Item 1.01. Entry into a Material Definitive
Agreement.
On April 29, 2020 (the “Effective
Date”), Simplicity Esports and Gaming Company (the “Company”) issued a 10% Fixed Convertible Promissory Note
(the “Harbor Gates Note”), with a maturity date of October 29, 2020 (the “Maturity Date”), in the principal
sum of $152,000 in favor of Harbor Gates Capital, LLC (“Harbor Gates”). Pursuant to the terms of the Harbor Gates
Note, the Company agreed to pay to Harbor Gates $152,500 (the “Principal Sum”) and to pay “guaranteed”
interest on the principal balance at an amount equivalent to 10% of the Principal Sum, to the extent such Principal Sum and “guaranteed”
interest and any other interest, fees, liquidated damages and/or items due to Harbor Gates have not been repaid or converted into
Company common stock in accordance with the terms of the Harbor Gates Note. The Harbor Gates Note carries an original issue discount
(“OID”) of $2,500. Accordingly, on the Effective Date, Harbor Gates delivered $150,000 to the Company in exchange
for the Harbor Gates Note.
In addition to the “guaranteed”
interest, and upon the occurrence of an Event of Default (as hereinafter defined), additional interest will accrue from the date
of the Event of Default at the rate equal to the lower of 20% per annum or the highest rate permitted by law.
The Company may prepay the Harbor Gates
Note according to the following schedule:
Days Since
Effective Date
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Payment Amount
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Under 30
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115% of Principal Amount (as hereinafter defined) so paid
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31-60
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120% of Principal Amount so paid
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61-90
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125% of Principal Amount so paid
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91-180
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135% of Principal Amount so paid
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135% of the remaining unpaid and unconverted
Principal Amount, plus all accrued and unpaid interest will be due and payable on the Maturity Date. “Principal Amount”
refers to the sum of (i) the original principal amount of the Harbor Gates Note (including the OID, prorated if the Harbor Gates
Note has not been funded in full); (ii) all guaranteed and other accrued but unpaid interest under the Harbor Gates Note; (iii)
any fees due under the Harbor Gates Notes; (iv) liquidated damages; and (v) any default payments owing under the Harbor Gates
Note, in each case previously paid or added to the Principal Amount.
Pursuant to the terms of the Harbor Gates
Note, the Company agreed to issue Harbor Gates shares of Company common stock in two tranches as follows:
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(i)
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10,000
shares of common stock within three trading days of the Effective Date; and
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(ii)
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In
the event the average of the three volume weighted average prices for the Company’s
common stock during the three consecutive trading days immediately preceding the date
which is the 180th day following the Effective Date is less than $1.00 per
share, then Harbor Gates will be entitled, and the Company will issue to Harbor Gates
additional shares of common stock as set forth in the Harbor Gates Note.
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Pursuant to the terms of the Harbor Gates
Note, an “Event of Default” is (i) a default in payment of any amount due under the Harbor Gates Note; (ii) a default
in the timely issuance of underlying shares upon and in accordance with the terms of the Harbor Gates Note, which default continues
for two trading days after the Company has failed to issue shares or deliver stock certificates within the third trading day following
the conversion date; (iii) if the Company does not issue the press release or file the Current Report on Form 8-K, in each case
in accordance with the provisions and the deadlines referenced in the Harbor Gates Note; (iv) failure by the Company for five
days after notice has been received by the Company to comply with any material provision of the Harbor Gates Note; (iv) any representation
or warranty of the Company in the Harbor Gates Note that is found to have been incorrect in any material respect when made; (vi)
failure of the Company to remain compliant with DTC, thus incurring a “chilled” status with DTC; (vii) any default
of any mortgage, indenture or instrument which may be issued, or by which there may be secured or evidenced any indebtedness,
for money borrowed by the Company or for money borrowed the repayment of which is guaranteed by the Company, whether such indebtedness
or guarantee now exists or shall be created hereafter; (viii) if the Company is subject to any Bankruptcy Event (as defined in
the Harbor Gates Note); (ix) any failure of the Company to satisfy its “filing” obligations under the Securities Exchange
Act of 1934, as amended (the “1934 Act”) and the rules and guidelines issued by OTC Markets News Service, OTCMarkets.com
and their affiliates; (x) failure of the Company to remain in good standing under the laws of its state of domicile; (xi) any
failure of the Company to provide Harbor Gates with information related to its corporate structure including, but not limited
to, the number of authorized and outstanding shares, public float, etc., within three trading days of request by Harbor Gates;
(xii) failure by the Company to maintain the Required Reserve (as defined in the Harbor Gates Note) in accordance with the terms
of the Harbor Gates Note; (xiii) failure of Company’s common stock to maintain a closing bid price in its principal market
for more than three consecutive trading days; (xiv) any delisting from a principal market for any reason; (xv) failure by Company
to pay any of its transfer agent fees in excess of $2,000 or to maintain a transfer agent of record; (xvi) failure by Company
to notify Harbor Gates of a change in transfer agent within three trading days of such change; (xvii) any trading suspension imposed
by the SEC under Sections 12(j) or 12(k) of the 1934 Act; (xviii) failure by the Company to meet all requirements necessary to
satisfy the availability of Rule 144 to Harbor Gates or its assigns, including but not limited to the timely fulfillment of its
filing requirements as a fully-reporting issuer registered with the SEC, requirements for XBRL filings, and requirements for disclosure
of financial statements on its website; or (xix) failure of the Company to abide by the Use of Proceeds or failure of the Company
to inform Harbor Gates of a change in the Use of Proceeds.
If an Event of Default
occurs, the outstanding Principal Amount of the Harbor Gates Note owing in respect thereof through the date of acceleration, shall
become, at Harbor Gates’ election, immediately due and payable in cash at the “Mandatory Default Amount”. The
Mandatory Default Amount means 35% of the outstanding Principal Amount of the Harbor Gates Note will be automatically added to
the Principal Sum of the Harbor Gates Note and tack back to the Effective Date for purposes of Rule 144 promulgated under the
1934 Act. Commencing five days after the occurrence of any Event of Default that results in the eventual acceleration of the Harbor
Gates Note, the Harbor Gates Note will accrue additional interest, in addition to the Harbor Gates Note’s “guaranteed”
interest, at a rate equal to the lesser of 20% per annum or the maximum rate permitted under applicable law.
If the Harbor Gates Note is not
retired on or before the Maturity Date, then at any time and from time to time after the Maturity Date, and subject to the
terms hereof and restrictions and limitations contained in the Harbor Gates Note, Harbor Gates has the right, at Harbor
Gates’ sole option, to convert in whole or in part the outstanding and unpaid Principal Amount under the Harbor Gates
Note into shares of the Company’s common stock at the Variable Conversion Price. The “Variable Conversion
Price” will be equal to the lower of: (a) $1.00, or (b) 70% of the lowest volume weighted average price of the
Company’s common stock during the 15 consecutive trading days prior to the date on Harbor Gates elects to convert all
or part of the Harbor Gates Note. The Company intends to prepay the Harbor Gates Note in accordance with its terms so that no
amount under the Harbor Gates Note is converted into shares of the Company’s common stock.
The foregoing description of the Harbor
Gates Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Harbor Gates
Note, a copy of which is filed hereto as Exhibit 10.1 and is incorporated herein by reference.