficiary, or otherwise bound, other than licenses for shrinkwrap, clickwrap, or other
similar commercially available off-the-shelf software that has not been modified or customized by a third party for Company or
any of its Subsidiaries.
“
Company Lease
” shall
mean all leases, subleases, licenses, concessions, and other agreements (written or oral) under which the Company or any of its
Subsidiaries holds any Company-Leased Real Estate, including the right to all security deposits and other amounts and instruments
deposited by or on behalf of the Company or any of its Subsidiaries thereunder.
“
Company-Leased Real Estate
”
shall mean all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property held by the Company or any of its Subsidiaries.
“
Company-Licensed IP
”
means all Intellectual Property that is licensed to Company or any of its Subsidiaries by a third party, other than licenses for
shrinkwrap, clickwrap, or other similar commercially available off-the-shelf software that has not been modified or customized
by a third party for Company or any of its Subsidiaries.
“
Company Material Adverse Effect
”
means any event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in
the aggregate, materially adverse to: (a) the business, results of operations, financial condition, or assets of the Company and
its Subsidiaries, taken as a whole; or (b) the ability of the Company to consummate the transactions contemplated by this Agreement
on a timely basis;
provided, however,
that, for the purposes of clause (a), a Company Material Adverse Effect shall not
be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (i) changes
generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions contemplated by this
Agreement; (iii) any outbreak or escalation of war or any act of terrorism; or (iv) general conditions in the industry in which
the Company and its Subsidiaries operate;
provided further
, however, that any event, change, and effect referred to in clauses
(i), (iii), or (iv) immediately above shall be taken into account in determining whether a Company Material Adverse Effect has
occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate effect
on the Company and its Subsidiaries, taken as a whole, compared to other participants in the industries in which the Company and
its Subsidiaries conduct their businesses.
“
Company Material Contract
”
has the meaning set forth in Section 3.15(a).
“
Company Members
” means
the members of the Company, set forth on Section 3.02(a) of the Company Disclosure Letter; provided that, “Company Members
as of the date hereof” shall refer to only those members of the Company who are members as of the date of this Agreement.
“
Company Membership Interests
”
has the meaning set forth in Section 3.02(a).
“
Company-Owned IP
” means
all Intellectual Property owned by the Company or any of its Subsidiaries.
“
Company-Owned Real Estate
”
shall mean any and all land and real property owned by the Company or any of its Subsidiaries, together with all of the Company’s
or Subsidiaries’ right, title and interest to any buildings, structures, fixtures, and improvements located thereon and all
easements, rights of way, and appurtenances relating thereto.
“
Company Pass-Through Tax Return
”
means any Tax Return relating to Income Tax filed by or with respect to the Company or any Company Subsidiary to the extent that
(a) the Company or any such Company Subsidiary is treated as a flow through entity for purposes of such Tax Return and (b) the
results of operations reflected on such Tax Return are also reflected on the Tax Returns of the Company Members or the direct or
indirect owners (if any) or beneficiaries of such Company Members.
“
Company Policies
” has
the meaning set forth in Section 3.16.
“
Company Securities
”
has the meaning set forth in Section 3.02(b)(i).
“
Company Selected Customers
”
has the meaning set forth in Section 3.19.
“
Company Subsidiary Securities
”
has the meaning set forth in Section 3.02(d).
“
Confidentiality Agreements
”
has the meaning set forth in Section 5.04(b).
“
Consent
” has the meaning
set forth in Section 3.03(c).
“
Contracts
” means any
legally binding contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases, or other binding instruments or binding
commitments, whether written or oral.
“
Conversion
” has the
meaning set forth in Section 5.16(a).
“
Conversion Vote
” has
the meaning set forth in Section 4.03(a).
“
Covered Claim
” has the
meaning set forth in Section 5.23 of the Parent Disclosure Letter.
“
Credit Facility
” means
that certain $30,000,000 line of credit with $15,000,000 letter of credit sublimit and $20,000,000 uncommitted accordion feature
pursuant to the Bank’s commitment letter dated January 28, 2019.
“
DGCL
” means the Delaware
General Corporation Law.
“
Dissenting Shares
” has
the meaning set forth in Section 2.04.
“
Dock Square
” means Dock
Square HQ, LLC, a Delaware limited liability company.
“
Dock Square Consulting Arrangement
”
has the meaning set forth in Section 5.22.
“
EDGAR
” has the meaning
set forth in Section 4.04(a).
“
Effective Time
” has
the meaning set forth in Section 1.03(a).
“
Employer of Record
”
has the meaning set forth in Section 5.08(a).
“
End Date
” has the meaning
set forth in Section 7.02(a).
“
Environmental Laws
”
means any applicable Law, and any Order or binding agreement with any Governmental Entity: (a) relating to pollution (or the cleanup
thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including
ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the
management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation,
processing, production, disposal or remediation of any Hazardous Substance. The term “Environmental Law” includes,
without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
§§ 9601
et. seq.
; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976,
as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901
et. seq.
; the Federal Water
Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251
et. seq.
; the Toxic
Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601
et seq.
; the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. §§ 11001
et. seq.
; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments
of 1990, 42 U.S.C. §§ 7401
et. seq.
; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C.
§§ 651
et. seq.
“
ERISA
” means the Employee
Retirement Income Security Act of 1974, as amended.
“
Estimated Section 481 Adjustment
Liability
” means the estimated amount of corporate income tax required to be paid by the Parent or the Surviving Company
by reason of the required inclusion in income under Section 481 of the Code (if any) arising from the Company’s change in
method of accounting from the cash method to the accrual method after the Closing by reason of the Merger, which shall be computed
by the Company as of the end of the month preceding the month that includes the Closing Date by multiplying (a) the total estimated
amount to be included in taxable income by reason of such adjustment under Section 481 of the Code (determined as of such date
on a pro-forma basis assuming that the Merger closed on such date and, prior to such closing, the Company engaged in the Pre-Closing
Balance Sheet Adjustment to cause Tangible Net Assets to equal Target Net Tangible Assets), by (b) the effective income tax rate
applicable to such income as if the Company was a “C corporation” (taking into account federal and applicable state
and local income taxes determined using the Company’s most recent state apportionment, and the deductibility of state and
local income taxes for federal income tax purposes).
“
Exchange Act
” has the
meaning set forth in Section 3.03(c).
“
Expenses
” means, with
respect to any Person, all reasonable and documented out-of-pocket fees and expenses (including all fees and expenses of counsel,
accountants, financial advisors, and investment bankers of such Person and its Affiliates), incurred by such Person or on its behalf
in connection with or related to the authorization, preparation, negotiation, execution, and performance of this Agreement and
any transactions related thereto, any litigation with respect thereto, the preparation, printing, filing, and mailing of the Proxy
Statement, the filing of any required notices in connection with regulatory approvals, and all other matters related to the Merger
and the other transactions contemplated by this Agreement.
“
FBCA
” means the Florida
Business Corporation Act.
“
First Merger
” has the
meaning set forth in the Recitals.
“
First Merger Certificate
”
has the meaning set forth in Section 1.03(a).
“
First Surviving Company
”
has the meaning set forth in Section 1.01(a).
“
First Surviving Company Membership
Interests
” means the membership interests that the sole member of the First Surviving Company holds in the First Surviving
Company.
“
Franchisees
” has the
meaning set forth in Section 5.24.
“
Franchise Purchase Price
”
has the meaning set forth in Section 5.24.
“
FRLLCA
” means the Florida
Revised Limited Liability Company Act.
“
GAAP
” has the meaning
set forth in Section 3.04(a).
“
Governmental Entity
”
has the meaning set forth in Section 3.03(c).
“
Hazardous Substance
”
shall mean: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral, or gas,
in each case, whether naturally occurring or man-made, that is hazardous, acutely hazardous, toxic, or words of similar import
or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials
or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.
“
Hire Quest
” means Hire
Quest, LLC, a Florida limited liability company.
“
Income Tax
” means any
Tax imposed on net income and franchise Taxes imposed in lieu of Taxes imposed on net income.
“
Indemnification Amount
”
has the meaning set forth in Section 5.23.
“
Indemnified Party
” has
the meaning set forth in Section 5.09(a).
“
Indemnifying Party
”
has the meaning set forth in Section 5.09(b).
“
Integrated Transaction
”
has the meaning set forth in Section 2.04.
“
Intellectual Property
”
means any and all rights in, arising out of, or associated with any and all of the following arising pursuant to the Laws of any
jurisdiction throughout the world: (a) trademarks, service marks, certification marks, logos, slogans, trade dress, trade names,
corporate, business and product names, and other similar indicia of source or origin, together with the goodwill connected with
the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing (“
Trademarks
”);
(b) all copyrightable works, all copyrights, whether or not copyrightable, and all registrations, applications for registration,
and renewals in connection therewith (“
Copyrights
”); (c) all inventions (whether patentable or unpatentable
and whether or not reduced to practice), all improvements thereto, and all patents (including, without limitation, utility patents,
design patents, industrial designs, plant patents, inventors’ certificates and utility models), patent applications (including
docketed patent disclosures awaiting filing, reissues, divisions, continuations, continuations-in-part and extensions), and patent
disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof
(“
Patents
”); (e) all internet domain names and social media accounts and user names (including “handles”);
(e) all mask works and all applications, registrations, and renewals in connection therewith; (f) all trade secrets and confidential
business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists and profiles, pricing
and cost information and business and marketing plans and proposals); (g) all computer software (including source code, executable
code, object code, application programming interfaces, data files, databases, protocols, specifications and other documentation
thereof (“Software”); (h) all advertising and promotional materials; (i) all other proprietary rights, and all copies
and tangible embodiments thereof (in whatever form or medium).
“
IRS
” means the United
States Internal Revenue Service.
“
Knowledge
” means: (a)
with respect to the Company and its Subsidiaries, the actual knowledge of each of the individuals listed in Section 8.01 of the
Company Disclosure Letter; and (b) with respect to Parent and its Subsidiaries, the actual knowledge of each of the individuals
listed in Section 8.01 of the Parent Disclosure Letter.
“
Laws
” means any federal,
state, local, municipal, foreign, multi-national or other laws, common law, statutes, constitutions, ordinances, rules, regulations,
codes, Orders, or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered, or applied by any
Governmental Entity.
“
Lease
” means, with respect
to the Company, any Company Lease, and, with respect to Parent, any Parent Lease.
“
Legal Action
” means
any suit, action, proceeding, arbitration, mediation, audit, hearing, inquiry or, to the Knowledge of the Person in question, investigation
(in each case, whether civil, criminal, administrative, investigative, formal, or informal) commenced, brought, conducted, or heard
by or before, or otherwise involving, any Governmental Entity.
“
Liability
” shall mean
any liability, indebtedness, or obligation of any kind (whether accrued, absolute, contingent, matured, unmatured, determined,
determinable, or otherwise, and whether or not required to be recorded or reflected on a balance sheet under GAAP).
“
Liens
” means, with respect
to any property or asset, all pledges, liens, mortgages, charges, encumbrances, hypothecations, options, rights of first refusal,
rights of first offer, and security interests of any kind or nature whatsoever.
“
Losses
” means all claims,
losses, costs, defense costs, expenses, liabilities and judgments (including any amounts paid in settlement).
“
Member Representative
”
has the meaning set forth in the Preamble.
“
Merger
” has the meaning
set forth in the Recitals.
“
Merger Consideration
”
has the meaning set forth in Section 2.01(a)(i).
“
Merger Sub 1
” has the
meaning set forth in the Preamble.
“
Merger Sub 1 Capital Stock
”
means the shares of capital stock that the sole shareholder of Merger Sub 1 holds in Merger Sub 1.
“
Merger Sub 2
” has the
meaning set forth in the Preamble.
“
Merger Sub 2 Membership Interests
”
means the membership interests that the sole member of Merger Sub 2 holds in Merger Sub 2.
“
Merger Subs
” has the
meaning set forth in the Preamble.
“
Multiemployer Plan
”
has the meaning set forth in Section 3.12(c).
“
Net Tangible Assets
”
means, as of any relevant date, the amount calculated by subtracting all liabilities and all intangible assets of the Company as
of such date from the Company’s total assets as of such date, in each case determined in accordance with GAAP; provided,
that (a) no purchase accounting adjustments arising out of the transactions contemplated by this Agreement shall be made, (b) the
Estimated Section 481 Adjustment Liability shall be treated as a liability of the Company and (c) the value of the Company-Owned
Real Estate shall be its fair market value, as determined on the basis of an appraisal, and not its book value.
“
Offer
” has the meaning
set forth in the Recitals.
“
Order
” has the meaning
set forth in Section 3.09.
“
Organizational Documents
”
has the meaning set forth in Section 3.01(b).
“
Other Company Governmental Approvals”
has the meaning set forth in Section 3.03(c).
“
Other Parent Governmental Approvals”
has the meaning set forth in 4.03(c).
“
Parent
” has the meaning
set forth in the Preamble.
“
Parent Acquisition Agreement
”
has the meaning set forth in Section 5.05(b).
“
Parent Adverse Recommendation
Change
” shall mean the Parent Board: (a) failing to make, withdraw, amend, modify, or materially qualify, in a manner
adverse to the Company, the Parent Board Recommendation; (b) failing to include the Parent Board Recommendation in the Proxy Statement
that is mailed to the Parent shareholders; (c) recommending a Takeover Proposal; (d) failing to recommend against acceptance of
any third party tender offer or exchange offer for the shares of Parent Common Stock within ten Business Days after the commencement
of such offer; (e) failing to reaffirm (publicly, if so requested by the Company) the Parent Board Recommendation within ten Business
Days after the date any Takeover Proposal (or material modification thereto) is first publicly disclosed by Parent or the Person
making such Takeover Proposal; (f) making any public statement inconsistent with the Parent Board Recommendation; or (g) resolving
or agreeing to take any of the foregoing actions.
“
Parent Balance Sheet
”
has the meaning set forth in Section 4.04(b).
“
Parent Board
” has the
meaning set forth in the Recitals.
“
Parent Board Recommendation
”
has the meaning set forth in Section 4.03(d).
“
Parent Certificate
”
means a certificate representing shares of Parent Common Stock.
“
Parent Common Stock
”
means the shares of common stock, par value $0.001 per share, of Parent.
“
Parent Directors
” has
the meaning set forth in Section 5.17.
“
Parent Disclosure Letter
”
has the meaning set forth in the introductory language in ARTICLE IV.
“
Parent Employee
” has
the meaning set forth in Section 4.12(a).
“
Parent Employee Plans
”
has the meaning set forth in Section 4.12(a).
“
Parent ERISA Affiliate
”
means all employers, trades, or businesses (whether or not incorporated) that would be treated together with Parent or any of its
Affiliates as a “single employer” within the meaning of Section 414 of the Code.
“
Parent Financial Advisor
”
has the meaning set forth in Section 4.10.
“
Parent IP
” has the meaning
set forth in Section 4.07(b).
“
Parent IP Agreements
”
means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers,
releases, permissions, and other Contracts, whether written or oral, relating to Intellectual Property and to which Parent or any
of its Subsidiaries is a party, beneficiary, or otherwise bound, other than licenses for shrinkwrap, clickwrap, or other similar
commercially available off-the-shelf software that has not been modified or customized by a third party for Parent or any of its
Subsidiaries.
“
Parent Lease
” shall
mean all leases, subleases, licenses, concessions, and other agreements (written or oral) under which Parent or any of its Subsidiaries
holds any Parent-Leased Real Estate, including the right to all security deposits and other amounts and instruments deposited by
or on behalf of Parent or any of its Subsidiaries thereunder.
“
Parent-Leased Real Estate
”
shall mean all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements,
fixtures, or other interest in real property held by the Parent or any of its Subsidiaries.
“
Parent-Licensed IP
”
means all Intellectual Property that is licensed to Parent or any of its Subsidiaries by a third party, other than licenses for
shrinkwrap, clickwrap, or other similar commercially available off-the-shelf software that has not been modified or customized
by a third party for Parent or any of its Subsidiaries.
“
Parent Material Adverse Effect
”
means any event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in
the aggregate, materially adverse to: (a) the business, results of operations, financial condition, or assets of Parent and its
Subsidiaries, taken as a whole; or (b) the ability of Parent to consummate the transactions contemplated by this Agreement or the
Shareholder Voting Agreements on a timely basis;
provided, however,
that, for the purposes of clause (a), a Parent Material
Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or
resulting from: (i) changes generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions
contemplated by this Agreement; (iii) any outbreak or escalation of war or any act of terrorism; or (iv) general conditions in
the industry in which Parent and its Subsidiaries operate;
provided further
, however, that any event, change, and effect
referred to in clauses (i), (iii), or (iv) immediately above shall be taken into account in determining whether a Parent Material
Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate
effect on Parent and its Subsidiaries, taken as a whole, compared to other participants in the industries in which Parent and its
Subsidiaries conduct their businesses.
“
Parent Material Contract
”
has the meaning set forth in Section 4.15(a).
“
Parent Preferred Stock
”
has the meaning set forth in Section 4.02(a).
“
Parent-Owned IP
” means
all Intellectual Property owned by Parent or any of its Subsidiaries.
“
Parent Policies
” has
the meaning set forth in Section 4.16.
“
Parent SEC Documents
”
has the meaning set forth in Section 4.04(a).
“
Parent Securities
” has
the meaning set forth in Section 4.02(b)(i).
“
Parent Selected Customers
”
has the meaning set forth in Section 4.19.
“
Parent Shareholders Meeting
”
means the special meeting of the shareholders of the Parent to be held to consider the adoption of this Agreement.
“
Parent Subsidiary Securities
”
has the meaning set forth in Section 4.02(d).
“
PBGC
” has the meaning
set forth in Section 3.12(d).
“
Permits
” has the meaning
set forth in Section 3.08(b).
“
Permitted Encumbrances
”
means those exceptions from Title Policies Nos. 5011400-2031977e, 5011400-2002612e and 5011400-1789045e issued by First American
Title Insurance Company as set forth on Exhibit F.
“
Permitted Liens
” means:
(a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which
is being actively contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof
and the execution or other enforcement of which is effectively stayed); (b) zoning, entitlement, building, and other land use regulations
imposed by Governmental Entities having jurisdiction over such Person’s owned or leased real property, which are not violated
by the current use and operation of such real property; (c) covenants, conditions, restrictions, easements, and other similar minor
and non-monetary matters of record affecting title to such Person’s owned or leased real property, which do not materially
impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s
businesses; (d) any right of way or easement of record related to public roads and highways, which do not materially impair the
occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses;
and (e) Liens arising under workers’ compensation, unemployment insurance, social security, retirement, and similar legislation.
“
Person
” means any individual,
corporation, limited or general partnership, limited liability company, limited liability partnership, trust, association, joint
venture, Governmental Entity, or other entity or group (which term will include a “group” as such term is defined in
Section 13(d)(3) of the Exchange Act).
“
Pre-Closing Balance Sheet Adjustment
”
has the meaning set forth in Section 5.21.
“
Pre-Closing Reorganization
”
means (a) Dock Square’s distribution to its direct or indirect members of all of its rights, title and interest in and to
its limited liability company membership interest in Hire Quest, followed by (b) each such members’ contribution to the Company
of all of its respective rights, title and interest in and to its limited liability company membership interest in Hire Quest as
a capital contribution in exchange for, in the aggregate, a six and one-half (6.5%) percent limited liability company membership
interest in the Company.
“
Pre-Closing Tax Period
”
means any taxable period ending on or before the Closing Date and the portion of any Straddle Period through the end of the Closing
Date.
“
Pro Rata Merger Consideration
”
has the meaning set forth in Section 2.01(a)(i).
“
Proxy Statement
” has
the meaning set forth in Section 3.16.
“
Real Estate
” means,
with respect to the Company, the Company-Owned Real Estate and the Company-Leased Real Estate, and, with respect to Parent, the
Parent-Leased Real Estate.
“
Representatives
” has
the meaning set forth in Section 5.05(a).
“
Requisite Parent Vote
”
has the meaning set forth in Section 4.03(a).
“
Resigning Directors
”
has the meaning set forth in Section 1.06.
“
Sarbanes-Oxley Act
”
has the meaning set forth in Section 4.04(a).
“
SEC
” has the meaning
set forth in Section 4.03(c).
“
Second Merger
” has the
meaning set forth in the Recitals.
“
Second Merger Certificate
”
has the meaning set forth in Section 1.03(b).
“
Second Merger Effective Time
”
has the meaning set forth in Section 1.03(b).
“
Securities Act
” has
the meaning set forth in Section 4.04(a).
“
Settlement Agreement
”
means that certain Settlement Agreement made and entered into as of April 16, 2018 by and among Parent, Ephraim Fields and each
of the other parties listed on Exhibit A thereto.
“
Shareholder Voting Agreements
”
has the meaning set forth in the Recitals.
“
Specified Locations
”
shall mean the Parent offices located in North Las Vegas, NV; Thornton, CO; Austin, TX; San Antonio, TX; Houston, TX; Aurora, CO;
Atlanta, GA; Indianapolis, IN (both locations); Baltimore, MD and Landover, MD.
“
Straddle Period
” means
any taxable period that begins before and ends after the Closing Date.
“
Subsidiary
” of a Person
means a corporation, partnership, limited liability company, or other business entity of which a majority of the shares of voting
securities is at the time beneficially owned, or the management of which is otherwise controlled, directly or indirectly, through
one or more intermediaries, or both, by such Person.
“
Superior Proposal
” means
a bona fide written Takeover Proposal involving the direct or indirect acquisition pursuant to a tender offer (other than the Offer),
exchange offer, merger, consolidation, or other business combination, of all or substantially all of a party’s consolidated
assets or at least a majority of the outstanding equity interests of such party, that such party’s board of managers or board
of directors determines in good faith (after consultation with outside legal counsel and such party’s financial advisor)
is more favorable from a financial point of view to the holders of such party’s equity interests than the transactions contemplated
by this Agreement, taking into account: (a) all financial considerations; (b) the identity of the third party making such Takeover
Proposal; (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding
commitments) and prospects for completion of such Takeover Proposal; (d) the other terms and conditions of such Takeover Proposal
and the implications thereof on such party, including relevant legal, regulatory, and other aspects of such Takeover Proposal deemed
relevant by such board (including any termination or break-up fees and conditions to consummation); and (e) any revisions to the
terms of this Agreement and the Merger proposed by the other party during the Superior Proposal Notice Period set forth in Section
5.05.
“
Superior Proposal Notice Period
”
has the meaning set forth in Section 5.05.
“
Surviving Company
” has
the meaning set forth in Section 1.01(b).
“
Takeover Proposal
” means
an inquiry, proposal, or offer from, or indication of interest in making a proposal or offer by, any Person or group (other than
the other party to this Agreement and its Subsidiaries), relating to any transaction or series of related transactions, involving
any: (a) direct or indirect acquisition of assets of a party or its Subsidiaries (including any voting equity interests of Subsidiaries,
but excluding sales of assets in the ordinary course of business) equal to 15% or more of the fair market value of such party’s
consolidated assets or to which 15% or more of such party’s net revenues or net income on a consolidated basis are attributable;
(b) direct or indirect acquisition of 15% or more of the voting equity interests of a party; (c) tender offer (other than the Offer)
or exchange offer that if consummated would result in any Person or group (as defined in Section 13(d) of the Exchange Act) beneficially
owning (within the meaning of Section 13(d) of the Exchange Act) 15% or more of the voting power of a party; (d) merger, consolidation,
other business combination, or similar transaction involving a party or any of its Subsidiaries, pursuant to which such Person
or group (as defined in Section 13(d) of the Exchange Act) would own 15% or more of the consolidated assets, net revenues, or net
income of such party and its Subsidiaries, taken as a whole; (e) reorganization, liquidation, dissolution (or the adoption of a
plan of liquidation or dissolution), or recapitalization or other significant corporate reorganization of a party or one or more
of its Subsidiaries which, individually or in the aggregate, generate or constitute 15% or more of the consolidated assets, net
revenues, or net income of a party and its Subsidiaries, taken as a whole; or (f) any combination of the foregoing; in each case
including any financing thereof.
“
Target Net Tangible Assets
”
means Fourteen Million dollars ($14,000,000).
“
Taxes
” means all federal,
state, local, foreign, and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration,
profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental,
stamp, occupation, premium, escheat, property (real or personal), real property gains, windfall profits, customs, duties or other
taxes, fees, assessments, levies or charges of any kind whatsoever imposed by a Governmental Entity, together with any interest,
additions, or penalties with respect thereto and any interest in respect of such additions or penalties.
“
Tax Laws
” means any
Laws relating to the imposition, payment or collection of Taxes.
“
Tax Returns
” means any
return, election, declaration, report, claim for refund, information return or statement, or other document relating to Taxes filed
or required to be filed with any Governmental Entity, including any schedule or attachment thereto, and including any amendment
thereof.
“
Termination Fee
” means
One Million Two Hundred Thousand dollars ($1,200,000).
“
Treasury Regulations
”
means the Treasury regulations promulgated under the Code.
“
Voting Debt
” has the
meaning set forth in Section 3.02(c).
“
WBCA
” means the Washington
Business Corporation Act.
Section
8.02
Interpretation; Construction.
(a)
The table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made
to a Section, Exhibit, Article, or Schedule, such reference shall be to a Section of, Exhibit to, Article of, or Schedule of this
Agreement unless otherwise indicated. Unless the context otherwise requires, references herein: (i) to an agreement, instrument,
or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time
to the extent permitted by the provisions thereof; and (ii) to a statute means such statute as amended from time to time and includes
any successor legislation thereto and any regulations promulgated thereunder. Whenever the words “include,” “includes,”
or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation,”
and the word “or” is not exclusive. The word “extent” in the phrase “to the extent” means the
degree to which a subject or other thing extends, and does not simply mean “if.” A reference in this Agreement to $
or dollars is to U.S. dollars. The definitions of terms herein shall apply equally to the singular and plural forms of the terms
defined. The words “hereof,” “herein,” “hereby,” “hereto,” and “hereunder”
and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision
of this Agreement. References to “this Agreement” shall include the Company Disclosure Letter and the Parent Disclosure
Letter.
(b)
The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question
of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption
or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
Section 8.03
No Survival.
None of
the representations, warranties, covenants or agreements in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Closing and all rights, claims and causes of action (whether in contract or in tort or otherwise, or whether
at law or in equity) with respect thereto shall terminate at the Closing. Notwithstanding the foregoing, neither this Section 8.03
nor anything else in this Agreement to the contrary shall limit: (a) the survival of any covenant or agreement of the parties which
by its terms is required to be performed or complied with in whole or in part after the Closing, which covenants and agreements
shall survive the Closing in accordance with their respective terms; or (b) any claim against any Person with respect to intentional
fraud in the making of the representations and warranties by such Person in ARTICLE III or ARTICLE IV, as applicable.
Section 8.04
Governing Law.
This
Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause
the application of Laws of any jurisdiction other than those of the State of Delaware.
Section 8.05
Submission to Jurisdiction.
Each of the parties hereto irrevocably agrees that any Legal Action or proceeding with respect to this Agreement and the Shareholder
Voting Agreements and the rights and obligations arising hereunder and thereunder, or for recognition and enforcement of any judgment
in respect of this Agreement and the rights and obligations arising hereunder and thereunder brought by any other party hereto
or its successors or assigns shall be brought and determined exclusively in the State of Delaware, or in the event (but only in
the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the State of Delaware.
Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or proceeding in the
manner provided in Section 8.07 or in such other manner as may be permitted by applicable Laws, will be valid and sufficient service
thereof. Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect
of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not
bring any action relating to this Agreement, the Shareholder Voting Agreements or any of the transactions contemplated by this
Agreement or the Shareholder Voting Agreements in any court or tribunal other than the aforesaid courts. Each of the parties hereto
hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim, or otherwise, in any action
or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement
of any judgment in respect of this Agreement, the Shareholder Voting Agreements and the rights and obligations arising hereunder
and thereunder: (a) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other
than the failure to serve process in accordance with this Section 8.05; (b) any claim that it or its property is exempt or immune
from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the fullest extent
permitted by the applicable Law, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper, or (iii) this Agreement, the Shareholder Voting Agreements
or the subject matter hereof of thereof, may not be enforced in or by such courts.
Section
8.06
Waiver of Jury Trial.
EACH PARTY ACKNOWLEDGES
AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE SHAREHOLDERS VOTING AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SHAREHOLDERS VOTING AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE SHAREHOLDERS VOTING AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES
AND ACKNOWLEDGES THAT: (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION; (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER; (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY; AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND
THE SHAREHOLDERS VOTING AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 8.06.
Section
8.07
Notices.
All notices, requests, consents,
claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when
delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized
overnight courier (receipt requested); (c) on the date sent by facsimile or email of a PDF document (with confirmation of transmission)
if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the
recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.
Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 8.07):
If to Parent or the Merger Subs, to:
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Command Center, Inc.
3609 S. Wadsworth Blvd., Suite 250
Lakewood, Colorado
Attention: Richard K. Coleman, Jr. and Brendan Simaytis
Email: rick.coleman@commandonline.com; brendan.simaytis@commandonline.com
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with a copy (which will not constitute notice to Parent) to:
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Olshan Frome Wolosky LLP
1325 Avenue of the Americas
New York, New York 10019
Attention: Adam W. Finerman, Esq.
Facsimile: (212) 451-2222
Email: afinerman@olshanlaw.com
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If to the Company, to:
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Hire Quest Holdings, LLC
111 Springhall Drive
Goose Creek, SC 29445
Attention: John D. McAnnar, Esq.
Facsimile: (843) 577-5742
Email: jdmcannar@hirequestllc.com
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with a copy (which will not constitute notice to the Company) to:
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Hill Ward Henderson
101 East Kennedy Boulevard, Suite 3700
Tampa, Florida 33602
Attention: David S. Felman and Roland S. Chase
Facsimile: (813) 221-2900
Email: dave.felman@hwhlaw.com; roland.chase@hwhlaw.com
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or to such other Persons, addresses or facsimile
numbers as may be designated in writing by the Person entitled to receive such communication as provided above.
Section 8.08
Entire Agreement.
This
Agreement (including the Exhibits to this Agreement), the Company Disclosure Letter, the Parent Disclosure Letter, the Shareholder
Voting Agreements and the Confidentiality Agreements constitute the entire agreement among the parties with respect to the subject
matter of this Agreement and supersede all other prior agreements and understandings, both written and oral, among the parties
to this Agreement with respect to the subject matter of this Agreement. In the event of any inconsistency between the statements
in the body of this Agreement, the Confidentiality Agreements, the Shareholder Voting Agreements, the Company Disclosure Letter
and the Parent Disclosure Letter (other than an exception expressly set forth as such in the Company Disclosure Letter or Parent
Disclosure Letter, as applicable), the statements in the body of this Agreement will control.
Section 8.09
No Third Party Beneficiaries.
Except as provided in Section 5.09 hereof (which shall be to the benefit of the parties referred to in such section), this Agreement
is for the sole benefit of the parties hereto and their permitted assigns and respective successors and nothing herein, express
or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit, or remedy of
any nature whatsoever under or by reason of this Agreement.
Section 8.10
Severability.
If any
term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or
unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term
or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable,
the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
Section 8.11
Assignment.
No party
may assign, directly or indirectly, including by operation of law, either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other party hereto. Subject to the first sentence of this Section 8.11, this
Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted
assigns.
Section 8.12
Remedies.
Except as
otherwise provided in this Agreement, any and all remedies expressly conferred upon a party to this Agreement will be cumulative
with, and not exclusive of, any other remedy contained in this Agreement, at Law, or in equity. The exercise by a party to this
Agreement of any one remedy will not preclude the exercise by it of any other remedy.
Section 8.13
Specific Performance.
The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened
breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located
in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at Law or in equity.
Section 8.14
Counterparts; Effectiveness.
This Agreement may be executed in any number of counterparts, all of which will be one and the same agreement. This Agreement will
become effective when each party to this Agreement will have received counterparts signed by the other party.
[signature page
follows]
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
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The Company:
Hire Quest Holdings, LLC
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By:
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/s/ Richard Hermanns
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Name:
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Richard Hermanns
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Title:
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CEO
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Parent:
Command Center, Inc.
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By:
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/s/ Richard K. Coleman, Jr.
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Name:
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Richard K. Coleman, Jr.
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Title:
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President and CEO
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Merger Sub 1:
CCNI One, Inc.
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By:
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/s/ Brendan Simaytis
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Name:
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Brendan Simaytis
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Title:
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Director/Shareholder
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Merger Sub 2:
Command Florida, LLC
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By:
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/s/ Richard K. Coleman, Jr.
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Name:
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Richard K. Coleman, Jr.
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Title:
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Manager
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Member Representative:
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/s/ Richard Hermanns
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Richard Hermanns
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[Signature Page to Agreement and Plan of
Merger]
SCHEDULE A
List of Parent Shareholders Signing Shareholder
Voting Agreements
Jerry Smith
Ephraim Fields
Richard K. Coleman, Jr.
Cory Smith
Brendan Simaytis
Steven P. Oman
JD Smith
R. Rimmy Malhotra
Galen Vetter
Lawrence F. Hagenbuch
Steven Bathgate
Annex B
PARENT VOTING AGREEMENT
THIS PARENT VOTING
AGREEMENT (this “
Agreement
”) is made and entered into as of April ___, 2019, by and among Command Center,
Inc., a Washington corporation (“
Parent
”), the undersigned shareholder (“
Shareholder
”)
of Parent, and Hire Quest Holdings, LLC, a Florida limited liability company (the “
Company
”).
RECITALS
A. Concurrently
with the execution of this Agreement, Parent, Parent’s subsidiary, CCNI One, Inc., a Florida corporation (“
Merger
Sub 1
”), Parent’s subsidiary, Command Florida, LLC, a Florida limited liability company (“
Merger
Sub 2
”), and the Company have entered into an Agreement and Plan of Merger (the “
Merger Agreement
”),
which provides for (i) the merger of Merger Sub 1 with and into the Company (the “
First Merger
”), with
the Company surviving the First Merger, (ii) immediately followed by the merger of the Company with and into Merger Sub 2 (the
“
Second Merger
” and collectively with the First Merger, the “
Merger
”).
B. The
parties to the Merger intend that promptly after the Merger and subject to the approval of Parent’s shareholders, Parent
will be converted to a Delaware corporation.
C. In
the Merger, upon the terms and subject to the conditions of the Merger Agreement, all of the membership interests of the Company’s
members in the Company will be converted into the right to receive the consideration set forth in the Merger Agreement, all upon
the terms and subject to the conditions set forth in the Merger Agreement.
D. As
of the date hereof, Shareholder is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the “
Exchange Act
”)) of the number of shares of outstanding capital stock of Parent and other
securities convertible into, or exercisable or exchangeable for, shares of capital stock of Parent (the “
Shares
”)
set forth on the signature page of this Agreement.
E. As
a material inducement to the Company to enter into and to consummate the transactions contemplated by the Merger Agreement, Company
has required that Shareholder agree, and Shareholder is willing to agree, to restrict the transfer or disposition of any of the
Shares, or any other shares of capital stock of the Parent acquired by Shareholder hereafter and prior to the Expiration Time (as
defined in
Section 1(a)
hereof), and to vote the Shares and any other such shares of capital stock of Parent as set
forth in this Agreement.
NOW, THEREFORE, the
parties hereto hereby agree as follows:
1.
Agreement
to Retain Shares
.
(a)
Transfer
. Shareholder
agrees that, at all times during the period beginning on the date hereof and ending at the Expiration Time, Shareholder shall not
Transfer (as defined below) any of the Shares or any New Shares (as defined in
Section 1(b)
hereof), or make any agreement
regarding any Transfer, in each case without the prior written consent of the Company. Shareholder agrees that any Transfer
in violation of this Agreement shall be void and of no force or effect. Notwithstanding anything to the contrary contained herein,
Shareholder’s participation in the Offer (as defined in the Merger Agreement) shall not be deemed a Transfer and shall not
be limited by the terms of this Agreement.
As used herein, the
term “
Expiration Time
” shall mean the earliest to occur of (i) the Effective Time (as defined in the
Merger Agreement), (ii) the termination of the Merger Agreement in accordance with the terms thereof, including without limitation
pursuant to Section 7.04(a) thereof, or (iii) the occurrence of a Material Adverse Amendment. As used herein (A) the
term “
Material Adverse Amendment
” shall mean an amendment, modification or waiver to the Merger Agreement
that (i) (1) directly or indirectly increases the Merger Consideration (as defined in the Merger Agreement) payable in connection
with the Merger, (2) waives, amends or modifies any condition to the obligation of Parent to consummate the Merger, (3) waives
any breach of representation, warranty, covenant or agreement of Company contained in the Merger Agreement, (4) waives, amends
or modifies any representation, warranty, covenant or agreement of Company so as to reduce the scope thereof, or the obligation
thereunder, or (5) materially and adversely affects the Shareholder and (ii) is approved by the Parent’s Board of Directors
regardless of whether in such vote the Shareholder’s nominee (if any) on the Parent’s Board of Directors (or the Shareholder
in his capacity as a director) voted against such amendment. As used herein, the term “
Transfer
”
shall mean, with respect to any security, the direct or indirect assignment, sale, transfer, tender, pledge, hypothecation, or
the gift, placement in trust, or the Constructive Sale (as defined below) or other disposition of such security (excluding transfers
by testamentary or intestate succession or otherwise by operation of law) or any right, title or interest therein (including, but
not limited to, any right or power to vote to which the holder thereof may be entitled, whether such right or power is granted
by proxy or otherwise), or the record or beneficial ownership thereof, the offer to make such a sale, transfer, Constructive Sale
or other disposition, and each agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing,
excluding any of the foregoing effected (A) pursuant to a court order, (B) pursuant to the Merger, (C) pursuant to a Rule 10b5-1
trading plan, (D) to any transferee if such transferee, prior to the Transfer, executes a binding agreement with Parent and the
Company substantially in the form of this Agreement. As used herein, the term “
Constructive Sale
”
shall mean, with respect to any security, a short sale with respect to such security, entering into or acquiring an offsetting
derivative contract with respect to such security, entering into or acquiring a futures or forward contract to deliver such security
or entering into any other hedging or other derivative transaction that has the effect of materially changing the economic benefits
and risks of ownership.
(b)
New
Shares
. Shareholder agrees that any shares of capital stock of the Parent that Shareholder purchases or with respect
to which Shareholder otherwise acquires beneficial ownership after the date of this Agreement and prior to the Expiration Time,
including, without limitation, shares issued or issuable upon the conversion, exercise or exchange, as the case may be, of all
securities held by Shareholder which are convertible into, or exercisable or exchangeable for, shares of capital stock of the Parent
(“
New Shares
”), shall be subject to the terms and conditions of this Agreement to the same extent as
if they constituted Shares as of the date hereof.
2.
Agreement
to Vote Shares
. Until the Expiration Time, at every meeting of shareholders of the Parent called with respect to
any of the following, and at every adjournment or postponement thereof, and on every action or approval by written consent of shareholders
of the Parent with respect to any of the following, Shareholder shall vote, to the extent not voted by the person(s) appointed
under the Proxy (as defined in
Section 3
), the outstanding Shares and any outstanding New Shares (to the extent any such
New Shares may be voted):
(i)
in favor of approval of the increase in the number of Parent’s authorized shares of common stock as set forth in the
Merger Agreement;
(ii)
in
favor of approval of the conversion of the Parent from a Washington corporation to a Delaware corporation as set forth in the
Merger Agreement;
(iii)
in
favor of approval of the issuance of shares of the common stock of the Parent as consideration for the Merger and in favor of
the related change of control transaction for purposes of Nasdaq listing rules as set forth in the Merger Agreement;
(iv)
in favor of approval of the change in name of Parent to “HireQuest,
Inc.” as set forth in the Merger Agreement;
(v) against approval of any proposal made in opposition to, or in competition with, any of the above proposals;
(vi) against
any action which the Parent is prohibited from taking under Section 5.02 of the Merger Agreement;
(vii) in
favor of waiving any notice that may have been or may be required relating to any reorganization of the Parent or any subsidiary
of the Parent, any issuance, reclassification or recapitalization of the capital stock of the Parent or any subsidiary of the Parent,
any sale or purchase of assets, change of control of or acquisition by the Parent or any subsidiary of the Parent or any other
person, or any consolidation or merger to which the Parent or any subsidiary of the Parent is the surviving entity.
Prior to the Expiration
Time, Shareholder shall not enter into any agreement or understanding with any person to vote or give instructions in any manner
inconsistent with this
Section 2
.
3.
Irrevocable
Proxy
. Concurrently with the execution of this Agreement, Shareholder agrees to deliver to Company an irrevocable
proxy in the form attached hereto as
Appendix A
(the “
Proxy
”), which shall be irrevocable
to the fullest extent permitted by applicable law, covering the total number of Shares and New Shares.
4.
Representations,
Warranties and Covenants of Shareholder
. Shareholder represents, warrants and covenants to Company as follows:
(i) Shareholder
is the beneficial owner of the Shares, with full power to vote or direct the voting of the Shares for and on behalf of any and
all beneficial owners of the Shares.
(ii) As
of the date hereof, the Shares are, and at all times up until the Expiration Time the Shares will be, free and clear of any rights
of first refusal, co-sale rights, security interests, liens, pledges, claims, options, charges or other encumbrances of any kind
or nature, in each case that would impair Shareholder’s ability to fulfill its obligations under
Section 2
. The
execution and delivery of this Agreement by Shareholder do not, and Shareholder’s performance of its obligations under this
Agreement will not conflict with or violate any order, decree, judgment or agreement known by the Shareholder to be applicable
to such Shareholder or by which Shareholder or any of Shareholder’s properties or Shares is bound.
(iii) Shareholder
does not beneficially own any shares of capital stock of the Parent, or any securities convertible into, or exchangeable or exercisable
for, shares of capital stock of the Parent, other than as set forth on the signature page hereto.
(iv) Shareholder
has full power and authority to make, enter into and carry out the terms of this Agreement, the Proxy and any other related agreements
to which Shareholder is a party.
5.
Additional
Documents
. Shareholder hereby covenants and agrees to execute and deliver any additional documents reasonably necessary
or desirable to carry out the purpose and intent of this Agreement.
6.
Termination
. This
Agreement and the Proxy delivered in connection herewith shall terminate automatically and shall have no further force or effect
as of the Expiration Time.
7.
Parent
Covenants
. The Parent agrees to make a notation on its records and give instructions to its transfer agent(s) not
to permit, prior to the Expiration Time, the transfer of any Shares or New Shares, except as permitted pursuant to
Section 1(a)
.
8.
Miscellaneous
.
(a)
Directors
and Officers
. Notwithstanding any provision of this Agreement to the contrary, Shareholder has entered into this
Agreement in its, his or her capacity as a Shareholder of the Parent, and nothing in this Agreement shall limit or restrict Shareholder
or any representative of Shareholder from acting, if applicable, in the Shareholder’s or such representative’s capacity
as a director or officer of the Parent (it being understood that this Agreement shall apply to Shareholder solely in Shareholder’s
capacity as a shareholder of the Parent) or voting in Shareholder’s sole discretion on any matter other than those matters
referred to in
Section 2
. Company covenants that it will not bring, commence, institute, maintain, prosecute,
participate in or voluntarily aid any action, claim, suit or cause of action, in law or in equity, in any court or before any governmental
entity, which (i) alleges that any action taken (or not taken) by Shareholder or Shareholder’s representative solely in Shareholder’s
or such representative’s capacity as a director or officer of the Parent breaches or violates or would breach or violate
any provision of this Agreement or the Proxy or (ii) challenges the right of Shareholder to vote or challenges the validity of
or seeks to enjoin any vote by Shareholder (or the grant of a proxy with respect thereto) on any matter other than those matters
set forth in
Section 2
.
(b)
Waiver
. No
waiver by any party hereto of any condition or any breach of any term or provision set forth in this Agreement shall be effective
unless in writing and signed by the other party hereto. The waiver of any breach of any term or provision of this Agreement
shall not operate as or be construed to be a waiver of any other previous or subsequent breach of any term or provision of this
Agreement. No delay or omission by Company in exercising any right under this Agreement shall operate as a waiver of
that right or any other right under this Agreement.
(c)
Notices
. All
notices and other communications hereunder shall be in writing and shall be deemed duly given (i) on the date of delivery
if delivered personally, (ii) on the date of confirmation of receipt (or the first business day following such receipt if
the date is not a business day) if sent via facsimile (receipt confirmed), or (iii) on the date of confirmation of receipt
(or the first business day following such receipt if the date is not a business day) if delivered by a nationally recognized courier
service. All notices hereunder shall be delivered to the parties at the following addresses or facsimile numbers (or
pursuant to such other instructions as may be designated in writing by the party to receive such notice):
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If to Company:
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Hire Quest Holdings, LLC
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111 Springhall Drive
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Goose Creek, SC 29445
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Telephone: (843) 723-7400
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Facsimile:
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Attention: John McAnnar
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With a copy to:
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Hill Ward Henderson
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101 East Kennedy Boulevard, Suite 3700
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Tampa, FL 33603
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Telephone: (813) 227-8483
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Facsimile: (813) 221-2900
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Attention: David S. Felman and Roland S. Chase
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If to Parent:
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Command Center, Inc.
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3609 S Wadsworth Blvd Suite 250
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Lakewood, CO 80235
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Telephone: (866) 464-5844
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Facsimile:
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Attention: Brendan Simaytis
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With a copy to:
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Olshan Frome Wolosky LLP
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1325 Avenue of the Americas
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New York, NY 10019
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Telephone: (212) 451-2289
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Facsimile: (212) 451-2222
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Attention: afinerman@olshanlaw.com
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If to Shareholder:
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To the address for notice set forth on the signature page hereof
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(d)
Headings
. All
captions and section headings used in this Agreement are for convenience only and do not form a part of this Agreement.
(e)
Counterparts
. This
Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood
that all parties need not sign the same counterpart.
(f)
Entire
Agreement; Amendment
. This Agreement constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to
the subject matter hereof. This Agreement may not be changed or modified, except by an agreement in writing specifically
referencing this Agreement and executed by each of the parties hereto.
(g)
Severability
. In
the event that any provision of this Agreement, shall be determined to be invalid, unlawful, void or unenforceable to any extent,
the remainder of this Agreement shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the
fullest extent permitted by law.
(h)
Governing
Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington, regardless
of the laws that might otherwise govern under applicable principles of conflicts of law thereof. The venue and consent
to jurisdiction provisions of Section 8.05 of the Merger Agreement shall apply to this Agreement as set forth herein.
(i)
Rules
of Construction
. The parties hereto agree that they have been represented by counsel during the negotiation and execution
of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
(j)
Remedies
. The
parties acknowledge that Company will be irreparably harmed and that there will be no adequate remedy at law for a violation of
any of the covenants or agreements of Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Company upon any such violation, Company shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other means available to Company at law or in equity.
(k)
No
Assignment
. Unless otherwise provided for herein, Shareholder may not assign this Agreement. This Agreement
shall inure to the benefit of Parent, Company and their respective successors and assigns.
[
Remainder of Page Intentionally Left
Blank
]
IN WITNESS WHEREOF, the undersigned have
executed this Agreement on the date first above written.
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HIRE QUEST HOLDINGS, LLC
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SHAREHOLDER:
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By:
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Name:
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Signature
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Title:
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Print Name
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Address
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COMMAND CENTER, INC.
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Shares:
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By:
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Name:
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Parent Common Stock:
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Title:
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Parent Preferred Stock:
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Parent Options:
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Parent Warrants: _________________
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[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
APPENDIX A
IRREVOCABLE PROXY
The undersigned shareholder (“
Shareholder
”)
of Command Center, Inc., a Washington corporation (the “
Parent
”), hereby irrevocably (to the fullest
extent permitted by law) appoints Rick Hermanns and John McAnnar of Hire Quest Holdings, LLC, a Florida limited liability company
(“
Company
”), and each of them, as the sole and exclusive attorneys-in-fact and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and exercise all voting and related rights (to the full extent that
the undersigned is entitled to do so) with respect to all of the shares of capital stock of the Parent that now are or hereafter
may be beneficially owned by the undersigned, and any and all other shares or securities of the Parent issued or issuable in respect
thereof on or after the date hereof (collectively, the “
Shares
”), in accordance with the terms of this
Proxy until the Expiration Time (as defined in that certain Parent Voting Agreement, dated of even date herewith, by and among
Parent, the Company and Shareholder (the “
Voting Agreement
”)), subject to limitations herein and therein. The
Shares beneficially owned by the undersigned shareholder of the Parent as of the date of this Proxy are listed on the final page
of this Proxy. Upon the undersigned’s execution of this Proxy, any and all prior proxies given by the undersigned
with respect to any Shares for the Specified Matters (as defined below) are hereby revoked and the undersigned hereby agrees not
to grant any subsequent proxies with respect to the Shares until after the Expiration Time (as defined in the Voting Agreement).
This Proxy is irrevocable (to the fullest
extent permitted by applicable law), is coupled with an interest and is granted pursuant to the Voting Agreement, and is granted
in consideration of Company entering into that certain Agreement and Plan of Merger, dated as of April ___, 2019, by and among
Parent, the Company and certain other parties (the “
Merger Agreement
”). The Merger Agreement
provides for (i) the merger of Merger Sub 1 with and into the Company (the “
First Merger
”), with the
Company surviving the First Merger, (ii) immediately followed by the merger of the Company with and into Merger Sub 2 (the “
Second
Merger
” and collectively with the First Merger, the “
Merger
”).
The attorneys-in-fact and proxies named
above are hereby authorized and empowered by the undersigned, at any time prior to the Expiration Time (as defined in the Voting
Agreement), to act as the undersigned’s attorney-in-fact and proxy to vote the Shares, and to exercise all voting, consent
and similar rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver
written consents), at every annual, special, adjourned or postponed meeting of shareholders of the Parent and in every written
consent in lieu of such meeting with respect to the following matters (the “
Specified Matters
”):
(i)
in
favor of approval of the increase in the number of Parent’s authorized shares of common stock as set forth in
the Merger Agreement;
(ii)
in favor of approval of the conversion of the Parent from a
Washington corporation to a Delaware corporation as set forth in the Merger Agreement;
(iii)
in
favor of approval of the issuance of shares of the common stock of the Parent as consideration for the Merger and in favor of
the related change of control transaction for purposes of Nasdaq listing rules as set forth in the Merger Agreement;
(iv)
in
favor of approval of the change in name of Parent to “HireQuest, Inc.” as set forth in the Merger Agreement;
(v)
against approval of any proposal made in opposition to, or in competition with, any of the above proposals;
(vi) against
any action which the Parent is prohibited from taking under Section 5.02 of the Merger Agreement;
(vii) in
favor of waiving any notice that may have been or may be required relating to any reorganization of the Parent or any subsidiary
of the Parent, any issuance, reclassification or recapitalization of the capital stock of the Parent or any subsidiary of the Parent,
any sale or purchase of assets, change of control of or acquisition by the Parent or any subsidiary of the Parent or any other
person, or any consolidation or merger to which the Parent or any subsidiary of the Parent is the surviving entity.
The attorneys-in-fact and proxies named
above may not exercise this Proxy on any other matter except for the Specified Matters as described in clauses (i), (ii), (iii),
(iv), (v), (vi) or (vii) above, and Shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder
shall be binding upon the successors and assigns of the undersigned.
This Proxy shall terminate, and be of no
further force and effect, automatically as of the Expiration Time.
[
Remainder of Page Intentionally Left
Blank
]
*****
This Proxy shall terminate, and be of no
further force and effect, automatically upon the Expiration Time (as defined in the Voting Agreement).
Dated: ____________, 2019
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Signature
Print Name
Address
Shares:
Parent Common Stock:
Parent Preferred Stock:
Parent Options:
Parent Preferred Stock:
|
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[SIGNATURE PAGE TO PROXY]
Annex
C
April 05, 2019
Board of Directors
Command Center, Inc.
3609 S. Wadsworth Blvd, Suite 250
Lakewood, CO 80235
Members of the Board:
We understand that
Command Center, Inc. (“
Parent
”) and Command Florida, LLC, a wholly owned subsidiary of Parent (“
Merger
Sub
”), propose to enter into an Agreement and Plan of Merger (the “
Agreement
”) with Hire Quest Holdings,
LLC (the “
Company
”) pursuant to which, among other things, the Company will be merged with and into Merger Sub
(the “
Transaction
”) and all of the membership interests in the Company as of immediately prior to the Effective
Time (as defined in the Agreement) shall be converted into the right to receive an aggregate of 9,837,541 shares of the common
stock, par value $0.001 per share (“
Parent Common Stock
”), of Parent (such shares of Parent Common Stock, the
“
Consideration
”). The terms and conditions of the Transaction are more fully set forth in the Agreement.
You have requested
our opinion as to the fairness, from a financial point of view, to Parent of the Consideration to be paid by Parent in the proposed
Transaction.
In connection with
preparing our opinion, we have, among other things:
|
(i)
|
reviewed a draft of the Agreement, dated April 04, 2019;
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(ii)
|
reviewed certain financial statements and other historical financial and business information about
Parent and the Company made available to us from published sources and/or from the internal records of Parent and the Company that
we deemed relevant;
|
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(iii)
|
reviewed financial projections for the Company prepared by management of the Company;
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(iv)
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reviewed financial projections for Parent prepared by management of Parent;
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(v)
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reviewed the current market environment generally and the business services environment in particular;
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(vi)
|
compared certain financial results of the Company and Parent with publicly available information
concerning certain other companies that we deemed relevant;
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(vii)
|
compared certain financial terms of the Transaction with the publicly available financial terms
of certain other transactions that we deemed relevant;
|
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(viii)
|
compared the relative contributions of Parent and the Company to the combined company;
|
Investment Banking
611 Anton Boulevard ● Suite 600 ●
Costa Mesa, CA 92626 ● (714) 327-8800 ● FAX (714) 327-8700
www.dadavidson.com/Investment-Banking
|
(ix)
|
reviewed the current and historical market prices and trading activity of Parent Common Stock;
and
|
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(x)
|
performed, reviewed and/or considered such other financial studies, analyses and investigations
and financial, economic and market criteria and other information as we considered relevant, including discussions with the managements
and other representatives and advisors of Parent and the Company concerning the businesses, financial condition, results of operations
and prospects of Parent and the Company.
|
In arriving at our
opinion, we have, with your consent, assumed and relied upon the accuracy and completeness of all information that was publicly
available or supplied or otherwise made available to, discussed with or reviewed by or for us. We have not independently verified
(nor have we assumed responsibility for independently verifying) such information or its accuracy or completeness. We have relied
on the assurances of managements of Parent and the Company that they are not aware of any facts or circumstances that would make
any of such information inaccurate or misleading. We also have assumed that the audited financial statements for the Company contemplated
to be delivered to Parent following the date hereof will not reflect any material changes to such information. We have not undertaken
or been provided with any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of
the Company or Parent. In addition, we have not assumed any obligation to conduct, nor have we conducted, any physical inspection
of the properties or facilities of the Company or Parent, and have not been provided with any reports of such physical inspections.
We have assumed that there has been no material change in the Company’s or Parent’s businesses, assets, financial condition,
results of operations, cash flows or prospects since the date of the most recent financial statements provided to us.
With respect to the
financial projections reviewed by us, we have been advised by managements of the Company and Parent, and have assumed with your
consent, that such projections have been reasonably prepared on bases reflecting the best currently available estimates and good
faith judgments of the managements of the Company and Parent, as the case may be, as to the future financial performance of the
Company and Parent, and that the financial results reflected in such projections will be realized in the amounts and at the times
projected. We assume no responsibility for and express no opinion as to such projections or the assumptions on which they were
based. We further have relied on the assessments of the management of Parent as to Parent’s ability to integrate the businesses
of the Company and Parent.
We have assumed that
all of the representations and warranties contained in the Agreement and all related agreements are true and correct in all respects
material to our analysis, and that the Transaction will be consummated in accordance with the terms of the Agreement, without waiver,
modification or amendment of any term, condition or covenant thereof the effect of which would be in any respect material to our
analysis. We also have assumed that all material governmental, regulatory or other consents, approvals, and waivers necessary for
the consummation of the Transaction will be obtained without any material adverse effect on the Company or Parent or the contemplated
benefits of the Transaction. Further, we have assumed that the executed Agreement will not differ in any material respect from
the draft Agreement reviewed by us.
We have assumed in
all respects material to our analysis that the Company and Parent will remain as a going concern for all periods relevant to our
analysis. We express no opinion regarding the liquidation value of the Company, Parent or any other entity.
Our opinion is limited
to the fairness, from a financial point of view, to Parent of the Consideration to be paid by Parent in the Transaction. We do
not express any view on, and our opinion does not address, any other term or aspect of the Agreement, the Transaction (including,
without limitation, the form or structure of the Transaction) or any related transaction (including, without limitation, the contemplated
self-tender by the Company to purchase up to 1,500,000 shares of Parent Common Stock (the “Parent Self-Tender”) at
a price per share of $6.00 per share (the “Tender Price”)) or any term or aspect of any other agreement or instrument
contemplated by the Agreement or entered into in connection with the Transaction, or as to the underlying business decision by
Parent to engage in the Transaction or any related transaction. Furthermore, we express no opinion with respect to the amount or
nature of any compensation to any officers, directors or employees of any party, or any class of such persons, relative to the
Consideration to be paid by Parent in the Transaction, or with respect to the fairness of any such compensation.
We express no view
as to, and our opinion does not address, the relative merits of the Transaction or any related transaction as compared to any alternative
business transactions or strategies, or whether such alternative transactions or strategies could be achieved or are available.
In addition, our opinion does not address any legal, regulatory, tax or accounting matters, as to which we understand that Parent
obtained such advice as it deemed necessary from qualified professionals.
We express no opinion
as to the Tender Price, the actual value of Parent Common Stock when issued in the Transaction or the prices at which Parent Common
Stock will trade following announcement of the Transaction or at any future time.
We have not evaluated
the solvency or fair value of the Company or Parent under any state, federal or other laws relating to bankruptcy, insolvency or
similar matters. This opinion is not a solvency opinion and does not in any way address the solvency or financial condition of
the Company or Parent. We are not expressing any opinion as to the impact of the Transaction on the solvency or viability of the
Company or Parent or the ability of the Company or Parent to pay their respective obligations when they come due.
We have acted as Parent’s
financial advisor in connection with the Transaction and will receive a fee for our services, a portion of which is payable upon
the rendering of this opinion and a significant portion of which is contingent upon consummation of the Transaction. In addition,
Parent has agreed to reimburse our reasonable expenses and indemnify us against certain liabilities arising out of our engagement.
In the ordinary course
of our business, D.A. Davidson & Co. and its affiliates may actively trade or hold securities of Parent for our own accounts
or for the accounts of our customers and, accordingly, may at any time hold long or short positions in such securities. We may
seek to provide investment banking or other financial services to Parent or the Company in the future for which we would expect
to receive compensation.
This fairness opinion
was reviewed and approved by a D.A. Davidson & Co. Fairness Opinion Committee.
This opinion is for
the information of the Board of Directors of Parent (in its capacity as such) in connection with its consideration of the Transaction
and shall not be disclosed, referred to, published or otherwise used (in whole or in part), nor shall any public references to
us be made, without our prior written consent, except that a copy of this opinion may be included in its entirety in any regulatory
filing that Parent is required to make in connection with the Transaction, if such inclusion is required by applicable law, as
well as Parent’s proxy statement distributed to Parent’s shareholders and filed with the Securities and Exchange Commission
as part of Parent seeking shareholder approval of the issuance of the Consideration and related matters in connection with the
Transaction. This opinion is not intended to be and does not constitute a recommendation as to how the shareholders of Parent should
vote or act with respect to the Transaction, any related transaction or any matter relating thereto, including whether or not to
tender shares of Parent Common Stock in the Parent Self-Tender.
Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof.
Events occurring after the date hereof may affect this opinion and the assumptions used in preparing it, and we do not assume any
obligation to update, revise or reaffirm this opinion.
Based upon and subject
to the foregoing, it is our opinion that, as of the date hereof, the Consideration to be paid by Parent in the Transaction is
fair, from a financial point of view, to Parent.
Very truly yours,
D.A. Davidson & Co.
Annex
D
CERTIFICATE OF CONVERSION
OF
HIREQUEST, INC.
(
a Washington corporation
)
to
HIREQUEST, INC.
(
a Delaware corporation
)
_______________________________________
Pursuant to Section
265 of the Delaware General Corporation Law
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1)
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The jurisdiction where the non-Delaware Corporation first formed is:
Washington
.
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2)
|
The jurisdiction immediately prior to filing this Certificate of Conversion is:
Washington
.
|
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3)
|
The date the non-Delaware Corporation first formed is:
October 11, 2000
.
|
|
4)
|
The name of the non-Delaware Corporation immediately prior to filing this Certificate of Conversion is:
HireQuest, Inc.
|
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5)
|
The name of the Corporation as set forth in the attached Certificate of Incorporation is:
HireQuest, Inc.
|
IN WITNESS WHEREOF,
the undersigned, being duly authorized to sign on behalf of the converting non-Delaware Corporation has executed this Certificate
of Conversion on the ___
th
day of _________, 2019.
|
HIREQUEST, INC.,
|
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a Washington corporation
|
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By:
|
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Name:
|
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Title:
|
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|
Annex
E
CERTIFICATE OF INCORPORATION OF
HIREQUEST, INC. (the “Corporation”)
The Corporation certify as follows:
A. The Corporation was originally incorporated
pursuant to the Washington Business Corporation Act of the State of Washington on October 11, 2000.
B. As part of a merger transaction, the
Corporation changed its name to “HireQuest, Inc.” and converted from a Washington corporation to a Delaware corporation
pursuant to the General Corporation Law of the State of Delaware (“
DGCL
”) and the Washington Business Corporation
Act.
ARTICLE I
The name of the Corporation is HireQuest,
Inc.
ARTICLE II
The address of the Corporation’s
registered office in the State of Delaware is 1675 South State Street, Suite B, Dover, County of Kent, Delaware 19901. The name
of its registered agent at such address is Capitol Services, Inc.
ARTICLE III
The nature of the business or purposes
to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized
under the DGCL.
ARTICLE IV
Section 4.1. This Corporation is authorized
to issue two classes of stock, to be designated, respectively, Common Stock and Preferred Stock. The total number of shares of
stock that the Corporation shall have authority to issue is thirty-one million (31,000,000) shares, of which thirty million (30,000,000)
shares are Common Stock, $0.001 par value per share, and one million (1,000,000) shares are Preferred Stock, $0.001 par value per
share.
Section 4.2. Each share of Common
Stock shall entitle the holder thereof to one (1) vote on any matter submitted to a vote at a meeting of stockholders.
Section 4.3. The Preferred Stock may
be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted
by the Board of Directors of the Corporation (the “
Board of Directors
”) (authority to do so being hereby expressly
vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix
by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions
thereof, of any wholly unissued series of Preferred Stock, including, without limitation, authority to fix by resolution or resolutions
the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series
and the designation thereof, or any of the foregoing. The Board of Directors is further authorized to increase (but not above the
total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding)
the number of shares of any series, the number of which was fixed by it, subsequent to the issuance of shares of such series then
outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated
in this Certificate of Incorporation (this “
Certificate of Incorporation
”) or the resolution of the Board of
Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the
Corporation shall take all such steps as are necessary to cause the shares constituting such decrease to resume the status which
they had prior to the adoption of the resolution originally fixing the number of shares of such series.
Section 4.4. Except as otherwise required
by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including
any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or
more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as
a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation
(including any certificate of designation filed with respect to any series of Preferred Stock).
ARTICLE V
The number of directors that constitutes
the entire Board of Directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the
term for which they are elected and until their successors have been duly elected and qualified or until their earlier resignation
or removal; except that if any such meeting shall not be so held, such election shall take place at a stockholders’ meeting
called and held in accordance with the DGCL.
ARTICLE VI
Section 6.1. Any director or the entire
Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at
least a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election
of directors.
Section 6.2. Except as otherwise provided
for or fixed by or pursuant to the provisions of Article IV hereof in relation to the rights of the holders of Preferred Stock
to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors,
created in accordance with the Bylaws of the Corporation, and any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders.
A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the expiration
of the term for which he or she was elected and until his or her successor shall have been duly elected and qualified, or until
such director’s earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
ARTICLE VII
Section 7.1. The Corporation is to
have perpetual existence.
Section 7.2. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors
are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
Section 7.3. In furtherance and not
in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, alter, amend or repeal
the Bylaws of the Corporation. The affirmative vote of at least a majority of the Board of Directors then in office shall be required
in order for the Board of Directors to adopt, amend, alter or repeal the Corporation’s Bylaws. The Corporation’s Bylaws
may also be adopted, amended, altered or repealed by the stockholders of the Corporation. Notwithstanding the above or any other
provision of this Certificate of Incorporation, the Bylaws of the Corporation may not be amended, altered or repealed except in
accordance with Article X of the Bylaws. No Bylaw hereafter legally adopted, amended, altered or repealed shall invalidate any
prior act of the directors or officers of the Corporation that would have been valid if such Bylaw had not been adopted, amended,
altered or repealed.
Section 7.4. The election of directors
need not be by written ballot unless the Bylaws of the Corporation shall so provide.
Section 7.5. No stockholder will be
permitted to cumulate votes at any election of directors.
ARTICLE VIII
Section 8.1. Special meetings of stockholders
of the Corporation may be called in the manner and to the extent provided in the Bylaws of the Corporation. Only such business
shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting.
Section 8.2. Advance notice of stockholder
nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders
of the Corporation shall be given in the manner and to the extent provided in the Bylaws of the Corporation.
ARTICLE IX
Section 9.1. To the fullest extent
permitted by the DGCL as the same exists or as may hereafter be amended from time to time, a director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Section 9.2. The Corporation shall
indemnify, to the fullest extent permitted by applicable law, any director or officer of the Corporation who was or is a party
or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a “
Proceeding
”) by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee
benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any such Proceeding. The Corporation shall be required to indemnify a person
in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board of Directors.
Section 9.3. The Corporation shall
have the power to indemnify, to the extent permitted by applicable law, any employee or agent of the Corporation who was or is
a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee
benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any such Proceeding.
Section 9.4. Neither any amendment
nor repeal of any Section of this Article IX, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws
of the Corporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any
matter occurring, or any cause of action, suit, claim or proceeding accruing or arising or that, but for this Article IX, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Meetings of stockholders may be held within
or outside of the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The Corporation reserves the right to amend
or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware
and all rights conferred upon stockholders are granted subject to this reservation;
provided
,
however
, that notwithstanding
any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no
vote, the Board of Directors acting pursuant to a resolution adopted by a majority of the Board of Directors and the affirmative
vote of fifty percent (50%) of the then outstanding voting securities of the Corporation, voting together as a single class, shall
be required for the amendment, repeal or modification of the provisions of Section 4.3, Section 5.2, Article VI, Section 7.5,
Article VIII or Article XI of this Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has
caused this Certificate of Incorporation to be signed by [Officer’s Name], a duly authorized officer of the Corporation,
on this day of ,
2019.
Annex
F
PLAN OF CONVERSION
of
HIREQUEST, INC.
(
a Washington corporation
)
to
HIREQUEST, INC.
(
a Delaware corporation
)
This PLAN OF CONVERSION,
dated as of _______________, 2019 (including all of the exhibits attached hereto, this “
Plan
”), is hereby adopted
by HIREQUEST, INC., a Washington corporation (the “
Company
”), in order to set forth the terms, conditions and
procedures governing the conversion of the Company from a Washington corporation to a Delaware corporation pursuant to §23B.09.005
et. seq. of the Revised Code of Washington, as amended (the “
RCW
”) and §265 of the General Corporation
Law of the State of Delaware, as amended (the “
DGCL
”).
RECITALS
WHEREAS, the Company
is a corporation established and existing under the laws of the State of Washington;
WHEREAS, the conversion
of a Washington corporation into a Delaware corporation is permitted under §23B.09.005 et. seq. of the RCW and §265 of
the DGCL;
WHEREAS, the Company’s
board of directors have determined that it is advisable, fair and in the best interest of the Company and its shareholders to enter
into this Plan and pursuant thereto, convert the Company from a Washington corporation to a Delaware corporation, in accordance
with §23B.09.005 et. seq. of the RCW and §265 of the DGCL and have recommended to the shareholders that they approve
this Plan;
WHEREAS, the requisite
amount of the Company’s shareholders have accepted the recommendation of the Company’s board of directors and have
determined that it is advisable and in the best interests of the Company to enter into this Plan and pursuant thereto, convert
the Company from a Washington corporation to a Delaware corporation, in accordance with §23B.09.005 et. seq. of the RCW and
§265 of the DGCL
WHEREAS, the form,
terms, conditions and provisions of this Plan have been duly authorized, approved and adopted by the Company’s board of directors
and the requisite amount of the Company’s shareholders, in accordance with §23B.09.005 et. seq. of the RCW and §265
of the DGCL.
NOW, THEREFORE, the
Company hereby adopts this Plan as follows:
|
1.
|
Conversion; Effect of Conversion
.
|
(a)
At the Effective Time (as defined in Section 3 below), the Company shall be converted from a Washington corporation to a
Delaware corporation pursuant to §23B.09.005 et. seq. of the RCW and §265 of the DGCL (the “
Conversion
”)
and the Company, as converted to a Delaware corporation (the “
Converted Company
”), shall thereafter be subject
to all of the provisions of the DGCL, except that notwithstanding Section 106 of the DGCL, the existence of the Converted Company
shall be deemed to have commenced on the date the Company commenced its existence in the State of Washington (October 11, 2000).
The Company shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the Conversion shall
not be deemed a dissolution of the Company. The Conversion otherwise shall have the effects specified in the RCW and DGCL.
(b)
At the Effective Time, by virtue of the Conversion and without any further action on the part of the Company or its stockholders,
the Converted Company shall, for all purposes of the laws of the State of Delaware, be deemed to be the same entity as the Company.
At the Effective Time, by virtue of the Conversion and without any further action on the part of the Company or its stockholders,
for all purposes of the laws of the State of Delaware, all of the rights, privileges and powers of the Company, and all property,
real, personal and mixed, and all debts due to the Company, as well as all other things and causes of action belonging to the Company,
shall remain vested in the Converted Company and shall be the property of the Converted Company and the title to any real property
vested by deed or otherwise in the Company shall not revert or be in any way impaired by reason of the Conversion; but all rights
of creditors and all liens upon any property of the Company shall be preserved unimpaired, and all debts, liabilities and duties
of the Company shall remain attached to the Converted Company at the Effective Time, and may be enforced against the Converted
Company to the same extent as if said debts, liabilities and duties had originally been incurred or contracted by the Converted
Company in its capacity as a corporation of the State of Delaware. The rights, privileges, powers and interests in property of
the Company, as well as the debts, liabilities and duties of the Company, shall not be deemed, as a consequence of the Conversion,
to have been transferred to the Converted Company at the Effective Time for any purpose of the laws of the State of Delaware.
(c)
The Conversion shall not be deemed to affect any obligations or liabilities of the Company incurred prior to the Conversion
or the personal liability of any person incurred prior to the Conversion.
(d)
At the Effective Time, the name of the Converted Company shall be:
HireQuest, Inc.
(e)
The Company intends for the Conversion to constitute a reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended, and for this Plan to constitute a “plan of reorganization” within the meaning
of Treasury Regulation Section 1.368-2(g).
2.
Filings
. As promptly as practicable following the date hereof, the Company shall cause the following to occur in
order to effect the Conversion:
(a)
execute and file (or cause to be executed and filed) a Certificate of Conversion pursuant to §103 and §265 of
the DGCL in the form attached hereto as
Exhibit A
(the “
Delaware Certificate of Conversion
”) with
the Secretary of State of the State of Delaware; and
(b)
execute and file (or cause to be executed and filed) a Certificate of Incorporation of
HireQuest, Inc.
, that complies
with the DGCL, in the form attached hereto as
Exhibit B
(the “
Delaware Certificate of Incorporation
”)
with the Secretary of State of the State of Delaware; and
(c)
execute and file (or cause to be executed and filed) a Cover Sheet for Conversion of Business Entity attaching the required
documents that complies with the RCW, in a form reasonably acceptable to any officer of the Company (the “
WA Conversion
Documents
”) with the Secretary of State of the State of Washington.
3.
Effective Time
. The Conversion shall become effective upon the filing and effectiveness of the (a) Delaware Certificate
of Conversion and (b) Delaware Certificate of Incorporation with the Secretary of State of the State of Delaware (the time of the
effectiveness of the Conversion, the “
Effective Time
”). As promptly as practicable thereafter, the Company shall
cause the filing of the WA Conversion Documents with the Secretary of State of the State of Washington.
4.
Effect of Conversion on Common Stock
. Upon the terms and subject to the conditions of this Plan, at the Effective
Time, by virtue of the Conversion and without any further action on the part of the Company or its stockholders, each share of
the issued common stock, par value $0.001 per share, of the Company (the “
Company’s Common Stock
”) shall
convert at a ratio of 1 to 1 (the “
Common Conversion Ratio
”) into one validly issued, fully paid and non-assessable
share of common stock, par value $0.001 per share, of the Converted Company (the “
Converted Company’s Common Stock
”).
5.
Effect of Conversion on Preferred Stock
. There are no shares of preferred stock issued and outstanding.
6.
Effect of Conversion on Stock Certificates
. Upon the terms and subject to the conditions of this Plan, at the Effective
Time, all of the outstanding certificates that immediately prior to the Effective Time represented shares of the Company’s
Common Stock immediately prior to the Effective Time shall be automatically cancelled, without any action on the part of the holder
of the Company, and a replacement certificate representing the same number of shares of the Converted Company’s Common Stock,
shall be issued in its place, such certificate shall display the Converted Company’s name, corporate seal and state of incorporation.
7.
Further Assurances
. If, at any time after the Effective Time, the Converted Company shall determine or be advised
that any deeds, bills of sale, assignments, agreements, documents or assurances or any other acts or things are necessary, desirable
or proper, consistent with the terms of this Plan, (a) to vest, perfect or confirm, of record or otherwise, in the Converted Company
its right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties
or assets of the Company, or (b) to otherwise carry out the purposes of this Plan, the Converted Company, its officers and directors
and the designees of its officers and directors, are hereby authorized to solicit in the name of the Converted Company any third-party
consents or other documents required to be delivered by any third-party, to execute and deliver, in the name and on behalf of the
Converted Company all such deeds, bills of sale, assignments, agreements, documents and assurances and do, in the name and on behalf
of the Converted Company, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets
of the Company and otherwise to carry out the purposes of this Plan.
8.
Effect of Conversion on Directors and Officers
. The officers and directors of the Company immediately prior to the
Effective Time shall be the same officers and directors of the Converted Company immediately after the Effective Time.
9.
Delaware Bylaws
. To the fullest extent permitted by law, at the Effective Time, the bylaws of the Converted Company
shall be substantially in the form attached hereto as
Exhibit C
(the “
Delaware Bylaws
”), and the
Converted Company’s board of directors shall approve and ratify the Delaware Bylaws as promptly as practicable following
the Effective Time.
10.
Amendment
. Subject to applicable law, this Plan may be amended, supplemented or modified at any time by the Company
or the Converted Company.
11.
Termination
. At any time prior to the Effective Time, this Plan may be terminated and the transactions contemplated
hereby may be abandoned by action of the board of directors of the Company if, in the opinion of the board of directors of the
Company, such action would be in the best interests of the Company and its shareholders. In the event of termination of this Plan,
this Plan shall become void and of no effect.
12.
Facsimile Signatures
. This Plan may be executed by facsimile or electronic signature.
13.
Third Party Beneficiaries
. This Plan shall not confer any rights or remedies upon any person other than as expressly
provided herein.
14.
Severability
. Whenever possible, each provision of this Plan will be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Plan is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of
this Plan.
15.
Governing Law
. This Plan shall be construed in accordance with and governed by the laws of the State of Delaware,
without regard to the conflict of law provisions thereof.
[The remainder of this page has been intentionally
left blank]
IN WITNESS WHEREOF, the Company has caused
this Plan of Conversion to be duly executed by ______________________, its duly authorized _____________, to be effective as of
the date first above written.
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HIREQUEST, INC.
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a Washington corporation
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By:
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Name:
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Title:
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Annex
G
BYLAWS OF HIREQUEST, INC.
ARTICLE I - CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of HireQuest, Inc.
shall be fixed in the corporation’s certificate of incorporation, as the same may be amended from time to time.
1.2 OTHER OFFICES
The corporation’s board of directors
may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held
at any place, within or outside the State of Delaware, designated by the board of directors. The board of directors may, in its
sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means
of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “
DGCL
”).
In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s
principal executive office.
2.2 ANNUAL MEETING
The board of directors shall designate
the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought
before the meeting in accordance with Section 2.4 of these bylaws may be transacted.
2.3 SPECIAL MEETING
(i) A special meeting of the stockholders,
other than those required by statute, may be called at any time by (A) the board of directors, (B) the chairperson of
the board of directors, (C) the chief executive officer, (D) the president (in the absence of a chief executive officer),
or (E) the secretary, following receipt of one or more written demands to call a special meeting of the stockholders in accordance
with, and subject to, this Section 2.3 from stockholders of record who own, in the aggregate, at least 25% of the voting power
of the outstanding shares of the corporation then entitled to vote on the matter or matters to be brought before the proposed special
meeting.
(ii) A request to the secretary shall
be delivered to him or her at the corporation’s principal executive offices and signed by each stockholder, or a duly authorized
agent of such stockholder, requesting the special meeting and shall set forth: (A) a brief description of each matter of business
desired to be brought before the special meeting, (B) the reasons for conducting such business at the special meeting, and (C)
the text of any proposal or business to be considered at the special meeting (including the text of any resolutions proposed to
be considered and in the event that such business includes a proposal to amend these bylaws, the language of the proposed amendment).
(iii) Business transacted at a special
meeting requested by stockholders shall be limited to the matters described in the special meeting request;
provided, however,
that nothing herein shall prohibit the board of directors from submitting matters to the stockholders at any special meeting requested
by stockholders.
(iv) A special meeting requested by stockholders
shall be held at such date and time as may be fixed by the board of directors;
provided, however,
that the date of any such
special meeting shall be not more than 90 days after the request to call the special meeting is received by the secretary. Notwithstanding
the foregoing, a special meeting requested by stockholders shall not be held if: (A) the board of directors has called or calls
for an annual or special meeting of the stockholders to be held within 90 days after the secretary receives the request for the
special meeting and the board of directors determines in good faith that the business of such meeting includes (among any other
matters properly brought before the meeting) the business specified in the request, (B) the stated business to be brought before
the special meeting is not a proper subject for stockholder action under applicable law, (C) an identical or substantially similar
item was presented at any meeting of stockholders held within 120 days prior to the receipt by the secretary of the request for
the special meeting (and, for purposes of this Section 2.3(iv), the election of directors shall be deemed a similar item with respect
to all items of business involving the election or removal of directors), or (D) the special meeting request was made in a manner
that involved a violation of Regulation 14A under the Securities Exchange Act of 1934, as amended (the “
1934 Act
”).
(v) A stockholder may revoke a request
for a special meeting at any time by written revocation delivered to the secretary, and if, following such revocation, there are
unrevoked requests from stockholders holding in the aggregate less than the requisite number of shares entitling the stockholders
to request the calling of a special meeting, the board of directors, in its discretion, may cancel the special meeting.
2.4 ADVANCE NOTICE PROCEDURES
(i)
Advance Notice of Stockholder Business.
At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be brought (A) pursuant to the corporation’s
proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder
of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i)
and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied
in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly
brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these
bylaws and applicable law. Except for proposals properly made in accordance with Rule 14a-8 under the 1934 Act and the rules and
regulations thereunder (as so amended and inclusive of such rules and regulations), and included in the notice of meeting given
by or at the direction of the board of directors, for the avoidance of doubt, clause (C) above shall be the exclusive means
for a stockholder to bring business before an annual meeting of stockholders.
(a) To comply with clause (C) of
Section 2.4(i) above, a stockholder’s notice must set forth all information required under this Section 2.4(i)
and must be timely received by the secretary of the corporation. To be timely, a stockholder’s notice must be received by
the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before
the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy
materials (whichever is earlier) for the preceding year’s annual meeting;
provided
,
however
, that in the event
that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior
to or delayed by more than 60 days after the one-year anniversary of the date of the previous year’s annual meeting, then,
for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the
120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to
such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of
such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof
commence a new time period for the giving of a stockholder’s notice as described in this Section 2.4(i)(a). “
Public
Announcement
” shall mean disclosure in a press release reported by a national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
(b) To be in proper written form, a stockholder’s
notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting:
(1) a brief description of the business intended to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (2) the name and address, as they appear on the corporation’s books, of the stockholder
proposing such business and any Stockholder Associated Person (as defined below), (3) the class and number of shares of the
corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative
positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to
which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any
Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement
or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate
loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder
or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder
or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder
Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the corporation’s
voting shares required under applicable law to carry the proposal (such information provided and statements made as required by
clauses (1) through (6), a “
Business Solicitation Statement
”). In addition, to be in proper written form,
a stockholder’s notice to the secretary must be supplemented not later than ten days following the record date for notice
of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date for notice of the
meeting. For purposes of this Section 2.4, a “
Stockholder Associated Person
” of any stockholder shall mean
(i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial
owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal
or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with
such person referred to in the preceding clauses (i) and (ii).
(c) Without exception, no business shall
be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable,
Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting
if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the
Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business
contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not
misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that
business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i),
and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such business not properly
brought before the annual meeting shall not be conducted.
(ii)
Advance Notice of Director Nominations
at Annual Meetings.
Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance
with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual
meeting of stockholders. Nominations of persons for election to the board of directors of the corporation shall be made at an annual
meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation
who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii), on the
record date for the determination of stockholders entitled to notice of the annual meeting and on the record date for the determination
of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii).
In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given
timely notice thereof in proper written form to the secretary of the corporation.
(a) To comply with clause (B) of
Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii)
and must be received by the secretary of the corporation at the principal executive offices of the corporation at the time set
forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above.
(b) To be in proper written form, such
stockholder’s notice to the secretary must set forth:
(1) as to each person (a “
nominee
”)
whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and
residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number
of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held
or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions
has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any
other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect
or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease
the voting power of the nominee, (E) a description of all arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the
stockholder, (F) a written statement executed by the nominee acknowledging that as a director of the corporation, the nominee
will owe a fiduciary duty under Delaware law with respect to the corporation and its stockholders, and (G) any other information
relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election
of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including
without limitation the nominee’s written consent to being named in the proxy statement, if any, as a nominee and to serving
as a director if elected); and
(2) as to such stockholder giving notice,
(A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above,
and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to “business”
in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether
either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of a number
of the corporation’s voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary
to elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a “
Nominee
Solicitation Statement
”).
(c) At the request of the board of directors,
any person nominated by a stockholder for election as a director must furnish to the secretary of the corporation (1) that
information required to be set forth in the stockholder’s notice of nomination of such person as a director as of a date
subsequent to the date on which the notice of such person’s nomination was given and (2) such other information as may
reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director
of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof,
of such nominee; in the absence of the furnishing of such information if requested, such stockholder’s nomination shall not
be considered in proper form pursuant to this Section 2.4(ii).
(d) Without exception, no person shall
be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated
in accordance with the provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election
or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made
in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee
contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not
misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that
a nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine,
he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.
(iii)
Advance Notice of Director Nominations
for Special Meetings.
(a) For a special meeting of stockholders
at which directors are to be elected pursuant to Section 2.3, nominations of persons for election to the board of directors
shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation
who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii), on the
record date for the determination of stockholders entitled to notice of the special meeting and on the record date for the determination
of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the
secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely,
such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of
business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement
is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting.
A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated (i) by
or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth
in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder
Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable
to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements therein not misleading.
(b) The chairperson of the special meeting
shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with
the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting,
and the defective nomination or business shall be disregarded.
(iv)
Other Requirements and Rights.
In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements
of state law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4,
including, with respect to business such stockholder intends to bring before the annual meeting that involves a proposal that such
stockholder requests to be included in the corporation’s proxy statement, the requirements of Rule 14a-8 (or any successor
provision) under the 1934 Act. Nothing in this Section 2.4 shall be deemed to affect any right of the corporation to omit
a proposal from the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act.
2.5 NOTICE OF STOCKHOLDERS’ MEETINGS
Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour
of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present
in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date
is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of
incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than
60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining
the stockholders entitled to notice of the meeting.
2.6 QUORUM
The holders of a majority of the stock
issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction
of business at all meetings of the stockholders. Where a separate vote by a class or series or classes or series is required, a
majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the
certificate of incorporation or these bylaws.
If, however, such quorum is not present
or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders
entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally
noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another
time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if
any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present
in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting,
the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more
than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If
after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the board of directors
shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11
of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned
meeting as of the record date fixed for notice of such adjourned meeting.
2.8 CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders
shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the
conduct of business. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence
of such designation, the chairperson of the board, if any, the chief executive officer (in the absence of the chairperson) or the
president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive
officer of the corporation, shall serve as chairperson of the stockholder meeting.
2.9 VOTING
The stockholders entitled to vote at any
meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to
Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating
to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in
the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
Except as otherwise required by law, the
certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority
of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws,
directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required,
in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or
classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes
or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.
2.10 RECORD DATES
In order that the corporation may determine
the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board
of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board
of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such
meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date
of the meeting shall be the date for making such determination.
If no record date is fixed by the board
of directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held.
A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however
,
that the board of directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting,
and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an
earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213
of the DGCL and this Section 2.10 at the adjourned meeting.
In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
Any action required or permitted to be
taken by the stockholders of the corporation may be effected by a consent in writing as provided by Section 228 of the DGCL.
2.11 PROXIES
Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument
in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such
proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability
of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted
with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized
by the person.
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The corporation shall prepare, at least
10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting;
provided,
however,
if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date,
the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation
shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall
be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to
the meeting: (i) on a reasonably accessible electronic network,
provided
that the information required to gain access
to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s
principal place of business. In the event that the corporation determines to make the list available on an electronic network,
the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation.
If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept
at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the
meeting is to be held solely by means of remote communication, then such list shall also be open to the examination of any stockholder
during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such
list shall be provided with the notice of the meeting.
2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, the
board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of
inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses
to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall,
appoint a person to fill that vacancy.
Such inspectors shall:
(i) ascertain the number of shares outstanding
and the voting power of each;
(ii) determine the shares represented
at the meeting and the validity of proxies and ballots;
(iii) count all votes and ballots;
(iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination by the inspectors; and
(v) certify their determination of the
number of shares represented at the meeting, and their count of all votes and ballots.
The inspectors of election shall perform
their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three
(3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of election is
prima facie
evidence of the facts
stated therein.
ARTICLE III - DIRECTORS
3.1 POWERS
The business and affairs of the corporation
shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate
of incorporation.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of
one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors,
the number of directors shall be as determined from time to time by resolution of the board of directors. No reduction of the authorized
number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF
OFFICE OF DIRECTORS
Except as provided in Section 3.4
of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until such director’s successor is elected and qualified or until such director’s earlier death,
resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws.
The certificate of incorporation or these bylaws may prescribe other qualifications for directors.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon
notice given in writing or by electronic transmission to the corporation. A resignation is effective when the resignation is delivered
unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events.
A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide
that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors
resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
Unless otherwise provided in the certificate
of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number
of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director, and not by stockholders. If the directors are divided
into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office
until the next election of the class for which such director shall have been chosen and until his or her successor shall have been
duly elected and qualified.
If at any time, by reason of death or resignation
or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder,
may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws,
or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
If, at the time of filling any vacancy
or any newly created directorship, the directors then in office constitute less than a majority of the whole board of directors
(as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors may hold meetings,
both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate
of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors or any
subcommittee, may participate in a meeting of the board of directors, or any such committee or subcommittee, by means of conference
telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer,
the president, the secretary or a majority of the authorized number of directors.
Notice of the time and place of special
meetings shall be:
(i) delivered personally by hand, by courier
or by telephone;
(ii) sent by United States first-class
mail, postage prepaid;
(iii) sent by facsimile;
(iv) sent by electronic mail; or
(v) otherwise given by electronic transmission
(as defined in Section 7.2),
directed to each director at that director’s address,
telephone number, facsimile number, electronic mail address or other contact for notice by electronic transmission, as the case
may be, as shown on the corporation’s records.
If the notice is (i) delivered personally
by hand, by courier or by telephone, (ii) sent by facsimile, (iii) sent by electronic mail or (iv) otherwise given
by electronic transmission, it shall be delivered, sent or otherwise directed to each director, as applicable, at least 24 hours
before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United
States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director.
The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive
office) nor the purpose of the meeting.
3.8 QUORUM; VOTING
At all meetings of the board of directors,
a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is
not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for that meeting.
The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically
provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation provides
that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to
a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT
A MEETING
Unless otherwise restricted by the certificate
of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of
any committee or subcommittee thereof, may be taken without a meeting if all members of the board of directors or committee or
subcommittee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the board of directors or committee or subcommittee.
Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are
maintained in electronic form. Any person (whether or not then a director) may provide, whether through instruction to an agent
or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an
event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have
been given for purposes of this Section 3.9 at such effective time so long as such person is then a director and did not revoke
the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.
3.10 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate
of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.
3.11 REMOVAL OF DIRECTORS
Except
as prohibited by applicable law or the certificate of incorporation, the stockholders holding a majority of the shares then entitled
to vote at an election of directors may remove any director from office with or without cause.
No reduction of the authorized
number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
ARTICLE IV - COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may designate one
or more committees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate
one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member
of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to
the extent provided in the resolution of the board of directors or in these bylaws, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority
to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors)
expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the
corporation.
4.2 COMMITTEE MINUTES
Each committee and subcommittee shall keep
regular minutes of its meetings and report the same to the board of directors, or the committee, when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
A majority of the directors then serving
on a committee or subcommittee shall constitute a quorum for the transaction of business by the committee or subcommittee, unless
the certificate of incorporation, these bylaws, a resolution of the board of directors or a resolution of a committee that created
the subcommittee requires a greater or lesser number,
provided
that in no case shall a quorum be less than 1/3 of the directors
then serving on the committee or subcommittee. The vote of the majority of the members of a committee or subcommittee present at
a meeting at which a quorum is present shall be the act of the committee or subcommittee, unless the certificate of incorporation,
these bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater
number. Meetings and actions of committees and subcommittees shall otherwise be governed by, and held and taken in accordance with,
the provisions of:
(i) Section 3.5 (place of meetings
and meetings by telephone);
(ii) Section 3.6 (regular meetings);
(iii) Section 3.7 (special meetings
and notice);
(iv) Section 3.8 (quorum; voting);
(v) Section 7.5 (waiver of notice);
and
(vi) Section 3.9 (action without
a meeting)
with such changes in the context of those bylaws as are necessary
to substitute the committee or subcommittee and its members for the board of directors and its members.
However
:
(i) the time and place of regular meetings
of committees and subcommittees may be determined either by resolution of the board of directors or by resolution of the committee
or subcommittee;
(ii) special meetings of committees and
subcommittees may also be called by resolution of the board of directors or the committee or subcommittee; and
(iii) notice of special meetings of committees
and subcommittees shall also be given to all alternate members, as applicable, who shall have the right to attend all meetings
of the committee or subcommittee. The board of directors, or, in the absence of any such action by the board of directors, the
committee or subcommittee, may adopt rules for the government of any committee or subcommittee not inconsistent with the provisions
of these bylaws.
Any provision in the certificate of incorporation
providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in
any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
4.4 SUBCOMMITTEES
Unless otherwise provided in the certificate
of incorporation, these bylaws or the resolutions of the board of directors designating the committee, a committee may create one
or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any
or all of the powers and authority of the committee.
ARTICLE V - OFFICERS
5.1 OFFICERS
The officers of the corporation shall be
a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board
of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer,
one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries,
and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be
held by the same person.
5.2 APPOINTMENT OF OFFICERS
The board of directors shall appoint the
officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 of
these bylaws, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or
empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers
and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period,
have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time
determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer
under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority
of the board of directors at any regular or special meeting of the board of directors or, except in the case of an officer chosen
by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving
written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later
time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of
the corporation shall be filled by the board of directors or as provided in Section 5.3.
5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairperson of the board of directors,
the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf
of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of
this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized
to do so by proxy or power of attorney duly executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS
All officers of the corporation shall respectively
have such authority and perform such duties in the management of the business of the corporation as may be designated from time
to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject
to the control of the board of directors.
ARTICLE VI - STOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be
represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of
any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the corporation. Unless otherwise provided by resolution of the board
of directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name
of, the corporation by any two authorized officers of the corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue. The corporation shall not have power to issue a certificate in bearer form.
The corporation may issue the whole or
any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the
face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation
in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon
partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue
more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the
relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate
that the corporation shall issue to represent such class or series of stock;
provided, however
, that, except as otherwise
provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of
the certificate that the corporation shall issue to represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the registered owner thereof shall
be given a notice, in writing or by electronic transmission, containing the information required to be set forth or stated on certificates
pursuant to this Section 6.2 or Sections 156, 202(a), 218(a) or 364 of the DGCL or with respect to this Section 6.2
a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations
of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the
same class and series shall be identical.
6.3 LOST CERTIFICATES
Except as provided in this Section 6.3,
no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the
corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond
sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate or uncertificated shares.
6.4 DIVIDENDS
The board of directors, subject to any
restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of
the corporation’s capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital
stock, subject to the provisions of the certificate of incorporation.
The board of directors may set apart out
of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any
such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
6.5 TRANSFER OF STOCK
Transfers of record of shares of stock
of the corporation shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and,
if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed
or accompanied by proper evidence of succession, assignation or authority to transfer.
6.6 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter
into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict
the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited
by the DGCL.
6.7 REGISTERED STOCKHOLDERS
The corporation:
(i) shall be entitled to treat the person
registered on its books as the owner of any share or shares as the person exclusively entitled to receive dividends, vote, receive
notifications and otherwise exercise all the rights and powers of an owner of such share or shares; and
(ii) shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII - MANNER OF GIVING NOTICE
AND WAIVER
7.1 NOTICE OF STOCKHOLDERS’ MEETINGS
Notice of any meeting of stockholders,
if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s
address as it appears on the corporation’s records. An affidavit of the secretary or an assistant secretary of the corporation
or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be
prima
facie
evidence of the facts stated therein.
7.2 NOTICE BY ELECTRONIC TRANSMISSION
Without limiting the manner by which notice
otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any
notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws
shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any
such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked
if:
(i) the corporation is unable to deliver
by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
(ii) such inability becomes known to the
secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of
notice.
However, the inadvertent failure to treat such inability as
a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding
paragraph shall be deemed given:
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(i)
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if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
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(ii)
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if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
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(iii)
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if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
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(iv)
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if by any other form of electronic transmission, when directed to the stockholder.
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An affidavit of the secretary or an assistant
secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission
shall, in the absence of fraud, be
prima facie
evidence of the facts stated therein.
An “
electronic transmission
”
means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation
in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates
a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form
by such a recipient through an automated process.
Notice by a form of electronic transmission
shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the
DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders
given by the corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective
if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to
whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any stockholder
who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its
intention to send the single notice, shall be deemed to have consented to receiving such single written notice.
7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION
IS UNLAWFUL
Whenever notice is required to be given,
under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving
of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency
for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given.
In the event that the action taken by the corporation is such as to require the filing of a certificate under the DGCL, the certificate
shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except
such persons with whom communication is unlawful.
7.5 WAIVER OF NOTICE
Whenever notice is required to be given
under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled
to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event
for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of
notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII - INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
IN THIRD PARTY PROCEEDINGS
Subject to the other provisions of
this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter
in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative (a “
Proceeding
”)
(other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or
officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any
Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere
or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person’s conduct was unlawful.
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS
IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Subject to the other provisions of this
Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect,
any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director
or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former
director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding
described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this
Article VIII, the corporation shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL
or other applicable law. The board of directors shall have the power to delegate to such person or persons the determination of
whether employees or agents shall be indemnified.
8.5 ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys’ fees)
actually and reasonably incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the
corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation
reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately
be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including
attorneys’ fees) actually and reasonably incurred by former directors and officers or other employees and agents of the corporation
or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership,
joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.
The right to advancement of expenses shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is excluded
pursuant to these bylaws, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 8.6(ii)
or 8.6(iii) prior to a determination that the person is not entitled to be indemnified by the corporation.
8.6 LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3
and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with
any Proceeding (or any part of any Proceeding):
(i) for which payment has actually been
made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect
to any excess beyond the amount paid;
(ii) for an accounting or disgorgement
of profits pursuant to Section 16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common
law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(iii) for any reimbursement of the corporation
by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from
the sale of securities of the corporation, as required in each case under the 1934 Act (including any such reimbursements that
arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “
Sarbanes-Oxley
Act
”), or the payment to the corporation of profits arising from the purchase and sale by such person of securities in
violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement
arrangements);
(iv) initiated by such person, including
any Proceeding (or any part of any Proceeding) initiated by such person against the corporation or its directors, officers, employees,
agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding)
prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers
vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise
required by applicable law; or
(v) if prohibited by applicable law.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement
of expenses under this Article VIII is not paid in full within 90 days after receipt by the corporation of the written
request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement
to such indemnification or advancement of expenses. The corporation shall indemnify such person against any and all expenses that
are actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses
from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not
prohibited by law. In any such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving
that the claimant is not entitled to the requested indemnification or advancement of expenses.
8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute,
bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official
capacity and as to action in another capacity while holding such office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement
of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9 INSURANCE
The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity,
or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person
against such liability under the provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement
of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
8.11 EFFECT OF REPEAL OR MODIFICATION
A right to indemnification or to advancement
of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an
amendment to the certificate of incorporation or these bylaws after the occurrence of the act or omission that is the subject of
the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses
is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment
after such action or omission has occurred.
8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII,
references to the “
corporation
” shall include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation
as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of
this Article VIII, references to “
other enterprises
” shall include employee benefit plans; references to
“
fines
” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references
to “
serving at the request of the corporation
” shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner “
not opposed to the best interests of the corporation
” as referred to in this Article VIII.
ARTICLE IX - GENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND
INSTRUMENTS
Except as otherwise provided by law, the
certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents,
to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for any amount.
9.2 FISCAL YEAR
The fiscal year of the corporation shall
be fixed by resolution of the board of directors and may be changed by the board of directors.
9.3 SEAL
The corporation may adopt a corporate seal,
which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing
it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without
limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and
the term “
person
” includes both a corporation and a natural person.
ARTICLE X - AMENDMENTS
These bylaws may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the affirmative vote of the holders of at least 50% of the
total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders
of the corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article
II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII and this Article X (including, without limitation, any such Article
or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Bylaw). The board of
directors shall also have the power to adopt, amend or repeal bylaws; provided, however, that a bylaw amendment adopted by stockholders
which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the
board of directors.
ARTICLE XI - EXCLUSIVE FORUM
Unless the corporation consents in writing
to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or if the Court of Chancery does not
have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the
sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation
or the corporation’s stockholders, (iii) any action arising pursuant to any provision of the DGCL or the corporation’s
certificate of incorporation or these bylaws (as either may be amended from time to time), or (iv) any action asserting a
claim governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim (A) as to
which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable
party does not consent to the personal jurisdiction of such court within ten (10) days following such determination), (B)
which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does
not have subject matter jurisdiction.
Unless the corporation consents in writing
to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum
for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
Unless the corporation consents in writing
to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum
for the resolution of any complaint stating any claim against the corporation, or any director, officer, employee, control person,
underwriter, or agent of the corporation arising under the Securities Act of 1933, as amended.
Any person or entity purchasing or otherwise
acquiring or holding any interest in any security of the corporation shall be deemed to have notice of and consented to the provisions
of this Article XI.
Annex
H
(360)
725 - 0377 | www.sos.wa.gov/corps
801 Capitol Way S, Olympia, WA 98504-0234
|
|
|
☐
|
Amendment Fee with Expedited Service $80
|
ARTICLES OF AMENDMENT
PROFIT CORPORATION
RCW 23B.10
Please provide UBI #
602071264
NAME OF PROFIT CORPORATION:
(as currently
recorded with the Office of the Secretary of State)
Command
Center, Inc.
BUSINESS
TYPE:
Are you changing your business type? ☐ Yes
þ
No (if
no, continue to next section)
If
yes, select the change being made:
|
☐
|
WA PROFESSIONAL SERVICE CORPORATION ☐
WA PUBLIC UTILITY CORPORATION
|
|
☐
|
WA SOCIAL
PURPOSE CORPORTION
|
ENTITY
NAME CHANGE:
Are you changing your business name?
n
Yes ☐ No
If no, continue to Jurisdiction
If yes, do you already have an entity name reserved? ☐
Yes
n
No
If Yes, provide the Name Reservation Number
and Name If No, provide only the name
Reservation
Number: ___________
Name:
HireQuest, Inc.
CORPORATE
SHARES:
Are you changing your business’s authorized shares?
n
Yes ☐ No If no, continue to next section
New
number of authorized shares:
31,000,000
Class of shares:
n
Common
Stock
n
Preferred Stock
Did
your share information change? (check one)
n
Yes
☐ No If No, continue to next section
If Yes, implementation plan for change: (attach additional pages if needed)
See
the attached Exhibit A. Previously-issued shares of Series A Preferred Stock has been redeemed. The Articles of Amendment eliminate
references to Series A Preferred Stock.
Has
your registered agent changed?
☐
YES
n
NO If
Yes, please be sure to complete page 2
Articles of Amendment - Profit
Pg 1 | Revised 7.2018
NEW REGISTERED AGENT:
Is the Registered Agent a Commercial Registered
Agent?
☐
Yes
☐ No
If Yes
, provide the name of the Commercial
Registered Agent:
____________________
A Commercial Registered Agent is an entity or
individual that is registered with the Office of the Secretary of State to receive legal documents on behalf of a corporation.
A Commercial Registered Agent has the entities/individual’s address on record with the office.
A
Registered Agent consent is still required for a Commercial Registered Agent located below.
If
No
, please continue below
Please complete
ONE
type of Registered Agent below, be sure to include the name below the checked box.
Then
continue to provide the required street address. Mailing address if needed.
☐
Individual
______________________
First
and last name of a Non-commercial Registered Agent. (Any person not registered as a Commercial Registered Agent.)
|
☐
Entity
______________________
Name
of a Non-commercial Registered Agent. (Any business not registered as a Commercial Registered Agent.)
|
☐
Office
or Position
______________________
List the
Office or Position serves as agent. (Only if using the specific office or position as the registered agent, no matter who holds
the position like: Secretary, Member or Treasurer.)
|
Phone: ____________________
|
Email: ___________________________
|
Registered Agent Street Address (required)
(Must be a physical
address No PO Box or PMB)
Country
:
United States
State
:
Washington
Address
: _______________________________
______________________________________
Zip
: ________
City
:
______________________
|
Registered Agent Mailing Address (optional)
☐
Check
if mailing address is the same as street address
Country
:
United States
State
:
Washington
Address
:
_______________________________
______________________________________
Zip
:________
City
:
______________________
|
|
|
|
|
|
CONSENT TO SERVE AS REGISTERED AGENT - REQUIRED
FOR ALL TYPES
I hereby consent to serve as Registered Agent in
the State of Washington for the named entity. I understand it will be my responsibility to accept service of process, notices,
and demands on behalf of the entity; to forward mail to the entity; and to immediately notify the Office of the Secretary of State
if I resign or change the Registered Office Address.
_____________________________
|
_____________________________
|
__________________
|
Signature
of Registered Agent
|
Printed Name/Title
|
Date
|
Articles of Amendment - Profit
Pg
2 | Revised 7.2018
DURATION:
Required only if changed
Please
check
ONE
of the following
|
☐
|
This Company shall have a perpetual duration ☐ This Company shall have a duration
of
_______ years.
|
|
☐
|
This Company shall expire on __________
|
ADOPTION OF ARTICLES OF AMENDMENT:
This Amendment
was duly adopted by the following method
|
n
|
By a sufficient vote of shareholders
|
|
☐
|
By the board of directors
|
|
☐
|
By
the incorporators prior to the issuance of shares
|
EFFECTIVE DATE:
|
n
|
Date of filing
☐ Specify a Date __________ cannot be more than 90 days following received date
|
DATE OF ADOPTION:
When was this Amendment
adopted?
|
☐
|
Date
of filing
n
Specify a date: ______________
|
RETURN ADDRESS FOR THIS FILING:
(Optional)
This
address will be sent document(s) regarding this specific filing in addition to document(s) being sent to the
Registered Agent’s street/mailing address.
Attention
to:
Ms. Claudia Dubon
Email:
CDubon@olshanlaw.com
Address
:
Olshan
Frome Wolosky LLP, 1325 Avenue of the Americas
City
New York
State
NY
Zip
10019
AUTHORIZED PERSON:
This record is hereby executed under penalties
of perjury, and is, to the best of my knowledge, true and correct.
_____________________________
|
_____________________________
|
__________________
|
Signature of Registered Agent
|
Printed Name/Title
|
Date
|
Articles of Amendment - Profit
Pg 3 | Revised 7.2018
EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF
COMMAND CENTER, INC.
Pursuant to the provisions of RCW 23B.10.030,
the following Articles of Amendment are submitted for filing:
Article I of the Articles of Incorporation
is hereby amended to read in its entirety as follows:
ARTICLE I
Name
The name of this Corporation
is HIREQUEST, INC.
Article IV of the Articles of Incorporation
is hereby amended to read in its entirety as follows:
ARTICLE IV
Authorized Capital Stock
The authorized capital stock of the Corporation
shall consist of two classes of stock, designated as Common Stock and Preferred Stock.
The total number of shares of Common
Stock that the Corporation will have authority to issue is Thirty Million (30,000,000). The shares of Common Stock shall have a
par value of $0.001 per share. All of the Common Stock authorized herein shall have equal voting rights and powers without restrictions
in the preference.
The total number of shares of Preferred
Stock that the Corporation will have the authority to issue is One Million (1,000,000). The shares of Preferred Stock shall have
a par value of $0.001 per share. The authorized but unissued shares of Preferred Stock may be divided into and issued in designated
series from time to time by one or more resolutions adopted by the Board of Directors. The Directors in their sole discretion shall
have the power to determine the relative powers, preferences and rights of each series of Preferred Stock.
Shareholder action on the amendments was
required. The Board of Directors recommended the amendments to the shareholders and the amendments were approved by a vote of the
shareholders on [insert date] pursuant to RCW 23B.10.030.
The Corporation has caused these Articles
of Amendment to be executed on [insert date].
COMMAND CENTER, INC.
By:_________________________
Name:_______________________
Title:________________________
COMMAND CENTER, INC.
ANNUAL MEETING OF
SHAREHOLDERS
– [●] 2019