Item 1.01. Entry into a Material Definitive Agreement.
On September 28, 2022, Simplicity Esports and Gaming Company (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.
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.
The parties may terminate the Exchange Agreement pursuant to the terms of the
Exchange Agreement, including, but not limited to, if the conditions to Closing
have 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 is filed as Exhibit 10.1 hereto and are incorporated herein by reference.
Item 9.01. Financial Statement 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.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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