Item 1.01 Entry into a Material Definitive Agreement.
Stock Purchase Agreement
As previously reported on November 16, 2018 by 1847 Holdings LLC (the “Company”), on November 12, 2018, 1847 CB, Inc. (“1847 CB”), a subsidiary of the Company, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Cornerstone Builders of SW Florida, Inc., a Florida corporation (“Cornerstone”), and Anthony Leopardi (the “Seller”), pursuant to which 1847 CB agreed to acquire all of the issued and outstanding capital stock of Cornerstone for an aggregate purchase price of $18 million in cash, subject to adjustment as described in the Purchase Agreement, including a post-closing working capital adjustment and a minimum working capital adjustment.
On March 13, 2019, 1847 CB, Cornerstone and the Seller entered into Amendment No. 1 to the Stock Purchase Agreement (the “Amendment”). Pursuant to the Amendment, the purchase price was revise to $15,000,000 consisting of: (i) $7,425,000 in cash; (ii) a subordinated promissory note in the aggregate principal amount of $3,338,359; and (iii) a subordinated contingent promissory note in the aggregate amount of $4,236,641. The purchase price assumes that the 1847 CB will be able to verify through its accounting due diligence that the Company is trending to achieve at least $3,673,000 of EBITDA on an adjusted basis as mutually agreed upon between the 1847 CB and the Seller.
The Purchase Agreement contains customary representations, warranties and covenants, and mutual indemnification for breaches of representations or warranties and failure to perform covenants or obligations contained in the Purchase Agreement. The Amendment provides that, as a condition to closing the transaction, the parties will have entered into a lease agreement for certain real property described in the Purchase Agreement upon mutually agreeable terms.
Subordinated Promissory Note
As noted above, a portion of the purchase price under the Purchase Agreement, as amended by the Amendment, will be paid by the issuance by 1847 CB to the Seller of a subordinated promissory note in the principal amount of $3,338,359 (the “Buyer Note”). The Buyer Note will accrue interest at 8% per annum and will mature on the third anniversary of the closing date, at which time the principal along with any accrued but unpaid interest will be paid in one lump sum. The Buyer Note will contain customary events of default. The rights of the Seller to receive payments under the Buyer Note are subordinate in right to the senior indebtedness of 1847 CB up to a maximum of $7,500,000.
Contingent Promissory Note
As noted above, a portion of the purchase price under the Purchase Agreement, as amended by the Amendment, will be paid by the issuance by 1847 CB to the Seller of a contingent subordinated promissory note in the principal amount of $4,236,641 (the “Contingent Note”). The Contingent Note will accrue interest at 8% per annum.
The Contingent Note will be payable only if the Company achieves a minimum average of $3,673,000 of adjusted EBITDA for the fiscal years ended December 31, 2019, 2020 and 2021 (the “Three-Year Period”), at which time $1,467,731 of the principal, plus accrued but unpaid interest will become immediately due and payable, provided however, that if the actual average adjusted EBITDA for the Three-Year Period exceeds the minimum average adjusted EBITDA, up to a maximum average adjusted EBITDA of $5,509,500, then the amount due and payable under the Contingent Note will be increased proportionately, up to the full principal, plus accrued but unpaid interest.
The Contingent Note will contain customary events of default. The rights of the Seller to receive payments under the Buyer Note are subordinate in right to the senior indebtedness of 1847 CB up to a maximum of $7,500,000.