Item 1.01. Entry Into a Material Definitive Agreement.
Stock Purchase Agreement
On June 4, 2021, Cardiff Lexington Corporation
(the “Company”), Nova Ortho and Spine, PLCC (“Nova”), and Dr. Marc D. Brodsky, MD, Mr. Michael Wycoki, Jr., PA,
Dr. Kevin Fitzgerald, MD, and Dr. Robert Simon, MD (collectively, the “Shareholders”) entered into and closed on a Stock Purchase
Agreement (the “Purchase Agreement”), pursuant to which the Company purchased all of Nova’s issued and outstanding equity
interests (the “Interests”) from the Shareholders, and Nova became a wholly-owned subsidiary of the Company.
Pursuant to the Purchase Agreement, the Interests
had a purchase price of up to approximately $9.4 million, which purchase price was subject to customary working capital adjustments (the
“Purchase Price”), with approximately $6.1 million due at closing (the “Closing Payment”) and $3.3 million due
upon Nova reaching certain financial milestones within one year of the closing date, as described below (the “Supplemental Payment”).
At closing, the Closing Payment was paid in the form of (i) a cash payment in the amount of $2.5 million and (ii) the issuance of 894,834
shares of Series J Preferred Stock of the Company to the Shareholders, which shares have an aggregate stated value of approximately $3.6
million. In the event Nova generates a minimum Pre-Tax Net Income (as defined in the Purchase Agreement) of approximately $1.98 million
on or before June 4, 2022, the Company shall pay the Supplemental Payment in the form of the issuance of an additional 818,750 shares
of Series J Preferred Stock of the Company to the Shareholders, which additional shares have an aggregate stated value of approximately
$3.3 million.
The foregoing provides only a brief description
of the material terms of the Purchase Agreement and does not purport to be a complete description of the rights and obligations of the
parties thereunder, and such descriptions are qualified in their entirety by reference to the full text of Purchase Agreement filed as
an exhibit to this Current Report on Form 8-K, and is incorporated herein by reference.
Lock-Up Agreement
In connection with the Purchase Agreement and
pursuant thereto, the Company and the Shareholders entered into a one-year lock-up agreement dated June 4, 2021 (the “Lock-Up Agreement”).
Pursuant to the Lock-Up Agreement, the Shareholders agreed, subject to certain limited exceptions, not to (i) offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, any of the shares of Series J Preferred
Stock acquired pursuant to the Purchase Agreement or any of the shares of the Company’s common stock received in exchange for such
shares of Series J Preferred Stock (the “Restricted Securities”), (ii) enter into any swap, hedge, or similar agreement or
arrangement that transfers, in whole or in part, the economic consequence of ownership of the Restricted Securities, or (iii) effect or
agree to effect any short sales with respect to the Restricted Securities, borrow or pre-borrow any of the Restricted Securities, or grant
any other right with respect to the Restricted Securities, among other restrictions. Commencing on the one-year anniversary of the issuance
of the Restricted Securities and ending of the five-year anniversary thereof, each Shareholder may annually convert and sell up to 20%
of the maximum amount of Restricted Securities held by such Shareholder. Following the five-year anniversary of the issuance of the Restricted
Securities, all Restricted Securities shall be free and unrestricted.
The foregoing provides only a brief description
of the material terms of the Lock-Up Agreement and does not purport to be a complete description of the rights and obligations of the
parties thereunder, and such descriptions are qualified in their entirety by reference to the full text of Lock-Up Agreement filed as
an exhibit to this Current Report on Form 8-K, and is incorporated herein by reference.
Management Agreement
In connection with the Purchase Agreement and
pursuant thereto, the Company, Nova, and Drs. Marc D. Brodsky and Kevin Fitzgerald, and Mr. Michael Wycoki, Jr. (together with Drs. Brodsky
and Fitzgerald, the “Principals”) entered into a management agreement (the “Management Agreement”). Pursuant to
the Management Agreement, following the effective date of the Purchase Agreement, the Principals shall serve as the Chief Medical Officers
of Nova and shall provide professional advice to and manage the affairs and activities of Nova. The initial term of the Management Agreement
is ten years, which term shall automatically be renewed for successive one-year terms unless either the Company or the Principals provide
90 days’ written notice to the other parties of its or their intention not to extend the term.
The foregoing provides only a brief description
of the material terms of the Management Agreement and does not purport to be a complete description of the rights and obligations of the
parties thereunder, and such descriptions are qualified in their entirety by reference to the full text of Management Agreement filed
as an exhibit to this Current Report on Form 8-K, and is incorporated herein by reference.
Guaranty
In connection with the Purchase Agreement and
pursuant thereto, Nova and the Principals entered into a personal guaranty of performance dated June 4, 2021 (the “Guaranty”)
to induce the Company to enter into the Purchase Agreement and ancillary agreements and arrangements. Pursuant to the Guaranty, the Principals,
jointly and severally, guaranteed to Nova that Nova would meet certain proforma growth projections. In the event Nova fails to meet these
projections, Nova is entitled to set off from certain bonuses due to the Principals of thirty percent of the shortfall, with the maximum
amount of setoff being limited to the amount of the Principals’ bonuses.