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Item
1.01
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Entry
into a Material Definitive Agreement.
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On September 3, 2021, Brownie’s Marine
Group, Inc., a Florida corporation (the “Company”), entered into an Agreement and Plan of Merger and Reorganization (the
“Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation and wholly owned subsidiary of the Company
(“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible”), and Summit Holdings V,
LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra
Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible (the “Submersible
Shares”), pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving
corporation, became a wholly owned subsidiary of the Company. The Merger became effective upon the filing of Articles of Merger with
the Secretary of State of the State of Florida.
Pursuant to the terms and conditions of the Merger
Agreement, the Company acquired all of the Submersible Shares from the Sellers for an aggregate purchase price of $1,750,000 (the “Merger
Consideration”), which was paid to the Sellers at closing (the “Closing”): (a) by issuance to the Sellers of 8% convertible
promissory notes in the aggregate principal amount of $350,000 (the “Notes”), and (b) by issuance to the Sellers of an aggregate
of 27,305,442 shares (the “ Merger Shares”) of the Company’s common stock,
par value $0.0001 per share (“Common Stock”), calculated at a price of approximately
$0.05127 per share (the “Conversion Rate”).
The
Merger Shares received by the Sellers are subject to a leak-out restriction commencing on the date of issuance, as follows: (i) up to
12.5% may be sold after 6 months; (ii) up to 25% may be sold after 9 months; (iii) up to 75% may be sold after 24 months; and (iv) up
to 100% may be sold after 36 months. Notwithstanding the foregoing, the leak-out restriction may be waived by the Company under certain
conditions.
The
Sellers were granted “piggyback” registration rights with respect to the Merger Shares and the shares of Common Stock that
may be received upon their conversion of the Notes.
The
Notes have a maturity date of September 3, 2024, and bear interest at a rate of 8% per annum. Interest shall
be paid at the end of each 3-month period commencing on September 30, 2021, in shares of Common Stock of the Company, calculated based
on the amount due on said date divided by the Conversion Rate. The Company has the right to prepay amounts due under the Notes in whole
or in part at any time without penalty or premium. Within 30 days after the end of each quarter, commencing
on the first full quarter after the Closing, the Company shall pay, as a reduction of the principal amount of the Notes, in cash, payments
equal to 50% of Submersible’s Operating Income. For the purposes of the Notes, Operating Income shall be defined as the net income
of Submersible before interest, taxes, depreciation and amortization (but expressly excluding any overhead cost allocation applied to
Submersible by the Company). The final payment will be a balloon payment of the balance due upon
the end of the term of the Notes. The holders of Notes have the right to convert the Notes, in whole or in part, at any time, within
the 36-month term into shares of Common Stock at the Conversion Rate.
In
connection with the Merger, Rick Kearney, Submersible’s founder, entered into a five-year confidentiality, non-competition and
non-solicitation agreement with the Company (the “Non-Compete Agreement”).
The
foregoing descriptions of the Notes, the Merger Agreement and the Non-Compete Agreement are not complete and are qualified in their entirety
by reference to the full text of such documents, copies of which are attached hereto as Exhibits 4.1, 10.1 and 10.2, respectively, and
incorporated herein by reference.