UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
CURRENT REPORT
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| Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
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| Item 1.01 | Entry Into A Material Definitive Agreement. |
Share Purchase Agreement
As previously disclosed on the Form 8-K filed October 1, 2021, on September 30, 2021, Esports Technologies, Inc. (the “Company”), and Esports Product Technologies Malta Ltd., a company incorporated under the laws of Malta and wholly owned subsidiary of the Company (“Esports Malta”), entered into an Share Purchase Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Acquisition Agreement”) with Aspire Global plc, a company incorporated under the laws of Malta (“Aspire”), Aspire Global International Limited, a company incorporated under the laws of Malta, AG Communications Limited, a company incorporated under the laws of Malta, Aspire Global 7 Limited, a company incorporated under the laws of Malta (collectively the “Aspire Related Companies”), and Karamba Limited, a limited liability company incorporated and existing under the laws of Malta (“Karamba”) whereby Esports Malta agreed to acquire all of the issued and outstanding shares of Karamba in exchange for the Acquisition Consideration identified below. On November 29, 2021, the transaction closed (the “Closing”).
Pursuant to the Acquisition Agreement, among other things, the following transactions and deliverables occurred at the Closing: (i) Aspire and the Aspire Related Companies transferred to Karamba all the business to consumer (“B2C”) assets, certain liabilities, and operations as set forth in the Acquisition Agreement (the “Assets”); (ii) Aspire (and the Aspire Related Companies) assigned or transferred to Karamba all key and material contracts for services that are necessary for the operation of the Assets; (iii) Esports Malta acquired all of the shares in Karamba; (iv) Esports Malta entered into an agreement with Aspire whereby Aspire will provide continuation of services related to certain employees which are believed to be essential to the integration and operation of the Assets (the “Transitional Services Agreement”) for a transition period subsequent to the Closing and up to 90 days thereafter; (v) Karamba (as then fully owned by Esports Malta) entered into four-year business to business white label operator services agreements collectively covering regulated and unregulated markets, based upon a migration plan in accordance with applicable laws (collectively the “Operator Services Agreement” and the “Migration Plan”, respectively).
In accordance with the terms and subject to the conditions of the Acquisition Agreement, the total acquisition price was €65,000,000 payable as follows: (i) a cash amount of €50,000,000; (ii) €10,000,000, payable in accordance with the terms of an unsecured subordinated promissory note (the “Note”); and (iii) 186,838 shares of Company common stock, which were valued at €5,000,000 (based on the weighted-average per-share price of the ten trading days prior to the execution date of the Acquisition Agreement (the “Exchange Shares”). The Company agreed, within 45 days as of the Closing, to file with the Securities and Exchange Commission (“SEC”) a registration statement to register the resale of the Exchange Shares.
The Note provides for an interest rate of 10% per annum. The maturity date of the Note will be the earlier of that date which is four years from the issuance date or a liquidity event. The Note will require repayment of the principal amount plus any accrued interest in three equal installments, payable annually starting on the second anniversary after issuance. No interest payment shall be due until that date which is the last day of the end of the second year anniversary of issuance should the Note remain unpaid at such time. Should the Note remain unpaid at the second year anniversary, the total accrued interest due at that time shall be paid at the second year anniversary for accrued interest for the period from the issuance date through the second year anniversary date. Thereafter, and on each annual anniversary date thereafter, the interest due for the prior annual period shall be paid. Notwithstanding the foregoing, if the Company owes greater than $15,000,000 under the Credit Agreement (described in Item 2.03 below), then then the parties agree that the Company shall repay any principal amount plus any accrued interest due through the issuance of Company common stock in lieu of any cash payment and the amount of said common stock shares to be issued by the Company shall be determined by using the Conversion Price as defined below. Should an event of default occur on the Note, then at the election of Aspire, either (i) the Operator Services Agreement will be amended such that the fees payable shall increase by 5% during the continuation of the event of default, or (ii) Aspire may elect to convert the entire outstanding principal amount plus any accrued interest into shares of common stock of the Company at a price per share based on the weighted-average per-share price for the ten trading days prior to the date of the occurrence of the event of default (“Conversion Price”). In no event shall the Conversion Price be lower than $18.00 per share (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof) and the total maximum number of shares of common stock that may be issued to Aspire upon any such conversion in the aggregate shall be 650,000 shares (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof).
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Ancillary Agreements
On the Closing, the parties entered into the Transitional Services Agreement pursuant to which Aspire agreed to provide continuation of services related to certain employees, office space, equipment and payments associated with the integration and operation of the Assets during a period of up to 90 days.
On the Closing, Aspire and Karamba entered into an Operator Services Agreement and the Migration Plan (as defined above) as approved by the Malta Gaming Authority (“MGA”). Pursuant to the terms and conditions of the Operator Services Agreement, Aspire committed for a period of four years to operate on behalf of Karamba, in addition to the Assets, two additional Company-branded websites (Esportsbook.com and other URL brands to be determined solely by the Company) pursuant to Aspire’s operating license in any and all territories in which Aspire is licensed and operational as of the Closing as well as any additional territories in which Aspire may become licensed following the Closing and/or during the term of the Operator Services Agreement. The Operator Services Agreement provides for a revenue sharing arrangement based on certain net gaming revenue share definitions, in addition to various other fees related to the services.
A copy of the Acquisition Agreement and Note are filed with this Current Report on Form 8-K as Exhibits 2.1 and 4.1, respectively, and are incorporated herein by reference, and the foregoing description of such agreements are qualified in their entirety by reference thereto. The Acquisition Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Acquisition Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Acquisition Agreement. The representations, warranties and covenants in the Acquisition Agreement are also modified in important part by the underlying disclosure schedules which are not filed publicly and which are subject to a contractual standard of materiality different from that generally applicable to stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. The Company does not believe that these schedules contain information that is material to an investment decision.
Private Placement
On September 30, 2021, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “Investors”). Pursuant to the Subscription Agreements, the Investors agreed to subscribe for and purchase, and the Company agreed to issue and sell to such Investors, simultaneous with the closing of the Acquisition Agreement, shares of Series A Convertible Preferred Stock (the “Preferred Stock”) for a purchase price of $1,000.00 per share (the “Private Placement”). For each share of Preferred Stock issued, the Company issued the Investor a warrant to purchase 150% of the shares of Company common stock underlying the Preferred Stock (the “Warrants”). The aggregate Private Placement, which was completed on the closing date of the Acquisition Agreement was $37,700,000.
Pursuant to the Subscription Agreement, the Company is required to hold a special meeting of shareholders of the Company (the “Shareholder Meeting”), no later than 120 days after the issuance date soliciting the affirmative vote at the Shareholder Meeting for approval of resolutions providing for the approval of the conversion of the Preferred Stock into Company common stock and the exercise of the Warrants in compliance with the rules and regulations of the Nasdaq Stock Market (the “Shareholder Approval”). Subsequent to the execution of the Subscription Agreement, the Company agreed that if Shareholder Approval is not received within 120 days after the issuance date, the number of shares underlying the Warrants shall increase from 150% of the shares of Company common stock underlying the Preferred Stock to 160% of the shares of Company common stock underlying the Preferred Stock.
Until Shareholder Approval is received, without the approval of the holders of 60% of the Preferred Stock, other than certain defined exempt issuances, the Company is not permitted to (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any common stock or common stock equivalents or (ii) file any registration statement or any amendment or supplement thereto.
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The Preferred Stock is entitled to receive dividends, at a rate of 14.0% per annum, in cash or in kind, which shall be payable quarterly in arrears on January 1, April 1, July 1 and October 1, beginning on the first such date after the issuance date and ending on the 18-month anniversary provided the Shareholder Approval has been received. With limited exceptions, the Preferred Stock will have no voting rights. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company available to shareholders, an amount equal to the greater of: (i) the purchase price for each share of Preferred Stock then held, or (ii) the amount the holders would have received had the holders fully converted the Preferred Stock to Company common stock, in each case, before any distribution or payment shall be made to the holders of the Company’s common stock. If, and only, if the Company receives Shareholder Approval, the Preferred Stock will be convertible into Company common stock at an initial conversion price of $28.00 per share (“Conversion Price”); provided that the Conversion Price is subject to anti-dilution protection upon any subsequent transaction at a price lower than the Conversion Price then in effect. In addition, nine months from the issuance date (the “Adjustment Date”), the Conversion Price shall be adjusted to the lesser of: (i) the Conversion Price in effect on the Adjustment Date, or (ii) 85% of the average closing price of the Company’s common stock for the fifteen trading days prior to the Adjustment Date. If the Company’s EBITDA is equal to or greater than $2,000,000 for the quarter ending March 31, 2022, then no adjustment pursuant to the foregoing sentence will cause the Conversion Price to be less than $20.00.
Upon receipt of Shareholder Approval, the Warrants will become exercisable and will expire on the fifth anniversary thereafter. The Warrants will initially be exercisable at an exercise price of $30.00 per share, provided that the exercise price is subject to anti-dilution protection upon any subsequent transaction at a price lower than the exercise price then in effect. The Warrants can be exercised on a cashless basis if there is no effective registration statement registering, or no current prospectus available for, the resale of the shares of common stock underlying the Warrants.
The holders of the Preferred Stock and Warrants will not have the right to convert or exercise any portion of the Preferred Stock and Warrants to the extent that, after giving effect to such conversion, such holder (together with certain related parties) would beneficially own in excess of 4.99% of the Company’s common stock outstanding immediately after giving effect to such conversion or exercise.
The Company agreed to use commercially reasonable efforts to file as soon as reasonably practicable, but in any event no later than 45 calendar days after the issuance date, and use commercially reasonable efforts to cause to be declared effective as soon as reasonably practicable thereafter, a registration statement filed with the SEC registering the resale of all of the Company common stock underlying the Preferred Stock and Warrants issued to the Investors.
The foregoing description of the Subscription Agreement, Preferred Stock and the Warrant is subject to and qualified in its entirety by reference to the full text of the form of Subscription Agreement, form of certificate of designation, and form of warrant, copies of which are attached as Exhibit 10.2, Exhibit 3.1 and Exhibit 4.2 hereto, and the terms of which are incorporated herein by reference.
| Item 2.01 | Completion of Acquisition or Disposition of Assets. |
The information contained above in Item 1.01 is hereby incorporated by reference into this Item 2.01.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information contained above in Item 1.01 is hereby incorporated by reference into this Item 2.03.
On November 29, 2021, the Company entered a credit agreement (the “Credit Agreement”) with CP BF Lending, LLC (“Lender”), pursuant to which the Lender agreed to make a single loan to the Company of $30,000,000 (the “Loan”). The Loan bears interest on the unpaid principal amount at a rate per annum equal to 15.0% as follows: (1) cash interest on the unpaid principal amount of the Loan at a rate equal to 14.0% per annum, plus (2) payable-in-kind interest (“PIK Interest”) on the unpaid principal amount of the Loan at a rate equal to 1.0% per annum. The Company paid to Lender on the closing date a non-refundable origination fee in an amount equal to $750,000.
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The Loan matures in 36 months, provided that the Company may receive two 12-month extensions of the maturity date by paying to the Lender (1) an extension fee equal to 1.0% of the unpaid principal balance of the Loan as of the date of such extension, and (2) all reasonable and documented out-of-pocket fees and expenses paid or incurred by Lender, in each case in connection with the extension request, including but not limited to fees and expenses for appraisals, collateral exams and audits, and legal counsel. The foregoing extension right is subject to, among other items, (i) the Loan not being in default, (ii) the representations and warranties contained in Credit Agreement being true and correct; and (iii) the Lender granting its written approval thereof in its sole discretion.
The Loan may be prepaid by the Company at any time. In addition, the Credit Agreement provides that in the event there shall be excess cash flow from the Aspire Business (as such concept is defined in the Credit Agreement) for any calendar month, commencing with the month ended December 31, 2022, the Company shall apply such excess cash flow amount to prepay the outstanding principal balance of the Loan; provided that no such prepayment shall be required once the unpaid principal balance of the Loan has been reduced to $15,000,000.
The Credit Agreement requires the Company to meet certain financial covenants commencing March 31, 2022. The Loan is secured by all of the assets of the Company and its subsidiaries. The Loan may be accelerated by the Lender upon an event of default, which in addition to customary events of default include: (i) if (1) any of the Company or its subsidiaries shall fail to maintain in full force and effect any gaming approval (as defined in the Credit Agreement) required for the operation of its business or (2) any gaming regulator shall impose any condition or limitation on any of the foregoing entities that could be reasonably expected to have a material adverse effect; or (ii) the suspension from trading or failure of the Company’s common stock to be trading or listed on the Nasdaq exchange for a period of three consecutive trading days.
Pursuant to the Credit Agreement, the Lender has the right to designate a non-voting observer to attend all meetings of the Company’s Board of Directors and any committees thereof, and will receive all information related to those meetings (including any reports or documents, if any, that are prepared for review by the Board at the same time as any members of the Board receive such documents).
In connection with the Loan, the Company issued the Lender a warrant (the “Lender Warrant”) to purchase 1,567,840 shares of Company common stock at an exercise price of $25.00 per share expiring on the earlier to occur of (i) five years following the issue date or (ii) the second anniversary of the satisfaction of all obligations of the Company under the Credit Agreement. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock. In addition, the exercise price of the Lender Warrant is subject to “weighted-average” anti-dilution protection for issuances by the Company below the exercise price (other than certain defined exempt issuances), and, upon shareholder approval, the number of shares underlying the Lender Warrant shall also be adjusted for issuances to which the “weighted-average” anti-dilution protection applies. The Lender will not have the right to exercise any portion of the Lender Warrant if the Lender (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of Company common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Lender Warrant, which beneficial ownership amount, at the election of the Lender may be increased to any other percentage not in excess of 19.99% as specified by the Lender. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for the Company, and will assume all of the Company’s obligations under the Lender Warrant with the same effect as if such successor entity had been named in the Lender Warrant itself. The Company agreed to use commercially reasonable efforts to file as soon as reasonably practicable, but in any event no later than 45 calendar days after the issuance date, and use commercially reasonable efforts to cause to be declared effective as soon as reasonably practicable thereafter, a registration statement filed with the SEC registering the resale of all of the Company common stock underlying the Lender Warrant issued to the Lender. Pursuant to the Lender Warrant, the Company is required to hold a special meeting of shareholders of the Company, no later than 120 days after the issuance date soliciting the affirmative vote at the meeting for approval of resolutions providing for the approval of the issuance of all of the Company common stock underlying the Lender Warrant in compliance with the rules and regulations of the Nasdaq Stock Market (without regard to any limitations on conversion or exercise, as applicable, with respect thereto).
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The foregoing description of the Credit Agreement and the Lender Warrant is subject to and qualified in its entirety by reference to the full text of the form of Credit Agreement and Lender Warrant, copies of which are attached as Exhibit 10.3 and Exhibit 4.3 hereto, and the terms of which are incorporated herein by reference.
| Item 3.02 | Unregistered Sales of Equity Securities |
The information contained above in Item 1.01 and Item 2.03 is hereby incorporated by reference into this Item 3.02.
| Item 5.03 | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year |
The information contained above in Item 1.01 is hereby incorporated by reference into this Item 5.03.
On November 29, 2021, the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock was filed in the State of Nevada.
| Item 7.01. | Regulation FD Disclosure. |
On December 1, 2021, the Company issued a press release announcing the closing of the Acquisition Agreement. The press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.
The foregoing (including Exhibit 99.1) is being furnished pursuant to Item 7.01 and will not be deemed to be filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liabilities of that section, nor will it be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of businesses or funds acquired.
Any financial statements required by Item 9.01(a) will be filed by amendment as soon as practicable, but no later than 71 calendar days after the date on which this initial Current Report on Form 8-K was required to be filed.
(b) Pro Forma Financial Information.
Any pro forma financial information required by Item 9.01(b) will be filed by amendment as soon as practicable, but no later than 71 calendar days after the date on which this initial Current Report on Form 8-K was required to be filed.
(d) Exhibits.
| Exhibit No. | Description | |
| 2.1 * | Share Purchase Agreement, dated as of September 30, 2021 (incorporated by reference to the Exhibit 2.1 of the Form 8-K filed October 1, 2021) | |
| 3.1 | Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock | |
| 4.1 | Form of Promissory Note between Esports Technologies, Inc., Esports Product Technologies Malta Ltd. and Aspire Global Plc | |
| 4.2 | Form of Preferred Stock Investor Warrant | |
| 4.3 | Form of Lender Warrant | |
| 10.1 | Form of Subscription Agreement (incorporated by reference to the Exhibit 10.1 of the Form 8-K filed October 1, 2021) | |
| 10.2 *+ | Credit Agreement dated November 29, 2021 between Esports Technologies, Inc., certain subsidiaries of Esports Technologies, Inc., and CP BF Lending, LLC | |
| 99.1 | Press release dated December 1, 2021 | |
| 104 | Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 104). |
| * | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Registrant agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. | |
| + | Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the SEC, certain portions of this exhibit have been redacted. The Company hereby agrees to furnish supplementally to the SEC, upon its request, an unredacted copy of this exhibit. |
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ESPORTS TECHNOLOGIES, INC. | |
| Date: December 1, 2021 | |
| By: /s/ Jim Purcell | |
| Jim Purcell | |
| Chief Financial Officer |
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