|
Delaware
|
| |
5699
|
| |
46-1942864
|
|
|
(State or other jurisdiction of
incorporation or organization) |
| |
(Primary Standard Industrial
Classification Code Number) |
| |
(I.R.S. Employer
Identification Number) |
|
|
Thomas J. Poletti
Veronica Lah Manatt, Phelps & Phillips, LLP 695 Town Center Drive, 14th Floor Costa Mesa, CA 92646 (714) 312-7500 |
| |
Andrew M. Tucker
Nelson Mullins Riley & Scarborough LLP 101 Constitution Avenue, NW Suite 900 Washington, D.C. 20001 (202) 689-2000 |
|
| Large accelerated filer ☐ | | | Accelerated filer ☐ | | | Non-accelerated filer ☒ | | |
Smaller reporting company ☒
Emerging growth company ☒ |
|
| | |
Per Share
and Warrant |
| |
Total
|
| ||||||
Public offering price
|
| | | $ | 5.00 | | | | | $ | 10,000,000 | | |
Underwriting discount and commissions(1)
|
| | | $ | 0.40 | | | | | $ | 800,000 | | |
Proceeds, before expenses, to us
|
| | | $ | 4.60 | | | | | $ | 9,200,000 | | |
| | | | | 6 | | | |
| | | | | 18 | | | |
| | | | | 19 | | | |
| | | | | 39 | | | |
| | | | | 41 | | | |
| | | | | 42 | | | |
| | | | | 43 | | | |
| CAPITALIZATION | | | | | 44 | | |
| DILUTION | | | | | 46 | | |
| | | | | 48 | | | |
| | | | | 49 | | | |
| | | | | 56 | | | |
| BUSINESS | | | | | 75 | | |
| | | | | 88 | | | |
| MANAGEMENT | | | | | 92 | | |
| | | | | 96 | | | |
| | | | | 100 | | | |
| | | | | 102 | | | |
| | | | | 104 | | | |
| | | | | 109 | | | |
| | | | | 111 | | | |
| | | | | 117 | | | |
| | | | | 124 | | | |
| EXPERTS | | | | | 125 | | |
| | | | | 125 | | | |
| | | | | F-1 | | |
| | |
Year Ended December 31,
|
| |||||||||||||||
| | |
2020
Pro Forma |
| |
2020
Actual |
| |
2019
Actual |
| |||||||||
| | |
(unaudited)
|
| | | | | | | | | | | | | |||
Net revenues
|
| | | $ | 9,801,981 | | | | | $ | 5,239,437 | | | | | $ | 3,034,216 | | |
Cost of net revenues
|
| | | | 6,603,865 | | | | | | 4,685,755 | | | | | | 1,626,505 | | |
Gross profit
|
| | | | 3,198,116 | | | | | | 553,682 | | | | | | 1,407,711 | | |
Operating expenses
|
| | | | 15,316,886 | | | | | | 9,701,572 | | | | | | 6,255,180 | | |
Operating loss
|
| | | | (12,118,771) | | | | | | (9,147,890) | | | | | | (4,847,469) | | |
Other expenses
|
| | | | (2,214,320) | | | | | | (1,566,764) | | | | | | (805,704) | | |
Loss before provision for income taxes
|
| | | | (14,333,091) | | | | | | (10,714,654) | | | | | | (5,653,173) | | |
Provision for income taxes
|
| | | | 13,641 | | | | | | 13,641 | | | | | | 800 | | |
Net loss
|
| | | $ | (14,346,732) | | | | | $ | (10,728,295) | | | | | $ | (5,653,973) | | |
Pro forma earnings per share – basic and diluted(1)
|
| | | | | | | | | | | | | | | | | | |
Basic
|
| | | $ | (1.50) | | | | | | | | | | | | | | |
Diluted
|
| | | $ | (1.50) | | | | | | | | | | | | | | |
Pro forma number of common shares outstanding – basic and
diluted(1) |
| | | | | | | | | | | | | | | | | | |
Basic
|
| | | | 9,569,349 | | | | | | | | | | | | | | |
Diluted
|
| | | | 9,569,349 | | | | | | | | | | | | | | |
| | |
As of December 31, 2020
|
| |||||||||||||||
| | |
Actual
|
| |
Pro Forma
|
| |
Pro Forma as
Adjusted |
| |||||||||
| | | | | | | | |
(unaudited)
|
| |
(unaudited)
|
| ||||||
Total cash
|
| | | $ | 575,986 | | | | | $ | 627,301 | | | | | $ | 6,047,801 | | |
Total current assets
|
| | | | 2,008,656 | | | | | | 2,226,773 | | | | | | 7,647,273 | | |
Total assets
|
| | | | 16,352,169 | | | | | | 23,832,676 | | | | | | 29,253,176 | | |
Total current liabilities including current portion of long-term debt
|
| | | | 20,278,690 | | | | | | 21,991,487 | | | | | | 20,011,987 | | |
Total long-term obligations
|
| | | | 1,931,124 | | | | | | 2,342,878 | | | | | | 1,342,878 | | |
Total liabilities
|
| | | | 22,209,814 | | | | | | 24,334,365 | | | | | | 21,354,865 | | |
Total stockholders’ deficit
|
| | | | (5,857,645) | | | | | | (501,689) | | | | | | 7,898,311 | | |
Total liabilities and stockholders’ deficit
|
| | | $ | 16,352,169 | | | | | $ | 23,832,676 | | | | | $ | 29,253,176 | | |
| | |
as of December 31, 2020
|
| |||||||||||||||||||||||||||
| | |
DBG
|
| |
H&J
|
| |
Total
|
| |
Pro Forma
|
| |
Pro Forma
as Adjusted |
| |||||||||||||||
Cash and cash equivalents
|
| | | $ | 575,986 | | | | | $ | 51,315 | | | | | $ | 627,301 | | | | | $ | 5,420,500 | | | | | $ | 6,047,801 | | |
Indebtedness, including current portion
|
| | | $ | 22,209,814 | | | | | $ | 1,544,551 | | | | | $ | 23,754,365 | | | | | | | | | | | $ | 21,354,865 | | |
Debt
|
| | | $ | 14,109,041 | | | | | $ | 972,695 | | | | | | 15,081,736 | | | | | $ | (3,415,815) | | | | | | 11,665,921 | | |
DBG preferred stock, $0.0001 par
value, 125,000,000 shares authorized (actual), 10,000,000 shares authorized (pro forma and pro forma as adjusted), 62,924,710 shares issued and outstanding (actual), no shares issued and outstanding (pro forma as adjusted) |
| | | | 6,291 | | | | | | — | | | | | | 6,291 | | | | | | (6,291) | | | | | | — | | |
DBG common stock, $0.0001 par
value: 200,000,000 shares authorized (actual), 200,000,000 shares authorized (pro forma and pro forma as adjusted), 10,377,615 shares issued and outstanding (actual); 7,569,349 issued and outstanding (pro forma); 9,569,349 (pro forma as adjusted) |
| | | | 1,038 | | | | | | — | | | | | | 1,038 | | | | | | (83) | | | | | | 955 | | |
Additional paid-in capital
|
| | | | 27,481,023 | | | | | | 102,083 | | | | | | 27,583,106 | | | | | | 19,422,189 | | | | | | 47,005,295 | | |
Accumulated deficit
|
| | | | (33,345,997) | | | | | | (1,284,027) | | | | | | (34,630,024) | | | | | | — | | | | | | (34,630,024) | | |
Total stockholders’ equity (deficit)
|
| | | $ | (5,857,645) | | | | | $ | (1,181,944) | | | | | $ | (7,039,589) | | | | | $ | 19,415,815 | | | | | $ | 12,376,226 | | |
Total capitalization
|
| | | $ | 8,251,396 | | | | | $ | (209,249) | | | | | $ | 8,042,147 | | | | | $ | 16,000,000 | | | | | $ | 24,042,147 | | |
|
Assumed public offering price per share
|
| | | | | | | | | $ | 5.00 | | |
|
Pro forma net tangible book value per share as of December 31, 2020
|
| | | $ | (2.91) | | | | | | | | |
|
Increase in pro forma net tangible book value in this offering
|
| | | $ | 1.49 | | | | | | | | |
|
Pro forma net tangible book value per share after this offering
|
| | | | | | | | | $ | (1.42) | | |
|
Dilution in pro forma net tangible book value per share to new investors in this
offering |
| | | | | | | | | $ | 3.58 | | |
| | |
Shares Purchased
|
| |
Total Consisderation
|
| |
Average
Price Per Share |
| |||||||||||||||||||||
| | |
Number
|
| |
Percentage
|
| |
Number
|
| |
Percentage
|
| ||||||||||||||||||
Existing Stockholders
|
| | | | 7,569,349 | | | | | | 79.1% | | | | | $ | 19,453,996 | | | | | | 66.0% | | | | | $ | 2.57 | | |
New investors in this offering
|
| | | | 2,000,000 | | | | | | 20.9% | | | | | | 10,000,000 | | | | | | 34.0% | | | | | $ | 5.00 | | |
Total capitalization
|
| | | | 9,569,349 | | | | | | 100.0% | | | | | $ | 29,453,996 | | | | | | 100.0% | | | | | | | | |
| | | | | | | | |
Year Ended
December 31, |
| |||||||||
| | |
2020
Pro Forma |
| |
2020
Actual |
| |
2019
Actual |
| |||||||||
| | | | | (unaudited) | | | | | | | | | | | | | | |
Net revenues
|
| | | $ | 9,801,981 | | | | | $ | 5,239,437 | | | | | $ | 3,034,216 | | |
Cost of net revenues
|
| | | | 6,603,865 | | | | | | 4,685,755 | | | | | | 1,626,505 | | |
Gross profit
|
| | | | 3,198,116 | | | | | | 553,682 | | | | | | 1,407,711 | | |
Operating expenses
|
| | | | 15,316,886 | | | | | | 9,701,572 | | | | | | 6,255,180 | | |
Operating loss
|
| | | | (12,118,771) | | | | | | (9,147,890) | | | | | | (4,847,469) | | |
Other expenses
|
| | | | (2,214,320) | | | | | | (1,566,764) | | | | | | (805,704) | | |
Loss before provision for income taxes
|
| | | | (14,333,091) | | | | | | (10,714,654) | | | | | | (5,653,173) | | |
Provision for income taxes
|
| | | | 13,641 | | | | | | 13,641 | | | | | | 800 | | |
Net loss
|
| | | $ | (14,346,732) | | | | | $ | (10,728,295) | | | | | $ | (5,653,973) | | |
| | |
As of
December 31, 2020 |
| |||||||||
| | |
Actual
|
| |
Pro Forma
|
| ||||||
| | | | | | | | |
(unaudited)
|
| |||
Total cash
|
| | | $ | 575,986 | | | | | $ | 627,301 | | |
Total current assets
|
| | | | 2,008,656 | | | | | | 2,226,773 | | |
Total assets
|
| | | | 16,352,169 | | | | | | 23,832,676 | | |
Total current liabilities including current portion of long-term debt
|
| | | | 20,278,690 | | | | | | 21,997,487 | | |
Total long-term obligations
|
| | | | 1,931,124 | | | | | | 2,342,878 | | |
Total liabilities
|
| | | | 22,209,814 | | | | | | 24,334,365 | | |
Total stockholders’ deficit
|
| | | | (5,857,645) | | | | | | (501,689) | | |
Total liabilities and stockholders’ deficit
|
| | | $ | 16,352,169 | | | | | $ | 23,832,676 | | |
| | |
DBG
|
| |
Bailey
|
| |
H&J
|
| |
Total
|
| |
Pro Forma
Adjustments |
| |
Pro Forma
Combined |
| ||||||||||||||||||
Net revenues
|
| | | $ | 5,239,437 | | | | | $ | 2,019,823 | | | | | $ | 2,542,721 | | | | | $ | 9,801,981 | | | | | $ | — | | | | | $ | 9,801,981 | | |
Cost of net revenues
|
| | | | 4,685,755 | | | | | | 1,020,237 | | | | | | 897,873 | | | | | | 6,603,865 | | | | | | — | | | | | | 6,603,865 | | |
Gross profit
|
| | | | 553,682 | | | | | | 999,586 | | | | | | 1,644,848 | | | | | | 3,198,116 | | | | | | — | | | | | | 3,198,116 | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative
|
| | | | 7,149,210 | | | | | | 1,439,879 | | | | | | 1,044,397 | | | | | | 9,633,486 | | | | | | 1,484,257(a) | | | | | | 11,117,743 | | |
Sales and marketing
|
| | | | 576,469 | | | | | | 483,657 | | | | | | 1,163,124 | | | | | | 2,223,251 | | | | | | — | | | | | | 2,223,251 | | |
Distribution
|
| | | | 342,466 | | | | | | — | | | | | | — | | | | | | 342,466 | | | | | | — | | | | | | 342,466 | | |
Loss on disposal of property and equipment
|
| | | | 848,927 | | | | | | — | | | | | | — | | | | | | 848,927 | | | | | | — | | | | | | 848,927 | | |
Impairment of intangible assets
|
| | | | 784,500 | | | | | | — | | | | | | — | | | | | | 784,500 | | | | | | — | | | | | | 784,500 | | |
Total operating expenses
|
| | | | 9,701,572 | | | | | | 1,923,536 | | | | | | 2,207,521 | | | | | | 13,832,629 | | | | | | 1,484,257 | | | | | | 15,316,886 | | |
Loss from operations
|
| | | | (9,147,890) | | | | | | (923,950) | | | | | | (562,673) | | | | | | (10,634,514) | | | | | | (1,484,257) | | | | | | (12,118,771) | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense
|
| | | | (1,599,518) | | | | | | (25,396) | | | | | | (92,270) | | | | | | (1,717,184) | | | | | | (540,000)(b) | | | | | | (2,257,184) | | |
Gain on forgiveness of debt
|
| | | | — | | | | | | — | | | | | | 225,388 | | | | | | 225,388 | | | | | | (225,388)(d) | | | | | | — | | |
Other non-operating income (expenses)
|
| | | | 32,754 | | | | | | — | | | | | | 10,110 | | | | | | 42,864 | | | | | | — | | | | | | 42,864 | | |
Total other income (expense), net
|
| | | | (1,566,764) | | | | | | (25,396) | | | | | | 143,228 | | | | | | (1,448,932) | | | | | | (765,388) | | | | | | (2,214,320) | | |
Provision for income taxes
|
| | | | 13,641 | | | | | | — | | | | | | — | | | | | | 13,641 | | | | | | — | | | | | | 13,641 | | |
Net loss
|
| | | $ | (10,728,295) | | | | | $ | (949,346) | | | | | $ | (419,446) | | | | | $ | (12,097,087) | | | | | $ | (2,249,645) | | | | | $ | (14,346,732) | | |
| | |
DBG
|
| |
Bailey
|
| |
H&J
|
| |
Total
|
| |
Pro Forma
Adjustments |
| |
Pro Forma
Combined |
| ||||||||||||||||||
Net revenues
|
| | | $ | 3,034,216 | | | | | $ | 27,099,718 | | | | | $ | 3,325,761 | | | | | $ | 33,459,695 | | | | | $ | — | | | | | $ | 33,459,695 | | |
Cost of net revenues
|
| | | | 1,626,505 | | | | | | 12,663,514 | | | | | | 1,202,819 | | | | | | 15,492,838 | | | | | | — | | | | | | 15,492,838 | | |
Gross profit
|
| | | | 1,407,711 | | | | | | 14,436,204 | | | | | | 2,122,943 | | | | | | 17,966,858 | | | | | | — | | | | | | 17,966,858 | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative
|
| | | | 4,584,010 | | | | | | 14,524,832 | | | | | | 717,901 | | | | | | 19,826,743 | | | | | | 1,797,781(a) | | | | | | 21,624,524 | | |
Sales and marketing
|
| | | | 869,285 | | | | | | 4,535,276 | | | | | | 1,577,478 | | | | | | 6,982,039 | | | | | | — | | | | | | 6,982,039 | | |
Distribution
|
| | | | 801,885 | | | | | | — | | | | | | — | | | | | | 801,885 | | | | | | — | | | | | | 801,885 | | |
Loss on disposal of property and equipment
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Impairment of intangible assets
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Total operating
expenses |
| | | | 6,255,180 | | | | | | 19,060,108 | | | | | | 2,295,379 | | | | | | 27,610,667 | | | | | | 1,797,781 | | | | | | 29,408,449 | | |
Loss from operations
|
| | | | (4,847,469) | | | | | | (4,623,904) | | | | | | (172,437) | | | | | | (9,643,810) | | | | | | (1,797,781) | | | | | | (11,441,591) | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense
|
| | | | (772,592) | | | | | | (103,520) | | | | | | (53,955) | | | | | | (930,067) | | | | | | (540,000)(b) | | | | | | (1,470,067) | | |
Other non-operating income (expenses)
|
| | | | (33,112) | | | | | | (49,558) | | | | | | 50,000 | | | | | | (32,670) | | | | | | — | | | | | | (32,670) | | |
Total other income (expense), net
|
| | | | (805,704) | | | | | | (153,078) | | | | | | (3,955) | | | | | | (962,737) | | | | | | (540,000) | | | | | | (1,502,737) | | |
Provision for income taxes
|
| | | | 800 | | | | | | 14,890 | | | | | | — | | | | | | 15,690 | | | | | | — | | | | | | 15,690 | | |
Net loss
|
| | | $ | (5,653,973) | | | | | $ | (4,791,872) | | | | | $ | (176,391) | | | | | $ | (10,622,236) | | | | | $ | (2,337,781) | | | | | $ | (12,960,018) | | |
| | |
DBG
|
| |
H&J
|
| |
Total
|
| |
Pro Forma
Adjustments |
| | | | |
Pro Forma
Combined |
| |||||||||||||||
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents
|
| | | $ | 575,986 | | | | | $ | 51,315 | | | | | $ | 627,301 | | | | | $ | — | | | | | | | | $ | 627,301 | | |
Accounts receivable, net
|
| | | | 35,532 | | | | | | 38,689 | | | | | | 74,221 | | | | | | — | | | | | | | | | 74,221 | | |
Due from factor, net
|
| | | | 210,033 | | | | | | — | | | | | | 210,033 | | | | | | — | | | | | | | | | 210,033 | | |
Inventory
|
| | | | 1,163,279 | | | | | | 73,690 | | | | | | 1,236,969 | | | | | | — | | | | | | | | | 1,236,969 | | |
Prepaid expenses
|
| | | | 23,826 | | | | | | 54,423 | | | | | | 78,249 | | | | | | — | | | | | | | | | 78,249 | | |
Total current assets
|
| | | | 2,008,656 | | | | | | 218,117 | | | | | | 2,226,773 | | | | | | — | | | | | | | | | 2,226,773 | | |
Deferred offering costs
|
| | | | 214,647 | | | | | | — | | | | | | 214,647 | | | | | | — | | | | | | | | | 214,647 | | |
Property, equipment and software, net
|
| | | | 62,313 | | | | | | 140,074 | | | | | | 202,387 | | | | | | (202,387) | | | |
(a)
|
| | | | — | | |
Goodwill
|
| | | | 6,479,218 | | | | | | — | | | | | | 6,479,218 | | | | | | 2,995,407 | | | |
(c)
|
| | | | 9,474,625 | | |
Intangible assets, net
|
| | | | 7,494,667 | | | | | | — | | | | | | 7,494,667 | | | | | | 4,324,880 | | | |
(a), (c)
|
| | | | 11,819,547 | | |
Deposits
|
| | | | 92,668 | | | | | | 4,416 | | | | | | 97,084 | | | | | | — | | | | | | | | | 97,084 | | |
Total assets
|
| | | $ | 16,352,169 | | | | | $ | 362,607 | | | | | $ | 16,714,776 | | | | | $ | 7,117,900 | | | | | | | | $ | 23,832,676 | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable
|
| | | $ | 5,668,703 | | | | | $ | 187,516 | | | | | $ | 5,856,219 | | | | | $ | — | | | | | | | | $ | 5,856,219 | | |
Accrued expenses and other liabilities
|
| | | | 1,245,646 | | | | | | 119,538 | | | | | | 1,365,184 | | | | | | — | | | | | | | | | 1,365,184 | | |
Deferred revenue
|
| | | | 1,667 | | | | | | 264,802 | | | | | | 266,469 | | | | | | — | | | | | | | | | 266,469 | | |
Due to related parites
|
| | | | 441,453 | | | | | | — | | | | | | 441,453 | | | | | | — | | | | | | | | | 441,453 | | |
Convertible notes, current
|
| | | | 700,000 | | | | | | — | | | | | | 700,000 | | | | | | — | | | | | | | | | 700,000 | | |
Accrued interest payable
|
| | | | 737,039 | | | | | | — | | | | | | 737,039 | | | | | | 1,080,000 | | | |
(b)
|
| | | | 1,817,039 | | |
Note payable – related party
|
| | | | 137,856 | | | | | | — | | | | | | 137,856 | | | | | | — | | | | | | | | | 137,856 | | |
Venture debt, net of discount
|
| | | | 5,854,326 | | | | | | — | | | | | | 5,854,326 | | | | | | — | | | | | | | | | 5,854,326 | | |
Loan payable, current
|
| | | | 992,000 | | | | | | 60,941 | | | | | | 1,052,941 | | | | | | — | | | | | | | | | 1,052,941 | | |
Promissory note payable
|
| | | | 4,500,000 | | | | | | — | | | | | | 4,500,000 | | | | | | — | | | | | | | | | 4,500,000 | | |
Total current liabilities
|
| | | | 20,278,690 | | | | | | 632,797 | | | | | | 20,911,487 | | | | | | 1,080,000 | | | | | | | | | 21,991,487 | | |
Convertible notes
|
| | | | 1,215,815 | | | | | | — | | | | | | 1,215,815 | | | | | | — | | | | | | | | | 1,215,815 | | |
Note payable – related party
|
| | | | — | | | | | | 635,000 | | | | | | 635,000 | | | | | | (500,000) | | | |
(c)
|
| | | | 135,000 | | |
Loan payable
|
| | | | 709,044 | | | | | | 276,754 | | | | | | 985,798 | | | | | | — | | | | | | | | | 985,798 | | |
Warrant liability
|
| | | | 6,265 | | | | | | — | | | | | | 6,265 | | | | | | — | | | | | | | | | 6,265 | | |
Total liabilities
|
| | | | 22,209,814 | | | | | | 1,544,551 | | | | | | 23,754,365 | | | | | | 580,000 | | | | | | | | | 24,334,365 | | |
Commitments and contingencies (Note 13)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ deficit: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Series Seed convertible preferred
stock |
| | | | 2,071 | | | | | | — | | | | | | 2,071 | | | | | | — | | | | | | | | | 2,071 | | |
Series A convertible preferred stock
|
| | | | 565 | | | | | | — | | | | | | 565 | | | | | | — | | | | | | | | | 565 | | |
Series A-2 convertible preferred
stock |
| | | | 593 | | | | | | — | | | | | | 593 | | | | | | — | | | | | | | | | 593 | | |
Series A-3 convertible preferred
stock |
| | | | 904 | | | | | | — | | | | | | 904 | | | | | | — | | | | | | | | | 904 | | |
Series CF convertible preferred stock
|
| | | | 83 | | | | | | — | | | | | | 83 | | | | | | — | | | | | | | | | 83 | | |
Series B convertible preferred stock
|
| | | | 2,075 | | | | | | — | | | | | | 2,075 | | | | | | — | | | | | | | | | 2,075 | | |
Common stock
|
| | | | 1,038 | | | | | | — | | | | | | 1,038 | | | | | | 15,167 | | | |
(c)
|
| | | | 16,205 | | |
Additional paid-in capital
|
| | | | 27,481,023 | | | | | | 102,083 | | | | | | 27,583,106 | | | | | | 8,982,750 | | | |
(c)
|
| | | | 36,565,856 | | |
Accumulated deficit
|
| | | | (33,345,997) | | | | | | (1,284,027) | | | | | | (34,630,024) | | | | | | (2,460,017) | | | | | | | | | (37,090,041) | | |
Total stockholders’ deficit
|
| | | | (5,857,645) | | | | | | (1,181,944) | | | | | | (7,039,589) | | | | | | 6,537,900 | | | | | | | | | (501,689) | | |
Total liabilities and stockholders’ deficit
|
| | | $ | 16,352,169 | | | | | $ | 362,607 | | | | | $ | 16,714,776 | | | | | $ | 7,117,900 | | | | | | | | $ | 23,832,676 | | |
|
Series B preferred stock
|
| | | $ | 11,000,000 | | |
|
Promissory note payable
|
| | | | 4,500,000 | | |
|
Purchase price consideration
|
| | | $ | 15,500,000 | | |
| | |
Preliminary
Purchase Price Allocation |
| |||
Assets acquired
|
| | | $ | 4,705,086 | | |
Goodwill
|
| | | | 6,479,218 | | |
Intangible assets
|
| | | | 8,600,000 | | |
Liabilities assumed
|
| | | | (4,284,304) | | |
Purchase price consideration
|
| | | $ | 15,500,000 | | |
|
Common stock
|
| | | $ | 9,100,000 | | |
|
Purchase price consideration
|
| | | $ | 9,100,000 | | |
| | |
Preliminary
Purchase Price Allocation |
| |||
Assets acquired
|
| | | $ | 362,607 | | |
Goodwill
|
| | | | 2,995,407 | | |
Intangible assets
|
| | | | 6,888,620 | | |
Liabilities assumed
|
| | | | (1,146,634) | | |
Purchase price consideration
|
| | | $ | 9,100,000 | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net revenues
|
| | | $ | 5,239,437 | | | | | $ | 3,034,216 | | |
Cost of net revenues
|
| | | | 4,685,755 | | | | | | 1,626,505 | | |
Gross profit
|
| | | | 553,682 | | | | | | 1,407,711 | | |
Operating expenses
|
| | | | 9,701,572 | | | | | | 6,255,180 | | |
Operating loss
|
| | | | (9,147,890) | | | | | | (4,847,469) | | |
Other expenses
|
| | | | (1,566,764) | | | | | | (805,704) | | |
Loss before provision for income taxes
|
| | | | (10,714,654) | | | | | | (5,653,173) | | |
Provision for income taxes
|
| | | | 13,641 | | | | | | 800 | | |
Net loss
|
| | | $ | (10,728,295) | | | | | $ | (5,653,973) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net cash provided by operating activities: | | | | ||||||||||
Net loss
|
| | | $ | (10,728,295) | | | | | $ | (5,653,973) | | |
Non-cash adjustments
|
| | | $ | 2,413,918 | | | | | $ | 371,324 | | |
Change in operating assets and liabilities
|
| | | $ | 6,252,790 | | | | | $ | 1,413,284 | | |
Net cash used in operating activities
|
| | | $ | (2,061,587) | | | | | $ | (3,869,365) | | |
Net cash used in investing activities
|
| | | $ | 204,884 | | | | | $ | 6,642 | | |
Net cash provided by financing activities
|
| | | $ | 2,392,220 | | | | | $ | 3,318,711 | | |
Net change in cash
|
| | | $ | 535,517 | | | | | $ | (544,012) | | |
| | |
December 31,
|
| |||||||||
Statement of Operations
|
| |
2019
|
| |
2018
|
| ||||||
Net revenue
|
| | | $ | 27,099,718 | | | | | $ | 29,037,497 | | |
Cost of net revenue
|
| | | $ | 12,663,514 | | | | | $ | 13,451,654 | | |
Gross profit
|
| | | $ | 14,436,204 | | | | | $ | 15,585,843 | | |
Operating expenses
|
| | | $ | 19,060,108 | | | | | $ | 17,756,807 | | |
Operating income
|
| | | $ | (4,623,904) | | | | | $ | (2,170,964) | | |
Other expense
|
| | | $ | (153,078) | | | | | $ | (531,599) | | |
Loss before provision for income taxes
|
| | | $ | (4,776,982) | | | | | $ | (2,702,563) | | |
Provision for income taxes
|
| | | $ | (14,890) | | | | | $ | (13,390) | | |
Net loss
|
| | | $ | (4,791,872) | | | | | $ | (2,715,953) | | |
| | |
December 31,
|
| |||||||||
| | |
2019
|
| |
2018
|
| ||||||
Net cash used in operating activities: | | | | | | | | | | | | | |
Net loss
|
| | | $ | (4,791,872) | | | | | $ | (2,715,953) | | |
Non-cash adjustments
|
| | | $ | 636,401 | | | | | $ | 469,318 | | |
Change in operating assets and liabilities
|
| | | $ | 2,269,173 | | | | | $ | 1,622,885 | | |
Net cash used in operating activities
|
| | | $ | (1,886,298) | | | | | $ | (623,750) | | |
Net cash used in investing activities
|
| | | $ | (557,328) | | | | | $ | (185,970) | | |
Net cash provided by financing activities
|
| | | $ | 1,840,039 | | | | | $ | 349,514 | | |
Net change in cash
|
| | | $ | (603,587) | | | | | $ | (460,206) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net revenues
|
| | | $ | 2,542,721 | | | | | $ | 3,325,761 | | |
Cost of net revenues
|
| | | | 897,873 | | | | | | 1,202,819 | | |
Gross profit
|
| | | | 1,644,848 | | | | | | 2,122,943 | | |
Operating expenses
|
| | | | 2,207,521 | | | | | | 2,295,379 | | |
Operating loss
|
| | | | (562,673) | | | | | | (172,437) | | |
Other expenses
|
| | | | 143,228 | | | | | | (3,955) | | |
Loss before provision for income taxes
|
| | | | (419,446) | | | | | | (176,391) | | |
Provision for income taxes
|
| | | | — | | | | | | — | | |
Net loss
|
| | | $ | (419,446) | | | | | $ | (176,391) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net cash provided by operating activities: | | | | | | | | | | | | | |
Net Loss
|
| | | $ | (419,446) | | | | | $ | (176,391) | | |
Non-cash adjustments
|
| | | $ | (33,742) | | | | | $ | 82,422 | | |
Change in operating assets and liabilities
|
| | | $ | 61,146 | | | | | $ | 115,377 | | |
Net cash used in operating activities
|
| | | $ | (392,042) | | | | | $ | 21,407 | | |
Net cash used in investing activities
|
| | | $ | (65,750) | | | | | $ | (254,437) | | |
Net cash provided by financing activities
|
| | | $ | 490,598 | | | | | $ | 237,002 | | |
Net change in cash
|
| | | $ | 32,806 | | | | | $ | 3,972 | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net revenues
|
| | | $ | 9,801,981 | | | | | $ | 33,459,695 | | |
Cost of net revenues
|
| | | | 6,603,865 | | | | | | 15,492,838 | | |
Gross profit
|
| | | | 3,198,116 | | | | | | 17,966,858 | | |
Operating expenses
|
| | | | 15,316,886 | | | | | | 29,408,449 | | |
Operating loss
|
| | | | (12,118,771) | | | | | | (11,441,591) | | |
Other expenses
|
| | | | (2,214,320) | | | | | | (1,502,737) | | |
Loss before provision for income taxes
|
| | | | (14,333,091) | | | | | | (12,944,328) | | |
Provision for income taxes
|
| | | | 13,641 | | | | | | 15,690 | | |
Net loss
|
| | | $ | (14,346,732) | | | | | $ | (12,960,018) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net cash provided by operating activities: | | | | | | | | | | | | | |
Net Loss
|
| | | $ | (14,121,344) | | | | | $ | (12,960,017) | | |
Non-cash adjustments
|
| | | $ | 3,913,836 | | | | | $ | 2,887,928 | | |
Change in operating assets and liabilities
|
| | | $ | 6,952,663 | | | | | $ | 4,337,833 | | |
Net cash used in operating activities
|
| | | $ | (3,254,845) | | | | | $ | (5,734,256) | | |
Net cash used in investing activities
|
| | | $ | 139,134 | | | | | $ | (805,123) | | |
Net cash provided by financing activities
|
| | | $ | 3,382,818 | | | | | $ | 5,395,752 | | |
Net change in cash
|
| | | $ | 267,107 | | | | | $ | (1,143,627) | | |
Location
|
| |
Type
|
| |
Square
Footage (approximate) |
| |
Lease
Expiration |
| ||||||
Vernon, California
|
| |
Corporate Warehouse and Distribution Center
|
| | | | 42,206 | | | | | | 2023 | | |
Los Angeles, California
|
| | Showroom | | | | | 2,000 | | | | | | 2020(1) | | |
Austin, Texas
|
| | Interim Corporate Headquarters | | | | | 500 | | | | | | 2021(2) | | |
Dallas, Texas
|
| | Office Space and Showroom | | | | | 2,860 | | | | | | 2022 | | |
Houston, Texas
|
| | Showroom | | | | | 1,117 | | | | | | 2021 | | |
New Orleans, Louisiana
|
| | Showroom | | | | | 1,015 | | | | | | 2021 | | |
Name
|
| |
Age
|
| |
Position
|
|
Executive Officers and Directors | | | | | | | |
John “Hil” Davis
|
| | 48 | | | President and Chief Executive Officer | |
Laura Dowling
|
| | 42 | | | Chief Marketing Officer | |
Reid Yeoman
|
| | 38 | | | Chief Financial Officer | |
Mark T. Lynn
|
| | 37 | | | Director | |
Trevor Pettennude
|
| | 53 | | | Director | |
Director Nominees | | | | | | | |
Jameeka Aaron
|
| | 40 | | | Director Nominee | |
Moise Emquies
|
| | 59 | | | Director Nominee | |
Name and Principal Position
|
| |
Fiscal
Year |
| |
Salary(1)
|
| |
Bonus
|
| |
Option
Awards |
| |
All Other
Compensation |
| |
Total
|
| ||||||||||||||||||
John “Hil” Davis
|
| | | | 2020 | | | | | $ | 222,500 | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | ||||
President and Chief Executive Officer
|
| | | | 2019 | | | | | $ | 180,000 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | | | |
Laura Dowling
|
| | | | 2020 | | | | | $ | 258,231 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | | | |
Chief Marketing Officer
|
| | | | 2019 | | | | | $ | 211,538 | | | | | $ | — | | | | | $ | 16,836 | | | | | $ | — | | | | | $ | | | |
Reid Yeoman
|
| | | | 2020 | | | | | $ | 225,000 | | | | | $ | — | | | | | $ | — | | | | | $ | — | | | | | $ | | | |
Chief Financial Officer(1)
|
| | | | 2019 | | | | | $ | 34,615 | | | | | $ | — | | | | | $ | 12,078 | | | | | $ | — | | | | | $ | | | |
Name
|
| |
Title
|
| |
Description
|
| |
Total amount
owed as of March 2021 |
| |
Cash be paid
with net proceeds |
| |
Amounts to be
converted |
| |
Shares to
be issued upon conversion |
| ||||||||||||
Mark Lynn
|
| | Director | | | Salary owed | | | | $ | 194,568 | | | | | $ | 144,568 | | | | | $ | 50,000 | | | | | | 14,286 | | |
Hil Davis
|
| |
Chief Executive
Officer / Chairman |
| |
Salary / expenses not reimbursed;
short term loan payable |
| | | $ | 369,741 | | | | | | | | | | | $ | 369,741 | | | | | | 105,641 | | |
Laura Dowling
|
| |
Chief Marketing
Officer |
| | Unreimbursed moving / relocation expenses; additional outstanding sign-on bonus | | | | $ | 127,706 | | | | | $ | 127,706 | | | | | | — | | | | | | — | | |
Trevor Pettennude
|
| | Director | | | Short-term loan payable | | | | $ | 22,856 | | | | | | | | | | | $ | 22,856 | | | | | | 6,530 | | |
| | |
Immediately Before Offering
|
| |
Immediately After Offering
|
| ||||||||||||||||||
Name of Beneficial Owner
|
| |
Number of
Shares Beneficially Owned |
| |
Percentage of
Shares Outstanding |
| |
Number of
Shares Beneficially Owned |
| |
Percentage of
Shares Outstanding |
| ||||||||||||
Executive Officers and Directors | | | | | | | | | | | | | | | | | | | | | | | | | |
John “Hil” Davis(1)(2)
|
| | | | 1,713,641 | | | | | | 18.8% | | | | | | 1,713,641 | | | | | | 15.4% | | |
Laura Dowling(1)(3)
|
| | | | 334,667 | | | | | | 4.3% | | | | | | 334,667 | | | | | | 3.4% | | |
Reid Yeoman(1)(4)
|
| | | | 114,000 | | | | | | 1.5% | | | | | | 114,000 | | | | | | 1.2% | | |
Mark Lynn(2)(5)
|
| | | | 507,386 | | | | | | 6.5% | | | | | | 507,386 | | | | | | 5.2% | | |
Trevor Pettennude(2)(6)
|
| | | | 328,625 | | | | | | 4.3% | | | | | | 328,625 | | | | | | 3.4% | | |
Director Nominees(7) | | | | | | | | | | | | | | | | | | | | | | | | | |
Jameeka Aaron
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Moise Emquies
|
| | | | | | | | | | | | | | | | | | | | | | | | |
All executive officers, directors and director nominees as a group (7 persons)(2)(8)
|
| | | | 2,998,319 | | | | | | 30.0% | | | | | | 2,998,319 | | | | | | 25.0% | | |
Additional 5% Stockholders | | | | | | | | | | | | | | | | | | | | | | | | | |
Drew Jones(9)
|
| | | | 1,820,000 | | | | | | 24.2% | | | | | | 1,820,000 | | | | | | 24.2% | | |
2736 Routh Street
Dallas, Texas 75201 |
| | | | | | | | | |
Underwriter
|
| |
Number of
Shares of common stock and warrants |
| |||
Kingswood Capital Markets, division of Benchmark Investments, Inc.
|
| | | | | | |
Total
|
| | | | 2,000,000 | | |
| | |
Per Share
and Warrant |
| |
Total
Without Exercise of Over- Allotment Option |
| |
Total With
Exercise of Over- Allotment Option |
| |||||||||
Public offering price
|
| | | $ | 5.00 | | | | | $ | | | | | $ | | | ||
Underwriting discount and commissions
|
| | | $ | | | | | $ | | | | | $ | | | |||
Nonaccountable expense allowance (1%)
|
| | | $ | | | | | | $ | | | | | | $ | | | |
Proceeds, before expenses, to DBG
|
| | | $ | | | | | $ | | | | | $ | | | |
| | |
Page
|
| |||
| | | | F-2 | | | |
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 AND 2019 AND FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019:
|
| | | | | | |
| | | | F-3 – F-4 | | | |
| | | | F-5 | | | |
| | | | F-6 | | | |
| | | | F-7 | | | |
| | | | F-9 – F-32 | | |
|
/s/ dbbmckennon
|
| | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
ASSETS | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | |
Cash and cash equivalents
|
| | | $ | 575,986 | | | | | $ | 40,469 | | |
Accounts receivable, net
|
| | | | 35,532 | | | | | | — | | |
Due from factor, net
|
| | | | 210,033 | | | | | | — | | |
Inventory
|
| | | | 1,163,279 | | | | | | 1,061,969 | | |
Prepaid expenses
|
| | | | 23,826 | | | | | | 63,516 | | |
Total current assets
|
| | | | 2,008,656 | | | | | | 1,165,954 | | |
Deferred offering costs
|
| | | | 214,647 | | | | | | | | |
Property, equipment and software, net
|
| | | | 62,313 | | | | | | 72,593 | | |
Goodwill
|
| | | | 6,479,218 | | | | | | — | | |
Intangible assets, net
|
| | | | 7,494,667 | | | | | | — | | |
Deposits
|
| | | | 92,668 | | | | | | 43,510 | | |
Total assets
|
| | | $ | 16,352,169 | | | | | $ | 1,282,057 | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | |
Accounts payable
|
| | | $ | 5,668,703 | | | | | $ | 1,597,770 | | |
Accrued expenses and other liabilities
|
| | | | 1,245,646 | | | | | | 1,121,317 | | |
Deferred revenue
|
| | | | 1,667 | | | | | | 15,231 | | |
Due to related parties
|
| | | | 441,453 | | | | | | 263,427 | | |
Convertible notes, current
|
| | | | 700,000 | | | | | | — | | |
Accrued interest payable
|
| | | | 737,039 | | | | | | 129,982 | | |
Note payable – related party
|
| | | | 137,856 | | | | | | 115,000 | | |
Venture debt, net of discount
|
| | | | 5,854,326 | | | | | | 4,382,549 | | |
Loan payable, current
|
| | | | 992,000 | | | | | | — | | |
Promissory note payable
|
| | | | 4,500,000 | | | | | | — | | |
Total current liabilities
|
| | | | 20,278,690 | | | | | | 7,625,276 | | |
Convertible notes
|
| | | | 1,215,815 | | | | | | 799,280 | | |
Loan payable
|
| | | | 709,044 | | | | | | — | | |
Warrant liability
|
| | | | 6,265 | | | | | | 7,700 | | |
Total liabilities
|
| | | | 22,209,814 | | | | | | 8,432,256 | | |
Commitments and contingencies (Note 13) | | | | | | | | | | | | | |
Stockholders’ deficit: | | | | | | | | | | | | | |
Series Seed convertible preferred stock, $0.0001 par, 20,714,518 shares
authorized, 20,714,518 shares issued and outstanding at both December 31, 2020 and 2019. Convertible into one share of common stock. Liquidation preference of $5,633,855 as of both December 31, 2020 and 2019 |
| | | | 2,071 | | | | | | 2,071 | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Series A convertible preferred stock, $0.0001 par, 14,481,413 shares
authorized, 5,654,072 shares issued and outstanding at both December 31, 2020 and 2019. Convertible into one share of common stock. Liquidation preference of $2,713,955 as of both December 31, 2020 and 2019 |
| | | | 565 | | | | | | 565 | | |
Series A-2 convertible preferred stock, $0.0001 par, 20,000,000 shares
authorized, 5,932,742 shares issued and outstanding at both December 31, 2020 and 2019. Convertible into one share of common stock. Liquidation preference of $2,966,371 as of both December 31, 2020 and 2019 |
| | | | 593 | | | | | | 593 | | |
Series A-3 convertible preferred stock, $0.0001 par, 18,867,925 shares
authorized, 9,032,330 and 8,223,036 shares issued and outstanding at December 31, 2020 and 2019, respectively. Convertible into one share of common stock. Liquidation preference of $4,787,135 and $4,358,209 as of December 31, 2020 and 2019, respectively |
| | | | 904 | | | | | | 823 | | |
Series CF convertible preferred stock, $0.0001 par, 2,000,000 shares authorized, 836,331 and 126,641 shares
issued and outstanding at December 31, 2020 and 2019, respectively. Convertible into one share of common stock. Liquidation preference of $434,890 and $65,863 as of December 31, 2020 and 2019, respectively |
| | | | 83 | | | | | | 12 | | |
Series B convertible preferred stock, $0.0001 par, 20,754,717 shares authorized, 20,754,717 and no shares
issued and outstanding at December 31, 2020 and 2019, respectively. Convertible into one share of common stock. Liquidation preference of $11,000,000 and $0 as of December 31, 2020 and 2019, respectively |
| | | | 2,075 | | | | | | — | | |
Undesignated preferred stock, $0.0001 par, 936,144 shares authorized, 0 and
0 shares issued and outstanding as of December 31, 2020 and 2019, respectively |
| | | ||||||||||
Common stock, $0.0001 par, 200,000,000 shares authorized, 10,377,615 and
10,377,615 shares issued and outstanding as of both December 31, 2020 and 2019 |
| | | | 1,038 | | | | | | 1,038 | | |
Additional paid-in capital
|
| | | | 27,481,023 | | | | | | 15,485,078 | | |
Subscription receivable
|
| | | | — | | | | | | (22,677) | | |
Accumulated deficit
|
| | | | (33,345,997) | | | | | | (22,617,702) | | |
Total stockholders’ deficit
|
| | | | (5,857,645) | | | | | | (7,150,199) | | |
Total liabilities and stockholders’ deficit
|
| | | $ | 16,352,169 | | | | | $ | 1,282,057 | | |
|
| | |
Years Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net revenues
|
| | | $ | 5,239,437 | | | | | $ | 3,034,216 | | |
Cost of net revenues
|
| | | | 4,685,755 | | | | | | 1,626,505 | | |
Gross profit
|
| | | | 553,682 | | | | | | 1,407,711 | | |
Operating expenses: | | | | | | | | | | | | | |
General and administrative
|
| | | | 7,149,210 | | | | | | 4,584,010 | | |
Sales and marketing
|
| | | | 576,469 | | | | | | 869,285 | | |
Distribution
|
| | | | 342,466 | | | | | | 801,885 | | |
Loss on disposal of property and equipment
|
| | | | 848,927 | | | | | | — | | |
Impairment of intangible assets
|
| | | | 784,500 | | | | | | — | | |
Total operating expenses
|
| | | | 9,701,572 | | | | | | 6,255,180 | | |
Loss from operations
|
| | | | (9,147,890) | | | | | | (4,847,469) | | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense
|
| | | | (1,599,518) | | | | | | (772,592) | | |
Other non-operating income (expenses)
|
| | | | 32,754 | | | | | | (33,112) | | |
Total other income (expense), net
|
| | | | (1,566,764) | | | | | | (805,704) | | |
Provision for income taxes
|
| | | | 13,641 | | | | | | 800 | | |
Net loss
|
| | | $ | (10,728,295) | | | | | $ | (5,653,973) | | |
Weighted average vested common shares outstanding – basic and diluted
|
| | | | 10,377,615 | | | | | | 10,377,615 | | |
Net loss per common share – basic and diluted
|
| | | $ | (1.03) | | | | | $ | (0.54) | | |
| | |
Series Seed
Preferred Stock |
| |
Series A
Preferred Stock |
| |
Series A-2
Preferred Stock |
| |
Series A-3
Preferred Stock |
| |
Series CF
Preferred Stock |
| |
Series B
Preferred Stock |
| |
Common
Stock |
| |
Additional
Paid-in Capital |
| |
Subscription
Receivable |
| |
Accumulated
Deficit |
| |
Total
Stockholders’ Deficit |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31,
2018 |
| | | | 20,714,518 | | | | | $ | 2,071 | | | | | | 5,650,903 | | | | | $ | 565 | | | | | | 5,932,742 | | | | | $ | 593 | | | | | | 3,447,608 | | | | | $ | 345 | | | | | | 124,204 | | | | | $ | 12 | | | | | | — | | | | | $ | — | | | | | | 10,377,615 | | | | | $ | 1,038 | | | | | $ | 13,241,211 | | | | | $ | (8,283) | | | | | $ | (16,963,729) | | | | | $ | (3,726,177) | | |
Stock-based compensation
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 172,491 | | | | | | — | | | | | | — | | | | | | 172,491 | | |
Issuance of Series CF preferred stock
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,437 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 8,283 | | | | | | — | | | | | | 8,283 | | |
Shares issued to holders
in prior offerings |
| | | | — | | | | | | — | | | | | | 3,169 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Issuance of Series A-3 preferred stock
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 4,775,428 | | | | | | 478 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,530,499 | | | | | | (22,677) | | | | | | — | | | | | | 2,508,300 | | |
Offering costs
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (509,051) | | | | | | — | | | | | | — | | | | | | (509,051) | | |
Fair value of warrant issuances – venture debt
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 49,928 | | | | | | — | | | | | | — | | | | | | 49,928 | | |
Net loss
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (5,653,973) | | | | | | (5,653,973) | | |
Balances at December 31,
2019 |
| | | | 20,714,518 | | | | | $ | 2,071 | | | | | | 5,654,072 | | | | | $ | 565 | | | | | | 5,932,742 | | | | | $ | 593 | | | | | | 8,223,036 | | | | | $ | 823 | | | | | | 126,641 | | | | | $ | 12 | | | | | | — | | | | | $ | — | | | | | | 10,377,615 | | | | | $ | 1,038 | | | | | $ | 15,485,078 | | | | | $ | (22,677) | | | | | $ | (22,617,702) | | | | | $ | (7,150,199) | | |
Stock-based compensation
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 144,775 | | | | | | — | | | | | | — | | | | | | 144,775 | | |
Issuance of Series CF preferred stock
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 709,690 | | | | | | 71 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 309,679 | | | | | | — | | | | | | — | | | | | | 309,750 | | |
Issuance of Series A-3 preferred stock
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 809,294 | | | | | | 81 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 428,845 | | | | | | 22,677 | | | | | | — | | | | | | 451,603 | | |
Issuance of Series B preferred stock
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 20,754,717 | | | | | | 2,075 | | | | | | — | | | | | | — | | | | | | 10,997,925 | | | | | | — | | | | | | — | | | | | | 11,000,000 | | |
Offering costs
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (69,470) | | | | | | — | | | | | | — | | | | | | (69,470) | | |
Fair value of warrant issuances – venture debt
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 184,191 | | | | | | — | | | | | | — | | | | | | 184,191 | | |
Net loss
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (10,728,295) | | | | | | (10,728,295) | | |
Balances at December 31,
2020 |
| | | | 20,714,518 | | | | | $ | 2,071 | | | | | | 5,654,072 | | | | | $ | 565 | | | | | | 5,932,742 | | | | | $ | 593 | | | | | | 9,032,330 | | | | | $ | 904 | | | | | | 836,331 | | | | | $ | 83 | | | | | | 20,754,717 | | | | | $ | 2,075 | | | | | | 10,377,615 | | | | | $ | 1,038 | | | | | $ | 27,481,023 | | | | | $ | — | | | | | $ | (33,345,997) | | | | | $ | (5,857,645) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Cash flows from operating activities: | | | | | | | | | | | | | |
Net loss
|
| | | $ | (10,728,295) | | | | | $ | (5,653,973) | | |
Adjustments to reconcile net loss to net cash used in operating activities:
|
| | | | | | | | | | | | |
Depreciation and amortization
|
| | | | 603,857 | | | | | | 48,885 | | |
Amortization of loan discount and fees
|
| | | | 241,878 | | | | | | 149,948 | | |
Stock-based compensation
|
| | | | 144,775 | | | | | | 172,491 | | |
Change in fair value of warrant liability
|
| | | | (2,353) | | | | | | — | | |
Impairment of intangible assets
|
| | | | 784,500 | | | | | | — | | |
Loss on disposal of property and equipment
|
| | | | 848,927 | | | | | | — | | |
Change in credit reserve
|
| | | | (207,666) | | | | | | — | | |
Changes in operating assets and liabilities:
|
| | | | | | | | | | | | |
Accounts receivable, net
|
| | | | 1,947 | | | | | | — | | |
Due from factor, net
|
| | | | 1,616,939 | | | | | | — | | |
Inventory
|
| | | | 3,202,350 | | | | | | 146,673 | | |
Other current assets
|
| | | | 168,589 | | | | | | 114,898 | | |
Accounts payable
|
| | | | 673,263 | | | | | | 610,216 | | |
Accrued expenses and other liabilities
|
| | | | (591,028) | | | | | | 602,384 | | |
Deferred revenue
|
| | | | (13,564) | | | | | | (259,728) | | |
Accrued compensation – related party
|
| | | | 178,026 | | | | | | 68,859 | | |
Accrued interest
|
| | | | 1,016,268 | | | | | | 129,982 | | |
Net cash used in operating activities
|
| | | | (2,061,587) | | | | | | (3,869,365) | | |
Cash flows from investing activities:
|
| | | | | | | | | | | | |
Cash acquired in business combination
|
| | | | 106,913 | | | | | | — | | |
Purchases of property and equipment
|
| | | | (864) | | | | | | (7,848) | | |
Deposits
|
| | | | 98,835 | | | | | | 14,490 | | |
Net cash provided by investing activities
|
| | | | 204,884 | | | | | | 6,642 | | |
Cash flows from financing activities:
|
| | | | | | | | | | | | |
Proceeds (repayment) – related party advances, net
|
| | | | 22,856 | | | | | | (105,812) | | |
Repayments to factor
|
| | | | (1,931,369) | | | | | | — | | |
Proceeds from venture debt
|
| | | | 1,050,000 | | | | | | 508,249 | | |
Proceeds from loans payable
|
| | | | 1,701,044 | | | | | | — | | |
Proceeds from convertible notes payable
|
| | | | 1,250,308 | | | | | | 799,280 | | |
Proceeds from sale of Series A-3 preferred stock
|
| | | | 428,926 | | | | | | 2,508,300 | | |
Subscription receivable from Series A-3 preferred stock
|
| | | | 22,677 | | | | | | — | | |
Proceeds from sale of Series CF preferred stock, net of fees
|
| | | | 309,750 | | | | | | 8,283 | | |
Offering costs
|
| | | | (461,972) | | | | | | (399,589) | | |
Net cash provided by financing activities
|
| | | | 2,392,220 | | | | | | 3,318,711 | | |
Net increase (decrease) in cash and cash equivalents
|
| | | | 535,517 | | | | | | (544,012) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Cash and cash equivalents at beginning of year
|
| | | | 40,469 | | | | | | 584,481 | | |
Cash and cash equivalents at end of year
|
| | | $ | 575,986 | | | | | $ | 40,469 | | |
Supplemental disclosure of cash flow information:
|
| | | | | | | | | | | | |
Cash paid for income taxes
|
| | | $ | — | | | | | $ | — | | |
Cash paid for interest
|
| | | $ | 264,177 | | | | | $ | 90,000 | | |
Supplemental disclosure of non-cash investing and financing activities:
|
| | | | | | | | | | | | |
Warrants issued for offering costs
|
| | | $ | 918 | | | | | $ | 6,600 | | |
Warrants issued with venture debt
|
| | | $ | 184,191 | | | | | $ | 49,928 | | |
Venture debt issued in exchange of forgiveness of accrued interest
|
| | | $ | 409,211 | | | | | $ | — | | |
Issuance of promissory note payable in acquisition
|
| | | $ | 4,500,000 | | | | | $ | — | | |
Issuance of Series B preferred stock in acquisition
|
| | | $ | 11,000,000 | | | | | $ | — | | |
| | |
Warrant
Liability |
| |||
Oustanding as of December 31, 2018
|
| | | $ | — | | |
Warrants granted
|
| | | | 7,700 | | |
Oustanding as of December 31, 2019
|
| | | | 7,700 | | |
Warrants granted
|
| | | | 918 | | |
Change in fair value
|
| | | | (2,353) | | |
Oustanding as of December 31, 2020
|
| | | $ | 6,265 | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Computer equipment
|
| | | $ | 57,810 | | | | | $ | 57,004 | | |
Furniture and fixtures
|
| | | | 207,140 | | | | | | 70,108 | | |
Leasehold improvements
|
| | | | 69,274 | | | | | | 40,351 | | |
| | | | | 334,224 | | | | | | 167,463 | | |
Accumulated depreciation
|
| | | | (334,224) | | | | | | (97,703) | | |
Property and equipment, net
|
| | | $ | — | | | | | $ | 69,760 | | |
Software
|
| | | $ | 278,405 | | | | | $ | 56,450 | | |
Accumulated amortization
|
| | | | (216,092) | | | | | | (53,617) | | |
Software, net
|
| | | $ | 62,313 | | | | | $ | 2,833 | | |
|
Customer relationships
|
| |
3 years
|
|
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Series Seed Preferred Stock (convertible to common stock)
|
| | | | 20,714,518 | | | | | | 20,714,518 | | |
Series A Preferred Stock (convertible to common stock)
|
| | | | 5,654,072 | | | | | | 5,654,072 | | |
Series A-2 Preferred Stock (convertible to common stock)
|
| | | | 5,932,742 | | | | | | 5,932,742 | | |
Series CF Preferred Stock (convertible to common stock)
|
| | | | 836,331 | | | | | | 126,641 | | |
Series A-3 Preferred Stock (convertible to common stock)
|
| | | | 9,032,330 | | | | | | 8,223,036 | | |
Series B Preferred Stock (convertible to common stock)
|
| | | | 20,754,717 | | | | | | — | | |
Common stock warrants
|
| | | | 14,289,669 | | | | | | 6,530,657 | | |
Preferred stock warrants
|
| | | | 806,903 | | | | | | 806,903 | | |
Stock options
|
| | | | 18,173,479 | | | | | | 16,940,861 | | |
Total potentially dilutive shares
|
| | | | 96,194,761 | | | | | | 64,929,430 | | |
|
Series B preferred stock
|
| | | $ | 11,000,000 | | |
|
Promissory note payable
|
| | | | 4,500,000 | | |
|
Purchase price consideration
|
| | | $ | 15,500,000 | | |
| | |
Purchase Price
Allocation |
| |||
Cash and cash equivalents
|
| | | $ | 106,913 | | |
Accounts receivable
|
| | | | 37,479 | | |
Due from/(to) factor
|
| | | | (312,063) | | |
Inventory
|
| | | | 3,303,660 | | |
Prepaid expenses
|
| | | | 165,856 | | |
Deposits
|
| | | | 187,493 | | |
Property, equipment and software
|
| | | | 1,215,748 | | |
Goodwill
|
| | | | 6,479,218 | | |
Intangible assets (Note 6)
|
| | | | 8,600,000 | | |
Accounts payable
|
| | | | (3,397,547) | | |
Accrued expenses and other liabilities
|
| | | | (886,757) | | |
Purchase price consideration
|
| | | $ | 15,500,000 | | |
| | |
Year Ended December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Net revenues
|
| | | $ | 7,259,260 | | | | | $ | 30,133,934 | | |
Net loss
|
| | | $ | (12,786,695) | | | | | $ | (11,868,423) | | |
Net loss per common share
|
| | | $ | (1.23) | | | | | $ | (1.14) | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Outstanding receivables: | | | | | | | | | | | | | |
Without recourse
|
| | | $ | 151,158 | | | | | $ | — | | |
With recourse
|
| | | | 42,945 | | | | | | — | | |
Advances
|
| | | | 56,246 | | | | | | — | | |
Credits due customers
|
| | | | (40,316) | | | | | | — | | |
| | | | $ | 210,033 | | | | | $ | — | | |
| | |
Gross
Amount |
| |
Accumulated
Amortization |
| |
Carrying
Value |
| |||||||||
Amortized: | | | | | | | | | | | | | | | | | | | |
Customer relationships
|
| | | $ | 1,100,000 | | | | | $ | (320,833) | | | | | $ | 779,167 | | |
| | | | | 1,100,000 | | | | | | (320,833) | | | | | | 779,167 | | |
Indefinite-lived: | | | | | | | | | | | | | | | | | | | |
Brand name
|
| | | | 6,715,500 | | | | | | — | | | | | | 6,715,500 | | |
| | | | $ | 7,815,500 | | | | | $ | (320,833) | | | | | $ | 7,494,667 | | |
| Year Ending December 31, | | | | | | | |
|
2021
|
| | | | 366,667 | | |
|
2022
|
| | | | 366,667 | | |
|
2023
|
| | | | 45,833 | | |
| | | | | $ | 779,167 | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Accrued expenses
|
| | | $ | 92,074 | | | | | $ | 188,341 | | |
Reserve for returns
|
| | | | 5,229 | | | | | | 100,000 | | |
Payroll related liabilities
|
| | | | 843,704 | | | | | | 412,155 | | |
Sales tax liability
|
| | | | 196,410 | | | | | | 156,707 | | |
Other liabilities
|
| | | | 108,230 | | | | | | 264,114 | | |
| | | | $ | 1,245,646 | | | | | $ | 1,121,317 | | |
| | |
Year Ended December 31,
|
| |||
| | |
2020
|
| |
2019
|
|
Risk Free Interest Rate
|
| |
0.59 – 1.59%
|
| |
1.47 – 2.49%
|
|
Expected Dividend Yield
|
| |
0.00%
|
| |
0.00%
|
|
Expected Volatility
|
| |
58.0 – 100%
|
| |
58.0 – 100%
|
|
Expected Life (years)
|
| |
10.00
|
| |
5.00
|
|
| | |
Common
Stock Warrants |
| |
Weighted
Average Exercise Price |
| ||||||
Outstanding – December 31, 2018
|
| | | | 4,197,745 | | | | | $ | 0.16 | | |
Granted
|
| | | | 2,342,912 | | | | | | 0.21 | | |
Exercised
|
| | | | — | | | | | | — | | |
Forfeited
|
| | | | (10,000) | | | | | | — | | |
Outstanding – December 31, 2019
|
| | | | 6,530,657 | | | | | $ | 0.18 | | |
Granted
|
| | | | 7,759,012 | | | | | | 0.16 | | |
Exercised
|
| | | | — | | | | | | — | | |
Forfeited
|
| | | | — | | | | | | — | | |
Outstanding – December 31, 2020
|
| | | | 14,289,669 | | | | | $ | 0.17 | | |
Exercisable at December 31, 2020
|
| | | | 14,289,669 | | | | | $ | 0.17 | | |
| | |
2019
|
| |||
Risk Free Interest Rate
|
| | | | 2.49% | | |
Expected Dividend Yield
|
| | | | 0.00% | | |
Expected Volatility
|
| | | | 58.00% | | |
Expected Life (years)
|
| | | | 5.00 | | |
| | |
Preferred
Stock Warrants |
| |
Weighted
Average Exercise Price |
| ||||||
Outstanding – December 31, 2018
|
| | | | 545,473 | | | | | $ | 0.47 | | |
Granted
|
| | | | 261,430 | | | | | | 0.53 | | |
Exercised
|
| | | | — | | | | | | — | | |
Forfeited
|
| | | | — | | | | | | — | | |
Outstanding – December 31, 2019
|
| | | | 806,903 | | | | | $ | 0.49 | | |
Exercised
|
| | | | — | | | | | | — | | |
Forfeited
|
| | | | — | | | | | | — | | |
Outstanding – December 31, 2020
|
| | | | 806,903 | | | | | $ | 0.49 | | |
Exercisable at December 31, 2020
|
| | | | 806,903 | | | | | $ | 0.49 | | |
| | |
Options
|
| |
Weighted
Average Exercise Price |
| ||||||
Outstanding – December 31, 2018
|
| | | | 17,751,416 | | | | | $ | 0.15 | | |
Granted
|
| | | | 2,633,208 | | | | | | 0.21 | | |
Exercised
|
| | | | — | | | | | | — | | |
Forfeited
|
| | | | (3,443,764) | | | | | | — | | |
Outstanding – December 31, 2019
|
| | | | 16,940,860 | | | | | $ | 0.16 | | |
Granted
|
| | | | 1,432,619 | | | | | | 0.06 | | |
Exercised
|
| | | | — | | | | | | — | | |
Forfeited
|
| | | | (200,000) | | | | | | 0.21 | | |
Outstanding – December 31, 2020
|
| | | | 18,173,479 | | | | | $ | 0.15 | | |
Exercisable at December 31, 2020
|
| | | | 13,764,922 | | | | | $ | 0.15 | | |
Weighted average grant date fair value of options granted during period
|
| | | | | | | | | $ | 0.032 | | |
Weighted average duration (years) to expiration of outstanding options at December 31, 2020
|
| | | | | | | | | | 6.02 | | |
| | |
Year Ended December 31,
|
| |||
| | |
2020
|
| |
2019
|
|
Risk Free Interest Rate
|
| |
0.42% – 0.51%
|
| |
1.59% – 2.55%
|
|
Expected Dividend Yield
|
| |
0%
|
| |
0%
|
|
Expected Volatility
|
| |
58%
|
| |
58%
|
|
Expected Life (years)
|
| |
6.25
|
| |
6.25
|
|
Weighted Average fair value of stock options granted
|
| |
$0.032
|
| |
$0.0164
|
|
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Deferred tax assets: | | | | | | | | | | | | | |
Net operating loss carryforwards
|
| | | $ | 9,134,447 | | | | | $ | 6,060,102 | | |
Stock-based compensation
|
| | | | 40,467 | | | | | | 36,829 | | |
Deferred tax liabilities: | | | | | | | | | | | | | |
Depreciation timing differences
|
| | | | (5,103) | | | | | | (5,103) | | |
Other
|
| | | | (41,198) | | | | | | (44,711) | | |
Valuation allowance
|
| | | | (9,128,614) | | | | | | (6,047,117) | | |
Net deferred tax assets
|
| | | $ | — | | | | | $ | — | | |
| | |
Pages
|
| |||
| | | | F-34 | | | |
| | | | F-37 | | | |
| | | | F-38 | | | |
| | | | F-39 | | | |
| | | | F-40 | | | |
| | | | F-41 | | |
| | |
2019
|
| |
2018
|
| ||||||
Assets | | | | | | | | | |||||
Current assets:
|
| | | | | | | | | | | | |
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | $ | 358,726 | | | | | $ | 962,313 | | |
Due from factor, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | — | | | | | | 1,312,743 | | |
Accounts receivable, net of allowance of $155,973 and $257,140 . . . . . . . . . .
|
| | | | 261,190 | | | | | | 456,510 | | |
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 3,038,185 | | | | | | 3,643,298 | | |
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 178,888 | | | | | | 236,746 | | |
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 3,836,989 | | | | | | 6,611,610 | | |
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 1,265,152 | | | | | | 1,242,158 | | |
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 151,049 | | | | | | 240,919 | | |
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | $ | 5,253,190 | | | | | $ | 8,094,687 | | |
Liabilities and members’ equity (deficit) | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | |
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | $ | 3,462,200 | | | | | $ | 2,593,733 | | |
Due to factor, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 101,251 | | | | | | — | | |
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 595,611 | | | | | | 545,176 | | |
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 4,159,062 | | | | | | 3,138,909 | | |
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 264,683 | | | | | | 184,461 | | |
Notes payable – related party member . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 850,000 | | | | | | — | | |
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | 5,273,745 | | | | | | 3,323,370 | | |
Members’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
| | | | (20,555) | | | | | | 4,771,317 | | |
Total liabilities and members’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . .
|
| | | $ | 5,253,190 | | | | | $ | 8,094,687 | | |
| | |
2019
|
| |
2018
|
| ||||||
Net sales
|
| | | $ | 27,099,718 | | | | | $ | 29,037,497 | | |
Cost of sales
|
| | | | 12,663,514 | | | | | | 13,451,654 | | |
Gross profit
|
| | | | 14,436,204 | | | | | | 15,585,843 | | |
Operating expenses: | | | | | | | | | | | | | |
Design, selling, and shipping
|
| | | | 4,535,276 | | | | | | 4,702,589 | | |
General and administrative
|
| | | | 14,524,832 | | | | | | 13,054,218 | | |
Total operating expenses
|
| | | | 19,060,108 | | | | | | 17,756,807 | | |
Loss from operations
|
| | | | (4,623,904) | | | | | | (2,170,964) | | |
Other expense: | | | | | | | | | | | | | |
Loss on disposal of property and equipment
|
| | | | 49,558 | | | | | | 506,280 | | |
Interest expense, net
|
| | | | 103,520 | | | | | | 25,319 | | |
Total other expense
|
| | | | 153,078 | | | | | | 531,599 | | |
Loss before provision for income taxes
|
| | | | (4,776,982) | | | | | | (2,702,563) | | |
Income tax expense
|
| | | | 14,890 | | | | | | 13,390 | | |
Net Loss
|
| | | $ | (4,791,872) | | | | | $ | (2,715,953) | | |
| | |
Members’
Equity (Deficit) |
| |||
December 31, 2017
|
| | | $ | 7,783,328 | | |
Distributions
|
| | | | (296,058) | | |
Net loss
|
| | | | (2,715,953) | | |
December 31, 2018
|
| | | | 4,771,317 | | |
Net loss
|
| | | | (4,791,872) | | |
December 31, 2019
|
| | | $ | (20,555) | | |
| | |
2019
|
| |
2018
|
| ||||||
| | |
(restated)
|
| | | | | | | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | |
Net loss
|
| | | $ | (4,791,872) | | | | | $ | (2,715,953) | | |
Adjustments to reconcile net loss to net cash used in operating activities:
|
| | | | | | | | | | | | |
Depreciation
|
| | | | 484,776 | | | | | | 358,526 | | |
Decrease in open credit reserve
|
| | | | 102,067 | | | | | | (395,488) | | |
Loss on sale of property and equipment
|
| | | | 49,558 | | | | | | 506,280 | | |
Changes in operating assets and liabilities:
|
| | | | | | | | | | | | |
Factor receivable
|
| | | | 321,888 | | | | | | 1,143,896 | | |
Accounts receivable
|
| | | | 195,320 | | | | | | (81,099) | | |
Inventory
|
| | | | 605,113 | | | | | | (171,393) | | |
Prepaid expenses and other current assets
|
| | | | 57,858 | | | | | | 212,700 | | |
Other assets
|
| | | | 89,870 | | | | | | (9,500) | | |
Accounts payable
|
| | | | 868,467 | | | | | | 685,642 | | |
Accrued liabilities
|
| | | | 50,435 | | | | | | (17,460) | | |
Deferred rent
|
| | | | 80,222 | | | | | | (139,901) | | |
Net cash used in operating activities
|
| | | | (1,886,298) | | | | | | (623,750) | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | |
Purchase of property and equipment
|
| | | | (557,328) | | | | | | (185,970) | | |
Net cash used in operating activities
|
| | | | (557,328) | | | | | | (185,970) | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | |
Distributions to members
|
| | | | — | | | | | | (296,058) | | |
Proce eds – notes payable – related party member
|
| | | | 850,000 | | | | | | — | | |
Advances from Factor
|
| | | | 990,039 | | | | | | 645,572 | | |
Net cash provided by financing activities
|
| | | | 1,840,039 | | | | | | 349,514 | | |
Decrease in cash and cash equivalents
|
| | | | (603,587) | | | | | | (460,206) | | |
Cash and cash equivalents, beginning of year
|
| | | | 962,313 | | | | | | 1,422,519 | | |
Cash and cash equivalents, end of year
|
| | | $ | 358,726 | | | | | $ | 962,313 | | |
Supplemental disclosures of cash flow information:
|
| | | | | | | | | | | | |
Cash paid for interest
|
| | | $ | 91,887 | | | | | $ | 35,127 | | |
Cash paid for income taxes
|
| | | $ | 14,890 | | | | | $ | 13,390 | | |
Due to/from factor consist of the following at December 31, :
|
| |
2019
|
| |
2018
|
| ||||||
Outstanding receivables: | | | | | | | | | | | | | |
Without recourse
|
| | | $ | 2,058,298 | | | | | $ | 2,339,588 | | |
With recourse
|
| | | | 5,001 | | | | | | 45,599 | | |
Advances
|
| | | | (1,891,348) | | | | | | (901,309) | | |
Credits due customers
|
| | | | (273,202) | | | | | | (171,135) | | |
| | | | $ | (101,251) | | | | | $ | 1,312,743 | | |
Inventories consist of the following at December 31,:
|
| |
2019
|
| |
2018
|
| ||||||
Finished goods
|
| | | $ | 2,327,882 | | | | | $ | 2,766,476 | | |
Work-in process
|
| | | | 193,873 | | | | | | 351,246 | | |
Raw materials
|
| | | | 516,430 | | | | | | 525,576 | | |
| | | | $ | 3,038,185 | | | | | $ | 3,643,298 | | |
Property and equipment consists of the following at December 31,:
|
| |
2019
|
| |
2018
|
| ||||||
Machinery and equipment
|
| | | $ | 265,618 | | | | | $ | 312,846 | | |
Furniture and fixtures
|
| | | | 1,064,698 | | | | | | 962,218 | | |
Leasehold improvements
|
| | | | 1,307,976 | | | | | | 986,392 | | |
| | | | | 2,638,292 | | | | | | 2,261,456 | | |
Less accumulated depreciation and amortization
|
| | | | (1,373,140) | | | | | | (1,019,298) | | |
| | | | $ | 1,265,152 | | | | | $ | 1,242,158 | | |
| | | | | F-49 | | | |
| | | | | F-50 | | | |
| | | | | F-51 | | | |
| | | | | F-52 | | | |
| | | | | F-53 | | | |
| | | | | F-54 | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
ASSETS | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | |
Cash and cash equivalents
|
| | | $ | 51,315 | | | | | $ | 18,509 | | |
Accounts receivable, net
|
| | | | 38,689 | | | | | | 31,995 | | |
Inventory
|
| | | | 73,690 | | | | | | 42,643 | | |
Other current assets
|
| | | | 54,423 | | | | | | 129,162 | | |
Total current assets
|
| | | | 218,117 | | | | | | 222,309 | | |
Fixed assets, net
|
| | | | 138,040 | | | | | | 221,686 | | |
Intangible assets, net
|
| | | | 2,034 | | | | | | 2,206 | | |
Other assets
|
| | | | 4,416 | | | | | | 15,004 | | |
Total assets
|
| | | $ | 362,607 | | | | | $ | 461,205 | | |
LIABILITIES AND MEMBERS’ DEFICIT | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | |
Accounts payable
|
| | | $ | 187,516 | | | | | $ | 119,068 | | |
Accrued liabilities
|
| | | | 31,771 | | | | | | 21,297 | | |
Other current liabilities
|
| | | | 68,335 | | | | | | 66,437 | | |
Note payable, current portion
|
| | | | 60,941 | | | | | | 147,562 | | |
Related party notes payable, current portion
|
| | | | — | | | | | | 75,000 | | |
Deferred rent
|
| | | | 19,432 | | | | | | 23,161 | | |
Deferred revenue
|
| | | | 264,802 | | | | | | 286,255 | | |
Total current liabilities
|
| | | | 632,797 | | | | | | 738,780 | | |
Related party notes payable, net of current portion
|
| | | | 635,000 | | | | | | 425,000 | | |
Notes payable, net of current portion
|
| | | | 276,754 | | | | | | 49,441 | | |
Total liabilities
|
| | | | 1,544,551 | | | | | | 1,213,221 | | |
Commitments and contingencies (Note 8) | | | | | | | | | | | | | |
Members’ deficit: | | | | | | | | | | | | | |
Class A members units, $0.00001 par value, 100 authorized; 100 outstanding
at both December 31, 2020 and 2019 |
| | | | — | | | | | | — | | |
Class B members units, $0.00001 par value, 100 authorized; 87 and 100 outstanding at December 31, 2020 and 2019, respectively
|
| | | | — | | | | | | — | | |
Additional paid-in capital
|
| | | | 102,083 | | | | | | 112,565 | | |
Accumulated deficit
|
| | | | (1,284,027) | | | | | | (864,581) | | |
Total members’ deficit
|
| | | | (1,181,944) | | | | | | (752,016) | | |
Total liabilities and members’ deficit
|
| | | $ | 362,607 | | | | | $ | 461,205 | | |
| | |
Year Ended
December 31, |
| | | |||||||||||||
| | |
2020
|
| |
2019
|
| | | ||||||||||
Revenues
|
| | | $ | 2,542,721 | | | | | $ | 3,325,762 | | | | | ||||
Cost of goods sold
|
| | | | 897,873 | | | | | | 1,202,819 | | | | | ||||
Gross profit
|
| | | | 1,644,848 | | | | | | 2,122,943 | | | | | ||||
Operating expenses: | | | | | | | | | | | | | | | | | | | |
General and administrative
|
| | | | 1,044,397 | | | | | | 717,901 | | | | | ||||
Sales and marketing
|
| | | | 1,163,124 | | | | | | 1,577,478 | | | | | ||||
Total operating expenses
|
| | | | 2,207,521 | | | | | | 2,295,379 | | | | | ||||
Loss from operations
|
| | | | (562,673) | | | | | | (172,436) | | | | | ||||
Other income (expense): | | | | | | | | | | | | | | | | | | | |
Interest expense
|
| | | | (92,270) | | | | | | (53,955) | | | | | ||||
Gain on forgiveness of debt
|
| | | | 225,388 | | | | | | — | | | | | ||||
Other income
|
| | | | 10,109 | | | | | | 50,000 | | | | | ||||
Total other income (expense), net
|
| | | | 143,227 | | | | | | (3,955) | | | | | ||||
Provision for income taxes
|
| | | | — | | | | | | — | | | | | ||||
Net loss
|
| | | $ | (419,446) | | | | | $ | (176,391) | | | | |
| | |
Class A
Members’ Units |
| |
Class B
Members’ Units |
| |
Additional
Paid-in Capital |
| |
Accumulated
Deficit |
| |
Total
Members’ Deficit |
| |||||||||||||||||||||||||||
| | |
Shares
|
| |
Amount
|
| |
Shares
|
| |
Amount
|
| ||||||||||||||||||||||||||||||
Balances at December 31, 2018
|
| | | | 100 | | | | | $ | — | | | | | | 100 | | | | | $ | — | | | | | $ | 112,565 | | | | | $ | (688,190) | | | | | $ | (575,625) | | |
Net loss
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (176,391) | | | | | | (176,391) | | |
Balances at December 31, 2019
|
| | | | 100 | | | | | $ | — | | | | | | 100 | | | | | $ | — | | | | | $ | 112,565 | | | | | $ | (864,581) | | | | | $ | (752,016) | | |
Contributions
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 771 | | | | | | — | | | | | | 771 | | |
Repurchase of members’ units
|
| | | | — | | | | | | — | | | | | | (13) | | | | | | — | | | | | | (11,253) | | | | | | — | | | | | | (11,253) | | |
Net loss
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (419,446) | | | | | | (419,446) | | |
Balances at December 31, 2020
|
| | | | 100 | | | | | $ | — | | | | | | 87 | | | | | $ | — | | | | | $ | 102,083 | | | | | $ | (1,284,027) | | | | | $ | (1,181,944) | | |
| | |
Year Ended
December 31, |
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Cash flows from operating activities: | | | | | | | | | | | | | |
Net loss
|
| | | $ | (419,446) | | | | | $ | (176,391) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | |
Depreciation and amortization
|
| | | | 149,568 | | | | | | 82,422 | | |
Gain on forgiveness of note payable
|
| | | | (225,388) | | | | | | — | | |
Bad debt expense
|
| | | | 42,078 | | | | | | — | | |
Changes in operating assets and liabilities:
|
| | | | | | | | | | | | |
Accounts receivable, net
|
| | | | (48,772) | | | | | | 968 | | |
Inventory
|
| | | | (31,047) | | | | | | (17,577) | | |
Deposits
|
| | | | — | | | | | | (5,438) | | |
Other assets
|
| | | | 85,327 | | | | | | (66,659) | | |
Accounts payable
|
| | | | 68,448 | | | | | | 79,266 | | |
Accrued expenses and other current liabilities
|
| | | | 12,372 | | | | | | (12,130) | | |
Deferrent rent
|
| | | | (3,729) | | | | | | 12,784 | | |
Deferred revenue
|
| | | | (21,453) | | | | | | 124,162 | | |
Net cash provided by (used in) operating activities
|
| | | | (392,042) | | | | | | 21,407 | | |
Cash flows from investing activities: | | | | | | | | | | | | | |
Purchases of property and equipment and intangibles
|
| | | | (65,750) | | | | | | (254,437) | | |
Net cash used in investing activities
|
| | | | (65,750) | | | | | | (254,437) | | |
Cash flows from financing activities: | | | | | | | | | | | | | |
Proceeds from related party notes payable
|
| | | | 210,000 | | | | | | 200,000 | | |
Proceeds from notes payable
|
| | | | 382,600 | | | | | | 200,000 | | |
Principal payments on line of credit
|
| | | | — | | | | | | (160,000) | | |
Proceeds from line of credit
|
| | | | 125,000 | | | | | | — | | |
Principal repayments of notes payable
|
| | | | (141,520) | | | | | | — | | |
Principal payments on related party notes payable
|
| | | | (75,000) | | | | | | (2,998) | | |
Member contributions
|
| | | | 771 | | | | | | — | | |
Repurchase of members’ units
|
| | | | (11,253) | | | | | | — | | |
Net cash provided by financing activities
|
| | | | 490,598 | | | | | | 237,002 | | |
Net increase in cash and cash equivalents
|
| | | | 32,806 | | | | | | 3,972 | | |
Cash and cash equivalents at beginning of year
|
| | | | 18,509 | | | | | | 14,537 | | |
Cash and cash equivalents at end of year
|
| | | $ | 51,315 | | | | | $ | 18,509 | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | | |
Cash paid for income taxes
|
| | | $ | — | | | | | $ | — | | |
Cash paid for interest
|
| | | $ | 82,270 | | | | | $ | 53,955 | | |
Non cash investing and financing activities: | | | | ||||||||||
Conversion of line of credit to note payable
|
| | | $ | 125,000 | | | | | | — | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Leasehold improvements and showrooms
|
| | | $ | 375,677 | | | | | $ | 309,928 | | |
Accumulated amortization
|
| | | | (237,637) | | | | | | (88,242) | | |
Fixed Assets, net
|
| | | $ | 138,040 | | | | | $ | 221,686 | | |
| | |
December 31,
|
| |||||||||
| | |
2020
|
| |
2019
|
| ||||||
Note payable to bank, principal due November 27, 2020 bearing interest at 1.75% over prime (4.75% at December 31, 2019)
|
| | | $ | — | | | | | $ | 123,917 | | |
Note payable to bank, principal due December 2025, bearing interest at 5.526%
|
| | | | 125,000 | | | | | | — | | |
Note payable to majority owner, principal due on or before December 31, 2020, variable monthly payments, interest at 8.5%
|
| | | | — | | | | | | 75,000 | | |
Note payable to a bank, monthly installments of $2,279 through November 26, 2022, bearing interest at 5.85%
|
| | | | 55,483 | | | | | | 73,086 | | |
PPP and EIDL Loans (see below for terms)
|
| | | | 157,212 | | | | | | — | | |
Note payable to a company owned by the majority owner of the Company, due on or before July 10, 2022, bearing interest at 12%
|
| | | | 635,000 | | | | | | 425,000 | | |
| | | | $ | 972,695 | | | | | $ | 697,003 | | |
Year Ending December 31,
|
| | | | | | |
2021
|
| | | $ | 60,941 | | |
2022
|
| | | | 686.007 | | |
2023
|
| | | | 28.119 | | |
2024
|
| | | | 29,654 | | |
2025
|
| | | | 31,171 | | |
Thereafter
|
| | | | 136,803 | | |
| | | | | 972,695 | | |
Less: current portion of note payable
|
| | | | (60,941) | | |
Notes payable, long-term
|
| | | $ | 911,754 | | |
|
2021
|
| | | $ | 95,617 | | |
|
2022
|
| | | | 42,996 | | |
| | | | | $ | 138,613 | | |
|
SEC registration fee
|
| | | $ | 2,702 | | |
|
FINRA filing fee
|
| | | | 4,273 | | |
|
NasdaqCM listing fee
|
| | | | 50,000 | | |
|
Printing and engraving costs
|
| | | | 75,000 | | |
|
Legal fees and expenses
|
| | | | 500,000 | | |
|
Accounting fees and expenses
|
| | | | 150,000 | | |
|
Transfer Agent and Registrar fees
|
| | | | 10,000 | | |
|
Miscellaneous expenses
|
| | | | 8,025 | | |
|
Total
|
| | | | 800,000 | | |
Exhibit
Number |
| |
Description
|
|
10.19** | | | | |
10.20** | | | | |
10.21** | | | | |
10.22** | | | | |
10.23** | | | | |
10.24** | | | | |
10.25** | | | Lease Agreement among 45th Street, LLC, Sister Sam, LLC and Bailey 44, LLC dated January 17, 2013 | |
10.26** | | | Amendment to Lease Agreement among 45th Street, LLC, Sister Sam, LLC and Bailey 44, LLC dated February 20, 2018 | |
10.27** | | | | |
10.28** | | | | |
10.29 | | | | |
10.30 | | | Consulting Agreement dated as of April 8, 2021 between Alchemy Advisory LLC and Digital Brands Group, Inc. | |
21.1**
|
| | List of Subsidiaries of the Registrant | |
23.1 | | | | |
23.2** | | | Consent of dbbmckennon for Harper & Jones LLC | |
23.3** | | | Consent of dbbmckennon for Bailey 44, LLC | |
23.4 | | | | |
23.5 | | | | |
24.1** | | | Power of Attorney | |
99.1(a)** | | | | |
99.1(b)** | | | |
|
Signature
|
| |
Title
|
| |
Date
|
|
|
/s/ John Hilburn Davis IV
John Hilburn Davis IV
|
| |
President and Chief Executive Officer
(Principal Executive Officer) |
| |
May 11, 2021
|
|
|
*
Reid Yeoman
|
| |
Chief Financial Officer
(Principal financial and accounting officer) |
| |
May 11, 2021
|
|
|
*
Mark T. Lynn
|
| | Director | | |
May 11, 2021
|
|
|
*
Trevor Pettennude
|
| | Director | | |
May 11, 2021
|
|
|
*By
/s/ John Hilburn Davis IV
John Hilburn Davis IV
|
| | Attorney-in-fact | | |
Exhibit 1.1
UNDERWRITING AGREEMENT
between
DIGITAL BRANDS GROUP, INC.
and
KINGSWOOD CAPITAL MARKETS,
division of Benchmark Investments, Inc.,
as Representative of the Several Underwriters
DIGITAL BRANDS GROUP, INC.
UNDERWRITING AGREEMENT
New York, New York
[●], 2021
Kingswood Capital Markets,
division of Benchmark Investments, Inc.
as Representative of the several Underwriters named on Schedule 1 attached hereto
17 Battery Place, Suite 625
New York, New York 10004
Ladies and Gentlemen:
The undersigned, Digital Brands Group, Inc., a corporation formed under the laws of the State of Delaware (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement (as hereinafter defined) as being subsidiaries, the “Company”), hereby confirms its agreement (this “Agreement”) with Kingswood Capital Markets, division of Benchmark Investments, Inc. (hereinafter referred to as “you” (including its correlatives) or the “Representative”), and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) as follows:
1. | Purchase and Sale of Shares. |
1.1. Firm Securities.
1.1.1. Nature and Purchase of Firm Securities.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, an aggregate of 2,000,000 authorized but unissued shares (the “Firm Shares”) of common stock of the Company, par value $0.0001 per share (the “Common Stock”), together with warrants to purchase an aggregate of 2,000,000 shares of Common Stock each at an exercise price of $5.50 (110% of the public offering price per Firm Share in the Offering), in the form filed as an exhibit to the Registration Statement (as hereinafter defined) (the “Firm Warrants,” and collectively with the Common Stock, the “Firm Securities”).
(ii) Each Firm Share will be sold together with one Firm Warrant and will be immediately separable upon issuance. The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares and accompanying Firm Warrants set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof, at a purchase price of $4.60 per Firm Share and accompanying Firm Warrant (92% of the public offering price for each Firm Share and accompanying Firm Warrant). The Firm Securities are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Payment and Delivery of Securities.
(i) Delivery and payment for the Firm Securities shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Nelson Mullins Riley & Scarborough LLP, 101 Constitution Avenue NW, Suite 900, Washington, DC 20001 (“Representative Counsel”), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Securities is called the “Closing Date.”
2
(ii) Payment for the Firm Securities shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Securities (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Securities shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) Business Day prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Securities except upon tender of payment by the Representative for all of the Firm Securities. The term “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay-at-home,” “shelter-in-place,” “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.
1.2. Over-allotment Option.
1.2.1. Option Securities. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Securities, the Company hereby grants to the Underwriters an option to purchase up to 300,000 additional shares of Common Stock (the “Option Shares”) and accompanying warrants to purchase an aggregate of 300,000 shares of Common Stock (the “Option Warrants,” and collectively with the Option Shares, the “Option Securities”), representing fifteen percent (15%) of the Firm Shares and Firm Warrants sold in the offering, from the Company (the “Over-allotment Option”). The purchase price to be paid per Option Share and accompanying Option Warrant shall be equal to the price per Firm Share and accompanying Firm Warrant set forth in Section 1.1.1 hereof. The Firm Warrants and the Options Warrants are hereinafter collectively referred to as the “Warrants.” The shares of Common Stock into which the Warrants are exercisable are hereinafter referred to as the “Warrant Shares.” The Firm Securities and the Option Securities are hereinafter collectively referred to as the “Primary Securities.” The Primary Securities and Warrant Shares are hereinafter collectively referred to as the “Public Securities.” The offering and sale of the Primary Securities is hereinafter referred to as the “Offering.”
1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Securities within 45 days after the Effective Date. The purchase price to be paid per Option Share and accompanying Option Warrants shall be equal to the Firm Share purchase price set forth in Section 1.1.1(ii) hereof. The Underwriters shall not be under any obligation to purchase any Option Securities prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares and accompanying Option Warrants to be purchased and the date and time for delivery of and payment for the Option Securities (the “Option Closing Date”), which shall not be later than one (1) Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Securities does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Securities, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares and accompanying Option Warrants specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Shares and accompanying Option Warrants then being purchased as set forth in Schedule 1 opposite the name of such Underwriter.
1.2.3. Payment and Delivery. Payment for the Option Securities shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to you of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares and accompanying Option Warrants (or through the facilities of DTC) for the account of the Underwriters. The Option Securities shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Securities except upon tender of payment by the Representative for applicable Option Securities.
3
1.3. Representative’s Warrants.
1.3.1. Purchase Warrants. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date a warrant (“Representative’s Warrants”) for the purchase of an aggregate of 100,000 shares of Common Stock, representing 5.0% of the number of Firm Shares, for an aggregate purchase price of $100.00. The agreement(s) representing the Representative’s Warrants, in the form attached hereto as Exhibit A (the “Representative’s Warrant Agreement”), shall be exercisable, in whole or in part, commencing on a date which is six (6) months after the Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per share of Common Stock of $6.25, which is equal to 125.0% of the initial public offering price of the Firm Shares. The Representative’s Warrant Agreement and the shares of Common Stock issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrant Agreement and the underlying shares of Common Stock during the three hundred sixty (360) days after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of three hundred sixty (360) days following the Effective Date to anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
1.3.2. Delivery. Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date, and shall be issued in the name or names and in such authorized denominations as the Representative may request.
2. | Representations and Warranties of the Company. |
The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1. Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-255193), including any related prospectus or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as amended (the “Securities Act”).Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A (the “Rule 430A Information”) of the the rules and regulations of the Commission promulgated thereunder (the “Securities Act Regulations”), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [●], 2021, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering, that includes the Rule 430A Information, is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
4
“Applicable Time” means 4:30 p.m., Eastern time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File Number [●]) providing for the registration of the Common Stock and the Warrants (the “Form 8-A Registration Statement”). The Common Stock and the Warrants are registered pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The registration of Common Stock and Warrants under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the shares of Common Stock and Warrants under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2. Stock Exchange Listing. The shares of Common Stock and Warrants have each been approved for listing on the Nasdaq Capital Market (the “Exchange”), subject only to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, delisting the shares of Common Stock or Warrants from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.3. No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4. Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission’s EDGAR filing system (“EDGAR”), except to the extent permitted by Regulation S-T promulgated under the Securities Act (“Regulation S-T”).
5
(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict in any material respect with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: the names of the Underwriters, the information in the first paragraph under the subheading titled “Commissions and Discounts” and the information under the subheadings titled “Price Stabilization, Short Positions, and Penalty Bids” and “Electronic Distribution” (the “Underwriters’ Information”).
(iv) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and except for any unenforceability that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in material default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder except for such defaults that would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). To the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental or regulatory agency, authority, body, entity or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations, that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change as defined in Section 2.5.1 below.
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2.4.3. Reserved.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign laws, rules and regulations relating to the Offering and the Company’s business as currently conducted or contemplated are correct and complete in all material respects and no other such laws, rules or regulations are required under the Securities Act and the Securities Act Regulations to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.4.5. No Other Distribution of Offering Materials. The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the Offering other than any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus and other materials, if any, permitted under the Securities Act and consistent with Section 3.2 below.
2.5. Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company or its Subsidiaries taken as a whole, nor to the Company’s knowledge, any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company or its Subsidiaries taken as a whole (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company or its Subsidiaries, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
2.6. Reserved.
2.7. Independent Accountants. To the knowledge of the Company, dbbmckennon (the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
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2.8. Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present in all material respects the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly in all material respects the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) since the date of the last balance sheet included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, or, other than in the ordinary course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt. The Company represents that it has no direct or indirect subsidiaries other than those listed in Exhibit 21.1 to the Registration Statement.
2.9. Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued shares of Common Stock of the Company or any security convertible or exercisable into shares of Common Stock of the Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible securities.
2.10. Valid Issuance of Securities, etc.
2.10.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or the ability to force the Company or any of its Subsidiaries to repurchase such securities with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights, rights of first refusal or rights of participation of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized shares of Common Stock conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding shares of Common Stock, options, warrants and other outstanding securities convertible into or exercisable for shares of Common Stock, were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such shares of Common Stock, exempt from such registration requirements. The description of the Company’s stock option, stock bonus and other related plans or arrangements, and options and/or other rights granted thereunder, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, accurately and fairly present, in all material respects, the information required to be shown with respect to such plans, arrangements, options and rights.
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2.10.2. Securities Sold Pursuant to this Agreement. The Public Securities and Representative’s Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are and will be free from all preemptive rights of any holders of any security of the Company, or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s Securities has been duly and validly taken. The Warrants, when issued and paid for pursuant to this Agreement and the Warrant Agency Agreement (as defined below), will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the Warrant Shares. The Representative’s Warrant Agreement, when issued and paid for pursuant to this Agreement, will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the underlying shares of Common Stock. The Public Securities and Representative’s Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and validly taken; the shares of Common Stock issuable upon exercise of the Representative’s Warrant have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with the Representative’s Warrant and the Representative’s Warrant Agreement, such shares of Common Stock will be validly issued, fully paid and nonassessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; and such shares of Common Stock are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.
2.11. Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any options, warrants, rights or other securities exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in the Registration Statement or any other registration statement to be filed by the Company.
2.12. Validity and Binding Effect of Agreements. The execution, delivery and performance of this Agreement, the Warrants, and the Representative’s Warrant Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
2.13. No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement, the Warrants, the Representative’s Warrant Agreement, and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or any other agreement or instrument to which the Company is a party or as to which any property of the Company is a party except breaches, conflicts or defaults that would not reasonably be expected to result in a Material Adverse Change; (ii) result in any violation of the provisions of the Company’s Certificate of Incorporation (as the same have been amended or restated from time to time, the “Charter”) or the by-laws of the Company; or (iii) violate in any material respect any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof having jurisdiction over the Company.
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2.14. No Defaults; Violations. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject except for any such default that would not be reasonably expected to result in a Material Adverse Change. The Company is not in violation of any term or provision of its Charter or by-laws, or in violation of any material franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity, except for such violations that would not be reasonably expected to result in a Material Adverse Change.
2.15. Corporate Power; Licenses; Consents.
2.15.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all material consents, authorizations, approvals, licenses, certificates, clearances, permits and orders and supplements and amendments thereto (collectively, “Authorizations”) of and from all Governmental Entities that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except for such Authorizations, the absence of which would reasonably be expected to have a Material Adverse Change.
2.15.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all Authorizations required in connection therewith have been obtained. No Authorization of, and no filing with, any Governmental Entity, the Exchange or another body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement and the Representative’s Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable Securities Act Regulations, state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
2.16. D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Insiders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.17. Litigation; Governmental Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or in connection with the Company’s listing application for the listing of the Public Securities on the Exchange.
2.18. Good Standing. The Company has been duly incorporated and is validly existing as a corporation and is in good standing under the laws of the State of Delaware as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.19. Insurance. The Company carries or is entitled to the benefits of insurance (including, without limitation, as to directors and officers insurance coverage), with reputable insurers, in such amounts and covering such risks which the Company believes are adequate as are customary for companies engaged in similar business, and to the Company’s knowledge all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.
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2.20. Transactions Affecting Disclosure to FINRA.
2.20.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its stockholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.20.2. Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments in connection with the Offering (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.20.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.20.4. FINRA Affiliation. There is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company’s securities or (iii) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.20.5. Information. All information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.21. Foreign Corrupt Practices Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of, and with authority from, the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any Governmental Entity (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.22. Compliance with OFAC. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of, and with authority from, the Company and its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.23. Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
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2.24. Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative Counsel on the Closing Date or on the Option Closing Date shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.25. Lock-Up Agreements. Schedule 3 hereto contains a complete and accurate list of the Company’s officers, directors and each owner of 5% or more of the Company’s outstanding shares of Common Stock (or securities convertible or exercisable into shares of Common Stock) (collectively, the “Lock-Up Parties”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in a form substantially similar to that attached hereto as Exhibit B (the “Lock-Up Agreement”), prior to the execution of this Agreement.
2.26. Subsidiaries. All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business or operations of the Company taken as a whole. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.27. Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required under the Securities Act and the Securities Act Regulations.
2.28. Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the rules and regulations of the Commission promulgated thereunder (the “Exchange Act Regulations”), the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.29. Sarbanes-Oxley Compliance.
2.29.1. Disclosure Controls. The Company has developed and currently maintains disclosure controls and procedures that will comply in all material respects with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.29.2. Compliance. The Company is and at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and has taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act.
2.30. Accounting Controls. The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
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2.31. No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.32. No Labor Disputes. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent. The Company is not aware that any officer, key employee or significant group of employees of the Company plans to terminate employment with the Company.
2.33. Intellectual Property Rights. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property Rights”) and necessary for the conduct of the business of the Company and each of its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change: (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.33, reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.33, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.33, reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights of any persons.
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2.34. Taxes. Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiary except those that are being contested in good faith or as would not have, individually or in the aggregate, result in a Material Adverse Change. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no material issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. To the Company’s knowledge, there are no tax liens against the assets, properties or business of the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.35. ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.36. Compliance with Laws. Each of the Company and each Subsidiary: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the business of the Company as currently conducted (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any Governmental Entity alleging or asserting noncompliance with any Applicable Laws or any Authorizations; (C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations , except where the invalidity of such Authorizations or the failure of such Authorizations to be in full force and effect would not result in a Material Adverse Change; (D) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any activity conducted by the Company is in violation of any Applicable Laws or Authorizations and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (E) has not received notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such Governmental Entity is considering such action; and (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct in all material respects on the date filed (or were corrected or supplemented by a subsequent submission), , except where the failure to be so in compliance would not, individually or in the aggregate, result in a Material Adverse Change.
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2.37. Emerging Growth Company. From the time of the initial submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly in or through any Person authorized to act on its behalf in any Testing-the Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications.
2.38. Environmental Laws. The Company is in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“Environmental Laws”), except where the failure to comply would not, singularly or in the aggregate, result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or, to the Company’s knowledge, any other entity for whose acts or omissions the Company is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Change. In the ordinary course of business, the Company conducts periodic reviews of the effect of Environmental Laws on its business and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material Adverse Change.
2.39. Title to Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are, to the Company’s knowledge, in full force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
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2.40. Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.
2.41. Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries, or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.42. Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the Effective Date and at the time of any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the Effective Date, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.43. Smaller Reporting Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.44. Industry Data. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
2.45. Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.46. Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Public Securities to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.47. Dividends and Distributions. Except as disclosed in the Pricing Disclosure Package, Registration Statement and the Prospectus, no Subsidiary of the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock (to the extent that any such prohibition or restriction on dividends and/or distributions would have a material effect to the Company), from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company, except as may otherwise be provided in current loan or mortgage-related documents.
2.48. Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
2.49. Integration. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities under the Securities Act.
2.50. Confidentiality and Non-Competitions. To the Company’s knowledge, no director, officer, key employee or consultant of the Company or any Subsidiary is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer (other than the Company) or prior employer that could materially affect his or her ability to be and act in his or her respective capacity of the Company or such Subsidiary or be expected to result in a Material Adverse Change.
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2.51. Corporate Records. The minute books of the Company have been made available to the Representative and Representative Counsel and such books (i) contain minutes of all material meetings and actions of the Board of Directors (including each board committee) and stockholders of the Company, and (ii) reflect all material transactions referred to in such minutes.
2.52. Diligence Materials. The Company has provided to the Representative and Representative Counsel all materials required or necessary to respond in all material respects to the diligence request submitted to the Company or Company Counsel by the Representative.
2.53. Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders (without the consent of the Representative) has taken, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
3. | Covenants of the Company. |
The Company covenants and agrees as follows:
3.1. Amendments to Registration Statement. The Company shall deliver to the Representative, at least one (1) Business Day (or such shorter time mutually agreed by the parties hereto) prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2. Federal Securities Laws.
3.2.1. Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of its receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative’s Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement; or (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities and Representative’s Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
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3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of Representative Counsel or Company Counsel, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser; or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement; and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or Representative Counsel shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or Representative Counsel shall reasonably object.
3.2.3. Exchange Act Registration. For a period of three (3) years after the date of this Agreement, the Company shall use its reasonable best efforts to maintain the registration of the Common Stock and Warrants under the Exchange Act. For a period of two (2) years after the date of this Agreement, the Company shall not deregister the Common Stock or Warrants under the Exchange Act without the prior written consent of the Representative.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus set forth in Schedule 2-B. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representative as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3. Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and Representative Counsel, without charge, conformed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to each Underwriter, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) upon receipt of a written request therefor from such Underwriter. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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3.4. Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5. Effectiveness and Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus for at least nine (9) months after the Applicable Time, and shall notify the Representative promptly and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall use its commercially reasonable efforts to obtain promptly the lifting of such order.
3.6. Review of Financial Statements. For a period of three (3) years after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.
3.7. Listing. The Company shall use its reasonable best efforts to maintain the listing of the Securities on the Exchange until at least three (3) years after the date of this Agreement.
3.8. Financial Public Relations. Within six (6) months from the Effective Date, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative and the Company, , which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
3.9. Reports to the Representative.
3.9.1. Periodic Reports, etc. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) a copy of each registration statement filed by the Company under the Securities Act; (v) a copy of each report or other communication furnished to stockholders and (vi) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request. Documents filed with the Commission pursuant to its EDGAR system or press releases shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.1. Any documents not filed with the Commission pursuant to its EDGAR system shall be delivered to jrallo@kingswoodcm.com, with a copy to dboral@kingswoodcm.com.
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3.9.2. Transfer Agent; Transfer Sheets. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the “Transfer Agent”) and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. VStock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the shares of Common Stock and Warrants.
3.9.3. Trading Reports. For a period of three (3) years after the date of this Agreement, during such time as any of the Public Securities are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request.
3.10. Payment of Expenses
3.10.1. General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses related to the Offering or otherwise incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Public Securities and Representative’s Securities with the Commission; (b) all Public Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of such Public Securities and Representative’s Securities on the Exchange and such other stock exchanges as the Company and the Representative together determine, including any fees charged by DTC; (d) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors; (e) all fees, expenses and disbursements relating to the registration or qualification of the Public Securities under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate ; (f) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (g) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement, Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (h) the costs and expenses of a public relations firm; (i) the costs of preparing, printing and delivering certificates representing the Public Securities; (j) fees and expenses of the transfer agent for the shares of Common Stock; (k) fees and expenses of the warrant agent under the Warrant Agency Agreement; (l) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (m) the costs associated with one set of bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, each of which the Company or its designee shall provide within a reasonable time after the Closing Date in such quantities as the Representative may reasonably request; (n) the fees and expenses of the Company’s accountants; (o) the fees and expenses of the Company’s legal counsel and other agents and representatives; (p) the fees and expenses of Representative Counsel; (q) the cost associated with the Underwriters’ use of Ipreo’s book-building, prospectus tracking and compliance software for the Offering; (r) to the extent approved by the Company in writing, the costs associated with post-Closing advertising the Offering in the national editions of the Wall Street Journal and New York Times; and (s) the Underwriters’ actual accountable expenses for the Offering, including, without limitation related to the “road show.” Notwithstanding the foregoing, the Company’s obligations to reimburse the Representative for any out-of-pocket expenses actually incurred as set forth in the preceding sentence shall not exceed $150,000 in the aggregate for legal fees and related expenses. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters, less the Advance (as such term is defined in Section 8.3 hereof).
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3.11. Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.12. Delivery of Earnings Statements to Security Holders. The Company shall make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth (15th) full calendar month following the date of this Agreement, an earnings statement (which need not be certified by an independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.
3.13. Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
3.14. Internal Controls. For a period of one (1) year after the date of this Agreement, the Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
3.15. Accountants. As of the date of this Agreement, the Company has retained an independent registered public accounting firm, as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board, reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative.
3.16. FINRA. For a period of 90 days from the later of the Closing Date or the Option Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.17. No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
3.18. Company Lock-Up Agreements. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of three hundred sixty (360) days after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company other than a registration statement on Form S-4 or S-8; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit or senior credit facility with a traditional bank or other lending institution; or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii), or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
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The restrictions contained in this Section 3.18 shall not apply to (i) the Primary Securities to be sold hereunder, as well as the Representative’s Warrants and any shares of Common Stock into which the Warrants and Representative’s Warrants are exercisable; (ii) the issuance by the Company of shares of Common Stock upon the exercise of a stock option or warrant or the conversion of a security, in each case outstanding on the date hereof, provided that such options, warrants, securities are disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus and have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities or to extend the term of such securities, (iii) the issuance of shares of Common Stock issued as part of the purchase price in connection with the acquisitions or strategic transactions, provided certain conditions are met, or (iv) the issuance by the Company of any shares of Common Stock or standard options to purchase Common Stock to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Stock Plan (as defined below). “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such.
3.19. Release of D&O Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.25 hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.20. Blue Sky Qualifications. The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.21. Reporting Requirements. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.
3.22. Emerging Growth Company Status. The Company shall promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Public Securities within the meaning of the Securities Act and (ii) fifteen (15) days following the completion of the Lock-Up Period.
3.23. Press Releases. Prior to the Closing Date and any Option Closing Date, the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is required by law.
3.25. Sarbanes-Oxley. For a period of one (1) year after the date of this Agreement, the Company shall at all times comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.
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3.26. IRS Forms. If requested by the Representative, the Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service (“IRS”) Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.
3.27. Warrant Agent. For so long as the Warrants are outstanding, the Company will maintain the Warrant Agency Agreement in full force and effect with VStock Transfer, LLC or a transfer agent of similar competence and quality. The Firm Warrants, and, if applicable, Option Warrants, will be issued in accordance with the Warrant Agency Agreement.
4. | Conditions of Underwriters’ Obligations. |
The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1. Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:30 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto shall have been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus shall have been issued and no proceedings for any of those purposes shall have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) under the Securities Act Regulations (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A under the Securities Act Regulations.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Clearance. On the Closing Date, the Common Stock and Warrants shall have been approved for listing on the Exchange, subject only to official notice of issuance.
4.2. Company Counsel Matters.
4.2.1. Closing Date Opinion of Counsel. On the Closing Date, the Representative shall have received the favorable opinion and negative assurance letter of Manatt, Phelps & Phillips, LLP (“Company Counsel”), counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance satisfactory to the Representative.
4.2.2. Option Closing Date Opinions of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinion and negative assurance letter of Company Counsel listed in Section 4.2.1, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsel in its opinion delivered on the Closing Date.
4.2.3. Reliance. The opinion of Manatt, Phelps & Phillips, LLP and any opinion relied upon by Manatt, Phelps & Phillips, LLP shall include a statement to the effect that it may be relied upon by Representative Counsel in its opinion delivered to the Underwriters.
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4.3. Comfort Letters.
4.3.1. Comfort Letter. At the time this Agreement is executed the Representative shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to the Representative and to Representative Counsel from the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1.
4.4. Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer or President, and its Chief Financial Officer stating that on behalf of the Company and not in an individual capacity that (i) such officers have examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto after the Effective Date, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto after the Effective Date, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) to their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iii) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure Package, a Material Adverse Change.
4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively, certifying on behalf of the Company and not in an individual capacity: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5. No Material Changes. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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4.6. No Material Misstatement or Omission. The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date and any Option Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of Representative Counsel, is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.
4.7. Corporate Proceedings. All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement, the Public Securities, the Registration Statement, the Pricing Disclosure Package, each Issuer Free Writing Prospectus, if any, and the Prospectus and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to Representative Counsel, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
4.8. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto.
4.9. Warrant Agency Agreement. On or before the date of this Agreement, the Company shall have entered into a Warrant Agency Agreement between the Company and VStock Transfer, LLC, as warrant agent with respect to the Warrants, in the form filed as an exhibit to the Registration Statement (the “Warrant Agency Agreement”), or if applicable, as otherwise directed by the Underwriters.
4.10. Additional Documents. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities and Representative’s Securities as herein contemplated shall be satisfactory in form and substance to the Representative and Representative Counsel.
5. | Indemnification. |
5.1. Indemnification of the Underwriters.
5.1.1. General. The Company shall indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, the Pricing Disclosure Package, the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus (as from time to time each may be amended and supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (iii) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities and the Representative’s Warrant Shares under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Pricing Disclosure Package, the indemnity agreement contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter Indemnified Party to the extent that any loss, liability, claim, damage or expense of such Underwriter Indemnified Party (a) is based on the Underwriters’ Information, (b) results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Public Securities to such person as required by the Securities Act and the Securities Act Regulations, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under Section 3.3 hereof, or (c) is found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted primarily from the willful misconduct or gross negligence of such Underwriter Indemnified Party.
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5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter Indemnified Party) and payment of actual expenses. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter Indemnified Party unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing by the Company in connection with the defense of such action, or (ii) the Company shall not have employed counsel to have charge of the defense of such action, or (iii) the action includes both the Company and the indemnified party as defendants and such indemnified party or parties shall have been advised by its counsel that there may be defenses available to it or them which are different from or additional to those available to the Company which makes it impossible or inadvisable for the Company and such indemnified party to be represented in the action by the same counsel (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party), in any of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by the Underwriter Indemnified Parties who are party to such action (in addition to local counsel) shall be borne by the Company. Notwithstanding anything to the contrary contained herein, if any Underwriter Indemnified Party shall assume the defense of such action as provided above, the Company shall have the right to approve the terms of any settlement of such action, which approval shall not be unreasonably withheld.
5.2. Indemnification of the Company. Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to such losses, liabilities, claims, damages and expenses (or actions in respect thereof) which arise out of or are based upon untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus.
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5.3. Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other hand, from the Offering, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total proceeds from the Offering purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discount and commissions received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Underwriters, on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representative by or on behalf of any Underwriter for use in any Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriters’ Information. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, investigation or proceeding referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 5.3.1 no Underwriter shall be required to contribute any amount in excess of the total discount and commission received by such Underwriter in connection with the Offering less the amount of any damages which such Underwriter has otherwise paid or becomes liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid 15 days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. The Underwriters’ obligations to contribute as provided in this Section 5.3 are several and in proportion to their respective underwriting obligation, and not joint.
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6. | Default by an Underwriter. |
6.1. Default Not Exceeding 10% of Firm Securities or Option Securities. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Securities or the Option Securities, if the Over-allotment Option is exercised hereunder, and if the number of the Firm Securities or Option Securities with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares and accompanying Firm Warrants or Option Shares and accompanying Option Warrants that all Underwriters have agreed to purchase hereunder, then such Firm Securities or Option Securities to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2. Default Exceeding 10% of Firm Securities or Option Securities. In the event that the default addressed in Section 6.1 relates to more than 10% of the number of Firm Shares and accompanying Firm Warrants or Option Shares and accompanying Option Warrants, the Representative may in its discretion arrange for itself or for another party or parties to purchase such Firm Securities or Option Securities to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the number of Firm Shares and accompanying Firm Warrants or Option Shares and accompanying Option Warrants, the Representative does not arrange for the purchase of such Firm Securities or Option Securities, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to the Representative to purchase said Firm Securities or Option Securities on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Securities or Option Securities to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Securities, this Agreement will not terminate as to the Firm Securities; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
6.3. Postponement of Closing Date. In the event that the Firm Securities or Option Securities to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Firm Securities or Option Securities.
7. | Additional Covenants. |
7.1. Prohibition on Press Releases and Public Announcements. The Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the fortieth (40th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
8. | 8. Effective Date of this Agreement and Termination Thereof. |
8.1. Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
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8.2. Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative’s opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Firm Securities or Option Securities; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of a Material Adverse Change, or an adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
8.3. Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel) up to $50,000, inclusive of the $50,000 advance for accountable expenses previously paid by the Company to the Representative (the “Advance”), and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement.
Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
8.4. Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5. Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
9. | Miscellaneous. |
9.1. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by facsimile transmission and confirmed and shall be deemed given when so delivered or emailed and confirmed (which may be by email) or if mailed, two (2) days after such mailing.
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If to the Representative:
Kingswood Capital Markets
17 Battery Place, Suite 625
New York, New York 10004
Attn: Joseph T. Rallo
with a copy (which shall not constitute notice) to:
Nelson Mullins Riley & Scarborough LLP
101 Constitution Avenue NW, Suite 900
Washington, DC 20001
Attn: Andrew M. Tucker, Esq.
Fax No.: (202) 689-2860
If to the Company:
Digital Brands Group, Inc.
1400 Lavaca Street
Austin, Texas 78701
Attn: John Hilburn Davis IV
Email: hil@dstld.la
with a copy (which shall not constitute notice) to:
Manatt, Phelps & Phillips, LLP
695 Town Center Drive, 14th Floor
Costa Mesa, CA 92646
Attn: Thomas J. Poletti, Esq.
Fax No.: (714) 371-2551
9.2. Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
9.3. Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4. Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.5. Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6. Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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9.7. Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8. Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
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If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours, | ||
DIGITAL BRANDS GROUP, INC. | ||
By: | ||
Name: | ||
Title: | ||
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto: |
KINGSWOOD CAPITAL MARKETS,
division of Benchmark Investments, Inc.
By: | ||
Name: | ||
Title: |
[SIGNATURE PAGE]
DIGITAL BRANDS GROUP, INC. – UNDERWRITING AGREEMENT
SCHEDULE 1
Underwriter |
Total Number of
Firm
Shares and
|
Number
of Additional
|
||
Kingswood Capital Markets, division of Benchmark Investments, Inc. | [●] | [●] | ||
TOTAL | [●] | [●] |
SCHEDULE 2-A
Pricing Information
Number of Firm Shares: 2,000,000
Number of Firm Warrants: 2,000,000
Number of Option Shares: 300,000
Number of Option Warrants: 300,000
Public Offering Price per Firm Share and Firm Warrant: $5.00
Public Offering Price per Option Share and Option Warrant: $5.00
Underwriting Discount per Firm Share and Firm Warrant: $0.40
Underwriting Discount per Option Share and Option Warrant: $0.40
Proceeds to Company per Firm Share and Firm Warrant (before expenses): $4.60
Proceeds to Company per Option Share and Option Warrant (before expenses): $4.60
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
FWP filed with the Commission on April 28, 2021
SCHEDULE 3
List of Lock-Up Parties
1. | John “Hil” Davis |
2. | Laura Dowling |
3. | Reid Yeoman |
4. | Mark Lynn |
5. | Trevor Pettennude |
6. |
Jameeka Aaron
|
|
7. | Moise Emquies | |
8. | Drew Jones |
EXHIBIT A
Form of Representative’s Warrant Agreement
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) KINGSWOOD CAPITAL MARKETS, DIVISION OF BENCHMARK INVESTMENTS, INC. OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF KINGSWOOD CAPITAL MARKETS, DIVISION OF BENCHMARK INVESTMENTS, INC. OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [DATE THAT IS SIX MONTHS FROM THE EFFECTIVE DATE OF THE OFFERING]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING].
COMMON STOCK PURCHASE WARRANT
For the Purchase of 100,000 Shares of Common Stock
of
DIGITAL BRANDS GROUP, INC.
1. Purchase Warrant. THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of Kingswood Capital Markets, division of Benchmark Investments, Inc. (“Holder”), as registered owner of this Purchase Warrant, Digital Brands Group, Inc., a Delaware corporation (the “Company”), Holder is entitled, at any time or from time to time from [________________] [DATE THAT IS SIX MONTHS FROM THE EFFECTIVE DATE OF THE OFFERING] (the “Commencement Date”), and at or before 5:00 p.m., Eastern time, [____________] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING] (the ”Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to 100,000 shares of common stock of the Company, par value $0.0001 per share (the “Shares”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $6.25 per Share ; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or the adjusted exercise price, depending on the context. The term “Effective Date” shall mean [ ], the date on which the Registration Statement on Form S-1 (File No. 333- 255193) of the Company was declared effective by the Securities and Exchange Commission.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.
2.2 Cashless Exercise. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:
X | = | Y(A-B) | |
A |
Where, | |||
X | = | The number of Shares to be issued to Holder; | |
Y | = | The number of Shares for which the Purchase Warrant is being exercised; | |
A | = | The fair market value of one Share; and | |
B | = | The Exercise Price. |
For purposes of this Section 2.2, the fair market value of a Share is defined as follows:
(i) | if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or |
(ii) | if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors. |
2.3 Legend. Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “Securities Act”):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE LAW. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE LAW WHICH, IN THE OPINION OF COUNSEL TO THE COMPANY, IS AVAILABLE.”
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant or the securities issuable hereunder for a period of three hundred sixty (360) days following the Effective Date to anyone other than: (i) Kingswood Capital Markets, division of Benchmark Investments, Inc. (“Kingswood”) or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of Kingswood or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(e)(1), or (b) for a period of three hundred sixty (360) days following the Effective Date, cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and after 360 days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of Manatt, Phelps & Phillips, LLP shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the “Commission”) and compliance with applicable state securities law has been established.
4 Registration Rights.
4.1 Demand Registration.
4.1.1 Grant of Right. The Company, upon written demand (a “Demand Notice”) of the Holders of at least 51% of the Purchase Warrants and/or the underlying Shares, agrees to register, on one (1) occasion, all or any portion of the Shares underlying the Purchase Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holders to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
4.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such states as are reasonably requested by the Holders; provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Effective Date in accordance with FINRA Rule 5110(g)(8)(C).
4.2 “Piggy-Back” Registration.
4.2.1 Grant of Right. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, for a period of no more than five (5) years from the Effective Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or Form S-4 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of shares of common stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
4.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days’ written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; provided, however, that such registration rights shall terminate on the fifth anniversary of the Commencement Date.
4.3 General Terms.
4.3.1 Indemnification. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [___________], 2021. The Holders of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
4.3.2 Exercise of Purchase Warrants. Nothing contained in this Purchase Warrant shall be construed as requiring the Holders to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
4.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
4.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares and their intended methods of distribution.
4.3.5 Documents to be Delivered by Holders. Each of the Holders participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
4.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holders shall, in addition to any other legal or other relief available to the Holders, be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
4.4 Termination of Registration Rights. The registration rights afforded to the Holders under this Section 4 shall terminate on the earliest date when all Registrable Securities of such Holder either: (i) have been publicly sold by such Holder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement on Form S-1 or Form S-3 (or successor form), which may be kept effective as an evergreen Registration Statement, or (iii) may be sold by the Holder within a 90 day period without registration pursuant to Rule 144 or consistent with applicable SEC interpretive guidance (including CD&I no. 201.04 (April 2, 2007) or similar interpretive guidance).
5. New Purchase Warrants to be Issued.
5.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
5.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.
6.1.2 Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.
6.1.3 Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.
6.1.4 Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.
6.2 Substitute Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.
6.3 Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. The Company further covenants and agrees that upon exercise of the Purchase Warrants and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.
8.2 Events Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
Kingswood Capital Markets
17 Battery Place, Suite 625
New York, New York 10004
Attn: Joseph T. Rallo
with a copy (which shall not constitute notice) to:
Nelson Mullins Riley & Scarborough LLP
101 Constitution Avenue NW, Suite 900
Washington, DC 20001
Attn: Andrew M. Tucker, Esq.
Fax No.: (202) 689-2860
If to the Company:
Digital Brands Group, Inc.
1400 Lavaca Street
Austin, Texas 78701
Attn: John Hilburn Davis IV
Email: hil@dstld.la
with a copy (which shall not constitute notice) to:
Manatt, Phelps & Phillips, LLP
695 Town Center Drive, 14th Floor
Costa Mesa, CA 92646
Attn: Thomas J. Poletti, Esq.
Fax No.: (714) 371-2551
9. Miscellaneous.
9.1 Amendments. The Company and Kingswood may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Kingswood may deem necessary or desirable and that the Company and Kingswood deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.
9.3 Entire Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction; Trial by Jury. This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.6 Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.
9.8 Exchange Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Kingswood enter into an agreement (“Exchange Agreement”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2021.
DIGITAL BRANDS GROUP, INC.
By: | ||
Name: | ||
Title: |
[Form to be used to exercise Purchase Warrant]
Date: __________, 20___
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ shares of common stock, par value $0.0001 per share (the “Shares”), of Digital Brands Group, Inc., a Delaware corporation (the “Company”), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:
X | = | Y(A-B) | ||||
A | ||||||
Where, | ||||||
X | = | The number of Shares to be issued to Holder; | ||||
Y | = | The number of Shares for which the Purchase Warrant is being exercised; | ||||
A | = | The fair market value of one Share which is equal to $_____; and | ||||
B | = | The Exercise Price which is equal to $______ per share | ||||
The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.
Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.
Signature |
Signature Guaranteed |
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name: | ||
(Print in Block Letters) |
Address: | ||
NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
[Form to be used to assign Purchase Warrant]
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto the right to purchase shares of common stock, par value $0.0001 per share, of Digital Brands Group, Inc., a Delaware corporation (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.
Dated: __________, 20__
Signature |
Signature Guaranteed |
NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
EXHIBIT B
Form of Lock-Up Agreement
Lock-Up Agreement
____________, 2021
Kingswood Capital Markets,
division of Benchmark Investments, Inc.
as Representative of the Underwriters
17 Battery Place, Suite 625
New York, New York 10004
Ladies and Gentlemen:
The undersigned understands that Kingswood Capital Markets, division of Benchmark Investments, Inc. (the “Representative”) proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Digital Brands Group, Inc., a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) of shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), and warrants to purchase shares of Common Stock (the “Warrants,” and collectively with the Common Stock, the “Securities”).
To induce the Representative to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus (the “Prospectus”) relating to the Public Offering (the “Lock-Up Period”), (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Securities or any securities convertible into or exercisable or exchangeable for the Securities, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other public announcement shall be required or shall be voluntarily made during the Lock-Up Period in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; or (d) if the undersigned, directly or indirectly, controls a corporation, partnership, limited liability company or other business entity, any transfers of Lock-Up Securities to any shareholder, partner or member of, or owner of similar equity interests in, the undersigned, as the case may be; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) or (d), (i) it shall be a condition to any such transfer that (i) the transferee/donee agrees to be bound by the terms of this lock-up agreement (including, without limitation, the restrictions set forth in the preceding sentence) to the same extent as if the transferee/donee were a party hereto; (ii) each party (donor, donee, transferor or transferee) shall not be required by law (including without limitation the disclosure requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act) to make, and shall agree to not voluntarily make, any filing or public announcement of the transfer or disposition prior to the expiration of the Lock-Up Period; and (iii) the undersigned notifies the Representative at least two (2) business days prior to the proposed transfer or disposition.
In addition, the foregoing restrictions shall not apply to (i) the exercise or vesting of stock options or other equity awards granted pursuant to the Company’s equity incentive plans; provided that it shall apply to any of the undersigned’s Common Stock issued upon such exercise, (ii) the conversion or exercise of convertible debt or warrants; provided that it shall apply to any of the undersigned’s Common Stock issued upon such exercise, or (iii) the establishment of any new plan (a “Plan”) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the undersigned’s Securities shall be made pursuant to such new Plan prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof), and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof).
The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s securities subject to this this lock-up agreement except in compliance with this this lock-up agreement.
If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any Securities that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.
The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
The undersigned understands that, if the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Securities to be sold thereunder, the undersigned shall be released from all obligations under this lock-up agreement.
This lock-up agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
Very truly yours, | ||
(Name - Please Print) | ||
(Signature) | ||
(Name of Signatory, in the case of entities - Please Print) | ||
(Title of Signatory, in the case of entities - Please Print) | ||
Address: | ||
EXHIBIT C
Form of Press Release
DIGITAL BRANDS GROUP, INC.
[Date]
Digital Brands Group, Inc. (the “Company”) announced today that Kingswood Capital Markets, division of Benchmark Investments, Inc., acting as representative for the underwriters in the Company’s recent public offering of _______ shares of the Company’s Common Stock, and warrants to purchase _______ shares of the Company’s Common Stock, is [waiving] [releasing] a lock-up restriction with respect to _______ shares of Common Stock and accompanying Warrants held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on _______, 20___, and such shares of Common Stock and Warrants may be sold on or after such date.
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
Exhibit 2.4
SECOND AMENDMENT
TO THE
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This Second Amendment to the Membership Interest Purchase Agreement (this “Second Amendment”), dated May 10, 2021 (the "Effective Date"), is entered into by and between D. Jones Tailored Collection, Ltd., a Texas limited partnership (the “Seller”), and Digital Brands Group, Inc., a Delaware corporation (formerly known as Denim.LA, Inc., the “Buyer”). Seller and Buyer are sometimes collectively referred to herein as the “Parties” and individually as a “Party.” All capitalized terms used herein and not otherwise defined shall have the same meaning ascribed to them in that certain Membership Interest Purchase Agreement, dated as of October 14, 2020, by and between Seller and Buyer (the “MIPA”) or that certain First Amendment to the Membership Interest Purchase Agreement, dated as of December 31, 2020, by and between Seller and Buyer (the “First Amendment”).
RECITALS
Whereas, the Parties have entered into the First Amendment to extend the date upon which the closing conditions must be met and to clarify other matters provided;
WHEREAS, the Parties now desire to further amend the MIPA to extend the date upon which the Closing Indebtedness Adjustment is to be prepared and delivered; and
WHEREAS, the MIPA may be amended by a written instrument signed by each Party.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to the following provisions of this Second Amendment.
Notwithstanding anything to the contrary in the MIPA, as amended by the First Amendment, the Parties understand, agree and acknowledge:
1. Definitions. The MIPA, as amended by the First Amendment, is hereby amended as follows:
(a) All references to the “Escrow Agreement” shall be deleted.
(b) The definition of “Escrow Account” shall be deleted and replaced by the following:
“’Escrow Account’” means the account established by the Parties with the Escrow Agent.”
(c) The definition of “Escrow Agent” shall be deleted and replaced by the following:
“’Escrow Agent’” means Vstock Transfer, the transfer agent of Buyer.”
Second Amendment to the Membership Interest Purchase Agreement | Page 1 of 2 |
2. Transactions to be Effected at Closing.
(a) Section 2.04(a)(ii) of the MIPA, as amended by the First Amendment, is hereby amended and restated in its entirety as follows:
“Section 2.04 (a) (ii) Deliver immediately available funds to the Company in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) for the Company’s payment to creditors for the purpose of strengthening the Company’s financial position after the IPO or Uplisting by the reduction of the Company’s debt, with all of such amount constituting a contribution by Buyer to the capital of the Company, and none of such amount constituting consideration for Buyer’s acquisition of the Membership Interests from Seller. For the avoidance of doubt, the foregoing shall reduce the Company’s Indebtedness for purposes of the Buyer’s calculation of Closing Indebtedness, whether received by the Company or a creditor of the Company.”
(b) Section 2.04(a)(iii)(B) shall be deleted in its entirety.
(c) Section 2.04(b)(ii) shall be deleted in its entirety.
3. Closing Indebtedness Adjustment. Section 2.05(a) of the MIPA is hereby amended and restated in its entirety as follows:
“Section 2.05 (a) Within ninety (90) days after the Closing Date (or such longer time period as Buyer and Seller may mutually agree), Buyer or its Representatives shall cause to be prepared and delivered a statement (the “Closing Indebtedness Statement”), setting forth Buyer’s good faith calculation of Closing Indebtedness in reasonable detail.”
4. Termination.
(a) Section 8.01(b)(ii) of the MIPA is hereby amended and restated in its entirety as follows:
“Section 8.01 (b) (ii) Any of the conditions set forth in Section 6.01 and Section 6.02 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by May 31, 2021, unless such nonfulfillment shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions herein to be performed or complied with by its prior to the Closing.”
(b) Section 8.01(c)(ii) of the MIPA is hereby amended and restated in its entirety as follows:
“Section 8.01 (c) (ii) Any of the conditions set forth in Section 6.01 and Section 6.02 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by May 31, 2021, unless such nonfulfillment shall be due to the failure of Seller to perform of comply with any of the covenants, agreements or conditions hereof to be performed or complied with by its prior to the Closing.”
5. Ratification of Agreement. Except as provided herein, the MIPA and First Amendment are ratified, confirmed and shall remain unchanged and in full force and effect.
6. Entire Agreement. This Second Amendment together with the MIPA and First Amendment constitute the full and entire understanding and agreement between the Parties with regard to the subject matter hereof and thereof and no Party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.
7. Counterparts. This Amendment may be executed in two or more counterparts, including by facsimile or electronic transmission, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
8. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws.
[Signature page follows.]
Second Amendment to the Membership Interest Purchase Agreement | Page 2 of 2 |
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date written below each Party’s signature to be effective as of the Effective Date.
SELLER: | ||
D. JONES TAILORED COLLECTION, LTD., a Texas limited partnership | ||
By: DJONES, LLC, a Texas limited liability company | ||
Its: General Partner | ||
By: | /s/ Drew Jones | |
Drew Jones | ||
Its: Managing Member | ||
Date: May 10, 2021 | ||
BUYER: | ||
DIGITAL BRANDS GROUP, INC., a Delaware corporation | ||
By: | /s/ John Hilburn Davis IV | |
John Hilburn Davis IV | ||
Its: President and Chief Executive Officer | ||
Date: May 10, 2021 |
Signature Page
to the
Second Amendment
to the
Membership Interest Purchase Agreement
Exhibit 3.1
AMENDED AND RESTATED
OF
DENIM.LA, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Denim.LA, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),
DOES HEREBY CERTIFY:
1. That the name of this corporation is Denim.LA, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on January 30, 2013, under the name Denim.LA, Inc.
2. That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:
FIRST: The name of this corporation is Denim.LA, Inc. (the “Corporation”).
SECOND: The address of the registered office of the Corporation in the State of Delaware is 160 Greentree Drive, Suite 101 in the City of Dover, DE 19904, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 200,000,000 shares of Common Stock, $0.0001 par value per share (“Common Stock”) and (ii) 125,000,000 shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”).
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Amended and Restated Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B. PREFERRED STOCK
20,714,518 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series Seed Preferred Stock,” 14,481,413 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A Preferred Stock,” 20,000,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A2 Preferred Stock,” 2,000,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series CF Preferred Stock,” ----18,867,925 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A3 Preferred Stock,” and 20,754,717 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series B Preferred Stock,” each with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. For purposes herein, the Series A Preferred Stock, Series A-2 Preferred Stock, Series CF Preferred Stock, Series A-3 Preferred Stock and Series B Preferred Stock (but, for the avoidance of doubt, not the Series Seed Preferred Stock) shall be deemed the “Non Voting Preferred Stock.” Unless otherwise indicated, references to “sections” or “subsections” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.
1. Dividends.
The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Amended and Restated Certificate of Incorporation) the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of each applicable series of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of such applicable series of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of the applicable series of Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the Series B Original Issue Price, Series Seed Original Issue Price, Series A Original Issue Price, Series A-2 Original Issue Price, Series CF Original Issue Price or Series A-3 Original Issue Price (each as defined below), as applicable; provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of each series of Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend for such applicable series of Preferred Stock. The “Series Seed Original Issue Price” shall mean $0.271976161108161 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series Seed Preferred Stock. The “Series A Original Issue Price” shall mean $0.48 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. The “Series A-2 Original Issue Price” shall mean $0.50 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A-2 Preferred Stock. The “Series CF Original Issue Price” shall mean $0.52 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series CF Preferred Stock. The “Series A-3 Original Issue Price” shall mean $0.53 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A-3 Preferred Stock. The “Series B Original Issue Price” shall mean $0.53 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1 Preferential Payments to Holders of Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of each series of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Applicable Multiple (as defined below) with respect to the applicable series of Preferred Stock, multiplied by the Series A-3 Original Issue Price, Series CF Original Issue Price, Series A-2 Original Issue Price, the Series A Original Issue Price, the Series Seed Original Issue Price or the Series B Original Issue Price, as applicable, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A-3 Preferred Stock, Series CF Preferred Stock, Series A-2 Preferred Stock, Series A Preferred Stock, Series Seed Preferred Stock or Series B Preferred Stock, as applicable, been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. For purposes of this Section 2.1, “Applicable Multiple” means 1.0; provided. however, that notwithstanding the foregoing, the “Applicable Multiple” shall mean 1.25 with respect to the Series Seed Preferred Stock (but, for the avoidance of doubt, not with respect to the Non-Voting Preferred Stock) if the Corporation has not received gross proceeds from sales of its capital stock in excess of $3,000,000.00, excluding the Corporation’s receipt of proceeds from the sale of the Series Seed Preferred Stock, prior to the consummation of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event.
2.2 Payments to Holders of Common Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.
2.3 Deemed Liquidation Events.
2.3.1 Definition. Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of at least a majority of the outstanding shares of Preferred Stock (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law) elect otherwise by written notice sent to the Corporation at least ten (10) days prior to the effective date of any such event:
(a) a merger or consolidation pursuant to a definitive agreement executed after the date of filing of this Amended and Restated Certificate of Incorporation the closing of which is not predicate on the effective date or closing of the Corporation’s firm commitment initial public offering and in which
(i) the Corporation is a constituent party or
(ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary of the Corporation in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or
(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except (i) where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation or (ii) a transfer or disposition by pledge or mortgage to a bona fide lender).
2.3.2 Effecting a Deemed Liquidation Event.
(a) Unless the holders of a majority of the outstanding shares of Preferred Stock (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law) elect otherwise by written notice sent to the Corporation at least 10 days prior to the effective date of any Deemed Liquidation Event, the Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(i) unless the agreement or plan of merger or consolidation for such transaction (the “Merger Agreement”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2.
(b) In the event of a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(ii) or 2.3.1(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the ninetieth (90th) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of Preferred Stock, and (iii) if the holders of at least a majority of the then outstanding shares of Preferred Stock (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law) so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the “Available Proceeds”), on the one hundred fiftieth (150th) day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a price per share equal to the Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall ratably redeem each holder’s shares of Preferred Stock to the fullest extent of such Available Proceeds, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. Prior to the distribution or redemption provided for in this Subsection 2.3.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.
2.3.3 Amount Deemed Paid or Distributed. In the event of any such voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, in each case involving the distribution of assets other than cash to the stockholders of the Corporation, the value of the assets to be distributed shall be determined as follows:
(a) In the case of securities that are not subject to investment letter or other similar restrictions on free tradability,
(i) if traded on a national securities exchange or through the Nasdaq Global Market or NYSE, the value shall be deemed to be the average of the closing prices of the securities over the 10 day period ending three days prior to the closing;
(ii) if actively traded over-the-counter, the value shall be deemed to be the average of (i) the average of the last bid and ask prices or (ii) the closing sale prices (whichever is applicable) over the 30 day period ending three days prior to the closing; and
(iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.
(b) In the case of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate), the value shall be based on an appropriate discount from the market value determined as above in Section 2.3.3 to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.
(c) In the case of any other property, the value shall be equal to the property’s fair market value, as determined in good faith by the Board of Directors of the Corporation.
2.3.4 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Subsection 2.3.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.3.4, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Initial Consideration.
3. Voting.
3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), (a) each holder of outstanding shares of Series Seed Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series Seed Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter, and (b) each holder of outstanding shares of Non-Voting Preferred Stock shall have no voting rights in respect of such shares of Non-Voting Preferred Stock; provided. however, that in the event that any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting) is a matter on which the shares of any series of Non-Voting Preferred Stock, as applicable, are required to be entitled to a vote pursuant to applicable law, each holder of outstanding shares of such series of Non-Voting Preferred Stock, as applicable, shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of such series of Non-Voting Preferred Stock, as applicable, held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Amended and Restated Certificate of Incorporation, holders of Preferred Stock (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law) shall vote together with the holders of Common Stock as a single class.
3.2 Election of Directors. Neither the holders of record of the shares of Non-Voting Preferred Stock, nor the holders of record of the shares of Common Stock issued or issuable upon conversion of the shares of Non-Voting Preferred Stock, shall be entitled to elect, nor vote on the election of , any director of the Corporation, other than to the extent required by applicable law. The holders of record of the shares of Series Seed Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the “Series Seed Director”), and the holders of record of the shares of Common Stock not issued or issuable upon conversion of the Preferred Stock, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series Seed Preferred Stock or Common Stock not issued or issuable upon conversion of the Preferred Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3.2, then any directorship not so filled shall remain vacant until such time as the holders of the Series Seed Preferred Stock or Common Stock not issued or issuable upon conversion of the Preferred Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Series Seed Preferred Stock), exclusively and voting together as a single class, excluding the Non-Voting Preferred Stock, and any Common Stock issued or issuable upon conversion of any Non-Voting Preferred Stock, in any event, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2.
3.3 Series Seed Preferred Stock Protective Provisions. At any time when at least 5,300,000 shares of Series Seed Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series Seed Preferred Stock) are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Amended and Restated Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series Seed Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect.
3.3.1 liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any merger or consolidation or any other Deemed Liquidation Event, or consent to any of the foregoing;
3.3.2 amend, alter or repeal any provision of the Amended and Restated Certificate of Incorporation or Bylaws of the Corporation in a manner that materially and adversely affects the rights, preferences or privileges of the Series Seed Preferred Stock;
3.3.3 create, or authorize the creation of , or issue or obligate itself to issue shares of , any additional class or series of capital stock unless the same ranks junior to the Series Seed Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, or increase the authorized number of shares of Series Seed Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to the Series Seed Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;
3.3.4 (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series Seed Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series Seed Preferred Stock in respect of any such right, preference, or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series Seed Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series Seed Preferred Stock in respect of any such right, preference or privilege;
3.3.5 purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series Seed Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock, (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at either the original purchase price or the then-current fair market value thereof or (iv) as approved by the Board of Directors; or
3.3.6 create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary.
4. Optional Conversion.
The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
4.1 Right to Convert.
4.1.1 Conversion Ratio. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the applicable Original Issue Price by the applicable Conversion Price (as defined below) in effect at the time of conversion. The “Series Seed Conversion Price” shall initially be equal to $0.271976161108161, the “Series A Conversion Price” shall initially be equal to $0.48, the “Series A-2 Conversion Price” shall initially be equal to $0.50, the “Series CF Conversion Price” shall initially be equal to $0.52, the “Series A-3 Conversion Price” shall initially be equal to $0.53 and the “Series B Conversion Price” shall initially be equal to $0.53, and each of the foregoing shall be an applicable “Conversion Price” for purposes herein. Such initial Series Seed Conversion Price, Series A Conversion Price, Series A-2 Conversion Price, Series CF Conversion Price,Series A-3 Conversion Price and Series B Conversion Price, and the rate at which shares of Series Seed Preferred Stock, Series A Preferred Stock, Series A-2 Preferred Stock, Series CF Preferred Stock, Series A-3 Preferred Stock and Series B Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
4.1.2 Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.
4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. The number of whole shares issuable to each holder of Preferred Stock upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3 Mechanics of Conversion.
4.3.1 Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder’s shares of Preferred Stock and, if applicable, any event on which such conversion is contingent, and (b) surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of such allegedly lost, stolen or destroyed certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice (or if applicable, the time of the occurrence of the event on which such conversion is contingent), shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.
4.3.2 Reservation of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Amended and Restated Certificate of Incorporation. Before taking any action which would cause an adjustment reducing each applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the applicable series of Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted applicable Conversion Price.
4.3.3 Effect of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock, and the applicable series of Preferred Stock, accordingly.
4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the applicable Conversion Price shall be made for any declared but unpaid dividends on the applicable series of Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4 Adjustments to Conversion Price for Diluting Issues.
4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply:
(a) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(b) “Series A-3 Original Issue Date” shall mean the date on which the first share of Series A-3 Preferred Stock was issued.
(c) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(d) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Series A-3 Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “Exempted Securities”):
(i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;
(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up, subdivision or other distribution on shares of Common Stock that is covered by Subsection 4.5, 4.6, 4.7 or 4.8;
(iii) shares of Common Stock or Options issued to employees or directors of , or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation;
(iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities (including without limitation the Preferred Stock), in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;
(v) shares of Common Stock, Options or Convertible Securities issued to banks, commercial lenders, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors;
(vi) shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization, provided, that such issuances are approved by the Board of Directors of the Corporation;
(vii) shares of Common Stock issued in a QPO (as defined in Subsection 5 below); or
(viii) shares of Common Stock, Options or Convertible Securities issued in connection with (A) any joint venture, technology licensing or development activities, (B) distribution, supply or manufacture of the Corporation’s products or services or (C) any other arrangements or strategic transactions involving corporate partners, in each case entered into for primarily non-equity financing purposes and approved by the Board of Directors of the Corporation.
4.4.2 No Adjustment of Applicable Conversion Price. No adjustment in any Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of Series Seed Preferred Stock (for the avoidance of doubt, excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law) agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3 Deemed Issue of Additional Shares of Common Stock.
(a) If the Corporation at any time or from time to time after the Series A-3 Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to any Conversion Price pursuant to the terms of Subsection 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such applicable Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing any applicable Conversion Price to an amount which exceeds the lower of (i) the applicable Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the applicable Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series A-3 Original Issue Date), are revised after the Series A-3 Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a)) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4, the applicable Conversion Price shall be readjusted to such applicable Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the applicable Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the applicable Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the applicable Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4 Adjustment of Applicable Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series A-3 Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3), without consideration or for a consideration per share less than the applicable Conversion Price in effect immediately prior to such issue, then the applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP2 = CP1 * (A+ B) + (A+ C).
For purposes of the foregoing formula, the following definitions shall apply:
(a) “CP2” shall mean the applicable Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(b) “CP1” shall mean the applicable Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(c) “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
(d) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and
(e) “C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5 Determination of Consideration. For purposes of this Subsection 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof, but excluding amounts paid or payable for accrued interest;
(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation.
(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing:
(i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
4.4.6 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4, and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, the applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series A-3 Original Issue Date effect a subdivision of the outstanding Common Stock, the applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series A-3 Original Issue Date combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series A-3 Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of the applicable series of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series A-3 Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of each series of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
4.8 Adjustment for Merger or Reorganization. etc. Subject to the provisions of Subsection 2.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the applicable series of Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of such series of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such series of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the applicable series of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the applicable series of Preferred Stock. For the avoidance of doubt, nothing in this Subsection 4.8 shall be construed as preventing the holders of the applicable series of Preferred Stock from seeking any appraisal rights to which they are otherwise entitled under the General Corporation Law in connection with a merger triggering an adjustment hereunder, nor shall this Subsection 4.8 be deemed conclusive evidence of the fair value of the shares of the applicable series of Preferred Stock in any such appraisal proceeding.
4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of the applicable series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the applicable series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of the applicable series of Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (i) the applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of the applicable series of Preferred Stock.
4.10 Notice of Record Date. In the event:
(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the any series of Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, then, and in each such case, the Corporation will send or cause to be sent to the holders of the applicable series of Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the applicable series of Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the applicable series of Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice; provided, however, that such notice period may be shortened upon the written consent of holders of the Preferred Stock (excluding all shares of Non- Voting Preferred Stock, other than to the extent required by applicable law) that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of the Preferred Stock (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law).
5. Mandatory Conversion.
5.1 Trigger Events. Upon either (a) the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $10,000,000 of gross proceeds to the Corporation (before deducting underwriters’ commissions and selling expenses) (a “QPO”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding shares of Preferred Stock (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law) (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time”), (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate, and (ii) such shares may not be reissued by the Corporation.
5.2 Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of the applicable series of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the allegedly lost, stolen or destroyed certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the applicable series of Preferred Stock converted pursuant to Subsection 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of the certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2. As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for the applicable series of Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of the applicable series of Preferred Stock converted; provided, however, that the Corporation shall not be obligated to fulfill any obligations to such holder of the applicable series of Preferred Stock under this sentence unless and until all preceding obligations of such holder under this Subsection 5.2 have been fulfilled. Such converted applicable series of Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of the applicable series of Preferred Stock accordingly.
6. Certain Voting and Transfer Restrictions Applicable to Restricted Holders.
6.1 Notwithstanding any stated or statutory voting rights, at no time will a Restricted Holder (as defined herein) and its Restricted Transferees be entitled to exercise, in the aggregate, more than 4.99% of the voting power of any class of this Corporation’s voting securities, including for matters on which holders of Series B Preferred Stock and/or Common Stock vote together as a single class. Notwithstanding the foregoing, the votingrestrictions set forth herein will not apply to (i) any shares of Series B Preferred Stock and/or Common Stock that are transferred to a Permitted Transferee, or (ii) any voting power exercised in connection with any matter that: (a) materially and adversely alters or changes the rights, preferences or privileges of Series B Preferred Stock and/or Common Stock, (b) increases the authorized number of shares of securities senior to Series B Preferred Stock and/or Common Stock, (c) creates (by reclassification or otherwise) any security having rights, preferences or privileges senior to Series B Preferred Stock and/or Common Stock, (d) results in any liquidation, dissolution or winding up of the Corporation, or (e) amends or waives any provision of the Corporation’s Certificate of Incorporation or other charter documents in a manner that materially or adversely affects the rights preferences or privileges of Series B Preferred Stock and/or Common Stock.
6.2 This Corporation shall not directly or indirectly repurchase, redeem, retire or otherwise acquire any of this Corporation’s capital stock, or take any other action, if, as a result, a Restricted Holder would own or control, or be deemed to own or control, collectively, greater than 24.99% of the total equity of this Corporation; provided, however, that the foregoing restriction will not apply to any repurchases or redemptions to the extent the Restricted Holder is permitted to participate on a pro rata basis, such that after such repurchase or redemption the Restricted Holder’s ownership of this Corporation’s voting securities would not exceed such limitation above.
6.3 Definitions.
(a) | “Permitted Transfer” shall mean a Transfer: |
(i) | in connection with a widespread public distribution of the Corporation’s shares; |
(ii) | in which the transferee (together with its affiliates and other transferees acting in concert with it) would receive less than 2% of any class of the Corporation’s voting shares on an as converted basis; or |
(iii) | to a transferee (together with its affiliates and other transferees acting in concert with it) that would own or control more than 50% of any class of voting shares of the Corporation without any transfer from the Restricted Holder. |
(b) | “Permitted Transferee” means any transferee of shares of capital stock of the Corporation pursuant to a Permitted Transfer. |
(c) “Restricted Holder” means any holder of shares of capital stock of the Corporation that is subject to the United States Bank Holding Corporation Act of 1956, as amended, and its affiliates, who notifies the Corporation in writing that it irrevocably intends to be bound by this Section 6.
(d) “Restricted Transferee” means a person to whom a Restricted Holder Transfers shares of capital stock of the Corporation and any person to whom such Restricted Transferee Transfers shares of capital stock of the Corporation (and so on), in each case, other than a Permitted Transferee.
(d) “Transfer” means any direct or indirect sale, assignment, transfer, participation, gift, bequest, distribution, or other disposition thereof, or any pledge or hypothecation thereof, placement of a lien thereon or grant of a security interest therein or other encumbrance thereof, in each case whether voluntary or involuntary or by operation of law or otherwise.
6.4 Transfers to Affiliates. Notwithstanding anything to the contrary contained herein, a Restricted Holder may transfer all or any portion of such Restricted Holder’s shares to an affiliate; provided, however, that such transferee shall be deemed to be a Restricted Holder for all purposes herein.
7. Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.
8. Waiver. Any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of the holders of at least a majority of the shares of Preferred Stock then outstanding (excluding all shares of Non-Voting Preferred Stock, other than to the extent required by applicable law), voting together as a single class on an as converted to Common Stock basis.
9. Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH: Subject to any additional vote required by the Amended and Restated Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
SIXTH: Subject to any additional vote required by the Amended and Restated Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of , or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law, or the California Corporations Code to the extent applicable, permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, (a) in excess of the indemnification and advancement otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits on indemnification set forth in Sections 204 and 317 of the California Corporations Code with respect to actions for breach of duty to the Corporation or its stockholders, to the extent the Corporation is subject to those provision pursuant to Section 2115 of the California Corporations Code, and (b) in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.
Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.
ELEVENTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
TWELFTH: For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with (a) any repurchase of shares of Common Stock permitted under this Amended and Restated Certificate of Incorporation from employees, officers, directors, advisors or consultants of the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board of Directors (in addition to any other consent required under this Amended and Restated Certificate of Incorporation), or (ii) the exercise of a contractual right of first refusal entitling the Corporation to purchase shares of Common Stock upon the terms offered by a third party, such repurchase may be made without regard to any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined therein) shall be deemed to be zero (0).
THIRTEENTH: The Corporation reserves the right to amend or repeal any of the provisions contained in this Amended and Restated Certificate of Incorporation in any manner now or hereafter permitted by law, and the rights of the stockholders of the Corporation are granted subject to this reservation.
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3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.
4. That this Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation’s Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 11th day of February, 2020.
By: | /s/ Hil Davis | |
Hil Davis, Chief Executive Officer |
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Exhibit 3.3
STATE OF DELAWARE
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DIGITAL BRANDS GROUP, INC.
DIGITAL BRANDS GROUP, INC., (the “Corporation”), a corporation organized and existing under the provisions of the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify that:
A. The name of this corporation is Digital Brands Group, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on January 30, 2013, under the name Denim.LA, Inc. An Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”) of the Corporation was filed with the Secretary of State of the State of Delaware on [___________], which restated and amended the Certificate of Incorporation in its entirety.
B. This Second Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law, and has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the General Corporation Law, and restates, integrates and further amends the provisions of the Corporation’s Amended and Restated Certificate of Incorporation.
C. The text of the certificate of incorporation of the Corporation is hereby amended and restated in its entirety to read as follows:
FIRST: The name of the corporation is Digital Brands Group, Inc. (hereinafter called the “Corporation”).
SECOND: The address of the registered office of the Corporation in the State of Delaware is 160 Greentree Drive, Suite 101 in the City of Dover, DE 19904, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized and incorporated under the DGCL or any applicable successor act thereto, as the same may be amended from time to time.
FOURTH: Upon this Second Amended and Restated Certificate of Incorporation (as amended or restated from time to time, this “Certificate of Incorporation”) becoming effective pursuant to the DGCL (the “Effective Time”), the total number of shares of capital stock which the Corporation has authority to issue is 210,000,000 consisting of: 200,000,000 shares of Common Stock, par value $0.0001 per share (“Common Stock”); and 10,000,000 shares of preferred stock, par value $0.0001 per share (“Preferred Stock”). Subject to the rights of the holders of any series of Preferred Stock, the number of authorized shares of any of the Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the capital stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL, and no vote of the holders of any of the Common Stock or Preferred Stock voting separately as a class shall be required therefor. Effective prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, each 15.625 issued and outstanding shares of Common Stock shall be combined and reconstituted into one (1) fully paid and non-assessable share of issued and outstanding Common Stock (the “Reverse Stock Split”). The Reverse Stock Split shall be effected on a certificate-by-certificate basis, such that any fractional shares of Common Stock resulting from the Reverse Stock Split and held by a single record holder shall be aggregated. No fractional shares of Common Stock shall be issued upon the combination of any such shares in the Reverse Stock Split. If the Reverse Stock Split would result in the issuance of any fractional share, the Corporation shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the fair market value (as determined by the Corporation’s Board of Directors (the “Board”)) of one share of Common Stock as of the Effective Time (after giving effect to the foregoing Reverse Stock Split), rounded up to the nearest whole cent. The Reverse Stock Split shall occur whether or not the certificates representing such shares of Common Stock are surrendered to the Corporation or its transfer agent. All of the share amounts and par value of each share of capital stock following the Reverse Stock Split shall be as stated above in Article FOURTH.
A. Common Stock. The powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations and restrictions of the Common Stock are as follows:
1. Ranking. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board upon any issuance of the Preferred Stock of any series.
2. Voting. Except as otherwise provided by law or by the resolution or resolutions providing for the issue of any series of Preferred Stock, the holders of outstanding shares of Common Stock shall have the exclusive right to vote for the election and removal of directors and for all other purposes. Notwithstanding any other provision of this Certificate of Incorporation to the contrary, the holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Preferred Stock Designation (as defined below)) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Preferred Stock Designation (as defined below)) or the General Corporation Law.
3. Dividends. Subject to the rights of the holders of Preferred Stock, holders of shares of Common Stock shall be entitled to receive such dividends and distributions and other distributions in cash, stock or property of the Corporation when, as and if declared thereon by the Board from time to time out of assets or funds of the Corporation legally available therefor.
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4. Liquidation. Subject to the rights of the holders of Preferred Stock, shares of Common Stock shall be entitled to receive the assets and funds of the Corporation available for distribution in the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary. A liquidation, dissolution or winding up of the affairs of the Corporation, as such terms are used in this Section A.4., shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other person or a sale, lease, exchange or conveyance of all or a part of its assets.
B. Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series. The Board is hereby authorized to provide by resolution or resolutions from time to time for the issuance, out of the unissued shares of Preferred Stock, of one or more series of Preferred Stock, without stockholder approval, by filing a certificate pursuant to the applicable law of the State of Delaware (the “Preferred Stock Designation”), setting forth such resolution and, with respect to each such series, establishing the number of shares to be included in such series, and fixing the voting powers, full or limited, or no voting power of the shares of such series, and the designation, preferences and relative, participating, optional or other special rights, if any, of the shares of each such series and any qualifications, limitations or restrictions thereof. The powers, designation, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. The authority of the Board with respect to each series of Preferred Stock shall include, but not be limited to, the determination of the following:
1. | the designation of the series, which may be by distinguishing number, letter or title; |
2. | the number of shares of the series, which number the Board may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding); |
3. | the amounts or rates at which dividends will be payable on, and the preferences, if any, of shares of the series in respect of dividends, and whether such dividends, if any, shall be cumulative or noncumulative; |
4. | the dates on which dividends, if any, shall be payable; |
5. | the redemption rights and price or prices, if any, for shares of the series; |
6. | the terms and amount of any sinking fund, if any, provided for the purchase or redemption of shares of the series; |
7. | the amounts payable on, and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; |
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8. | whether the shares of the series shall be convertible into or exchangeable for, shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series or such other security, the conversion or exchange price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made; |
9. | restrictions on the issuance of shares of the same series or any other class or series; |
10. | the voting rights, if any, of the holders of shares of the series generally or upon specified events; and |
11. | any other powers, preferences and relative, participating, optional or other special rights of each series of Preferred Stock, and any qualifications, limitations or restrictions of such shares, |
all as may be determined from time to time by the Board and stated in the resolution or resolutions providing for the issuance of such Preferred Stock.
Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law.
FIFTH: This Article FIFTH is inserted for the management of the business and for the conduct of the affairs of the Corporation.
A. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, except as otherwise provided by law.
B. Number of Directors; Election of Directors. Subject to the rights of holders of any series of Preferred Stock to elect directors, the number of directors of the Corporation shall be fixed from time to time solely by the Board. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.
C. Vacancies. Subject to the rights of holders of any series of Preferred Stock, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, disability, resignation, disqualification or removal of any director or from any other cause shall be filled solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director and shall not be filled by the stockholders. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his or her predecessor.
D. Removal. Any director or the entire Board may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 66 2/3% in voting power of the capital stock of the Corporation entitled to vote thereon.
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SIXTH: Unless and except to the extent that the Bylaws shall so require, the election of directors of the Corporation need not be by written ballot.
SEVENTH: To the fullest extent permitted by the DGCL as it now exists and as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that nothing contained in this Article SEVENTH shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to the provisions of Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. No repeal or modification of this Article SEVENTH shall apply to or have any adverse effect on any right or protection of, or any limitation of the liability of, a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
EIGHTH: The Corporation shall indemnify, and advance expenses to, to the fullest extent permitted by law, any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
NINTH: Subject to the terms of any series of Preferred Stock or unless otherwise approved in advance by the Board, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders called in accordance with the Bylaws and may not be effected by written consent in lieu of a meeting.
TENTH: Special meetings of stockholders for any purpose or purposes may be called at any time by the majority of the directors then in office, the Chairman of the Board or the Chief Executive Officer or President of the Corporation or stockholders of record holding an aggregate of at least 25% in voting power of the then outstanding shares of stock of the Corporation entitled to vote, and may not be called by another other person or persons. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.
ELEVENTH: If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service or for the benefit of the Corporation to the fullest extent permitted by law.
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The Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the DGCL may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article ELEVENTH. Notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock required by law, by this Certificate of Incorporation or by any Preferred Stock Designation, the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon shall be required to amend, alter, change or repeal any provision of this Certificate of Incorporation, or to adopt any new provision of this Certificate of Incorporation; provided, however, that the affirmative vote of the holders of at least 66 2/3% in voting power of the stock of the Corporation entitled to vote thereon shall be required to amend, alter, change or repeal, or adopt any provision inconsistent with, any of Article FIFTH, Article SEVENTH, Article EIGHTH, Article NINTH, Article TENTH, Article TWELFTH, Article THIRTEENTH, and this sentence of this Certificate of Incorporation, or in each case, the definition of any capitalized terms used therein or any successor provision (including, without limitation, any such article or section as renumbered as a result of any amendment, alteration, change, repeal or adoption of any other provision of this Certificate of Incorporation). Any amendment, repeal or modification of any of Article SEVENTH, Article EIGHTH, and this sentence shall not adversely affect any right or protection of any person existing thereunder with respect to any act or omission occurring prior to such repeal or modification.
TWELFTH: In furtherance and not in limitation of the powers conferred upon it by law, the Board is expressly authorized and empowered to adopt, amend and repeal the Bylaws by the affirmative vote of a majority of the Board. Notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock required by law, by this Certificate of Incorporation or by any Preferred Stock Designation, the Bylaws may also be amended, altered or repealed and new Bylaws may be adopted by the affirmative vote of the holders of at least 66 2/3% in voting power of the stock of the Corporation entitled to vote thereon.
THIRTEENTH:
Forum Selection. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Corporation, (2) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (3) any action arising pursuant to any provision of the DGCL or this Certificate of Incorporation or the Bylaws (as either may be amended from time to time), (4) any action or proceeding to interpret, apply, enforce or determine the validity of this Certificate of Incorporation or the Bylaws, (5) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware or (6) any action asserting a claim governed by the internal affairs doctrine. Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article THIRTEENTH. This Article THIRTEENTH shall not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction.
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E. Personal Jurisdiction. If any action the subject matter of which is within the scope of Section A immediately above is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce Section A immediately above (an “FSC Enforcement Action”) and (ii) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder's counsel in the Foreign Action as agent for such stockholder.
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IN WITNESS WHEREOF, the Corporation has caused this Second Amended and Restated Certificate of Incorporation to be signed by the undersigned, the Chief Executive Officer and President of the Corporation, as of May __, 2021.
John Hilburn Davis, IV | |
Chief Executive Officer and President |
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Exhibit 3.5
AMENDED AND RESTATED BYLAWS
OF
DIGITAL BRANDS GROUP, INC.
ARTICLE I
STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at such place (if any) within or without the State of Delaware as may be designated from time to time by the Board of Directors or the President and Chief Executive Officer. The Board of Directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law. In the absence of any such designation or determination, stockholders’ meetings shall be held at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, time and place, either within or without the State of Delaware, as may be designation by resolution of the Board of Directors each year
1.3 Special Meetings. Special meetings of stockholders may be called for any purpose or purposes prescribed in the notice of the meeting at any time by the majority of the Board of Directors then in office, the Chairman of the Board, the Chief Executive Officer or President or the stockholders of record holding an aggregate of at least 25% in voting power of the then outstanding shares of stock of the corporation entitled to vote, and may not be called by any other person or persons. In lieu of holding a special meeting of stockholders at a designated place, the Board of Directors may, in its sole discretion, determine that any special meeting of stockholders may be held solely by means of remote communication. Business transacted at any special meeting of stockholders shall be confined to the purpose or purposes stated in the notice of meeting. Upon request in writing sent by registered mail to the President or Chief Executive Officer by any stockholder or stockholders entitled to request a special meeting of stockholders pursuant to this Section 1.3, and containing the information required pursuant to Sections 1.11 and 2.15, as applicable, the Board of Directors shall determine a place and time for such meeting, which time shall be not less than 10 nor more than 30 days after the receipt of such request, and a record date for the determination of stockholders entitled to vote at such meeting shall be fixed by the Board of Directors, in advance, which shall not be more that 15 days nor less than 10 days before the date of such meeting. Following such receipt of a request and determination by the Secretary of the validity thereof, it shall be the duty of the Secretary to present the request to the Board of Directors, and upon Board action as provided in this Section 1.3, to cause notice to be given to the stockholders entitled to vote at such meeting, in the manner set forth in Section 1.4, hereof, that a meeting will be held at the place, if any, and time so determined, for the purposes set forth in the stockholder’s request, as well as any purpose or purposes determined by the Board of Directors in accordance with this Section 1.3.
1.4 Notice of Meetings.
(a) Written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required by law (meaning here and hereafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the corporation, as amended from time to time (the “Certificate of Incorporation”). The notice of any meeting shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.
(b) Notice to stockholders may be given by personal delivery, mail, or, with the consent of the stockholder entitled to receive notice, by facsimile or other means of electronic transmission. If mailed, such notice shall be delivered by postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the corporation and shall be deemed given when deposited in the United States mail. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the Delaware General Corporation Law. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by personal delivery, by mail, or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(c) Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder either in a writing signed by such stockholder or by electronic transmission, whether such waiver is given before or after such meeting is held. If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.
1.5 Record Date for Stockholder Notice.
(a) In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, shall, unless otherwise required by law, not be more than 60 nor less than 10 days before the date of such meeting and, unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for determining the stockholders entitled to vote at such meeting, the record date for determining the stockholders entitled to notice of such meeting shall also be the record date for determining the stockholders entitled to vote at such meeting; and (2) in the case of any other action, shall not be more than 60 days prior to such other action.
(b) If the Board of Directors does not so fixed a record date: (1) the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for the stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for the determination of stockholders entitled to vote in accordance with the foregoing provisions of this Section 1.5 at the adjourned meeting.
1.6 Voting List. The officer who has charge of the stock ledger of the corporation shall prepare, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order for each class of stock and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, in the manner provided by law. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. This list shall determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
1.7 Quorum. Except as otherwise provided by law or these Bylaws, the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at all meetings for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairperson of the meeting or (b) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have the power to adjourn the meeting to another place, if any, date or time. Where a separate class vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.
1.8 Adjournments. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the date, time, and place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, if any, date, and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, shall be given in conformity herewith. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.
1.9 Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder unless otherwise provided by law or in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders may vote in person or may authorize any other person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent or by a transmission permitted by law and delivered to the Secretary of the corporation. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, facsimile, electronic or telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General Corporation Law.
1.10 Action at Meeting. When a quorum is present at any meeting, all elections of directors shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election, and any other matter shall be determined by a majority in voting power of the shares entitled to vote on the matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, a majority of the shares of each such class entitled to vote on the matter) shall decide such matter, except when a different vote is required by express provision of law, the Certificate of Incorporation or these Bylaws.
All voting, including on the election of directors, but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a vote by ballot shall be taken. Each ballot shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as an alternate inspector to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability.
1.11 Conduct of Business. At every meeting of the stockholders, the Chairman of the Board, or, in his or her absence, the President, or, in his or her absence, such other person as may be appointed by the Board of Directors, shall act as chairman. The Secretary of the corporation or a person designated by the chairman of the meeting shall act as secretary of the meeting. Unless otherwise approved by the chairman of the meeting, attendance at the stockholders’ meeting is restricted to stockholders of record, persons authorized in accordance with Section 1.9 of these Bylaws to act by proxy, and officers of the corporation.
The chairman of the meeting shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the chairman’s discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
The chairman shall also conduct the meeting in an orderly manner, rule on the precedence of, and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part. Without limiting the foregoing, the chairman may (a) restrict attendance at any time to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the presiding officer or Board of Directors, (b) restrict use of audio or video recording devices at the meeting, and (c) impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any person in attendance become unruly or obstruct the meeting proceedings, the chairman shall have the power to have such person removed from the meeting. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 1.11. The chairman of a meeting may determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the provisions of this Section 1.11 and Section 1.10, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
1.12 Stockholder Action Without Meeting. Subject to the terms of any series of Preferred Stock or unless otherwise approved in advance by the Board, any action required or permitted to be taken by the stockholders of the corporation must be effected at an annual or special meeting of the stockholders called in accordance with the Bylaws and may not be effected by written consent in lieu of a meeting.
1.13 Meetings by Remote Communication. If authorized by the Board of Directors, and subject to such guidelines and procedures as the Board may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by means of remote communication, participate in the meeting and be deemed present in person and vote at the meeting, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.
ARTICLE II
BOARD OF DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law or the Certificate of Incorporation. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number and Term of Office. The Board of Directors shall consist of one (1) or more members. Subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances, the number of directors shall be fixed from time to time solely by resolution of the majority of the Board of Directors. All directors shall hold office until the expiration of the term for which elected and until their respective successors are elected, except in the case of the death, resignation or removal of any director.
2.3 Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (including removal from office by a vote of the stockholders) may be filled only by the affirmative vote of a majority of the total number of directors then in office, though less than a quorum (and not by stockholders), or by the sole remaining director, or, to the extent required by the Certificate of Incorporation, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires or until such director’s successor shall have been duly elected and qualified. No decrease in the number of authorized directors shall shorten the term of any incumbent director.
2.4 Resignation. Any director may resign by delivering notice in writing or by electronic transmission to the President, Chairman of the Board or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
2.5 Removal. Any director or the entire Board may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 66 2/3% in voting power of the capital stock of the corporation entitled to vote thereon..
2.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.
2.7 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or two or more directors and may be held at any time and place, within or without the State of Delaware.
2.8 Notice of Special Meetings. Notice of any special meeting of directors shall be given to each director by whom it is not waived by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director by (i) giving notice to such director in person or by telephone, electronic transmission or voice message system at least 24 hours in advance of the meeting, (ii) sending a facsimile to his last known facsimile number, or delivering written notice by hand to his last known business or home address, at least 24 hours in advance of the meeting, or (iii) mailing written notice to his last known business or home address at least three days in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.
2.9 Participation in Meetings by Telephone Conference Calls or Other Methods of Communication. Directors or any members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.
2.10 Quorum. A majority of the total number of authorized directors shall constitute a quorum at any meeting of the Board of Directors. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of a committee which authorizes a particular contract or transaction.
2.11 Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these Bylaws. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
2.12 Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent to the action in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
2.13 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation, with such lawfully delegated powers and duties as it therefor confers, to serve at the pleasure of the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the Delaware General Corporation Law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the Board of Directors.
2.14 Compensation of Directors. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service.
2.15 Nomination of Director Candidates. Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by (i) the Board of Directors or a duly authorized committee thereof or (ii) any stockholder entitled to vote in the election of Directors.
ARTICLE III
OFFICERS
3.1 Enumeration. The officers of the corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer, a Chief Financial Officer and such other officers with such other titles as the Board of Directors shall determine, including, at the discretion of the Board of Directors, a Chairman of the Board and one or more Vice Presidents and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate.
3.2 Election. Officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Officers may be appointed by the Board of Directors at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote appointing him, or until his earlier death, resignation or removal.
3.5 Resignation and Removal. Subject to the rights (if any) of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom the power of removal is conferred by the Board of Directors.
Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
3.6 Chairman of the Board. The Board of Directors may appoint a Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the Board of Directors.
3.7 Chief Executive Officer. The Chief Executive Officer of the corporation shall, subject to the direction of the Board of Directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, including general supervision, direction and control of the business and supervision of other officers of the corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
3.8 President. Subject to the direction of the Board of Directors and such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the Chief Executive Officer, if such titles be held by other officers, the President shall have general supervision, direction and control of the business and supervision of other officers of the corporation. Unless otherwise designated by the Board of Directors, the President shall be the Chief Executive Officer of the corporation. The President shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. He or she shall have power to sign stock certificates, contracts and other instruments of the corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the corporation, other than the Chairman of the Board and the Chief Executive Officer.
3.9 Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have at the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the Secretary, including, without limitation, the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to keep a record of the proceedings of all meetings of stockholders and the Board of Directors, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer. The Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation, the duty and power to keep and be responsible for all funds and securities of the corporation, to maintain the financial records of the corporation, to deposit funds of the corporation in depositories as authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to render as required by the Board of Directors accounts of all such transactions and of the financial condition of the corporation.
3.12 Chief Financial Officer. The Chief Financial Officer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors, the Chief Executive Officer or the President. Unless otherwise designated by the Board of Directors, the Chief Financial Officer shall be the Treasurer of the corporation.
3.13 Salaries. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.
3.14 Authority and Duties of Officers. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders
3.15 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
ARTICLE IV
CAPITAL STOCK
4.1 Issuance of Stock. Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. The shares of the corporation may be certificated or uncertificated, as provided under Delaware law, and shall be entered in the books of the corporation and recorded as they are issued. Any duly appointed officer of the corporation is authorized to sign share certificates. Any or all of the signatures on any certificate may be a facsimile or electronic signature. In case any officer, transfer agent or registrar who has signed or whose facsimile or electronic signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation: (i) in the case of shares represented by a certificate, by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the corporation or its transfer agent may reasonably require; and (ii) in the case of uncertificated shares, upon the receipt of proper transfer instructions from the registered owner thereof. Except as may be otherwise required by law, the Certificate of Incorporation or the Bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these Bylaws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, or it may issue uncertificated shares if the shares represented by such certificate have been designated as uncertificated shares in accordance with Section 4.2, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar.
4.5 Dividends. The directors of the corporation, subject to any restrictions contained in (a) the Delaware General Corporation Law or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
4.6 Employee Stock Purchase and Option Plans. The corporation may adopt and carry out a stock purchase plan or agreement or stock option plan or agreement providing for the issue and sale for such consideration as may be fixed of its unissued shares, or of issued shares acquired or to be acquired, to one or more of the employees, officers or directors of the corporation or of a subsidiary or parent thereof or to a trustee on their behalf and for the payment for such shares in installments or at one time, and may provide for aiding any such persons in paying for such shares by compensation for services rendered, promissory notes or otherwise.
A stock purchase plan or agreement or stock option plan or agreement may include, among other features, the fixing of eligibility for participation therein, the class and price of shares to be issued or sold under the plan or agreement, the number of shares which may be subscribed for, the method of payment therefore, the reservation of title until full payment therefore, the effect of the termination of employment, an option or obligation on the part of the corporation to repurchase the shares upon termination of employment, subject to Delaware General Corporation Law, restrictions upon transfer of the shares and the time limits of and termination of the plan.
ARTICLE V
GENERAL PROVISIONS
5.1 Fiscal Year. The fiscal year of the corporation shall be as fixed by the Board of Directors.
5.2 Waiver of Notice. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these Bylaws, a waiver of such notice either in writing signed by the person entitled to such notice or such person’s duly authorized attorney, or by electronic transmission or any other method permitted under the Delaware General Corporation Law, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice.
5.3 Actions with Respect to Securities of Other Corporations. Except as the Board of Directors may otherwise designate, the Chief Executive Officer or President or any officer of the corporation authorized by the Chief Executive Officer or President shall have the power to vote and otherwise act on behalf of the corporation, in person or proxy, and may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact to this corporation (with or without power of substitution) at any meeting of stockholders or shareholders (or with respect to any action of stockholders) of any other corporation or organization, the securities of which may be held by this corporation and otherwise to exercise any and all rights and powers which this corporation may possess by reason of this corporation’s ownership of securities in such other corporation or other organization.
5.4 Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.
5.5 Certificate of Incorporation. All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time.
5.6 Severability. Any determination that any provision of these Bylaws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these Bylaws.
5.7 Pronouns. All pronouns used in these Bylaws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.
5.8 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by commercial courier service, or by facsimile or other electronic transmission, provided that notice to stockholders by electronic transmission shall be given in the manner provided in Section 232 of the Delaware General Corporation Law. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if delivered by hand, facsimile, other electronic transmission or commercial courier service, or the time such notice is dispatched, if delivered through the mails. Without limiting the manner by which notice otherwise may be given effectively, notice to any stockholder shall be deemed given: (1) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (2) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; (4) if by any other form of electronic transmission, when directed to the stockholder; and (5) if by mail, when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.
5.9 Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation as provided by law, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.
5.10 Time Periods. In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
5.11 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
5.12 Maintenance and Inspection of Records. The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
6.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("Proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, or as a controlling person of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Law permitted the corporation to provide prior to such amendment) against all expenses, liability and loss reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 6.2 of this Article VI, the corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the proceeding (or part thereof) was authorized by the Board of Directors of the corporation, (c) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law, or (d) the proceeding (or part thereof) is brought to establish or enforce a right to indemnification or advancement under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. The rights hereunder shall be contract rights and shall include the right to be paid expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer of the corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this Section or otherwise.
6.2 Right of Claimant to Bring Suit. If a claim under Section 6.1 is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, or 20 days in the case of a claim for advancement of expenses, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the corporation shall be entitled to recover such expenses upon a final judicial decision from which there is no further right to appeal that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, shall be on the corporation.
6.3 Indemnification of Employees and Agents. The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of related expenses, to any employee or agent of the corporation to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to directors and officers of the corporation.
6.4 Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
6.5 Indemnification Contracts. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VI.
6.6 Insurance. The corporation may maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
6.7 Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VI shall not adversely affect any right or protection of an indemnitee or his successor existing at the time of such amendment, repeal or modification.
ARTICLE VII
AMENDMENTS
7.1 By the Board of Directors. Except as otherwise set forth in these Bylaws or the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock then outstanding, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.
7.2 By the Stockholders. Except as otherwise set forth in these Bylaws, and subject to the rights of the holders of any series of Preferred Stock then outstanding, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the shares of capital stock of the corporation issued and outstanding and entitled to vote generally in any election of directors, voting together as a single class. Such vote may be held at any annual meeting of stockholders, or at any special meeting of stockholders provided that notice of such alteration, amendment, repeal or adoption of new Bylaws shall have been stated in the notice of such special meeting.
Exhibit 4.10
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$___,000.00 | ___________,2019 |
Los Angeles, California
FOR VALUE RECEIVED, Denim.LA, Inc., a Delaware corporation (the "Company"), promises to pay to ___________________, or its registered assigns, (the "Holder") the principal sum of _____________ Thousand Dollars ($_____,000.00), or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of this Note on the unpaid principal balance at a rate per annum equal to 12.0% per annum. The interest rate shall be computed on the basis of the actual number of days elapsed and a year of 365 days. All unpaid principal under this Note, if not converted by the provisions of Section 6 below, shall be due and payable on demand at any time after the earlier of (i) the date thirty-six (36) months after the date of the issuance of this Note (the "Maturity Date"), or (ii) after the occurrence of an Event of Default (as defined below). The balance of unpaid and accrued interest under this Note and other amounts payable hereunder (but not the principal hereunder), shall be due and payable on demand at any time after the earlier of (i) the Maturity Date, (ii) after the occurrence of an Event of Default, or (iii) after the conversion of all then-outstanding principal under this Note into the Company’s equity securities under Section 6 hereof.
The following is a statement of the rights and obligations of the Holder and the Company and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following capitalized terms have the following meanings:
(a) “Cap Valuation” means $9,000,000.00
(b) “Change of Control” means (i) a reorganization, merger or consolidation of the Company into or with another entity after which the stockholders of the Company immediately prior to such transaction do not own, immediately following the consummation of the transaction by virtue of their shares in the Company or securities received in exchange for such shares in connection with the transaction, a majority of the voting power of the surviving entity in proportions substantially identical to those that existed immediately prior to such transaction and with substantially the same rights, preferences, privileges and restrictions as the shares they held immediately prior to the transaction, (ii) the sale, transfer or other disposition (but not including a transfer or disposition by pledge or mortgage to a bona fide lender) of all or substantially all of the assets of the Company (other than to a wholly-owned subsidiary), or (iii) the sale or transfer by the Company or its stockholders of more than 50% of the voting power of the Company in a transaction or series of related transactions other than in a transaction or series of transactions effected by the Company primarily for financing purposes.
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(c) “Conversion Price” means $0.14 per share of Common Stock of the Company.
(d) “Initial Public Offering” means the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s Common Stock pursuant to a registration statement filed under the Securities Act.
(e) “Majority Investors” means the Holders (as defined below) holding more than 50% of the aggregate then-outstanding principal amount of all then-outstanding Notes.
(f) “Notes” means this Note issued to the Holder, collectively with other convertible promissory notes in a form substantially similar to this Note, issued in one or more closings by the Company to other purchasers of such other Notes (collectively with the Holder, the “Holders”), with an aggregate principal value of up to $3,000,000.00.
(g) “Obligations” means all principal and accrued interest due under this Note.
(h) “Pre-Money Fully Diluted Capitalization” means the number of shares of Common Stock of the Company outstanding immediately prior to the closing of any applicable transaction (such as an Initial Public Offering, , a Change of Control, or a conversion of this Note upon the Maturity Date), in each case, assuming conversion of all then-outstanding securities convertible into Common Stock, exercise of all then-outstanding options and warrants, and including the shares then-reserved and authorized for issuance under the Company’s then-existing equity incentive plan, but excluding the shares issued in such applicable transaction or pursuant to the conversion of any portion of the Obligations under this Note or under any of the other Notes.
(i) “Securities Act” means the Securities Act of 1933, as amended.
(j) “Senior Indebtedness” means, unless expressly subordinated to or made on a parity with the amounts due under this Note, the principal of (and premium, if any), unpaid interest on and amounts reimbursed, fees, expenses, costs of enforcement and other amounts due in connection with, (i) existing indebtedness of Company on the effective date of this Note, excluding any and all of the other Notes, (ii) indebtedness of the Company, or with respect to which the Company is a guarantor, to banks, commercial finance lenders, insurance companies, leasing or equipment financing institutions or other lending institutions regularly engaged in the business of lending money (excluding venture capital, investment banking or similar institutions which sometimes engage in lending activities but which are primarily engaged in investments in equity securities), which is for money borrowed, or purchase or leasing of equipment in the case of lease or other equipment financing, by the Company, whether or not secured, and whether or not created or acquired before or after the indebtedness evidenced by this Note, and (iii) any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor.
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(k) “Total Number of Conversion Shares” means the quotient obtained by dividing (i) the amount of then-outstanding principal (but none of the accrued interest) under this Note, by (ii) the Discounted Purchase Price.
(l) “Undiscounted Purchase Price” means the lowest price-per-share of the Qualified Equity Securities (in the event of a Qualified Equity Financing) or Nonqualified Equity Securities (in the event of a Nonqualified Equity Financing), as applicable, at which such Qualified Equity Securities or Nonqualified Equity Securities, as applicable, are sold to the purchasers in such Qualified Equity Financing or Nonqualified Equity Financing, as applicable.
2. Payments. The Company may prepay this Note, in whole or in part at any time, without premium or penalty, with the prior written consent of the Majority Investors. Any such prepayment will be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. If any payment on this Note shall become due on a Saturday, Sunday, or a public holiday under the laws of the State of California, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing interest in connection with such payment. All payments shall be in lawful money of the United States of America.
3. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note:
(a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on the due date hereunder or (ii) any interest or other payment required under the terms of this Note on the date due, and such payment shall not have been made within fifteen (15) days of the Company's receipt of the Holder's written notice to the Company of such failure to pay; or
(b) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its or any of its creditors, (iii) be dissolved or liquidated in full or in part, (iv) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (v) take any action for the purpose of effecting any of the foregoing;
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(c) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
4. Rights of the Holder Upon Default. Upon the occurrence and during the continuance of any Event of Default, the Holder may, with the written consent of the Majority Investors, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may, with the written consent of the Majority Investors, exercise any other right, power or remedy granted to it or otherwise permitted to it by law, either by suit in equity or by action at law, or both.
5. Subordination. The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all of the Company's Senior Indebtedness.
(a) Insolvency Proceedings. If there shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of the Company, no amount shall be paid by the Company in respect of the principal of, interest on or other amounts due with respect to this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full.
(b) Subrogation. Subject to the payment in full of all Senior Indebtedness, the Holder of this Note shall be subrogated to the rights of the holder(s) of such Senior Indebtedness (to the extent of the payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to the provisions of this Section 5) to receive payments and distributions of assets of the Company applicable to the Senior Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to or on account of this Note; and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which the Holder would be entitled except for the provisions of this Section 5 shall, as between the Company and its creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness.
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(c) No Impairment. Nothing contained in this Section 5 shall impair, as between the Company and the Holder, the obligation of the Company, subject to the terms and conditions hereof, to pay to the Holder the principal hereof and interest hereon as and when the same become due and payable, or shall prevent the Holder of this Note, upon default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law.
(d) Reliance of Holders of Senior Indebtedness. The Holder, by its acceptance hereof, shall be deemed to acknowledge and agree that the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder of Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the creation of the indebtedness evidenced by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and holding, or in continuing to hold, such Senior Indebtedness.
(e) Pari Passu Notes. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes. In the event Holder receives payments in excess of its pro rata share of the Company’s payments to the holder of the Holders of all of the other Notes, then Holder shall hold in trust all such excess payments for the benefit of the Holders of the other Notes and shall pay such amounts held in trust to the holder of such other Holders of the other Notes upon demand by the holder of such Holders of the other Notes, as applicable.
6. Conversion.
(a) Automatic Conversion.
(i) Initial Public Offering. Upon the closing of an Initial Public Offering, if such closing occurs before the Maturity Date and before any prior conversion of this Note under this Section 6, then this Note shall convert into that number of fully paid and nonassessable shares of the Company’s Common Stock determined by dividing the then-outstanding Obligations by the Conversion Price, , rounded down to the nearest whole share.
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(ii) Procedure for Automatic Conversion. The Company shall provide written notice to the Holder at least 5 business days prior to the closing of any Initial Public Offering, notifying the Holder of such pending transaction, including a reasonable summary of the price and terms under which such Initial Public Offering is then-proposed. In the event that the Company notifies the Holder in writing of the occurrence or proposed occurrence of a conversion under this Section 6(a), including the proposed date of such conversion, the Holder of this Note shall immediately deliver this Note to the Company at the address set forth under Section 12 below, or such other address communicated to the Holder by the Company in writing. Upon the delivery by the Holder of the Note to the Company and the completion of all conditions to such conversion (for example, the closing of the Initial Public Offering), the Company shall cancel this Note and issue to the Holder the number of shares of Common Stock as required by Section 6(a)(i) above. In the event that the Holder fails to deliver this Note to the Company prior to the completion of all conditions to such conversion, this Note will nevertheless be deemed cancelled and converted into shares of the Company’s stock hereunder upon the completion of all such conditions to such conversion. Further, the Holder hereby agrees to execute and deliver to the Company all transaction documents related to the Initial Public Offering; provided, however, that such transaction documents are the same documents to be entered into with all other purchasers of the Common Stock of the Company in connection with the Initial Public Offering (subject to a 180-day lock-up agreement).
(b) Optional Conversion.
(i) Change of Control. Upon the closing of a Change of Control, if such closing occurs before the Maturity Date and before any prior conversion of this Note under this Section 6, then in lieu of the principal and interest that would otherwise be payable on the Maturity Date, the Company will pay the Holder an aggregate amount equal to two times (2.0x) all outstanding principal due under the Note (it being understood that all accrued and unpaid interest under this Note shall be deemed waived in such event, in consideration of receiving such 2.0x principal payment); provided, however, that at the election of the Majority Investors, all or a portion of the then-outstanding principal (but none of the accrued interest) under this Note (but, for the avoidance of doubt, not two times (2.0x) any outstanding principal due under the Note) shall be convertible into that number of fully paid and nonassessable shares of the Company’s Common Stock determined by dividing the then-outstanding principal elected to be so converted by the lesser of (A) the fair market value of the Company’s Common Stock at the time of such conversion, as determined in good faith by the Company’s Board of Directors, (B) the Conversion Price, or (C) the quotient, rounded down to the nearest whole share, obtained by dividing (1) the Cap Valuation by (2) the Pre-Money Fully Diluted Capitalization, with rights that are generally applicable to all other holders of the Company’s Common Stock as of such conversion date under the Company’s certificate of incorporation, as amended to date.
(ii) Maturity Date. Immediately prior to the Maturity Date, if any then-outstanding principal under this Note have not yet converted into the Company’s stock under this Section 6, then at the option of the Majority Investors, all or a portion of the then-outstanding principal (but none of the accrued interest) under this Note may be converted into that number of fully paid and nonassessable shares of the Company’s Common Stock determined by dividing the then-outstanding principal elected to be so converted by the quotient obtained by dividing (A) the Cap Valuation by (B) the then-current Pre-Money Fully Diluted Capitalization, with rights that are generally applicable to all other holders of the Company’s Common Stock as of such conversion date under the Company’s certificate of incorporation, as amended to date.
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(iii) Procedure for Optional Conversion. The Company shall provide written notice to the Holder at least 5 business days prior to the closing of any Change of Control, notifying the Holder of such pending transaction, including a reasonable summary of the price and terms under which such transaction is then-proposed (but with no obligation to disclose the names of any other parties involved with any such transaction). In the event that the Company notifies the Holder in writing of the occurrence or proposed occurrence of an opportunity to convert under this Section 6(b), including the proposed date of such conversion, the Holder of this Note may deliver to the Company at the address set forth under Section 12 below, or such other address communicated to the Holder by the Company in writing, this Note and a written election to convert. Upon the delivery by the Holder of the Note to the Company, the delivery by the Majority Investors of their Notes to the Company, the delivery by the Majority Investors of a written notice electing to convert their Notes as applicable under this Section 6(b), and the completion of all conditions to such conversion (for example, the closing of the Change of Control or the occurrence of the Maturity Date), the Company shall cancel this Note and issue to the Holder the number and class of shares described in Section 6(b)(i) or (ii) above, as applicable. In the event that the Majority Investors deliver a written notice to the Company electing to convert their Notes as applicable under this Section 6(b), if the Holder fails to deliver this Note to the Company prior to the completion of all conditions to such conversion, this Note will nevertheless be deemed cancelled and converted into shares of the Company’s stock hereunder upon the completion of all such conditions to such conversion. In the event of a conversion under Section 6(b)(i) or (ii) hereof, the Holder hereby agrees to execute and deliver to the Company a common stock purchase agreement reasonably acceptable to the Company containing customary representations and warranties and transfer restrictions.
(c) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note or any part hereof. Upon the conversion of any of the principal outstanding under this Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal that is not so converted. Upon full conversion of this Note (including payment of the interest accrued hereunder in accordance with Section 6(d) below), the Company shall be forever released from all its obligations and liabilities under this Note, whether or not the original of this Note has been delivered to the Company for cancellation.
7. Representations and Warranties.
(a) Representations and Warranties of the Holder. The Holder represents and warrants to the Company as of the time of issuance of this Note as follows:
(i) Investment Intent: Authority. This Note is issued to the Holder in reliance upon such Holder’s representation to the Company, evidenced by Holder’s execution of this Note, that Holder is acquiring this Note for investment for such Holder’s own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act, or the California Corporate Securities Law of 1968, as amended (the “California Law”). Holder has the full right, power, authority and capacity to enter into and perform its obligations under this Note and this Note will constitute a valid and binding obligation upon Holder, except as the same may be limited by bankruptcy, insolvency, moratorium, and other laws of general application affecting the enforcement of creditors’ rights.
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(ii) Securities Not Registered. Holder understands and acknowledges that the offering of this Note pursuant to the terms hereunder will not be registered under the Securities Act or qualified under the California Law on the grounds that the offering and sale of this Note, the securities into which this Note may convert and (if such securities are convertible securities) the securities into which such securities may convert (collectively, the “Securities”) are exempt from registration under the Securities Act and exempt from qualification pursuant to section 25102(f) of the California Law, and that the Company’s reliance upon such exemptions is predicated upon such Holder’s representations set forth in this Note. The Holder acknowledges and understands that resale of the Securities may be restricted indefinitely unless the Securities are subsequently registered under the Securities Act and qualified under the California Law or an exemption from such registration and such qualification is available.
(iii) No Transfer. Holder covenants that in no event will it dispose of any of the Securities other than in conjunction with an effective registration statement for the Securities under the Securities Act or pursuant to an exemption therefrom, or in compliance with Rule 144 promulgated under the Securities Act or to an entity affiliated with said Holder and other than in compliance with the applicable securities regulation laws of any state. Notwithstanding the foregoing, the Securities may be transferred by a Holder which is a partnership to a limited or general partner of such partnership if (A) the transferee agrees in writing to be subject to the terms of this Note to the same extent as if he were an original Holder; (B) the Holder delivers written notice of such transfer to the Company; and (C) the transferee is not a competitor to the Company, as reasonably determined in the discretion of the Company’s Board of Directors.
(iv) Knowledge and Experience. Holder (A) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and substantial risks of such Holder’s prospective investment in the Securities; (B) has the ability to bear the economic risks of such Holder’s prospective investment; (C) has not been offered the Securities by any form of advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any such media; and (D) is an Accredited Investor within the meaning of Regulation D promulgated under the Securities Act. Holder acknowledges that the Company has given such Holder access to the corporate records and accounts of the Company and to all information in its possession relating to the Company, has made its officers and representatives available for interview by such Holder, and has furnished such Holder with all documents and other information required for such Holder to make an informed decision with respect to the purchase of the Note.
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(b) Representations and Warranties of the Company. The Company represents and warrants to the Holder as of the time of issuance of this Note as follows:
(i) Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and proposed to be conducted.
(ii) Corporate Power. The Company has all requisite legal and corporate power to enter into, execute and deliver this Note. This Note will be a valid and binding obligation of the Company, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, moratorium, and other laws of general application affecting the enforcement of creditors’ rights.
(iii) Authorization.
(A) Corporate Action. All corporate and legal action on the part of the Company, its officers and directors necessary for the execution and delivery of this Note, and the sale and issuance of the Note and the performance of the Company’s obligations hereunder, have been taken.
(B) Valid Issuance. This Note will be validly issued and will be free of any liens or encumbrances, provided, however, that the Note may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein, and as may be required by future changes in such laws.
(iv) Government Consent, Etc. No consent, approval, order or authorization of, or designation, registration, declaration or filing with, any federal, state, local or provincial or other governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Note other than, if required, filings or qualifications under applicable federal securities laws or state blue sky laws, which filings or qualifications, if required, will be timely filed or obtained by the Company.
8. Successors and Assigns. Subject to the restrictions on transfer described in Section 7 above and Section 9 below, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
9. Transfer of this Note. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act and any applicable state securities laws, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act and any applicable state securities laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.
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10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company, without the prior written consent of the Majority Investors; provided, however, that this Note and all rights, interests and obligations hereunder shall be assigned automatically to any successor entity of the Company upon a merger or consolidation of the Company consummated for the purpose of incorporating the Company in another jurisdiction.
11. No Rights as Stockholder. This Note, as such, shall not entitle the Holder to any rights as a stockholder of the Company, except as otherwise specified herein.
12. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be sent via facsimile, overnight courier service or mailed by certified or registered mail, postage prepaid, return receipt requested, addressed or sent (i) if to the Holder, then to the address listed below the Holder’s signature on this Note, or at such other address or number as the Holder shall have furnished to the Company in writing, or (ii) if to the Company, then to the address listed below the Company’s signature on this Note, or at such other address or number as the Company shall have furnished to the Holder in writing.
13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions of the State of Delaware or of any other state.
15. Amendment. Any provision of this Note may be amended, waived or modified only upon the written consent of the Company and the Majority Investors; provided, however, that no such amendment, waiver or modification shall (i) reduce the principal amount of any Note with the affected Holder’s written consent, or (ii) reduce the rate of interest of any Note without the affected Holder’s written consent. Any amendment or waiver effected in accordance with this Section 15 shall be binding upon the Company, the Holder and each transferee of this Note.
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16. Interest Savings Clause. If any interest payment due hereunder is determined to be in excess of the legal maximum rate, then that portion of each interest payment representing an amount in excess of the then legal maximum rate shall instead be deemed a payment of principal and shall be applied against the principal of the obligations evidenced by this Note.
17. Separability of Notes; Severability of the Terms. The Company’s agreement with each of the Holders pursuant to each Note is a separate agreement, and the sale of the Notes to each of the Holders is a separate sale. Any invalidity, illegality or limitation on the enforceability of any of the other Notes or any part thereof, by any of the other Holders whether arising by reason of the law of the other respective Holders’ domicile or otherwise, shall in no way affect or impair the validity, legality or enforceability of this Note with respect to the Holder of this Note. If any provision of this Note shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
18. Confidentiality. Holder hereby agrees, on behalf of itself and its affiliates (i) to hold confidential and in trust, and not to use or disclose, any Confidential Information (as defined below) provided to or learned by Holder or any affiliate of Holder in connection with the rights of Holder under this Note or as a holder of the Company’s equity securities after any conversion of this Note (except (x) to the directors, officers, employees, agents or advisors of Holder who have a need to know such Confidential Information and agree in writing (or are otherwise bound by fiduciary or similar duties) to maintain the confidentiality and non-use thereof, (y) to the extent required by applicable law, regulation or legal process), and (ii) to take all reasonable measures to maintain the confidentiality of all Confidential Information in its possession or control, or in the possession or control of its affiliates, which will in no event be less than the measures that Holder uses to maintain the confidentiality of its own information of similar importance. For purposes of this Note, “Confidential Information” means information about the Company’s business or activities that is proprietary and confidential, which shall include all business, financial, technical and other information of the Company that is (A) non-public information, trade secret or know-how of the Company, (B) marked or designated by the Company as “confidential” or “proprietary,” or (C) information which, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as confidential; provided, however, that “Confidential Information” will not include information that (I) is in or enters the public domain without breach of this Section 18 of this Note, (II) Holder lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation, (III) Holder knew, without wrongful conduct of Holder, prior to receiving such Confidential Information from the Company, or (IV) Holder independently developed without reliance on any Confidential Information. At any time after Holder is no longer a holder of the Note or any other debt or equity securities of the Company, within 10 days of receipt of a written request from the Company (or any successor of the Company), Holder will return or destroy, at the Company’s expense, all tangible and intangible manifestations of the Confidential Information, and deliver to the Company a certification, in writing and signed by Holder, that such materials have been returned or destroyed, and their use discontinued. All rights and obligations described in this Section 18 of this Note will survive the termination of any other provisions of this Note, including the conversion of the Note into any equity securities of the Company.
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IN WITNESS WHEREOF, the Company has caused this Convertible Subordinated Promissory Note to be issued as of the date first written above.
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Exhibit 4.11
THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES IN THE UNITED STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. CONVERTIBLE PROMISSORY NOTE Note Series: Nov 2020 Date of Note: November 5, 2020 Principle Amount of Note: Up to $1,000,000 For value received Denim.La Inc., a corporation (the "Company"), promises to pay to the undersigned holder or such party's assigns (the "Holder") the principal amount set forth above with simple interest on the outstanding principal amount at the rate of 6% per annum. Interest shall commence with the date hereof and shall continue on the outstanding principal amount until paid in full or converted. Interest shall be computed on the basis of a year of 365 days for the actual number of days elapsed. All unpaid interest and principal shall be due and payable upon request of the Majority Holders on or after November 5, 2022 (the "Maturity Date"). BASIC TERMS. Series of Notes. This convertible promissory note (the "Note") is issued aspart of a series of notes designated by the Note Series above (collectively, the "Notes") and issued in a series of multiple closings to certain persons and entities (collectively, the "Holders"). The Company shall maintain a ledger of all Holders. Payments. All payments of interest and principal shall be in lawful money of the United States of America and shall be made pro rata among all Holders. All payments shall be applied first to accrued interest, and thereafter to principal. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the consent of the Holders of a majority of the outstanding principal amount of the Notes (the "Majority Holders"). CONVERSION AND REPAYMENT. Conversion upon a Qualified Financing. In the event that the Company issues and sells shares of its equity securities ("Equity Securities") to investors (the "Investors") while this Note remains outstanding in an equity financing with total proceeds to the Company of not less than $1,000,000 (excluding the conversion of the Notes) (a "Qualified Financing"), then the outstanding principal amount of this Note and any unpaid accrued interest shall automatically convert in whole without any further action by the Holder into Equity Securities sold in the Qualified Financing at a conversion price equal to the price paid per share for Equity Securities by the Investors in the Qualified Financing multiplied by 0.7. The issuance of Equity Securities pursuant to the conversion of this Note shall be upon and subject to the same terms and conditions applicable to Equity Securities sold in the Qualified Financing Change of Control. If the Company consummates a Change of Control (as defined below) while this Note remains outstanding, the Company shall repay the Holder in cash in an amount equal to the outstanding principal amount of this Note plus any unpaid accrued interest on the original principal. For purposes of this Note, a"Change of Control"means (i) a consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization continue to represent a majority of the voting power of the surviving entity immediately after such consolidation, merger or reorganization; (ii) any transaction or series of related transactions to which the Company is a party in which in excess of 50% of the Company's voting power is transferred; or (iii) the sale or transfer of all or substantially all of the Company's assets, or the exclusive license of all or substantially all of the Company's material intellectual property; provided that a Change of Control shall not include any transaction or series of |
transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor, indebtedness of the Company is cancelled or converted or a combination thereof. The Company shall give the Holder notice of a Change of Control not less than 10 days prior to the anticipated date of consummation of the Change of Control. Any repayment pursuant to this paragraph in connection with a Change of Control shall be subject to any required tax withholdings, and may be made by the Company (or any party to such Change of Control or its agent) following the Change of Control in connection with payment procedures established in connection with such Change of Control. Procedure for Conversion. In connection with any conversion of this Note into capital stock, the Holder shall surrender this Note to the Company and deliver to the Company any documentation reasonably required by the Company (including, in the case of a Qualified Financing, all financing documents executed by the Investors in connection with such Qualified Financing). The Company shall not be required to issue or deliver the capital stock into which this Note may convert until the Holder has surrendered this Note to the Company and delivered to the Company any such documentation. Upon the conversion of this Note into capital stock pursuant to the terms hereof, in lieu of any fractional shares to which the Holder would otherwise be entitled, the Company shall pay the Holder cash equal to such fraction multiplied by the price at which this Note converts. Interest Accrual. If a Change of Control or Qualified Financing is consummated, all interest on this Note shall be deemed to have stopped accruing as ofa date selected by the Company thatis up to 10 days prior to the signing of the definitive agreement for the Change of Control or Qualified Financing. REPRESENTATIONS AND WARRANTIES Representaitons and Warranties of the Company Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect onthe Company or its business (a"Material Adverse Effect"). Corporate Power. The Company has allrequisite corporate power to issue this Note and to carry out and perform its obligations under this Note. Authorization. All corporate action on the part of the Company necessary for the issuance and delivery of this Note has been taken. This Note constitutes a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities laws. Any securities issued upon conversion of this Note (the "Conversion Securities"), when issued in compliance with the provisions of this Note, will be validly issued, fully paid, nonassessable, free of any liens or encumbrances and issued in compliance with all applicable federal and securities laws. Governmental Consents. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority required on the part of the Company in connection with issuance of this Note has been obtained. Compliance with Laws. To its knowledge, the Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which violation of which would have a Material Adverse Effect. Compliance with Other Instruments. The Company is not in violation or default of any term of its certificate of incorporation or bylaws, or of any provision of any mortgage, indenture or contract to which itisaparty and by which itisbound or of any judgment, decree, order or writ, other than such violation(s) that would not have a Material Adverse Effect. The execution, delivery and performance of this Note will not result in any such violation or be in conflict with, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. Without limiting the foregoing, the Company has obtained all waivers reasonably necessary with respect to any preemptive rights, rights of first refusal or similar rights, including any notice or offering periods provided for as part of any such rights, in order for the Company to consummate the transactions contemplated hereunder without any third party obtaining any rights to cause the Company to offer or issue any securities of the Company as a result of the consummation of the transactions contemplated hereunder. No "Bad Actor" Disqualification. The Company has exercised reasonable care todetermine whether any Company Covered Person (as defined below) is subject to any of the "bad actor" disqualifications described in Rule 506(d)(1)(i) through (viii), as modified by Rules 506(d)(2) and (d) (3), under the Act ("Disqualification Events"). To the Company's knowledge, no Company Covered Person is subject to a Disqualification Event. The Company has complied, to the extent |
required, with any disclosure obligations under Rule 506(e) under the Act. For purposes of this Note, "Company Covered Persons" are those persons specified in Rule 506(d)(1) under the Act; provided, however, that Company Covered Persons do not include (a) any Holder, or (b) any person or entity thatisdeemed to be an affiliated issuer of the Company solely asaresult of the relationship between the Company and any Holder. Offering. Assuming the accuracy of the representations and warranties of the Holder contained in subsection (b) below, the offer, issue and sale of this Note and the Conversion Securities (collectively, the "Securities") are and will be exempt from the registration and prospectus delivery requirements of the Act, and have been registered or qualified (or are exempt from registration and qualification) underthe registration, permit or qualification requirements of all applicable state securities laws. Use of Proceeds. The Company shall use theproceeds ofthis Note solely for the operations of its business, and not for any personal, family or household purpose. Representations and Warranties of the Holder. The Holder hereby represents and warrants to the Company as of the date hereof as follows: Purchase for Own Account. The Holder is acquiring the Securities solely for the Holder's own account and beneficial interest for investment and not for sale or with a view to distribution of the Securities or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention. Information and Sophistication. Without lessening or obviating the representations and warranties of the Company set forth in subsection (a) above, the Holder hereby: (A) acknowledges that the Holder has received all the information the Holder has requested from the Company and the Holder considers necessary or appropriate for deciding whether to acquire the Securities, (B) represents that the Holder has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain any additional information necessary to verify the accuracy of the information given the Holder and (C) further represents that the Holder has such knowledge and experience in financial and business matters that the Holder is capable of evaluating the merits and risk of this investment. Ability to Bear Economic Risk. The Holder acknowledges that investment in the Securities involves a high degree of risk, and represents that the Holder is able, without materially impairing the Holder's financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of the Holder's investment. Further Limitations on Disposition. Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Securities unless anduntil: There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or The Holder shall have notified the Company of the proposed disposition and furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the Act or any applicable state securities laws; provided that no such opinion shall be required for dispositions in compliance with Rule 144 under the Act, except in unusual circumstances. Notwithstanding the provisions of paragraphs (1) and (2) above, no such registration statement or opinion of counsel shall be necessary for a transfer by the Holder to a partner (or retired partner) or member (or retired member) of the Holder in accordance with partnership or limited liability company interests, or transfers by gift, will or intestate succession to any spouse or lineal descendants or ancestors, if all transferees agree in writing to be subject to the terms hereof to the same extent asifthey were the Holders hereunder. No "Bad Actor" Disqualification. The Holder represents and warrants that neither (A) the Holder nor (B) any entity that controls the Holder or is under the control of, or under common control with, the Holder, is subject to any Disqualification Event, except for Disqualification Events covered by Rule 506(d) (2)(ii) or (iii) or (d)(3) under the Act and disclosed in writing in reasonable detail to the Company. The Holder represents that the Holder has exercised reasonable care to determine the accuracy of the representation made by the Holder in this paragraph, and agrees to notify the Company if the Holder becomes aware of any fact that makes the representation given by the Holder hereunder inaccurate. Foreign Investors. If the Holder is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the"Code")), the Holder hereby represents thathe, she or it has satisfied itself as to the full observance of the laws of the Holder's jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Note, including (A) the legal requirements within the Holder's jurisdiction for the purchase of the Securities, (B) any foreign exchange restrictions applicable to such purchase, (C) any governmental or other consents that may need to be obtained, and (D) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Securities. The Holder's subscription, payment for and continued beneficial ownership of the Securities will not violate any applicable securities or other laws of the Holder's jurisdiction. Forward-Looking Statements. With respect to any forecasts, projections of results and other forward- |
looking statements and information provided to the Holder, the Holder acknowledges that such statements were prepared based upon assumptions deemed reasonable by the Company at the time of preparation. There is no assurance that such statements will prove accurate, and the Company has no obligation to update suchstatements. EVENTS OF DEFAULTS Ifthere shall be any Event of Default (as defined below) hereunder, at the option and uponthe declaration of the Majority Holders and upon written notice to the Company (which election and notice shall notbe required inthecase ofan Event ofDefault under subsection(ii)or (iii) below), this Note shall accelerate and all principal and unpaid accrued interest shall become due and payable. The occurrence ofany one or more of thefollowingshall constitute an"Event ofDefault": The Company fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any unpaid accrued interest or other amounts due under this Note on the date the same becomes due and payable; The Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or An involuntary petition is filed against the Company (unless such petition is dismissed or discharged within 60 days under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee or assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Company). In the event of any Event of Default hereunder, the Company shall pay all reasonable attorneys' fees and court costs incurred by the Holder in enforcing and collecting this Note. MISCELLANEOUS PROVISIONS Waivers. The Company hereby waives demand, notice, presentment, protest and notice of dishonor. Further Assurances. The Holder agrees and covenants that atany time and from time to time the Holder will promptly execute and deliver to the Company such further instruments and documents and take such further action as the Company may reasonably require in order to carry out the full intent and purpose of this Note and to comply with state or federal securities laws or other regulatory approvals. Transfers of Notes. This Note may be transferred only upon its surrender to the Company for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company. Thereupon, this Note shall be reissued to, and registered in the name of, the transferee, or anew Note for likeprincipal amount andinterest shall be issued to, and registered in the name of, the transferee. Interest and principal shall be paid solely to the registered holder of this Note. Such payment shall constitute full discharge of the Company's obligation to pay such interest and principal. Market Standoff. To the extent requested by the Company or anunderwriter of securities of the Company, each Holder and any permitted transferee thereof shall not, without the prior written consent of the managing underwriters in the IPO (as hereafter defined), offer, sell, make any short sale of, grant or sell any option for the purchase of, lend, pledge, otherwise transfer or dispose of (directly or indirectly), enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership (whether any such transaction is described above or is to be settled by delivery of Securities or other securities, in cash, or otherwise), any Securities or other shares of stock of the Company then owned by such Holder or any transferee thereof, or enter into an agreement to do any of the foregoing, for up to 180 days following the effective date of the registration statement of the initial public offering of the Company (the "IPO") filed under the Securities Act. For purposes of this paragraph, "Company" includes any wholly owned subsidiary of the Company into which the Company merges or consolidates. The Company may place restrictive legends on the certificates representing the shares subject to this paragraph and may impose stop transfer instructions with respect to the Securities and such other shares of stock of each Holder and any transferee thereof (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Each Holder and any transferee thereof shall enter into any agreement reasonably required by the underwriters to the IPO to implement the foregoing within any reasonable timeframe so requested. The underwriters for any IPO are intended third party beneficiaries of this paragraph and shall have the right, power and authority to enforce the provisions of this paragraph as though they were parties hereto. Amendment and Waiver. Any term of this Note may be amended or waivedwith the written consent of the Company and the Holder. In addition, any term of this Note may be amended or waived with the written consent of the Company and the Majority Holders. Upon the effectuation of such waiver or amendment with the consent of the Majority Holders in conformance with this paragraph, such amendment or waiver shall be effective as to, and binding against the holders of, all of the Notes, and the Company shall promptly give written notice thereof to the Holder if the Holder has not previously consented to such amendment or waiver in writing; provided that the failure to give such notice shall not affect the validity of such amendment or waiver. Governing Law. This Note shall be governed by and construed under the laws of the State of Delaware, without giving effect toconflicts of laws principles. Binding Agreement. Theterms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Note, expressed or implied, is |
intended to confer upon any third party any rights, remedies, obligations or liabilities under or by reason of this Note, except as expressly provided in this Note. Counterparts; Manner of Delivery. This Note may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. Titles and Subtitles. The titles and subtitles used in this Note are used for convenience only and are not to be considered in construing or interpreting this Note. Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications to a party shall be sent to the party's address in their Wefunder account at such other address(es) as such party may designate by 10 days' advance written notice to the other party hereto. Expenses. The Company and the Holder shall each bear its respective expenses and legal fees incurred with respect to the negotiation, execution and delivery of this Note and the transactions contemplated herein. Delays or Omissions. It isagreed that no delay or omission to exercise anyright, power or remedy accruing to the Holder, upon any breach or default of the Company under this Note shall impair any such right, power or remedy, nor shall it be construed to be awaiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by the Holder ofanybreach or default under this Note, or anywaiver by the Holder of any provisions or conditions of this Note, must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Note, or by law or otherwise afforded to the Holder, shall be cumulative and not alternative. This Note shall be void and of no force or effect in the event that the Holder fails to remit the full principal amount to the Company within five calendar days of the date of this Note. Entire Agreement. This Note constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof, and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein. Exculpation among Holders. The Holder acknowledges that the Holder isnotrelying on any person, firm or corporation, other than the Company and its officers and Board members, in making its investment or decision to invest in the Company. Senior Indebtedness. The indebtedness evidenced by this Note is subordinated in right of payment to the prior payment in full of any Senior Indebtedness in existence on the date of this Note or hereafter incurred. "Senior Indebtedness" shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note, all amounts due in connection with (i) indebtedness of the Company to banks or other lending institutions regularly engaged in the business of lending money (excluding venture capital, investment banking or similar institutions and their affiliates, which sometimes engage in lending activities but which are primarily engaged in investments in equity securities), and (ii) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor. Broker's Fees. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this subsection being untrue. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS NOTE ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE. [Signature pages follow] |
IN WITNESS WHEREOF, the parties have executed this agreement as of. Investment Amount: COMPANY: Denim.La Inc. Signature Name: Title: Read and Approved (For IRA Use Only): SUBSCRIBER By:By: Investor Signature Name: [INVESTOR NAME] Title: The Subscriber is an "accredited investor" as that term is defined in Regulation D promulgated by the Securities and Exchange Commission under the Securities Act. Please indicate Yes or No by checking the appropriate box: Accredited Not Accredited 327048782.1 SIGNATURE PAGE |
Exhibit 5.1
May 11, 2021
Digital Brands Group, Inc.
1400 Lavaca Street
Austin, TX 78701
Re: | Registration Statement on Form S-1 |
Registration No. 333-255193
Ladies and Gentlemen:
We have acted as counsel to Digital Brands Group, Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing of a Registration Statement on Form S-1 (File No. 333-255193) under the Securities Act of 1933, as amended (the “Securities Act”), including a related prospectus filed with the Registration Statement (the “Prospectus”), originally filed with the Securities and Exchange Commission (the “Commission”) on April 13, 2021 (as amended through the date hereof and including all exhibits thereto, the “Registration Statement”), in connection with the public offering (the “Offering”) by the Company of (i) up to 2,300,000 shares (the “Shares”) of Common Stock, par value $0.0001 per share, of the Company (the “Common Stock”), including up to 300,000 shares that may be sold pursuant to the underwriters’ over-allotment option; (ii) stock purchase warrants to purchase up to 2,300,000 shares of Common Stock (the “Warrants”), including Warrants to purchase up to 300,000 shares of Common Stock that may be sold pursuant to the underwriters’ over-allotment option; (iii) up to an aggregate of 2,300,000 shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”); (iv) the representative’s warrants that will be issued by the Company to the representative of the underwriters of the offering (the “Representative’s Warrants”); and (v) up to 160,000 shares of Common Stock issuable upon exercise of the Representative’s Warrants (the “Representative’s Warrant Shares”). This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
As such counsel and for purposes of our opinions set forth below, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, resolutions, certificates and instruments of the Company and corporate records furnished to us by the Company, certificates of public officials, statutes, records and such other instruments and documents as we have deemed necessary or appropriate as a basis for the opinion set forth below, including without limitation (i) the Second Amended and Restated Certificate of Incorporation (the “Restated Charter”) of the Company, in the form filed as Exhibit 3.3 to the Registration Statement to be filed with the Secretary of State of the State of Delaware prior to the sale of the shares and warrants, (ii) the Amended and Restated Bylaws of the Company, in the form filed as Exhibit 3.5 to the Registration Statement to become effective prior to the sale of the shares and warrants, (iii) the form of Underwriting Agreement in the form filed as Exhibit 1.1 to the Registration Statement (the “Underwriting Agreement”), (iv) the form of Warrant Agent Agreement proposed to be entered into between the Company and VStock Transfer, LLC, as warrant agent (the “Warrant Agent”), in the form filed as Exhibit 4.2 to the Registration Statement (the “Warrant Agreement”), (v) the form of Warrant in the form filed as Exhibit 4.4 to the Registration Statement (vi) the form of Representative’s Warrant in the form filed as Exhibit 4.3 to the Registration Statement, (vii) resolutions of the board of directors and of the pricing committee of the Company with respect to the Offering; and (viii) the Registration Statement.
2049 Century Park East, Suite 1700, Los Angeles, California 90067 Telephone: 310.312.4000 Fax: 310.312.4224 Albany | Boston | Chicago | Los Angeles | New York | Orange County | Palo Alto | Sacramento | San Francisco | Washington |
Digital Brands Group, Inc.
May 11, 2021
Page 2
In such examination and in rendering the opinions expressed below, we have assumed, without independent investigation or verification: (i) the genuineness of all signatures on all agreements, instruments, corporate records, certificates and other documents submitted to us, (ii) the legal capacity and authority of all persons or entities (other than the Company) executing all agreements, instruments, corporate records, certificates and other documents submitted to us, (iii) the authenticity and completeness of all agreements, instruments, corporate records, certificates and other documents submitted to us as originals, (iv) that all agreements, instruments, corporate records, certificates and other documents submitted to us as certified, electronic, facsimile, conformed, photostatic or other copies conform to authentic originals thereof, and that such originals are authentic and complete, (v) the due authorization, execution and delivery of all agreements, instruments, certificates and other documents by all parties thereto (other than the Company), (vi) that the statements contained in the certificates and comparable documents of public officials, officers and representatives of the Company and other persons on which we have relied for the purposes of this opinion set forth below are true and correct, (vii) that the officers and directors of the Company have properly exercised their fiduciary duties, (viii) that the Warrant Agent under the Warrant Agreement to be entered into for the Warrants is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ix) that the Warrant Agent is duly qualified to engage in the activities contemplated by the Warrant Agreement, (x) that the Warrant Agreement will be duly authorized, executed and delivered by the Warrant Agent and constitute the legal, valid and binding obligation of the Warrant Agent, enforceable against the Warrant Agent in accordance with their respective terms, (xi) that the Warrant Agent will be in compliance with respect to performance of its obligations under such Warrant Agreement with all applicable laws and regulations; (xii) and that the Warrant Agent has the requisite organizational and legal power and authority to perform its obligations under the Warrant Agreement. We also have obtained from the officers of the Company certificates as to certain factual matters necessary for the purpose of this opinion and, insofar as this opinion is based on such matters of fact, we have relied solely on such certificates without independent investigation.
2049 Century Park East, Suite 1700, Los Angeles, California 90067 Telephone: 310.312.4000 Fax: 310.312.4224 Albany | Boston | Chicago | Los Angeles | New York | Orange County | Palo Alto | Sacramento | San Francisco | Washington |
Digital Brands Group, Inc.
May 11, 2021
Page 3
We have also assumed that (i) the Shares, Warrants, Warrant Shares and Representative’s Warrant will be issued and sold as described in the Registration Statement and the Underwriting Agreement, (ii) the Warrant Shares will be issued and sold pursuant to the terms of the Registration Statement and the Representative’s Warrant, and (iii) shares of Common Stock of the Company will remain authorized and available for issuance of the Warrant Shares upon exercise of the Warrants and of the Representative’s Warrant Shares upon exercise of the Representative’s Warrant.
Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, we are of the opinion that:
1. The Shares have been duly authorized by the Company and, when the Restated Charter is filed with the Secretary of State of the State of Delaware and when the Shares are issued and sold in accordance with the Registration Statement and the Prospectus, with payment received by the Company in the manner described in the Underwriting Agreement, the Shares will be validly issued, fully paid and nonassessable.
2. The Warrants have been duly authorized and when such Warrants are duly executed and delivered in accordance with the Underwriting Agreement and issued, delivered and paid for, as contemplated by the Registration Statement and the Underwriting Agreement, the Warrants will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.
3. The Representative’s Warrant has been duly authorized and when such Representative’s Warrant is duly executed and delivered in accordance with the Underwriting Agreement and issued, delivered and paid for, as contemplated by the Registration Statement and the Underwriting Agreement, the Representative’s Warrant will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.
4. The Warrant Shares have been duly authorized by the Company and, upon exercise of the Warrants, when the Warrant Shares are issued and sold in accordance with the terms of the Warrants, with payment received by the Company in the manner described therein, the Warrant Shares will be validly issued, fully paid and nonassessable.
5. The Representative’s Warrant Shares have been duly authorized by the Company and, upon exercise of the Representative’s Warrant, when the Representative’s Warrant Shares are issued and sold in accordance with the terms of the Representative’s Warrant, with payment received by the Company in the manner described therein, the Representative’s Warrant Shares will be validly issued, fully paid and nonassessable.
2049 Century Park East, Suite 1700, Los Angeles, California 90067 Telephone: 310.312.4000 Fax: 310.312.4224 Albany | Boston | Chicago | Los Angeles | New York | Orange County | Palo Alto | Sacramento | San Francisco | Washington |
Digital Brands Group, Inc.
May 11, 2021
Page 4
The opinions expressed in this opinion letter are limited to (i) with respect to opinion paragraphs 1, 4 and 5 below, the General Corporation Law of the State of Delaware (the “DGCL”), and (ii) with respect to opinion paragraphs 2 and 3, the internal laws of the State of New York. We express no opinion as to whether the laws of any jurisdiction are applicable to the subject matter hereof. This opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company or the Common Stock. We are not rendering any opinion as to compliance with any federal or state law, rule or regulation relating to securities, or to the sale or issuance thereof.
With respect to the enforceability of the Warrants and the Representative’s Warrant, opinion paragraphs 2 and 3 above are subject to the following qualifications:
(a) the effect of applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws (including, without limitation, applicable state and federal laws relating to fraudulent or voidable transfers) and court decisions of general application, and other legal or equitable principles of general application, relating to, limiting, or affecting the enforcement of creditors’ rights generally;
(b) the discretion of any court of competent jurisdiction in awarding equitable remedies, including but not limited to specific performance or injunctive relief and limitations imposed by applicable federal or state securities laws;
(c) limitations imposed by applicable law or public policy on the enforceability of the indemnification and/or contribution provisions of the Representative’s Warrant;
(d) the net impact or result of any conflict of laws between or among laws of competing jurisdictions;
(f) the unenforceability, under certain circumstances, of contractual provisions respecting various self-help or summary remedies, especially if their operation would work a substantial forfeiture or impose a substantial penalty upon the burdened party;
(g) the effects of the implied covenant of good faith, reasonableness and fair dealing and standards of immateriality, commercial reasonableness; and
(h) the enforceability of provisions in the Representative’s Warrant to the effect that the terms of the Representative’s Warrant not be waived or modified except in writing may be limited under certain circumstances..
2049 Century Park East, Suite 1700, Los Angeles, California 90067 Telephone: 310.312.4000 Fax: 310.312.4224 Albany | Boston | Chicago | Los Angeles | New York | Orange County | Palo Alto | Sacramento | San Francisco | Washington |
Digital Brands Group, Inc.
May 11, 2021
Page 5
We express no opinion with respect to the enforceability of (a) consents to, or restrictions upon, judicial relief or jurisdiction; (b) advance waivers of claims, defenses, rights granted by law, or notice, opportunity for hearing evidentiary requirements, statutes of limitation, or other procedural rights; (c) provisions for exclusivity, election or cumulation of rights or remedies; (d) provisions authorizing or validating conclusive or discretionary determinations; (e) provisions for the payment of attorneys’ fees where such payment is contrary to law or public policy; (f) provisions that waive the right of a party to object to jurisdiction or venue, or to assert any defense based on lack of jurisdiction or venue; or any provision purporting to waive the right to a jury trial.
We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and the use of our name therein under the caption “Legal Matters.” In giving this consent, we do not thereby admit that we are experts with respect to any part of the Registration Statement or the Prospectus within the meaning of the term “expert” as used in Section 11 of the Securities Act or the rules and regulations promulgated thereunder by the Commission, nor we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission adopted under the Securities Act.
The opinions included herein are expressed as of the date hereof unless otherwise expressly stated, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or assumed herein or of any subsequent changes in applicable laws.
Very truly yours, | |
/s/ MANATT, PHELPS & PHILLIPS, LLP | |
Manatt, Phelps & Phillips, LLP |
2049 Century Park East, Suite 1700, Los Angeles, California 90067 Telephone: 310.312.4000 Fax: 310.312.4224 Albany | Boston | Chicago | Los Angeles | New York | Orange County | Palo Alto | Sacramento | San Francisco | Washington |
Exhibit 10.5
NOTICE OF GRANT OF NON-QUALIFIED STOCK OPTION AWARD
DIGITAL BRANDS GROUP, INC.
2020 OMNIBUS INCENTIVE PLAN
FOR GOOD AND VALUABLE CONSIDERATION, Digital Brands Group, Inc. (the “Company”) hereby grants, pursuant to the provisions of the Company’s 2020 Omnibus Incentive Plan (the “Plan”), to the Participant designated in this Notice of Grant of Non-Qualified Stock Option Award (the “Notice”) an option to purchase the number of shares of the common stock of the Company set forth in the Notice (the “Shares”), subject to certain restrictions as outlined below in this Notice and the additional provisions set forth in the attached Terms and Conditions of Stock Option Award (collectively, the “Agreement”). Also enclosed is a copy of the information statement describing important provisions of the Plan.
Optionee: [__________]
By signing below, the Optionee agrees that this Non-Qualified Stock Option Award is granted under and governed by the terms and conditions of the Company’s 2020 Omnibus Incentive Plan and the attached Terms and Conditions.
Participant | Digital Brands Group, Inc. | |||
By: | ||||
Title: | ||||
Date: | Date: |
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TERMS AND CONDITIONS OF STOCK OPTION AWARD
1. Grant of Option. The Option granted to the Optionee and described in the Notice of Grant is subject to the terms and conditions of the Plan, which is incorporated by reference in its entirety into these Terms and Conditions of Stock Option Award.
The Board of Directors of the Company has authorized and approved the 2020 Omnibus Incentive Plan (the “Plan”), which has been approved by the stockholders of the Company. The Committee has approved an award to the Optionee of a number of shares of the Company’s common stock, conditioned upon the Participant’s acceptance of the provisions set forth in the Notice and these Terms and Conditions within 60 days after the Notice and these Terms and Conditions are presented to the Optionee for review. For purposes of the Notice and these Terms and Conditions, any reference to the Company shall include a reference to any Affiliate.
If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that the Option fails to meet the requirements of an ISO under Section 422 of the Code, this Option shall be treated as a Non-Qualified Stock Option (“NSO”).
The Company intends that this Option not be considered to provide for the deferral of compensation under Section 409A of the Code and that this Agreement shall be so administered and construed. Further, the Company may modify the Plan and this Award to the extent necessary to fulfill this intent.
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable, in whole or in part, during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. No Shares shall be issued pursuant to the exercise of an Option unless the issuance and exercise comply with applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. The Committee may, in its discretion, (i) accelerate vesting of the Option, or (ii) extend the applicable exercise period to the extent permitted under Section 6.03 of the Plan.
(b) Method of Exercise. The Optionee may exercise the Option by delivering an exercise notice in a form approved by the Company (the “Exercise Notice”) which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Shares exercised. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.
(c) Acceleration of Vesting on Change in Control. Unless otherwise specified in the Notice of Grant, in the event of a Change in Control, no accelerated vesting of any Options outstanding on the date of such Change in Control shall occur.
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3. Method of Payment. If the Optionee elects to exercise the Option by submitting an Exercise Notice under Section 2(b) of this Agreement, the aggregate Exercise Price (as well as any applicable withholding or other taxes) shall be paid by cash or check; provided, however, that the Committee may consent, in its discretion, to payment in any of the following forms, or a combination of them:
(a) cash or check;
(b) a “net exercise” (as described in the Plan or such other consideration received by the Company under a cashless exercise program approved by the Company in connection with the Plan;
(c) surrender of other Shares owned by the Optionee which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares and any applicable withholding; or
(d) any other consideration that the Committee deems appropriate and in compliance with applicable law.
4. Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of the Shares upon exercise or the method of payment of consideration for those shares would constitute a violation of any applicable law or regulation.
5. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee; provided, however, that the Optionee may transfer the Options (i) pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder) or (ii) to any member of the Optionee’s Immediate Family or to a trust, limited liability company, family limited partnership or other equivalent vehicle, established for the exclusive benefit of one or more members of his Immediate Family by delivering to the Company a Notice of Assignment in a form acceptable to the Company. No transfer or assignment of the Option to or on behalf of an Immediate Family member under this Section 5 shall be effective until the Company has acknowledged such transfer or assignment in writing. “Immediate Family” means the Optionee’s parents, spouse, children, siblings, and grandchildren. Following transfer, the Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. In the event an Option is transferred as contemplated in this Section 5, such Option may not be subsequently transferred by the transferee except by will or the laws of descent and distribution. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
6. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.
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7. Withholding.
(a) The Committee shall determine the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any income recognized by the Optionee with respect to the Option Award.
(b) The Optionee shall be required to meet any applicable tax withholding obligation in accordance with the provisions of Section 11.05 of the Plan.
(c) Subject to any rules prescribed by the Committee, the Optionee shall have the right to elect to meet any withholding requirement (i) by having withheld from this Award at the appropriate time that number of whole shares of common stock whose fair market value is equal to the amount of any taxes required to be withheld with respect to such Award, (ii) by direct payment to the Company in cash of the amount of any taxes required to be withheld with respect to such Award or (iii) by a combination of shares and cash.
8. Defined Terms. Capitalized terms used but not defined in the Notice and these Terms and Conditions shall have the meanings set forth in the Plan, unless such term is defined in any Employment Agreement between the Optionee and the Company or an Affiliate. Any terms used in the Notice and these Terms and Conditions, but defined in the Optionee’s Employment Agreement are incorporated herein by reference and shall be effective for purposes of the Notice and these Terms and Conditions without regard to the continued effectiveness of the Employment Agreement.
9. Optionee Representations. The Optionee hereby represents to the Company that the Optionee has read and fully understands the provisions of the Notice, these Terms and Conditions and the Plan and the Optionee’s decision to participate in the Plan is completely voluntary. Further, the Optionee acknowledges that the Optionee is relying solely on his or her own advisors with respect to the tax consequences of this stock option award.
10. Regulatory Limitations on Exercises. Notwithstanding the other provisions of this Option Agreement, no option exercise or issuance of shares of Common Stock pursuant to this Option Agreement shall be effective if (i) the shares reserved under the Plan are not subject to an effective registration statement at the time of such exercise or issuance, or otherwise eligible for an exemption from registration, or (ii) the Company determines in good faith that such exercise or issuance would violate any applicable securities or other law or regulation.
11. Miscellaneous.
(a) Notices. All notices, requests, deliveries, payments, demands and other communications which are required or permitted to be given under these Terms and Conditions shall be in writing and shall be either delivered personally or sent by registered or certified mail, or by private courier, return receipt requested, postage prepaid to the parties at their respective addresses set forth herein, or to such other address as either shall have specified by notice in writing to the other. Notice shall be deemed duly given hereunder when delivered or mailed as provided herein.
(b) Waiver. The waiver by any party hereto of a breach of any provision of the Notice or these Terms and Conditions shall not operate or be construed as a waiver of any other or subsequent breach.
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(c) Entire Agreement. These Terms and Conditions, the Notice and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof.
(d) Binding Effect; Successors. These Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives. Nothing in these Terms and Conditions, express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.
(e) Governing Law. The Notice and these Terms and Conditions shall be governed by and construed in accordance with the laws of the State of Delaware.
(f) Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of these Terms and Conditions.
(g) Conflicts; Amendment. The provisions of the Plan are incorporated in these Terms and Conditions in their entirety. In the event of any conflict between the provisions of these Terms and Conditions and the Plan, the provisions of the Plan shall control. The Agreement may be amended at any time by written agreement of the parties hereto.
(h) No Right to Continued Employment. Nothing in the Notice or these Terms and Conditions shall confer upon the Optionee any right to continue in the employ or service of the Company or affect the right of the Company to terminate the Optionee’s employment or service at any time.
(i) Further Assurances. The Optionee agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Notice and these Terms and Conditions and the Plan.
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Exhibit 10.29
Original I ssue Di scount Promissory Note Original Issue Date:April 8, 202 l Subscription Amount: $850,000 Principal Amount: $1,000,000 Original Issue Discount (OID): 15% FOR VALUE RECEIVED,DigitalBrands Group,Inc., a Delaware corporation with offices at 1400 Lavaca Street, Aust in,TX 78701(herein "Borrower"), hereby promises to pay to the order ofTarget Capital2 LLC, an Arizona LLC with offices at 13600 Carr 968,apt 64,Rio Grande,PR 00745 (collectively with any and all of its permitted successors and assigns, herein "Lender"),without offset, inimmediately avaiable funds inlawfulmoney of the United States of A merica, without counterclaim or setoff and free and clear of,and without any deduction or withholding for,any taxes or other payments),the Principal Amount of One Million Dollars ($1,000,000) (the "PrincipalAmount"). The loan evidenced by this note(this "Note") is referred to herein as the "Loan". Section 1.Payment Schedule and Maturity Date. The entire PrincipalAmount of this Note then unpaid, together with any accrued and unpaid interest and all other amounts payable hereunder,if any, shall be due and payable in full as a balloon payment on July 8,2021 (the "Maturity Date"),or such earler date as this Note is required or permitted to be repaid as provided hereunder, including if the Borrower completes its initialpublic offering (the "IPO"), before the Maturity Date then the Principa lAmount will be repaidimmediately and infull from the proceeds received by the Borrower from the net proceeds of the IPO. Section 2. Interest. The imputed interest rateis encompassed within the original issue discount of this Note. No additionalcash interest shallbe due. Borrower acknowledges the effect ive annual simple rate of interest stemming from the original issue discount of this Note is sixty percent (60%). Section 3. Equity Incentive.Immediately prior to the effect ive date of the IPO, Borrower willissue Lender a warrant,in form and substance satisfactory to the Borrower (the "Warrant"),for a number of shares equal to 50% of the PrincipalAmount divided by the Exercise Price,where Exercise Price will be set at the time ofIPO pricing and will be equal to the IPO price to the publc per one share of the common stock of the Borrower,and will be issued to the Lenderin conjunct ionwith accepting this Note. Specifically,the number of shares underlying the Warrant (the "Warrant Shares") shall be equalto [(1,000,000)(.S)J/[the IPO price to the publc of one share of Borrower's common stock ). Section 4.Prepayment. Borrower may prepay the PrincipalAmount in full at any time or in part from time to time. Section S. Events of Default. The occurrence of any one or more of the following shall constitute an "Event of Default" under this Note: |
Event of Default means,wherever used herein,any of the followingevents {whatever the reason for such event and whether such event shall be voluntary orinvoluntary or effected by operat ion of law or pursuant to any judgment, decree or order of any court,or any order,rule or regulation of any administrative or governmental body): Failure to pay all amounts due under this Note withinfive business days after the closing of theIPO, or if suchIPO has not yet occurred,to pay off all amounts due under this Note in full on the Maturity Date; ii.the Borrower shall failto observe or perform any other covenant or agreement contained in this Note,which failureis not cured,if possible to cure,within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the ender to the Borrower and (B) 10 Trading Days after the Borrower has become or should have become aware of such failure; ii.the Borrower or any Significant Subsidiary (as such term is defined in Rule 102(w) of Regulation S X) shall be subject to a Bankruptcy Event; the Borrowershalldefault on any of its oblgations under any mortgage,credit agreement or other facility,indenture agreement, factoringagreement or other Instrument under which there may be issued,or by which there may be secured or evidenced,any indebtedness for borrowed money or money due under any tong term leasing or factoringarrangement that (a) involves an oblgation greater than $250,000,whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on whichit would otherwise become due and payable; the Borrower shall agree to sell or dispose of all or substantially all of its assets in one transaction or a series of related transactions out of the ordinary course of business and any monetary j udgment,writ or similar final process shall be entered or filed against the Borrower,any subsidiary or any of their respective property or other assets for more than$250,000,and such judgment, writ or similar finalprocess shall remain unvacated,unbonded or unstayed for a period of 30 calendar days. Remedies Upon Event of Default. If any Event of Default occurs,the outstanding Principal Amount of this Note,plus accrued but unpaidinterest through the date of acceleration,shall become,at the ender's election,immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note,the Default interest Rate on this Note shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in fullof the PrincipalAmount of this Note,plus accrued but unpaidinterest,, the Lender shallpromptly surrender this Note to or as directed by the Borrower. In connection with such acceleration described herein,the Lender need not provide,and the |
Borrower hereby waives, any presentment, demand,protest or other notice of any kind,and the Lender may immediately and without expiration of any grace period enforce any and allofits rights and remedies hereunder and all other remedies available to it under applicablelaw. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and the Lender shallhave all rights as a holder of the Note untilsuch time,if any, as the Lender receives full payment. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.Additionally, if any Event of Default occurs,the number of Warrants issuable to the Lender under Section 3 shall be increased to 75% of the Principal Amount and the exact number of Warrant Sharesissuable to the Lender shall be equal to ((1,000,000)(.75))/(the price of one share of Borrower's common stock in the Borrower's initial public offer ing). Section 6.Costs and Expenses of Enforcement. Borrower agrees to pay to Lender on demand all costs and expenses incurred by Lender Inseeking to collect this Note or to enforce any of Lender's rights and remedies under this Note,including court costs and reasonable attorneys' fees and expenses, whether or not suitis filed hereon,or whether in connection with bankruptcy, insolvency or appeal. Section 7. Heirs, Successors and Assigns. The terms of this Note shall bind and inure to the benefit of the heirs, devisees, representatives, successors and assigns of the parties.The foregoing sentence shall not be construed to permit Borrower to, and Borrower shall not assign the Loan,or its rights and obligations under this Note without the express written consent of the Lender. Section 8,Notices.Any and all notices or other communications or delveries to be provided by the Lender hereunder, shall be in writingand delivered personally, by facsimile,by emailattachment, or sent by a nationally recognized courier service,addressed to the Borrower,at the address set forth above. Any and all notices or other communications or deliveries to be provided by the Borrower hereunder, sha ll be in writing and delvered personally, by facsimile,by emailatt.achment, or sent by a nationally recognized courier service,addressed to the Lender, at the address set forth above. Section 9. Absolute Obligation.Except as expressly provided herein,no provision of this Note shall alter or impair the obligation of the Borrower, which is absolute and unconditional,to pay the principalof, liquidated damages and accrued interest, as applicable,on this Note at the time,place,and rate,andin the coinor currency, herein prescribed. This Note is a direct debt obligation of the Borrower. Section 10. Lost or Mutilated Note. If this Note shall be mutiated,lost, stolen or destroyed,the Borrower shall execute and deliver,in exchange and subst itution for and upon cancellation of a mutilated Note,or inlieu of or insubstitution for a lost, stolen or destroyed Note,a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note,and of the ownership hereof,reasonably satisfactory to the Borrower. Section 11. No Usury. Itis expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply with applicable statelaw or applicable United States federal law (to the extent that it |
permits Lender to contract for,charge,take,reserve,or receive a greater amount of interest than under state law) and that this Section shall controlevery other covenant and agreement in this Note and the Warrant Agreement. If applicable state or federal law should at any time be judicially interpreted so as to render usurious any amount called for under this Note,or contracted for,charged,taken,reserved, or received with respect to the Loan,or if Lender's exercise of the option to accelerate the Maturity Date, orif any prepayment by Borrower results in Borrower having paid any interest inexcess of that permitted by applicablelaw, thenit is Lender's expressintent that allexcess amounts theretofore collected by Lender shall be credited on the principal balance of this Note, and the provisions of this Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced,without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use of forbearance of the Loan shall,to the extent permitted by applicablelaw,be amortized, prorated,allocated,and spread throughout the fullstated term of the Loan.The Borrower covenants (to the extent that it may lawfully do so) that it shallnot at any time insist upon,plead,or in any manner whatsoever claim or take the benefit or advantage of,any stay, extension or usurylaw or other law which would prohibit or forgive the Borrower from paying all or any portion of the principalof orinterest on this Note as contemplated herein,wherever enacted,now or at any time hereafter in force,or which may affect the covenants or the performance of this Note,and the Borrower (to the extentit may lawfully do so) hereby expressly waives all benefits or advantage of any suchlaw, and covenants that it will not,by resort to any such law, hinder,delay or impede the execution of any power herein granted to the Borrower,but willsuffer and permit the execution of every such as though no suchlaw has been enacted. Section 12. Governing Law. All questions concerning the construction,validity, enforcement and interpretation of this Note shall be governed by and construed and enforcedin accordance with the internal laws of the State of Arizona, without regard to the principles of conflict of laws thereof. Each party agrees that alllega lproceedings concerning the interpretation,enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective Affiliates,directors, officers, shareholders, employees or agents) shall be commenced in the state and federalcourts sitting in the City of Peoria,In the State of Arizona (the "Arizona Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Arizona Courts for the adjudication of any dispute hereunder or In connect on herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Note),and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,any claim that it is not persona lly subject to the jurisdiction of such Arizona Courts,or such Arizona Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process beingserved in any such suit,action or proceeding by mailing a copy thereof via registered or certified mailor overn ight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed tolimit in any way any right to serve process in any other manner permitted by applicable law.Each party hereto hereby irrevocably waives,to the fullest extent permitted by applicable law, any and all right to trial by |
jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. Section 13. Waiver. Any waiver by the Borrower or the Lender of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Borrower or the Lender to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by the Borrower or the ender must be in writing. Section 14.Severability. Ifany provision of this Noteis invalid,illegal or unenforceable,the balance of this Note shall remain in effect, andif any provision is inapplicable to any person or circumstance,it shall nevertheless remain applicable to all other persons and circumstances. Section 15. Headings. The headings contained herein are for conven ience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof. ********************* (Signature Pages Follow) |
IN WITNESS WHEREOF, the Borrower has caused this Note to beduly executed by a duly authorized officer as of the date first above indicated. DIGITAL BRANDS GROUP,INC. By:._;·;_,_·_.cJ?-;f·v-"' f _ Name: µ, f .P<t vi.; Title:( Email: ft? ,/ cJd) HJ . ICI , |
[LENDER SIGNATURE PAGE TO ORIGINA LISSUE DISCOUNT PROMISSORY NOTE] IN WITNESS WHEREOF,the undersigned have caused this Note to be duly executed by their respective authorized signatories as of the date first indicated above. Name of Lender:Target Capital2 LLC-ef-:;-Signature of Authorized Signatory of Lender: -&--"-""'i f".. .: :..; _' .:::__ Name of Authorized Signatory:Dmitriy ShaPlfO Title of Authorized Signatory:----'M_,,a,,n,-"a' e''-------------------EmailAddress of Authorized Signatory:shapiro.dmitriy@gmail.com Address for Notice to Lender: 13600 Carr 968,apt 64 Rio Grande,PR 00745 Address for Delvery of Securities to Lender ( f not same as address for notice): SSN/TIN,if any:._..8:.6:..2.::9.:...:.0.::.1..::0.:.4..:...__ Subscription Amount: $ 850,000 Number of Warrants: ((1.000,000)(.S)M!he IPO price to the public of one share of Borrower's commonstock I |
Exhibit 10.30
CONSULTING AGREEMENT This Consulting Agreement (the "Agreement") is entered into as of th is s•h day of April, 202 1 (the "Effective Date"), by and between Alchemy Advisory LLC, a Limited Liability Company organized under the laws of Puerto Rico (the "Consultant") and located at 13600 Carr 968, Apt 64, Rio Grande, PR 00745, and Digital Brands Group, Inc., a Delaware corporation (the "Company") and having its principal place of busi ness at 1400 Lavaca Street, Austin, TX 7870 I . The Company and Consultant are collectively refe1Ted to herein as the "Parties". W HEREAS , the Company is an apparel company that sells both direct to consumer and wholesale by focusing on a customer's "closet share" and leveragi ng their data and personalized customer cohorts to create targeted content. WHEREAS, Consultant is operati ng as a financia l and business consultant; WHER EAS, the Com pan y desires to retain Consultant, and Consultant desire to be retained by the Company; NOW, THEREFORE, in consideration of the premises and promises, warranties and representations herein contai ned, it is agreed as follows: I . DUTI ES. (a) The Company hereby engages the Consultant and the Consultant hereby accepts engagement as a strategy busi ness consultant. It is understood and agreed, and it is the express intention of the parties to th is Agreement, that the Consu ltant is an independe nt contractor, and not an employee or agent of the Com pany for any purpose whatsoever. Consultant shall perform all duties and obligations as described in this Section and agrees to be available at such times as may be scheduled by the Company. It is understood , however, that the Consultant will maintain Consultant 's own business i n addition to provid ing services to the Company. The Consultant agrees to promptly perform all services requ i red of the Consu ltant hereunder in an eflicient, professional, trustworthy and businesslike manner. In such capacity, Consultant will utilize only materials, reports, financial information or other documentation that is approved in writing i n advance by the Company. Description of Consu lt ing Services. The Consultant agrees, to the extent reasonably required in ihe conduct of its busi ness with the Company, to place at the disposal of the Com pany its judgment and experience and to p1·ovide financial and business advice to the Company includ ing, but not limited, to (a) bui lding and ma i nta ining a financial model for the Company, (b) help drafting marketi ng materials and presen tations, (c) reviewing the Company's business req uirements and discuss financing and busi nesses opportunities, (d) look for potential investors and ways of growing the business, (e) anything else the Company may reasonably require from the Consultant. TER M. The Tenn of th i s contract is for 6 months, at which point the contract can be extended for another 6 months with the consent of both parties i n writing. COMPENSATION. For services rendered hereunder, the Company shall pay to the Consu l tant a sum or Forty Four Thousand Dollars ($44,000). The cash payment is due with in I 0 days of the signing of th is Agreement. In addition to the cash payment,the Company shall issue Fifty Thousand (50,000) restricted shares of the Com pany's com mon stock (the "Shares") to the Consultant withi n live (5) business days orexecuting this Agreement. For all relevant purposes, |
the num ber of shares to be issued and delivered to the Consultant, shall be appropriately adjusted to ta ke into account any stock split, stock d ividend, reverse stock split, recapital ization , or similar change i n the Company's common stock, wh ich may occur between the date of the execution of this agreement and the Company's initial public offering. If,after six (6) months from the elate of issuance the average per share trad ing price of the Common Stock of the Company over the trail ing seven (7) day period before such date (the "Six Month Price") multipl ied by the nu mber of Shares is below $250,000, the Company shall issue add itional shares of the Company's Common Stock to the Consultant to make up the valuation difference at the Six Month Price. For avoidance of doubt, i f the Six Month Price is $4.00, the valuation shortfall wou ld be $50,000 (50,000 mu lti plied by $4.00 is $50,000 Jess than $250,000) and the Consultant would receive 12,500 add i tiona l shares from the Company. EXPENSES. The Company agrees to reimburse the Consultant from time to time, for reasonable and pre-approved in wri ti ng, including via email, out-of-pocket expenses incurred by Consu l tant i n connection with its activities under this Agreement. INVESTOR REPRESENTATIONS. The Consultant represents and warrants to the Company that: fill The Consultant represents that i t is an "accredited investor" as such term is defined in Rule 50 I (a) of Regulation 0 under the Securities Act of 1933, as amended (the "Secu rities Act"), and acknowledges that the sale contemplated hereby is being made i n reliance, among other th ings, on a private placement exemption to "accredited investors" u nder the Securities Act and similar exemptions under state Jaw. The Consu l tant is acquiring the Shares solely for i n vestment purposes, for the Consultant 's own account (and/or for the accou nt or benefit of its members or affiliates, as permitted , and not with a view to the distri bution thereof and the Consu l tant has no present arrangement to sell the Shares to or through any person or entity. The Consultant acknowledges and understands the Shares are being transferred to it by the C-0mpany in a transaction not invol ving a public offering i n the U nited States within the meaning of the Securities Act. The Shares have not been registered under the Securities Act and, if in the future the Consultant decides to offer, resell, pledge or otherwise transfer the Shares, such Shares may be offered, resold, pledged or otherwise transferred only (A) pursuant to an effective regist ration statement filed under the Securities Act, (B) pursuant to an exemption from registration under Rule 144 promulgated under the Securities Act, if available, or (C) pursuant to any other available exem ption from the registration requ irements of the Securities Act, and in each case in accordance with any applicable Shares laws of any state or any other jurisd iction. Consu ltant agrees that if any transfer of its Shares or any i nterest therei n is proposed to be made, as a cond ition precedent to any such transfer, the Consultant may be required to deliver to the Company an opinion of counsel satisfactory to the Company with respect to such transfer. Absent registration or another available exemption from registrat ion, the Consultant agrees i t wi l l not 1·esel l. the Shares. The Consultant is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment i n the Shares. |
The Consultant is aware that an investmen t in the Shares is highly speculative and subject to substantial risks because,among other things, the Shares are subject to transfer restrictions and have not been registered u nder the Securities Act and therefore cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available. The Consultant is able to bear the econom ic risk of its i nvestment in tJ1e Shares for an indefinite period of time. The Consu l tant, in mak ing the decision to acquire the Shares, has rel ied upon an i ndependent investigation of the Company and has not relied upon any information or representations made by any th ird parties or upon any oral or written representations or assurances from the Company, its officers,directors or employees or any other representatives or agents of the Company. The Consultant is familiar with the business, operations and financial cond i tion of the Com pany and has had an oppo1tun ity to ask questions of, and receive answers from the Company's officers and d irectors concerning the Company has had full access to such other information concerni ng the Company as the Consu l tant has requested. CONFIDENTIA LITY. A ll knowledge and infonnat.ion of a proprietary and confidential nature relating to the Company wh ich the Consu l tant obtains during the Consulting period, from the Com pany or the Company's employees, agents or Consultants shall be for all purposes regarded and treated as strictly confidential for so long as such information remains proprietary and con fidential and shall be held in trust by the Consu ltant solely for the Company's benefit and use and shall not be d irectly or indirectly d isclosed by the Consultant to any person without the prior written consent of the Company, wh ich consent may be withhold by the Company in its sole discretion. fNDEPENDENT CONTRACTOR STATUS. Consultant understands that since the Consultant is not an employee of the Company, the Company will not withhold i ncome taxes or pay any employee taxes on its behalf, nor will it receive any fringe benefits. The Consultant shall not have any authority to assu me or create any obligations, express or implied, on behalf of the Company and shall have no authority to represent the Company as agent, employee or i n any other capacity that as herein provided. TERMfNAT! ON. This Agreement may be terminated by mutual consent of both parties at any time, provided, however, that termination shall not relieve the Company from paying the compensation already accrued. NO THIRD-PARTY RIGHTS. The parties warrant and represent that they are authorized to enter i nto this Agreement and that no th i rd pa1ties, other tJ1an the parties hereto, have any interest in any of the servic.es contemplated hereby. 10. ABSENCE OF WA RRANTIES AND REPRESENTATIONS. Each party hereto acknowledges that they have signed th is Agreement without havi ng relied upon or being induced by any agreement, warranty or representation of fact or opin ion of any person not expressly set fotth herein. All representations and warranties of either party contained herein shall survive its signing and delivery. 1 1 . GOVERNING LA W. This Agreement shall be governed by and construed in accordance with the law of the State of New York. |
I 2. ATTORNEY 'S FEES. In the event of any controversy, claim or dispute between the pa1ties hereto, arising out of or in any manner relating to this Agreement, including an attempt to rescind or set aside, the prevail ing party in any act ion brought to settle such controversy, cla im or d ispute shall be entitled to recover reasonable attorney's fees and costs. I 3. VALIDITY. If any paragraph, sentence, term or provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceabi l ity shall not affect the validity enforceability of any other paragraph, sentence, term and provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by the patties hereto by written amendment to preserve its validity. 14.NO-DISCLOSUR E OF TERMS. The terms of th is Agreement shall be kept confidentia l , and no party, representative, attorney or family member shall reveal its contents to any third party except as required by Jaw or as necessary to comply with law or preexisti ng contractual commitments. 1 5. ENTIRE AGREEMENT. This Agreement contai ns the entire understand ing of the parties and cannot be altered or amended except by an amendment duly executed by all pait ies hereto. This Agreement supersedes and replaces any and al I previous agreements between the pa1ties. This Agreement shall be bind ing upon and in u re to the benefit of the successors, assigns and personal representatives of the parties. |
IN W ITNESS WHEREOF, the patties hereto have executed this Agreement effective as of the date fi rst written above. The Com panyThe Consultant Digital Brands Grou p, Inc. a Delaware Corporation By: Hil Davis CEO Alchemy Ad\'isory LLC a Puerto Rico limited Liability Company |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the use, in this Registration Statement on Form S-1, of our report dated April 12, 2021 related to the consolidated financial statements of Digital Brands Group, Inc (the “Company”) as of December 31, 2020 and 2019, and for the years then ended, which includes an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ dbbmckennon | |
Newport Beach, California | |
May 11, 2021 |
Exhibit 23.5
Consent of Independent Auditors
We consent to the use in this Registration Statement on Form S-1 of Digital Brands Group, Inc. of our audit report dated October 7, 2019, except for note 1, as to which the date in December 29, 2020 relating to the consolidated financial statements of Bailey 44, LLC as of December 31, 2018, and for the year then ended, and to the reference to our firm under the heading “Experts” in the Prospectus that is part of this Registration Statement.
/s/ Moss Adams LLP
May 11, 2021