UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) July 30, 2021

 

 

Brownie’s Marine Group, Inc.
(Exact name of registrant as specified in its charter)

 

Florida   333-99393   90-0226181

(State or other jurisdiction of

incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

3001 NW 25 Avenue, Suite 1, Pompano Beach, FL 33069

(Address of principal executive offices)(Zip Code)

 

Registrant’s telephone number, including area code: (954) 462-5570

 

N/A
(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
none   not applicable   not applicable

 

Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

 

 

 
 

 

Section 1 – Registrant’s Business and Operations

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On July 30, 2021, Brownie’s Marine Group, Inc., a Florida corporation (the “Company”), entered into a binding term sheet (the “Term Sheet”) with Submersible Systems, LLC, a Florida limited liability corporation (“Submersible”), and Tierra Vista Group, LLC and Summit Holdings V, LLC (the “Sellers”), the owners of all of the membership interests of Submersible (the “Membership Interests”). Pursuant to the terms of the Term Sheet, the Company will acquire all of the Membership Interests from the Sellers for an aggregate purchase price of $1,750,000 (the “Purchase Price”), to be paid to the Sellers at closing: (i) by the issuance to the Sellers of three-year convertible promissory notes (each, a “Note”) in the aggregate principal amount of $350,000, at an interest rate of 8% per annum, with each Seller to receive a Note in the principal amount pro rata with the number of Membership Interests such Seller owns of Submersible, and (ii) by the issuance to the Sellers of an aggregate of $1,400,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), such number of Shares to be calculated based on the volume weighted average price of a share of the Company’s Common Stock on the OTC Markets (“VWAP”) for (a) 180 days prior to the date of the Term Sheet, or (b) 180 days prior to the closing date of the transaction, whichever results in a lower VWAP, with each Seller receiving a pro rata portion of the Shares based upon the total number of Membership Interests held by such Seller. The closing and consummation of the transactions contemplated by the Term Sheet are to occur no later than August 31, 2021, and are subject to certain closing conditions and deliveries, including an agreement containing typical representations and warranties by the parties of a transaction of this nature.

 

The foregoing descriptions of the Term Sheet does not purport to be complete and is qualified in its entirety by reference to the full text of such document, a copy of which is attached to this report as Exhibits 10.1 and incorporated herein by reference.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

No.   Exhibit Description
     
10.1   Binding Term Sheet, dated July 30, 2021, by and among the Company, Submersible Systems, LLC, and Tierra Vista Group, LLC and Summit Holdings V, LLC

 

 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Brownie’s Marine Group, Inc.
     
Date: August 3, 2021 By: /s/ Christopher Constable
    Christopher Constable, Chief Executive Officer

 

 

 

Exhibit 10.1

 

 

Binding Term Sheet

 

This Term Sheet (this “Term Sheet”) represents the binding intention of Brownie’s Marine Group, Inc. (the “Buyer”) to acquire all of the equity interests of Submersible Systems, LLC (the “Company”) from its two equity owners (the “Sellers”). Upon execution and delivery of this Term Sheet, the parties agree to mutually negotiate, execute and deliver a merger agreement (the “Merger Agreement”) containing the terms and provisions provided below, including representations, warranties and indemnities customary for a transaction of this nature, and the ancillary agreements incorporating the other terms hereof. The parties intend that the merger (“Merger”) qualify as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

Business: The Company designs, tests, manufactures, distributes and sells scuba, diving and rescue equipment, and air compressors and nitrox generation fill systems (the “Business”).
   
Consideration: The aggregate consideration to be paid by the Buyer to the Sellers for the outstanding equity interests of the Company will be $1,750,000, to be paid by the issuance of the Sellers’ Notes and the Equity Consideration.
   
Sellers’ Notes: $350,000 of the aggregate consideration will be paid by the issuance of Sellers’ Note, with each Seller to receive a Sellers’ Note in the principal amount based on the total number of equity interests it holds in the Company, which shall have the following terms:

 

  ● Term: 36 months from the closing.
     
  ●  Principal Payments: Within 30 days after each quarter, commencing on the first full quarter after the closing the Buyer shall pay as a reduction of the principal amount of the Note in cash payments equal to 50% of the Operating Income of the Company. Operating Income shall be the net income of the Company before interest, taxes, depreciation and amortization (but expressly excluding any overhead cost allocation applied to the Company by the Buyer). The final payment will be a balloon payment of the balance due upon the end of the term of the Sellers’ Note.
     
  ● Interest Payments: The Buyer shall pay interest on the outstanding balance of the Note at the rate of 8.00% per annum. Interest shall be paid at the end of each 3-month period commencing on September 30, 2021 in shares of common stock of the Buyer (the “Common Stock”). The number of shares to be issued (the “Conversion Rate”) shall be based on the amount due on said date divided by the VWAP for the 180 days prior to the date of the parties’ execution of this Term Sheet or the closing date of the Merger Agreement, whichever results in a lower VWAP.
     
  ● Conversion: The holder of a Sellers’ Note shall have the right to convert the Note, in whole or in part, at any time, within the 36-month term into shares of Common Stock at the Conversion Rate.

 

Equity Consideration: $1,400,000 of the aggregate consideration shall be paid in shares of Common Stock, calculated at the Conversion Rate. Each Seller shall receive its pro rata portion of the Equity Consideration based on the total number of equity interests it holds in the Company.

 

 
 

 

Leak-Out Provision: Shares of Common Stock issued to the Sellers, both pursuant to the Sellers’ Notes and Equity Consideration, shall not be transferred except as follows:

 

  (i) Up to 12.5% after a holding period of 6 months after closing;
     
  (ii) Up to 25% after a holding period of 9 months after closing;
     
  (iii) Up to 75% after a holding period of 24 months after closing; and
     
  (iv) Up to 100% after 36 months after closing.

 

  The leak-out provisions can be waived by the Buyer if the Common Stock is trading either on the NYSE American or Nasdaq and has a rolling 30-day average trading volume of 50,000 shares per day; provided, however, that (i) only up to five percent (5%) of the previous days total volume can be sold in one day and (ii) the holder can only sell through executing trades “On the Offer.”
   
Adjustments  
to Merger Consideration: The amount of the Merger Consideration was determined based upon the Company’s balance sheet as of December 31, 2020, and further validated with the Company’s balance sheet as of May 31, 2021. The amount of the Merger Consideration shall be reduced by an amount equal to any non-operational deterioration to the Company’s cash balances in any form, including, without limitation, distributions, payroll, payments of any kind to the Sellers or non-employees of the Company, or payments of payroll to the Company’s employees inconsistent with that of average prior periods, and such amount will be deducted dollar-for-dollar from the principal amount of the Sellers’ Notes, on a pro-rata basis, without limitation.
   
Non-Compete: For 5 years from the closing, Rick Kearney shall not, directly or indirectly, own, manage, control, participate in, consult with, render services for, or in any other manner engage in any business, or as an investor in or lender to any business which competes either directly or indirectly with the Company in the Business, subject to the terms and conditions of a definitive non-competition agreement to be agreed upon by the parties and executed at closing.
   
Management: The board of managers of the Company shall consist of Christopher Constable and Robert Carmichael, with Rick Kearney holding a seat as a board observer.

 

 
 

 

Manufacturing: After the closing, the Company will manufacture for Rick Kearney, or his assignee, the Company’s standard products, requiring no material modifications, for applications that are not currently a part of the Business; specifically related to medical devices for compressed gas delivery. The Company agrees to manufacture these products on the basis of the following cost structure:
   
  Component Cost + Manufacturing Labor + Overhead Burden + 30%
   
  If the product requires material modifications, the Company is under no obligation to produce the product. In the event the Company elects to produce the product with material modifications, the pricing for that product will be negotiated separately.
   
License of Intellectual Property: Rick Kearney shall assign the trademark Nomad to the Company for no additional consideration.
   
  Rick Kearney shall execute an exclusive license agreement, in a form acceptable to the Buyer, for (i) the patent for Snorkelator with a fee of $5 per sale of each Snorkelator, (ii) the trademark for Easy Dive, and (iii) the domain name easydive.us, for consideration of $30 per unit sold, which includes the $5 fee related to the Snorkelator included in each Easy Dive purchase, subject to Rick Kearney’s right to transfer his ownership interest in such intellectual property and the other terms and conditions of a definitive license agreement to be agreed upon by the parties and executed at closing.
   
Financial Reporting. After the closing, the Buyer, the Company and Ligget & Webb, LLP, the Buyer’s independent auditor, or another mutually agreed upon audit firm, shall prepare and deliver, at the Buyer’s expense, audited financial statements of the Company in compliance with the American Institute of Certified Public Accountants’ generally accepted auditing standards for the years ended December 31, 2020 and 2019 (the “Audit”), and any required interim periods, and any other information as required for the Buyer’s filings in connection with the transactions contemplated by this Agreement under the Exchange Act.
   
Registration Rights: The Sellers shall have “piggyback” registration rights with respect to the shares received as Equity Consideration and pursuant to the Sellers’ Notes.
   
Closing Date: August 31, 2021 (or such other date as is mutually agreed to by the parties) but no later than August 31, 2021.
   
Expenses: Each party shall bear their own respective expenses incurred in connection with this Term Sheet and the Merger.
   
Confidentiality. This Term Sheet, and the transactions contemplated hereby, shall be confidential and shall not to be disclosed to anyone other than respective advisors and internal staff of the parties and necessary third parties. No press or other public releases will be issued to the general public concerning this Term Sheet or the transactions contemplated hereby, without the mutual consent of the parties, or as required by law.
   
Closing Conditions: The closing of the Merger is subject to (a) consummation of Merger Agreement and all other required definitive agreements, (b) obtaining all necessary board, shareholder, and third-party consents, (c) satisfactory completion of all necessary technical and legal due diligence, and (d) satisfaction of other customary closing conditions.
   
Governing Law: Florida.

 

 
 

 

IN WITNESS WHEREOF, the parties have executed this binding Term Sheet as of this 30th day of July, 2021.

 

  BUYER:

 

  BROWNIE’S MARINE GROUP, INC.

 

  By: /s/ Christopher Constable
  Name: Christopher Constable
  Title: Chief Executive Officer

 

  COMPANY:

 

  SUBMERSIBLE SYSTEMS, LLC

 

  By: /s/ Rick Kearney
  Name: Rick Kearney
  Title: Chief Executive Officer

 

  SELLERS:

 

  TIERRA VISTA GROUP, LLC

 

  By: /s/ Claude R. Walker
  Name: Claude R. Walker
  Title: Manager

 

  SUMMIT HOLDINGS V, LLC

 

  By: /s/ Claude R. Walker
  Name: Claude R. Walker
  Title: Manager