Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of the Registrant.
On
April 5, 2021, the SHRG and DSSI entered into a Securities Purchase Agreement, pursuant to the Binding Letter of Intent discussed
above. Under the terms of the Securities Purchase Agreement, SHRG issued: (a) a Convertible Promissory Note in the principal amount
of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares
of the SHRG’s Class A Common Stock, at $0.22 per share.
The
Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the
occurrence of an Event of Default, as defined in the Note. Interest on the Note is prepayable annually in cash or in shares of
the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year is prepayable
in shares of the SHRG’s Class A Common Stock, at the rate of $0.20 per share. Borrowings under the Note may be prepaid without
penalty, in full or in part, at the option of the SHRG, at any time after the first anniversary of the Note. At any time during
the term of the Note, all or part of the Note, including principal, less unamortized prepaid interest, if any, plus any accrued
interest and other fees can be converted into shares of the SHRG’s Class A Common Stock at the rate of $0.20 per share,
at option of the holder.
The
detachable Warrant confers the right to purchase up to 150,000,000 shares of the SHRG’s Class A Common Stock, is fully vested
and may be exercised at any time on or before April 5, 2026, at the exercise price of $0.22 per share.
In
connection with the loan, SHRG agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the SHRG’s
Class A Common Stock, at the rate of $0.20 per share. Accordingly, upon funding of the loan, the SHRG issued to DSSI 27,000,000
shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee and 12,000,000 shares in
prepayment of interest for the first year.
Proceeds
from the loan are to be deposited in a special purpose bank account and are intended primarily to fund SHRG’s domestic and
international growth initiatives. The SHRG’s Board of Directors retained oversight and delegated control responsibility
to a specified SHRG Director, who also holds an executive position with the Company. The SHRG’s Board of Directors has stipulated
that authority to disburse funds from the designated bank account is delegated to: (a) the specified Director acting together
with (b) the SHRG’s Chief Executive Officer or the SHRG’s Chief Financial Officer, acting together.
Shareholder approval will be required to increase
the number of authorized shares of SHRG’s Class A Common Stock for the potential conversion of 100% of the Note. Under the
terms of the Securities Purchase Agreement, SHRG has agreed to seek such shareholder approval on or before July 30, 2021.