| Item 1.01 | Entry into a Material Definitive Agreement. |
On March 30, 2023, Distribution Solutions Group, Inc., a Delaware corporation (the “Company”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) with HIS Company, Inc., a Texas corporation (“Hisco”), HIS Company, Inc. Employee Stock Ownership Trust (the “Seller”), which is maintained pursuant to and in connection with the HIS Company, Inc. Employee Stock Ownership Plan, acting through GreatBanc Trust Company, not in its corporate capacity, but solely in its capacity as trustee (the “Trustee”) of the Seller, and Ellis Moseley, solely in his capacity as the representative of the Seller (the “Seller Representative”), for the acquisition of all of the issued and outstanding capital stock of Hisco (the “Shares”) from the Seller (the “Transaction”).
The Purchase Agreement provides that, upon the terms and subject to the conditions thereof, the Company will acquire all of the Shares, on a cash-free, debt-free basis, for an aggregate purchase price equal to (1) $269,100,000, subject to certain adjustments set forth in the Purchase Agreement (the “Purchase Price”) and (2) an earn-out payment (the “Earn-Out Payment”) payable pursuant to the terms of the Purchase Agreement. The Earn-Out Payment is calculated based on the gross profit of Hisco and its affiliates for Hisco’s 2023 fiscal year, subject to certain adjustments and exclusions set forth in the Purchase Agreement (the “Gross Profit”). The Earn-Out Payment, if earned, will be a one-time payment, and no Earn-Out Payment will be payable if Gross Profit is determined to be less than $110,351,000 and the maximum Earn-Out Payment payable is $12,600,000 if Gross Profit is determined to be equal to or greater than $114,951,000. The Company will also pay $37,500,000 in cash or Company common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for twelve or more months after the closing of the Transaction. The Transaction is not subject to any financing condition or contingency, and the Company expects to fund the Purchase Price and Earn-Out Payment through a combination of debt and equity financing.
The consummation of the Transaction is subject to certain closing conditions customary for transactions similar to the Transaction, including, among others, (1) expiration or termination of all required waiting periods or obtaining all necessary clearances or approvals with respect to applicable antitrust laws, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “Antitrust Condition”), (2) there being no governmental order by any governmental authority that prohibits the consummation of the Transactions (the “No Order Condition”), and (3) the absence of any law which makes the Transactions illegal (the “No Laws Condition”). Furthermore, the Company’s obligation to consummate the Transaction is conditioned on, among other things, the absence of any Material Adverse Effect (as defined in the Purchase Agreement) having occurred since March 30, 2023.
The Purchase Agreement contains customary representations, warranties and covenants of the parties. Among other things, from the date of the Purchase Agreement until the earlier of the consummation of the Transaction or the termination of the Purchase Agreement in accordance with its terms, Hisco is required to, and required to cause its subsidiaries to, conduct their businesses in the ordinary course of business consistent with past practice and to comply with certain other covenants regarding the operation of their businesses. The parties to the Purchase Agreement have also agreed to use their respective commercially reasonable efforts to obtain all consents, approvals and authorizations from governmental authorities for the Transaction on the terms and subject to the conditions set forth in the Purchase Agreement. The Purchase Agreement contains certain customary termination rights for transactions similar to the Transaction exercisable by the Company and the Seller, including, among other rights, the right to terminate the Purchase Agreement (1) by the Company or the Seller if the closing of the Transaction has not occurred on or before December 29, 2023 (which initial date may be extended as follows: (x) automatically extended to the date that is 90 days after such initial date if all conditions, other than the Antitrust Condition, the No Order Condition and the No Laws Condition, have been satisfied or waived, and (y) if, subject to the terms and conditions set forth in the Purchase Agreement, Hisco delivers a written notice no earlier than 10 business prior to such initial date indicating that, among other things, Hisco is ready, willing and able to consummate the Transaction (such notice, the “Satisfaction Notice”), such initial date shall be extended to the date that is 11 business days after the Company’s receipt of such notice) (the “Outside Date Termination Right”), (2) by the Company or the Seller, if a governmental authority of competent jurisdiction has issued an order permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Purchase Agreement, (3) by the Company in the event the Seller or Hisco commits certain uncured breaches of the Purchase Agreement and (4) by the Seller in the event the Company commits certain uncured breaches of the Purchase Agreement. In addition, the Seller has the right to terminate the Purchase Agreement in the event that (A) the mutual conditions to closing and the Company’s conditions to closing have been satisfied, (B) Hisco delivers the Satisfaction Notice and (C) the Company fails to consummate the Transaction within 10 business days of receiving the Satisfaction Notice (the “Failure to Close Termination Right”). In the event that the Seller exercises the Failure to Closing Termination Right, the Company will be obligated to pay the Seller a termination fee equal to $15,000,000, on the terms and subject to the conditions set forth in the Purchase Agreement.
