Item 1.01
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Entry into a Material Definitive Agreement.
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Asset Purchase Agreement
On September 7, 2016, EnviroStar, Inc., a Delaware
corporation (the “Company”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”)
with Western State Design, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (the “Buyer”),
and Western State Design, LLC, a California limited liability company (“WSD”), Dennis Mack and Tom Marks (the “Members”
and collectively with WSD, the “Selling Group”). Pursuant to the Asset Purchase Agreement, the Buyer has agreed to
acquire substantially all of the assets and assume certain liabilities of WSD (the “Transaction”).
Subject to certain net working capital and other
adjustments, the consideration for the Transaction will be equal to $28,000,000 (the “Purchase Price”) consisting of:
(i) $18,000,000 in cash (the “Cash Amount”), of which $2,800,000 (the “Escrow Amount”) will be deposited
in an escrow account for no less than 18 months after the date of the closing of the Transaction (subject to extension in certain
circumstances); and (ii) 2,044,990 shares (the “Stock Consideration”) of common stock, par value $0.025 per share (the
“Common Stock”), of the Company, which amount is equal to the quotient of $10,000,000 divided by the average closing
price per share of the Common Stock on the NYSE MKT for the 10 trading days immediately prior to the date of the Asset Purchase
Agreement (“Average Common Stock Price”). The maximum number of shares of Common Stock to be issued to WSD at the closing
of the Transaction will not exceed 19.9% of the total number of shares of Common Stock outstanding at the time of closing. Under
the rules of the NYSE MKT, the issuance of the balance of the shares comprising the Stock Consideration (the “Shortfall Stock
Consideration”) requires the approval of the Company’s stockholders. Pursuant to the Asset Purchase Agreement, the
shares comprising the Shortfall Stock Consideration will be issued to WSD within three business days following the date of stockholder
approval of the issuance of the Shortfall Stock Consideration if stockholder approval is obtained at a meeting of the Company’s
stockholders or, if stockholder approval is obtained by written consent of the Company’s stockholders without a meeting,
following the twentieth calendar day after the mailing of the related information statement (but, in each case, no earlier than
January 1, 2017) . If the Company does not issue the Shortfall Stock Consideration on or prior to the six month anniversary after
the date of the closing of the Transaction, then the Company will pay to WSD within three business days following such date, an
amount in cash equal to the number of shares of the Shortfall Stock Consideration multiplied by the Average Common Stock Price.
The Company intends to fund the Cash Amount in part by the private sale (the “Private Placement”) of 1,290,323 shares
of Common Stock to Symmetric Capital II LLC (“Symmetric II”), a company controlled by the Company’s Chairman
and Chief Executive Officer, as described in further detail below under “Securities Purchase Agreement.” In addition,
as described in further detail below under “Debt Commitment Letter,” the Company has obtained a debt financing commitment
from Wells Fargo Bank, National Association (“Wells Fargo”) for senior secured financing facilities in the maximum
aggregate amount of up to $20,000,000, approximately $12,000,000 of which the Company intends to use to finance the balance of
the Cash Amount not funded by the net proceeds of the Private Placement.
The Asset Purchase Agreement contains representations,
warranties and covenants customary for a transaction of this size and nature. Subject to certain limitations, the Selling Group,
on the one hand, and the Company and Buyer, on the other hand, have agreed to indemnify each other for breaches of representations,
warranties and covenants and other specified matters, and the Selling Groups’ indemnification obligations are secured, in
part, by the Escrow Amount.
The Asset Purchase Agreement contains certain
termination rights for the Company and the Selling Group, including, but not limited to, (i) by mutual written agreement; (ii)
if the closing has not occurred on or before December 31, 2016; and (iii) the non-performance of any material covenant or other
agreement set forth in the Asset Purchase Agreement after an opportunity to cure in some cases.
Within 30 days after date of the closing of
the Transaction, the Company has agreed to appoint Dennis Mack to its Board of Directors. In the event that Mr. Mack ceases to
serve as a director of the Company prior to the fifth anniversary of the date of the closing of the Transaction other than as a
result of the occurrence of one of the events specified in items (a)(ii) or (iii) of the following paragraph, the Board of Directors
of the Company will, subject to its fiduciary duties, appoint Tom Marks to the Board of Directors. In addition, immediately following
the closing of the Transaction, the Company will appoint each of Mr. Mack and Mr. Marks as an executive officer of the Company.
As a condition to the closing of the Transaction,
the members of the Selling Group and Symmetric II and certain of its affiliates, including Henry Nahmad, the Manager of Symmetric
II, will enter into a Stockholders Agreement with the Company, pursuant to which, among other things, each member of the Selling
Group will agree to vote all shares of Common Stock owned by them at any time during the term of the Stockholders Agreement as
directed by the Manager of Symmetric II and grant to the Manager of Symmetric II an irrevocable proxy and power of attorney in
furtherance thereof. The Stockholders Agreement will also contain, among other things, (a) an agreement by Symmetric II and its
affiliates to vote all of the shares of the Common Stock owned by them in favor of the election of Mr. Mack or Mr. Marks, as the
case may be, to the Company’s Board of Directors until the earliest to occur of: (i) the fifth anniversary after the date
of the closing of the Transaction, (ii) such time as the Selling Group and their respective affiliates collectively own less than
5% of the Common Stock on a fully diluted basis, and (iii) the cessation of the employment of Mr. Mack or Mr. Marks, as the case
may be, with the Company or any of its affiliates due to a termination for cause or a voluntary resignation by Mr. Mack or Mr.
Marks, as the case may be, without good reason, in each case of this clause (iii), only during the one year period commencing after
the date of the closing of the Transaction, and (b) certain transfer restrictions with respect to the shares of Common Stock held
by the Selling Group. The Stockholders Agreement will also include certain drag-along and tag-along provisions with respect to
certain proposed sales of Common Stock by Symmetric II and its affiliates. In addition, the Selling Group will also be entitled
to piggyback registration rights in connection with any public offering of the Company’s securities which includes securities
held by Symmetric II or its affiliates. The Stockholders Agreement will have a term of five years, subject to earlier termination
under certain circumstances.
As a condition to the
closing of the Transaction, the Company and the Buyer, on the one hand, and the Selling Group, on the other hand, will enter into
a Subcontract Agreement Pending Novation, pursuant to which, among other things the Buyer, at its expense, will act as a subcontractor
to WSD and assume responsibility for administering and performing WSD’s contracts with governmental entities prior to assignment,
novation and transfer of the scope of work of such contracts to the Buyer.
The Company expects the closing of the Transaction
to occur within 30 to 45 days, subject to certain closing conditions, including, but not limited to, (i) the Company obtaining
satisfactory debt and equity financing sufficient to fund the Cash Amount on terms and conditions acceptable to the Company; (ii)
the approval by the NYSE MKT of the listing of the Stock Consideration to be issued at the closing of the Transaction; (iii) the
accuracy of the representations and warranties of the parties; and (iv) the parties’ performance and compliance in all material
respects with the agreements and covenants contained in the Asset Purchase Agreement.
The foregoing description of the Asset Purchase
Agreement is a summary only, does not purport to be complete and is subject to, and qualified in its entirety by reference, to
the Asset Purchase Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The Asset
Purchase Agreement contains representations and warranties made by the parties as of specific dates and solely for their benefit.
The representations and warranties reflect negotiations between the parties and are not intended as statements of fact to be relied
upon by the Company’s stockholders or any other person or entity other than the parties to the Asset Purchase Agreement and,
in certain cases, represent allocation decisions among the parties and are modified or qualified by correspondence or confidential
disclosures made between the parties in connection with the negotiation of the Asset Purchase Agreement (which disclosures are
not reflected in the Asset Purchase Agreement itself, may not be true as of any date other than the date made, or may apply standards
of materiality in a way that is different from what may be viewed as material by stockholders). 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 stockholders should
not rely on them as statements of fact. Moreover, information concerning the subject matter of the representations and warranties
may change after the date of the Asset Purchase Agreement.
Debt Commitment Letter
In connection with the financing of the
Transaction, the Company has obtained a debt financing commitment (the “Debt Commitment Letter”) from Wells Fargo for
senior secured financing facilities in the maximum aggregate amount of up to $20,000,000, consisting of a $5,000,000 term loan
and $15,000,000 line of credit facility. The financing facilities are subject to the negotiation of mutually acceptable definitive
documentation, which will include customary representations and warranties, affirmative and negative covenants, financial covenants,
and events of default. Additionally, the obligation to provide debt financing under the Debt Commitment Letter is subject to a
number of customary closing conditions, including consummation of the Transaction in accordance with the terms of the Asset Purchase
Agreement.
The foregoing description
of the Debt Commitment Letter is a summary only and is qualified in its entirety by reference to the full text of the Debt Commitment
Letter, which is filed herewith as Exhibit 10.1 and is incorporated herein by reference.
Securities Purchase Agreement
On September 7, 2016, the
Company and Symmetric II entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), pursuant
to which the Company agreed to issue and sell to Symmetric II in the Private Placement an aggregate of 1,290,323 shares (the “Private
Placement Shares”) of Common Stock, at a price per share of $4.65, for total gross proceeds to the Company of approximately
$6,000,000. The $4.65 per share purchase price in the Private Placement equaled the closing price of the Common Stock on the NYSE
MKT on September 6, 2016. The Company will use the proceeds from the Private Placement to fund a portion of the Cash Amount. Subject
to certain closing conditions, including a financing condition and the approval by the NYSE MKT of the listing of the Private Placement
Shares, the closing of the Private Placement is expected to occur immediately prior to the closing of the Transaction.
The foregoing description
of the Securities Purchase Agreement is a summary only and is qualified in its entirety by reference to the full text of the Securities
Purchase Agreement, which is filed herewith as Exhibit 10.2 and is incorporated herein by reference.
As previously described,
Henry Nahmad is the Manager of Symmetric II and, in such capacity, will have the power to direct the voting of the shares of the
Common Stock which may be held by Symmetric II, including the shares which may be issued to Symmetric II in connection with the
Private Placement, and which Symmetric II may otherwise have the right to vote, including the shares which Symmetric II may have
the right to vote as a result of the Stockholders Agreement described above. Mr. Nahmad is the Chairman and Chief Executive Officer
of the Company and may be deemed to control the Company as a result of his beneficial ownership as of the date of this Current
Report on Form 8-K of shares representing approximately 50.3% of the total number of outstanding shares of the Common Stock.