Item
1.01 Entry into a Material Definitive Agreement.
Acquisition
of Assets of Environmental Turf Services, LLC
On
October 14, 2016 but effective as of October 10, 2016, XFit Brands, Inc. (“XFit” or the “Company”) acquired
the assets of Environmental Turf Services, LLC (“EnviroTurf”) pursuant to a definitive Asset Purchase Agreement dated
October 10, 2016 (the “Purchase Agreement”) between the Company and EnviroTurf. The acquired assets consisted of inventory,
accounts receivable, equipment and vehicles, the registered trademark “ENVIROTURF” and the associated goodwill. The
acquisition was completed on October 14, 2016 upon delivery and acceptance of the schedules to the Purchase Agreement (the “Acquisition”).
At
the closing of the Acquisition, the Company paid and issued to EnviroTurf a total purchase price of $346,000 as follows: (i) assumption
of $200,000 of EnviroTurf’s accounts payable and (ii) 2,000,000 restricted shares of XFit Common Stock (the “Purchase
Price Shares”), which were valued at the closing price on the date of XFit’s Common Stock on the date of the Acquisition.
The Company will fund the non-share purchase price and the costs and expenses of the Acquisition through a combination of cash
on hand and internally-generated working capital.
The
Purchase Agreement contains customary representations, warranties and covenants by the parties.
The
foregoing description of the Purchase Agreement and the transactions contemplated thereby is not complete and is subject and qualified
in its entirety by reference to the text of the Purchase Agreement, which is filed as Exhibit 2.1 to this report and incorporated
by reference in this Item 1.01. The representations and warranties of the parties in the Purchase Agreement have been made solely
for the benefit of the other parties to the Purchase Agreement, and were not intended to be, and should not be, relied upon by
any person other than such parties, including shareholders of the Company; should not be treated as categorical statements of
fact, but rather as a way of allocating risk between the parties; in some cases have been qualified by disclosures that were made
to the other parties in connection with the negotiation of the Purchase Agreement, which disclosures are not necessarily reflected
in the Purchase Agreement; may apply standards of materiality in a way that may differ from standards of materiality applied by
investors; and were made only as of the date of the Purchase Agreement or as of such other date or dates as may be specified in
the Purchase Agreement, and are subject to developments occurring after those dates.
After
giving effect to the issuance of the shares of Common Stock issued EnviroTurf at closing, EnviroTurf will beneficially own approximately
7.7% of the Company’s outstanding shares of Common Stock. In addition, pursuant to the Purchase Agreement, Jim Bateman,
the majority equity owner of EnviroTurf, entered into an employment agreement with the Company for an initial term ending June
30, 2019 pursuant to which he will be President of the Sports Division and join the Board of Directors of the Company for base
compensation of $72,000 per year, In addition, the Company shall also pay to Bateman (i) a commission of $0.05 per square of installed
and paid turf from the EnviroTurf business; (ii) 2% of Net Sales (defined as Gross Sales less Discounts) directly generated by
Bateman on the sale of any other product in the XFit Brand portfolio; and (iii) an equity bonus equivalent to 100,000 shares of
XFit Common Stock or share-based equivalents (subject to adjustments for share splits and recapitalizations) for each $5,000,000
in EnviroTurf Net Sales. Finally, Bateman will be provided an equity incentive of 1,000,000 shares of XFit Common Stock following
the successful sales and collection of $5,000,000 in EnviroTurf Net Sales. The foregoing description of the Employment Agreement
is not complete and is subject and qualified in its entirety by reference to the text of such agreement, which is filed as Exhibit
10.1 to this report and incorporated by reference in this Item 1.01.
