Item 1.01. Entry into Material Definitive Agreement.
As previously disclosed by Simplicity Esports and Gaming Company (the "Company")
in its Current Report on Form 8-K filed on September 28, 2022 with the
Securities and Exchange Commission (the "SEC"), on September 28, 2022, the
Company entered into an exchange agreement (the "Exchange Agreement"), dated as
of September 28, 2022, by and among the Company, Diverted River Technology, LLC
("Diverted River"), the member(s) of Diverted River from time to time (the
"Members") and Zachary Johnson, as the Members' representative. Pursuant to the
terms of the Exchange Agreement, the Company agreed to acquire from the Members
100% of the membership interests of Diverted River held by the Members as of the
closing (the "Closing"), in exchange for the issuance by the Company to the
Members of shares of the Company's common stock equal to 80% of the issued and
outstanding shares of the Company's common stock as of the Closing.
Pursuant to the terms of the Exchange Agreement, following the Closing, Diverted
River will become a wholly owned subsidiary of the Company. Also following the
Closing, it is expected that the Company's name will be changed to Diverted
River Technology, Inc., and the business of the Company will become that of
Diverted River, an ETO focused on a sustainable, high margin, recurring revenue
business model that requires limited capital expenditures.
At the Closing, the Company will expand the size of the Company's Board of
Directors (the "Board") by three persons, to a total of seven persons, and will
name Mr. Johnson and, within 90 days after Closing, two other persons, as
directors on the Board, one of whom will be an independent director. Also at the
Closing, the Company will name Mr. Johnson as Chief Executive Officer of the
Company. Within 90 days of Closing, the Board will name a Chief Technology
Officer, subject to Mr. Johnson's approval. At the Closing, the Company will
also enter into employment agreements with Mr. Johnson and certain other
Diverted River employees as identified and agreed by the parties. Within 90 days
of Closing, the Company will hire Velocity 42 Limited as its primary software
developer.
The Exchange Agreement contains certain covenants, representations and
warranties customary for an agreement of this type. In addition, the Closing is
subject to the satisfaction or waiver of certain conditions, including, but not
limited to, (i) the increase by the Company of its authorized shares of common
stock to 250,000,000 shares; (ii) execution by Diverted River of agreements with
clients generating at least $60,000 per month in revenue for at least 24 months
following the Closing, with such agreements being in form and substance as
agreed to by the Company and Diverted River; (iii) settlement by the Company of
any debt with landlords related to the closure of the Company's gaming center
venues; (iv) the Company having obtained binding commitments from investors to
invest at least $4,000,000, through the issuance of shares of Company common
stock; (v) repayment by the Company of its convertible notes, or execution of
agreements with noteholders to convert such notes into shares of Company common
stock comprising no more than 12.5% of the issued and outstanding common stock
of the Company after giving effect to the Closing; (vi) reaching an agreement
with warrant holders to amend the exercise price to be $1.00 per share; (vii)
execution of note amendments by holders of Company promissory notes that are not
presently convertible into shares of Company common stock such that the notes
will be converted into Company common stock and such notes shall have been
converted, with such shares being included in the 12.5% limitation set forth in
clause (v) hereof; (viii) provision by Diverted River of audited financial
statements; and (ix) completion of satisfactory due diligence reviews by the
Company and Diverted River.
Pursuant to the terms of the Exchange Agreement, the parties could terminate the
Exchange Agreement pursuant to the terms of the Exchange Agreement, including,
but not limited to, if the conditions to Closing had not been satisfied or
waived by December 15, 2022.
The description of the Exchange Agreement does not purport to be complete and is
qualified in its entirety by reference to the Exchange Agreement, a copy of
which was filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
filed with the SEC on September 28, 2022 is incorporated herein by reference.
Also as previously disclosed, on December 15, 2022, the parties entered into
Amendment No. 1 to Exchange Agreement ("Amendment No. 1"). Pursuant to the terms
of Amendment No. 1, the termination date was amended to be February 1, 2023.
Except as set forth in Amendment No. 1, the Exchange Agreement remains in full
force and effect.
The description of Amendment No. 1 does not purport to be complete and is
qualified in its entirety by reference to Amendment No. 1, a copy of which was
filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
SEC on December 16, 2022 and is incorporated herein by reference.
On March 10, 2023, the parties to the Exchange Agreement entered into Amendment
No. 2 to Exchange Agreement ("Amendment No. 2"). Amendment No. 2 was executed on
March 10, 2023 and placed in escrow. Amendment No. 2 was released from escrow on
March 28, 2023.
Pursuant to the terms of Amendment No. 2, the termination date was amended to be
July 14, 2023. In addition, pursuant to the terms of Amendment No. 2, the
Company agreed to acquire from the Members 100% of the membership interests of
Diverted River held by the Members as of the Closing in exchange for the
issuance by the Company to the Members of shares of the Company's common stock
equal to 75% of the issued and outstanding shares of the Company's common stock
as of the Closing. The parties acknowledge that the Company is currently, or
shall shortly become, a party to the Notes Exchange Agreement by and between the
Company and the Noteholders (as hereinafter defined) of the Notes (as
hereinafter defined), pursuant to which, at or simultaneous with the Closing
hereunder, such Notes shall be exchanged for a number of shares of Company
common stock equal to 5% of the Company's outstanding shares of common stock
following the Closing and the closing of the Offering (as hereinafter defined)
(the "Note Exchange Transactions"). The parties also acknowledge and agree that
in connection with the transactions and the Note Exchange Transactions, the
Company expects to complete an offering of Company common stock to certain
additional investors (the "Offering"). The number of shares of common stock to
be issued and sold in the Offering, when added to the shares of common stock
issued and outstanding prior to the closing of the Note Exchange Transactions
and the Closing, will comprise no more than 20% of the issued and outstanding
shares of Company common stock following the closing of the Offering, the
closing of the Note Exchange Transactions and the Closing, such that the ending
capitalization of the Company at such time shall be comprised of (i) the
investors in the Offering and the other shareholders of the Company, holding 20%
of the issued and outstanding shares of the Company's common stock, (ii) the DRT
Members holding 75% of the issued and outstanding shares of the Company's common
stock; and (iii) the Noteholders, collectively, holding 5% of the issued and
outstanding shares of the Company's common stock, and provided that such 5%
number may be reduced as set forth in the Note Exchange Agreement, in which
event the proportion of the shares of common stock to be held by the investors
in the Offering and the other shareholders of the Company other than the DRT
Members and the Noteholders, shall be adjusted from such current 20% number.
Except as set forth in Amendment No. 2, the Exchange Agreement, as amended,
remains in full force and effect.
The description of Amendment No. 2 does not purport to be complete and is
qualified in its entirety by reference to Amendment No. 2, a copy of which is
filed as Exhibit 10.3 hereto and is incorporated herein by reference.
On March 21, 2023, the Company, Ionic Ventures, LLC ("Ionic"), FirstFire Global
Opportunities Fund ("FirstFire"), Jefferson Street Capital ("Jefferson"), Labrys
Fund ("Labrys"), GS Capital Partners ("GS"), and Lucas Ventures & LGH
Investments ("Lucas" and collectively with Ionic, FirstFire, Jefferson, Labrys
and GS, the "Noteholders") entered into a letter agreement (the "Letter
Agreement") pursuant to which the Noteholders agreed to convert their Notes into
a number of shares of the Company's common stock equal to 5% of the outstanding
shares of common stock on March 21, 2023 (the "Equity Percentage Shares"). Each
Noteholder agreed to convert its respective Note(s) into the equity percentage
based on the ratio which the principal amount of such Noteholder's Note bears to
the aggregate principal amount of all Noteholders. Pursuant to the terms of the
Letter Agreement, "Notes" is defined to include the following promissory notes:
Principal and
Interest Balance
Noteholder Origination (In Dollars)
FirstFire 3/21/22 120,819
FirstFire 7/14/22 29,196
FirstFire 6/10/21 1,364,167
FirstFire 3/10/21 528,847
GS 3/21/22 90,614
GS 7/14/22 29,196
GS 6/10/21 299,678
GS 9/13/22 11,440
Ionic 3/21/22 120,819
. . .
Item 7.01. Regulation FD Disclosure.
On March 31, 2023, the Company issued a press release announcing entry into
Amendment No. 2 and the Letter Agreement. A copy of the press release is
attached hereto as Exhibit 99.1.
The information included in this Current Report on Form 8-K, including Exhibit
99.1, shall not be deemed to be "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise
subject to the liabilities of that section, nor shall such information be deemed
incorporated by reference in any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set forth by specific
reference in such a filing. The information set forth under this Item 7.01 shall
not be deemed an admission as to the materiality of any information in this
Current Report on Form 8-K that is required to be disclosed solely to satisfy
the requirements of Regulation FD.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description
10.1 Exchange Agreement, dated as of September 28, 2022, by and among
the registrant, Diverted River Technology, LLC, the member(s) of
Diverted River Technology, LLC from time to time and Zachary
Johnson, as the Members' representative (incorporated by reference
to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed
on September 28, 2022).
10.2 Amendment No. 1 to Exchange Agreement, dated as of December 15,
2022, by and among the registrant, Diverted River Technology, LLC,
the member(s) of Diverted River Technology, LLC from time to time
and Zachary Johnson, as the Members' representative (incorporated by
reference to Exhibit 10.1 to the registrant's Current Report on Form
8-K filed on December 16, 2022).
10.3 Amendment No. 2 to Exchange Agreement, dated as of March 10, 2023,
by and among the registrant, Diverted River Technology, LLC, the
member(s) of Diverted River Technology, LLC from time to time and
Zachary Johnson, as the Members' representative.
10.4 Letter Agreement, dated as of March 21, 2023, by and among the
registrant, Ionic Ventures, LLC, FirstFire Global Opportunities
Fund, Jefferson Street Capital, Labrys Fund, GS Capital Partners,
and Lucas Ventures & LGH Investments.
99.1 Press release issued by the registrant on March 31, 2023.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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