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Item 1.01
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Entry into a Material Definitive Agreement.
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Acquisition of MOSBEST, LLC
On August 30, 2021, Digital Brands Group,
Inc., a Delaware corporation (the “Company” or “DBG”), entered into a Membership Interest Purchase Agreement
(the “MIPA”) with Moise Emquies (“Seller”) pursuant to which the Company acquired all of the issued and
outstanding membership interests of MOSBEST, LLC, a California limited liability company (“MOSBEST” and such
transaction, the “Acquisition”). Pursuant to the MIPA, Seller, as the holder of all of the outstanding membership
interests of MOSBEST, exchanged all of such membership interests for $5.0 million in cash and a number of shares of common stock of
the Company equal to $5.0 million, or 1,101,538 shares (the “Shares”), which number of Shares was calculated in
accordance with the terms of the Agreement. Of such amount, $375,000 in cash and a number of Shares equal to $375,000, or 82,615
shares (calculated in accordance with the terms of the Agreement), is held in escrow to secure any working capital adjustments and
indemnification claims. The MIPA contains customary representations, warranties and covenants by Seller.
The Acquisition closed on August 30, 2021. Upon
closing of the Acquisition and the other transactions contemplated by the MIPA, MOSBEST became a wholly-owned subsidiary of the Company.
Seller is a member of the Board of Directors of
the Company. The acquisition was unanimously approved by all of the members of the Company’s Board of Directors (other than Seller
who recused himself).
In connection with the Acquisition, the Company
entered into a registration rights agreement with Seller (the “MOSBEST RRA”. The MOSBEST RRA provides that the Company shall
(i) provide Seller with registration rights to the extent such rights are provided to a seller in any other acquisition by the Company;
and (ii) use all commercially reasonable efforts to register the shares of common stock of the Company received by Seller in connection
with the Acquisition if the Company proposes to file a resale registration statement for the account of other stockholders of the Company.
Convertible Note
On August 27, 2021, the Company entered into a
Securities Purchase Agreement with Oasis Capital, LLC (“Oasis Capital”) further to which Oasis Capital purchased a senior
secured convertible note (the “Note”), with an interest rate of 6% per annum, having a face value of $5,265,000 for a total
purchase price of $5,000,000, secured by an all assets of the Company.
The Note, in the principal amount of $5,265,000,
bears interest at 6% per annum and is due and payable 18 months from the date of issuance, unless sooner converted. The Note is convertible
at the option of Oasis Capital into shares of the Company’s common stock at a conversion price (the “Conversion Price”)
which is the lesser of (i) $3.601, and (ii) 90% of the average of the two lowest VWAPs during the five consecutive trading day period
preceding the delivery of the notice of conversion. Oasis Capital is not permitted to submit conversion notices in any thirty day period
having conversion amounts equaling, in the aggregate, in excess of $500,000. If the Conversion Price set forth in any conversion notice
is less than $3.00 per share, the Company, at its sole option, may elect to pay the applicable conversion amount in cash rather than issue
shares of its common stock.
In connection with the issuance of the Note, the
Company entered into a security agreement (the “Security Agreement”) pursuant to which the Company agreed to grant Oasis Capital
a security interest in substantially all of its assets to secure the obligations under the Note and a registration rights agreement with
Oasis Capital (the “Oasis Note RRA”). The Oasis Note RRA provides that the Company shall file a registration statement registering
the shares of common stock issuable upon conversion of the Note no later than 60 days from the date of the Note and take commercially
reasonable efforts to cause such registration statement to be effective with the SEC no later than 90 days from the date of the Note.
In connection with the issuance of the Note, each
of the Company’s subsidiaries entered into a security agreement and a subsidiary guarantee in favor of Oasis Capital pursuant to
which such subsidiaries granted Oasis Capital a security interest in substantially all their assets and guarantee the obligations of the
Company under the Note.
Equity Line of Credit
On August 27, 2021 (the “Execution Date”),
the Company entered into what is sometimes termed an equity line of credit arrangement with Oasis Capital. Specifically, the Company entered
into an equity purchase agreement (the “EPA”), pursuant to which Oasis Capital is committed to purchase up to $17,500,000
of the Company’s common stock over the 24-month term of the EPA. The Company is not obligated to request any portion of the $17,500,000.
In connection with the execution of the EPA, the
Company issued Oasis Capital $350,000 of its shares of common stock, or 126,354 shares (the “Commitment Shares”) at a per
share price which was based on the closing sale price per share on the Nasdaq Capital Market on the trading date prior to issuance (the
“Issuance Reference Date”). On the earlier of (i) the date that is nine months from the Execution Date, and (ii) the date
that the EPA is terminated in accordance with its terms (the “Reference Date”), if the closing sale price per share on the
Nasdaq Capital Market on the trading date preceding the Reference Date is higher than the closing sale price on the Issuance Reference
Date, then Oasis Capital shall return to the Company a portion of the Commitment Shares equal to the amount of Commitment Shares required
to be issued on the Execution Date minus the amount of Commitment Shares that would have been required to have been issued if the closing
sale price per share on the Nasdaq Capital Market on the trading date preceding the Reference Date had been used to calculate the amount
of Commitment Shares issuable on the Execution Date.
As of the date of this report, the Company has
not drawn down any portion of this commitment, leaving the entire $17,500,000 available under the equity line of credit, and for which
the Company has agreed, pursuant to a registration rights agreement (the “Oasis Equity RRA”), to register the shares of common
stock issuable further to the equity line of credit with the Securities and Exchange Commission (the “SEC”), before any such
issuances. The actual number of shares that the Company may issue pursuant to the equity line of credit is not determinable as it is based
on the market price of our common stock from time to time and the number of shares we desire to put to Oasis Capital.
During the 24-month term of the investment agreement,
the Company may request a drawdown on the equity line of credit by delivering a “put notice” to Oasis Capital stating the
dollar amount of shares the Company intends to sell to Oasis Capital. The Company may make either an Option 1 or Option 2 request to Oasis
Capital. Under Option 1, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) the lowest traded price
of our Common Stock on the Nasdaq Capital Market on the Clearing Date, which is the date on which Oasis Capital receives the put shares
as DWAC shares in its brokerage account, or (ii) the average of the three lowest closing sale prices of our Common Stock on the Nasdaq
Capital Market during the period of twelve consecutive trading days immediately preceding the Clearing Date. The maximum amount the Company
may request in an Option 1 request is $500,000. Under Option 2, the purchase price Oasis Capital is required to pay for the shares is
the lesser of (i) 93% of the one (1) lowest traded price of our common stock on the Nasdaq Capital Market during the period of five (5)
consecutive trading days immediately preceding the put date, or (ii) 93% of the VWAP on the Clearing Date, or (iii) 93% of the closing
bid price of the Company’s common stock on the Nasdaq Capital Market on the Clearing Date. The maximum amount the Company may request
in an Option 2 request is $2,000,000.
The Company is not entitled to request a drawdown
unless each of the following conditions is satisfied:
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(i)
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a registration statement is and remains effective for the resale of securities in connection with the
equity line of credit;
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(ii)
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the trading of the Company’s common stock shall not have been suspended by the SEC, the Nasdaq Capital
Market or FINRA, or otherwise halted for any reason, and the Company’s common stock shall have been approved for listing or quotation
on and shall not have been delisted from the Nasdaq Capital Market;
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(iii)
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the Company has complied with its obligations and are otherwise not in breach or default of any agreement
related to the equity line of credit;
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(iv)
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no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered,
promulgated, threatened or endorsed by any federal, state, local or foreign court or governmental authority of competent jurisdiction,
including, without limitation, the SEC, which prohibits the consummation of or which would materially modify or delay any of the transactions
contemplated by the equity line of credit;
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(v)
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the Company’s common stock must be DWAC eligible and not subject to a “DTC chill”;
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(vi)
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all reports, schedules, registrations, forms, statements, information and other documents required to
have been filed by us with the SEC pursuant to the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K) shall have
been filed with the SEC within the applicable time periods prescribed for such filings;
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(vii)
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to the extent the issuance of the put shares requires shareholder approval under the listing rules of
the Nasdaq Capital Market, the Company has or will seek such approval; and
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(viii)
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the lowest traded price of the Common Stock in the five (5) trading days immediately preceding the respective
put date must exceed $3.00.
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If any of the events described in clauses (i)
through (viii) above occurs after the Company makes a drawdown request, then Oasis Capital shall have no obligation to fund that drawdown.
The equity line of credit terminates when Oasis
Capital has purchased an aggregate of $17,500,000 of the Company’s common stock or August 30, 2024, whichever occurs first.
Under the terms of the EPA, Oasis Capital may
not own more than 9.99% of our issued and outstanding stock at any one time.
EF Hutton, Inc., the Company’s investment
bankers, will receive 6% of the gross proceeds of any drawdown under the equity line of credit, payable in cash.
The Company intends to use the net proceeds of
any drawdowns under the equity line of credit for working capital and general corporate purposes.
Copies of the MIPA, SPA, the Note, the Security
Agreement and EPA are filed as Exhibits 2.1, 10.1, 10.2, 10.3 and 10.4 to this Current Report on Form 8-K, respectively, and are incorporated
herein by reference. Copies of the MOSBEST RRA, Oasis Note RRA and Oasis Equity RRA are filed as Exhibits 4.1, 4.2 and 4.3 to this Current
Report on Form 8-K, respectively, and are incorporated herein by reference. The foregoing descriptions of the MIPA, SPA, Note, Security
Agreement, EPA, MOSBEST RRA, Oasis Note RRA and Oasis Equity RRA do not purport to be complete and are qualified in their entirety by
reference to the applicable exhibit.