Item
1.01. Entry into a Material Definitive Agreement.
Merger
Agreement
This
section describes the material provisions of the Merger Agreement (as defined below) but does not purport to describe all of the terms
thereof. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which
is attached hereto as Exhibit 2.1. Unless otherwise defined herein, the capitalized terms used below are defined in the Merger Agreement.
The
Business Combination
As
previously disclosed, on January 31, 2023, Pono Capital Two, Inc., a Delaware corporation (“Pono”), entered into an
Agreement and Plan of Merger (the “Merger Agreement”), by and among Pono, Pono Two Merger Sub, Inc., a Delaware corporation
and wholly-owned subsidiary of Pono (“Merger Sub”), SBC Medical Group Holdings Incorporated, a Delaware corporation
(“SBC”), Mehana Capital, LLC, in its capacity as Purchaser Representative, and Dr. Yoshiyuki Aikawa, in his capacity
as Seller Representative.
Pursuant
to the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”),
Merger Sub will merge with and into SBC, with SBC continuing as the surviving corporation (the “Surviving Corporation”).
The transactions contemplated by the Merger Agreement are referred to herein as the “Business Combination.”
As
a condition to closing of the Business Combination, as soon as reasonably practical following execution of the Merger Agreement, SBC
will complete certain restructuring transactions pursuant to which SBC or a subsidiary will acquire the economic or other interests
of SBC Medical Group Co., Ltd., a Japanese corporation (“SBC-Japan”) and certain affiliated service companies
(“Service Companies”), medical corporations (“Medical Corporations”) and other entities (the
Service Companies and the other entities together, the “Target Companies”, and the restructuring transactions,
the “Restructuring”), which collectively carry on the business of SBC-Japan and such other related entities.
While the interests of the Medical Corporations are expected to be owned by SBC-Japan or another Target Company following the
Restructuring, none of SBC or any of the other Target Companies will have any control of the Medical Corporations following the
Restructuring, as required by Japanese law.
Merger
Consideration
As
consideration for the Business Combination, the holders of SBC securities collectively shall be entitled to receive from Pono, in the
aggregate, a number of Pono securities with an aggregate value equal to (the “Merger Consideration”) (a) $1,200,000,000,
minus (b) the amount, if any, by which $3,000,000 exceeds SBC’s Net Working Capital, plus (c) the amount, if any, by which SBC’s
Net Working Capital exceeds $3,000,000, minus (d) the aggregate amount of any outstanding indebtedness (minus cash held by SBC) of SBC
at Closing (the “Closing Net Indebtedness”), minus (e) specified transaction expenses of SBC associated with the Business
Combination. The SBC stockholder will receive, for each share of SBC common stock held on a fully diluted basis, a number of shares of
Pono Class A common stock equal to (i) the Per Share Consideration, divided by (ii) the price at which each share of Pono Class A common
stock may be redeemed by public stockholders in connection with the stockholder vote to approve Pono’s initial business combination
(the “Redemption Price”). Certain options and warrants to be issued by SBC prior to the closing of the Business Combination
will also be rolled over for the applicable number of options and warrants in Pono, with the exercise price of each remaining at the
expected price of $0.0001.
The
Merger Consideration otherwise payable to SBC stockholders at the Closing is subject to a number of shares of Pono Class A common stock
equal to three percent (3.0%) of the Merger Consideration being placed in escrow with an escrow agent to be agreed by the parties, for
post-closing adjustments (if any) to the Merger Consideration.
The
Merger Consideration is subject to adjustment after the Closing based on confirmed amounts of the Closing Net Indebtedness, Net Working
Capital and transaction expenses as of the Closing Date. If the adjustment is a negative adjustment in favor of Pono, the escrow agent
shall distribute to Pono a number of shares of Pono Class A common stock with a value equal to the absolute value of the adjustment amount.
If the adjustment is a positive adjustment in favor of SBC, Pono will issue to the SBC stockholders an additional number of shares of
Pono Class A common stock with a value equal to the adjustment amount.
Sponsor
Shares
In
connection with and contingent upon the Closing, Pono’s sponsor, Mehana Capital LLC (the “Sponsor”) will be
granted 1,200,000 shares of registered Pono Class A common stock on or prior to the earlier of (i) the six month anniversary of the Closing
and (ii) the expiration of the lock-up of Pono’s founder shares, or (iii) such later date as determined by the Sponsor in its sole
discretion in accordance with the Merger Agreement (the “Sponsor Shares”).
Representations
and Warranties
The
Merger Agreement contains customary representations and warranties by each of Pono and SBC. Certain of the representations are subject
to specified exceptions and qualifications contained in the Merger Agreement or in information provided pursuant to certain disclosure
schedules to the Merger Agreement.
Covenants
of the Parties
Under
the Merger Agreement, each party agrees to use its commercially reasonable efforts to effect the Closing. The Merger Agreement also contains
certain customary covenants by the parties during the period between the signing of the Merger Agreement and the earlier of the Closing
or the termination of the Merger Agreement in accordance with its terms, including covenants regarding the conduct of their respective
businesses, efforts, access, confidentiality and public announcements, the Pono proxy statement for the transaction (which includes the
adoption of a new equity incentive plan for Pono with a number of awards thereunder equal to 15% of the issued and outstanding shares
of Pono immediately after the Closing), notice of breaches, no insider trading, indemnification of directors and officers, and other
customary covenants. The parties also have agreed to the following covenants:
| ● |
Each
party is subject to a “no-shop” obligation between signing of the Merger Agreement and Closing or earlier termination
of the Merger Agreement, and will not be allowed to solicit or discuss competing transactions with other potential parties during
such time period. |
| |
|
| ● |
The
Pono board of directors as of the Closing will consist of at least five directors, including: (i) three persons designated prior
to the Closing by SBC, two of whom must qualify as independent directors; (ii) one person designated prior to the Closing by Pono;
and (iii) one person mutually agreed upon and designated prior to the Closing by Pono and SBC, who must qualify as an independent
director. |
| |
|
| ● |
Prior
to the closing of the Business Combination, SBC will deliver audited financial statements prepared in accordance with GAAP and audited
in accordance with PCAOB auditing standards for the fiscal years ended December 31, 2022 and December 31, 2021 to Pono by June 30,
2023 (the “PCAOB Audited Financials”). |
| |
|
| ● |
On
the date that is the earlier of (a) the six (6) month anniversary of the Closing and (b) the expiration of the lock-up of Pono’s
founder shares, the Surviving Corporation will issue to the Sponsor, the Sponsor Shares for no additional consideration. |
| |
|
| ● |
SBC
will complete the Restructuring promptly following execution of the Merger Agreement. |
| |
|
| ● |
SBC
will deliver disclosure schedules and due diligence materials in a form and substance acceptable to Pono and the parties will reasonably
negotiate on any additional or amended provisions required to the Merger Agreement or the schedules to the Merger Agreement, in each
case by April 28, 2023. If SBC fails to so deliver the due diligence materials or disclosure schedules by such date, Pono has the
right to terminate the Merger Agreement and if the parties are unable to so agree on such additional or amended provisions, either
Pono or SBC has a right to terminate the Merger Agreement.
|
Indemnification
The
representations and warranties of SBC and Pono contained in the Merger Agreement will not survive the Closing, and from and after the
Closing, SBC and Pono will not have any further obligations, nor shall any claim be asserted or action be brought against SBC and Pono
or their respective representatives with respect thereto. The covenants and agreements made by SBC and Pono in the Merger Agreement,
including any rights arising out of any breach of such covenants or agreements, shall not survive the Closing, except for those covenants
and agreements contained therein that by their terms apply or are to be performed in whole or in part after the Closing (which such covenants
shall survive the Closing and continue until fully performed in accordance with their terms).
Conditions
to Consummation of the Business Combination
The
consummation of the Business Combination is subject to customary Closing conditions unless waived, including:
| ● |
the
approval of the Business Combination by the stockholders of each of SBC and Pono; |
| |
|
| ● |
approvals
of any required governmental authorities and the expiration or termination of any anti-trust waiting periods and no governmental
authority having imposed any terms or conditions on the Restructuring which would reasonably be expected to materially impact the
operations of SBC following the completion of the Restructuring; |
| |
|
| ● |
receipt
of specified third-party consents; |
| |
|
| ● |
no
law or order preventing the transactions; |
| |
|
| ● |
the
members of the post-Closing Pono board having been elected or appointed as of the Closing; |
| |
|
| ● |
the
SEC having completed their review of the proxy statement in connection with the Business Combination; |
| |
|
| ● |
the
shares of Pono Class A common stock issued as Merger Consideration shall having been approved for listing on Nasdaq, subject to official
notice of issuance; and |
| |
|
| ● |
the
Restructuring having been completed and Pono has received evidence of such completion in a form and substance reasonably satisfactory
to Pono. |
In
addition, unless waived by SBC, the obligations of SBC to consummate the Business Combination are subject to the satisfaction of the
following Closing conditions, in addition to customary certificates and other closing deliveries: (a) the representations and warranties
of Pono being true and correct as of the date of the Merger Agreement and as of the Closing (except for (i) those representations and
warranties that address matters only as of a particular date (which representations and warranties are required to be accurate as of
such date), and (ii) any failures to be true and correct that (without giving effect to any qualifications or limitations as to materiality
or Material Adverse Effect (as defined in the Merger Agreement), individually or in the aggregate, have not had and would not reasonably
be expected to have a Material Adverse Effect (as defined in the Merger Agreement) on, or with respect to, Pono; (b) Pono having performed
in all material respects with its obligations and complied in all material respects with its covenants and agreements under the Merger
Agreement required to be performed or complied with on or prior the date of the Closing; (c) the absence of any Material Adverse Effect
with respect to Pono since the date of the Merger Agreement which is continuing and uncured; and (d) the Escrow Agreement and the Registration
Rights Agreement being executed and delivered.
Unless
waived by Pono, the obligations of Pono and Merger Sub to consummate the Business Combination are subject to the satisfaction of the
following Closing conditions, in addition to customary certificates and other closing deliveries: (a) the representations and warranties
of SBC and Seller Representative being true and correct as of the date of the Merger Agreement and as of the Closing (except for (i)
those representations and warranties that address matters only as of a particular date (which representations and warranties are required
to be accurate as of such date), and (ii) any failures to be true and correct that (without giving effect to any qualifications or limitations
as to materiality or Material Adverse Effect), individually or in the aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect on, or with respect to, the SBC, the Target Companies and the Medical Corporations, taken as a whole;
(b) SBC having performed in all material respects all of its obligations and having complied in all material respects with its covenants
and agreements under the Merger Agreement required to be performed or complied with on or prior the date of the Closing; (c) absence
of any Material Adverse Effect with respect to SBC, the Target Companies and the Medical Corporations as a whole since the date of the
Merger Agreement which is continuing and uncured; and (d) each Lock-Up Agreement, the Non-Competition Agreement, the Escrow Agreement,
the Registration Rights Agreement, and employment agreements with specified employees being executed and delivered.
Termination
The
Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing, including:
| ● |
by
mutual agreement; |
| |
|
| ● |
for
the other party’s uncured breach; |
| |
|
| ● |
if
there is a government order preventing the Closing; |
| |
|
| ● |
by
either party if the Closing does not occur by September 30, 2023, subject to extension by Pono in connection with an extension of
the time period for it to close a business combination transaction; |
| |
|
| ● |
by
Pono if there has been an event after the signing of the Merger Agreement that has had a Material Adverse Effect on SBC, the Target
Companies or the Medical Corporations that is continuing and uncured; |
| |
|
| ● |
by
SBC if there has been an event after the signing of the Merger Agreement that has had a Material Adverse Effect on Pono that is continuing
and uncured; |
| |
|
| ● |
by
Pono or SBC if the Pono stockholders vote and do not approve the Business Combination; |
| |
|
| ● |
By
Pono if, after SBC delivers the PCAOB Audited Financials, Pono reasonably determines that the PCAOB Audited Financials differ in
any material respect from SBC’ unaudited annual financial statements, or if the PCAOB Audited Financials are not delivered
to Purchaser on or before May 31, 2023; |
| |
|
| ● |
By
Pono if, SBC fails to deliver disclosure schedules by April 28, 2023 and due diligence materials in a form and substance acceptable
to Pono or if Pono does not receive sufficient due diligence materials or is otherwise materially unsatisfied with the results of
its due diligence investigation and examination of SBC, its subsidiaries or the Medical Corporations; and |
| |
|
| ● |
By
SBC if, SBC and Pono are unable to agree on the form and substance of the disclosure schedules, or any amendments to the Merger Agreement
resulting from the final form of the disclosure schedules or the review of the Merger Agreement by the advisors of each party. |
Trust
Account Waiver
SBC
agreed that it and its affiliates will not have any right, title, interest or claim of any kind in or to any monies in Pono’s trust
account held for its public shareholders, and agrees not to, and waives any right to, make any claim against the trust account (including
any distributions therefrom).
The
foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement, which is attached to this Current Report on Form 8-K as Exhibit 2.1 and is incorporated herein by
reference.
The
representations, warranties and covenants of each party set forth in the Merger Agreement have been made only for purposes of, and were
and are solely for the benefit of the parties to, the Merger Agreement, may be subject to limitations agreed upon by the contracting
parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties
to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to
the contracting parties that differ from those applicable to investors. Accordingly, the representations and warranties may not describe
the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact.
In addition, such representations and warranties (i) have certain limited exceptions, will not survive consummation of the Business Combination
indefinitely unless otherwise stated in the Merger Agreement, and (ii) were made only as of the date of the Merger Agreement or such
other date as is specified in the Merger Agreement. Moreover, information concerning the subject matter of the representations, warranties
and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the
parties’ public disclosures. Accordingly, the Merger Agreement is included with this filing only to provide investors with information
regarding the terms of the Merger Agreement, and not to provide investors with any other factual information regarding Pono, its respective
affiliates or their respective businesses. The Merger Agreement should not be read alone but should instead be read in conjunction with
the other information regarding Pono or SBC, their respective affiliates and their respective businesses included in the filings they
make with the Securities and Exchange Commission.
Related
Agreements
This
section describes the material provisions of certain additional agreements entered into or to be entered into pursuant to the Merger
Agreement but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference
to the complete text of each of the related agreements, copies of each of which are attached hereto as exhibits. Stockholders and other
interested parties are urged to read the related agreements in their entirety.
Lock-Up
Agreement
In
connection with execution of the Merger Agreement, certain significant stockholders of SBC entered into, or are expected to enter into
prior to the closing of the Business Combination, lock-up agreements (the “Lock-up Agreements”) providing for a lock-up
period commencing on the Closing Date and ending on the earlier of (x) six months from the Closing, (y) the date Pono consummates a liquidation,
merger, share exchange or other similar transaction with an unaffiliated third party that results in all of Pono’s stockholders
having the right to exchange their shares of Pono Class A common stock for cash, securities or other property and (z) the date on which
the closing sale price of Pono Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends,
reorganizations and recapitalizations and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing
at least one hundred and fifty (150) days after the Closing; provided that ⅓ of such restricted shares shall be released from
such restrictions if the closing stock price of Pono Class A common stock reaches each of $13.00, $15.00, and $17.00.
The
foregoing description of the Lock-up Agreements does not purport to be complete and is qualified in its entirety by the terms and conditions
of the Lock-up Agreements, the form of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
Non-Competition
and Non-Solicitation Agreement
In
connection with execution of the Merger Agreement, certain significant stockholders and officers of SBC entered into, or are expected
to enter into prior to the closing of the Business Combination, non-competition and non-solicitation agreements (the “Non-Competition
Agreements”), pursuant to which they agreed not to engage in businesses in broadly the same industry as SBC and its affiliates
during the two-year period following the Closing and, during such two-year restricted period, not to solicit employees or customers or
clients of Pono, SBC or their respective affiliates. The agreements also contain customary non-disparagement and confidentiality provisions.
The
foregoing description of the Non-Competition Agreements does not purport to be complete and is qualified in its entirety by the terms
and conditions of the form of Non-Competition Agreement, which is filed as Exhibit 10.2 hereto and incorporated by reference herein.
Registration
Rights Agreement
At
the Closing, certain significant stockholders of SBC and the post-business combination company will enter into a registration rights
agreement with Pono providing for the right to three (3) demand registrations and piggy-back registrations with respect to the Merger
Consideration shares.
The
foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference
to the full text of agreement, which is attached as Exhibit 10.3 hereto and is incorporated herein by reference.
Purchaser
Support Agreement
Simultaneously
with the execution of the Merger Agreement, the Purchaser Representative entered into a support agreement (the “Purchaser Support
Agreement”) in favor of Pono and SBC and their present and future successors and subsidiaries.
In
the Purchaser Support Agreement, the Purchaser Representative agreed to vote all equity interests in Pono in favor of the Merger Agreement
and related transactions and to take certain other actions in support of the Merger Agreement and related transactions. The Purchaser
Support Agreement also prevents the Purchaser Representative from transferring its voting rights with respect to equity interests in
Pono or otherwise transferring equity interests in Pono prior to the meeting of Pono’s stockholders to approve the Merger Agreement
and related transactions, except for certain permitted transfers or otherwise provided in the Merger Agreement.
The
foregoing description of the Purchaser Support Agreement does not purport to be complete and is qualified in its entirety by the terms
and conditions of the Purchaser Support Agreement, the form of which is filed as Exhibit 10.4 hereto and incorporated by reference
herein.
Voting
Agreement
Simultaneously
with the execution of the Merger Agreement, Dr. Yoshiyuki Aikawa, the Chief Executive Officer of SBC, entered into a voting agreement
(the “Voting Agreement”) in favor of Pono and SBC and their present and future successors and subsidiaries.
In
the Voting Agreement, Dr. Aikawa agreed to vote all of his SBC stock interests in favor of the Merger Agreement and related transactions
and to take certain other actions in support of the Merger Agreement and related transactions. The Voting Agreement also prevents Dr.
Aikawa from transferring his voting rights with respect to his SBC stock or otherwise transferring his SBC stock prior to the SBC approval
of the Merger Agreement and related transactions, except for certain permitted transfers.
The
foregoing description of the Voting Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions
of the Voting Agreement, a copy of which, or the form of which, is filed as Exhibit 10.5 hereto and incorporated by reference
herein.