As filed with the Securities and Exchange Commission on August 23, 2021
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form F-10
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
BRAGG GAMING GROUP INC.
(Exact name of Registrant as specified in its charter)
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Canada
(Province or other Jurisdiction of
Incorporation or Organization)
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7379
(Primary Standard Industrial
Classification Code Number)
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Not Applicable
(I.R.S. Employer Identification Number,
if any)
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130 King Street West, Suite 1955
Toronto, Ontario M5X 1E3
Canada
(647) 800-2282
(Address and telephone number of Registrant’s principal executive offices)
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, DE 19711
(302)-738-6680
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Copies to:
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Richard Raymer
James Guttman
Dorsey & Whitney LLP
TD Canada Trust Tower
Brookfield Place
161 Bay Street
Suite 4310
Toronto, ON M5J 2S1
(416) 367-7388
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Ronen Kannor
Bragg Gaming Group Inc.
130 King Street West, Suite 1955
Toronto, Ontario M5X 1E3
Canada
(647) 800-2282
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Curtis Cusinato
Bennett Jones LLP
3400 One First Canadian Place
P.O. Box 130
Toronto, Ontario
M5X 1A4 Canada
(416) 863-1200
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this registration statement.
Province of Ontario, Canada
(Principal jurisdiction regulating this offering)
It is proposed that this filing shall become effective (check appropriate box below):
A. ☐
upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada).
B. ☒
at some future date (check appropriate box below)
1. ☐
pursuant to Rule 467(b) on ( ) at ( ) (designate a time not sooner than seven calendar days after filing).
2. ☐
pursuant to Rule 467(b) on ( ) at ( ) (designate a time seven calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on ( ).
3. ☒
pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto.
4. ☐
after the filing of the next amendment to this Form (if preliminary material is being filed).
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction’s shelf prospectus offering procedures, check the following box. ☒
CALCULATION OF REGISTRATION FEE
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Title of each class of securities
to be registered
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Amount to be registered(1)
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Proposed Maximum
Aggregate Offering Price(2)
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Amount of Registration Fee
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Common Shares
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Debt Securities
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Subscription Receipts
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Warrants
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Convertible Securities
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Units
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Total
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$
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390,850,000
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$
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390,850,000
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$
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42,642
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(1)
There are being registered under this registration statement such indeterminate number of common shares, debt securities, subscription receipts, warrants, convertible securities or units of the Registrant, and a combination of such securities, separately or as units, as may be sold by the Registrant from time to time, which collectively shall have an aggregate initial offering price of not to exceed Cdn.$500,000,000. The securities registered hereunder also include such indeterminate number of each class of identified securities as may be issued upon conversion, exercise or exchange of any other securities that provide for such conversion into, exercise for or exchange into such securities. Separate consideration may or may not be received for securities that are issuable on exercise, conversion or exchange of other securities. In addition, pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), the common shares being registered hereunder include such indeterminate number of common shares as may be issuable with respect to the shares being registered hereunder as a result of stock splits, stock dividends, or similar transactions. The proposed maximum initial offering price per security will be determined, from time to time, by the Registrant in connection with the sale of the securities under this registration statement. On August 19, 2021, the daily rate of exchange for one Canadian dollar as expressed in United States dollars, as reported by the Bank of Canada, was Cdn.$1.00 = US$0.7817.
(2)
Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registration statement shall become effective as provided in Rule 467 under the Securities Act of 1933 or on such date as the Commission, acting pursuant to Section 8(a) of the Securities Act of 1933, may determine.
PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
This short form prospectus is a base shelf prospectus. This short form base shelf prospectus has been filed under the legislation in each of the provinces and territories of Canada that permits certain information about these securities to be determined after this prospectus has become final and that permits the omission from this prospectus of that information. The legislation requires the delivery to purchasers of a prospectus supplement containing the omitted information within a specified period of time after agreeing to purchase any of these securities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form base shelf prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities.
Information has been incorporated by reference in this prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the secretary of Bragg Gaming Group Inc. at 130 King Street West, Suite 1955, Toronto, Ontario M5X 1E3, telephone (647) 800-2282, and are also available electronically at www.sedar.com.
Short Form Base Shelf Prospectus
New Issue and/or Secondary OfferingMay 4, 2021
BRAGG GAMING GROUP INC.
$500,000,000
Common Shares
Debt Securities
Subscription Receipts
Warrants
Convertible Securities
Units
Bragg Gaming Group Inc. (the “Company” or “Bragg”) may from time to time offer and issue the following securities: (i) common shares (“Common Shares”); (ii) unsecured debt securities (“Debt Securities”), which may consist of bonds, debentures, notes or other evidences of indebtedness of any kind, nature or description and which may be issuable in series; (iii) subscription receipts (“Subscription Receipts”) exchangeable for Common Shares and/or other securities of the Company; (iv) warrants exercisable to acquire Common Shares and/or other securities of the Company (“Warrants”); (v) securities convertible into or exchangeable for Common Shares and/or other securities of the Company (“Convertible Securities”); and (vi) securities comprised of more than one of the Shares, Debt Securities, Subscription Receipts, Warrants and/or Convertible Securities offered together as a unit (“Units”), or any combination thereof, having an initial offering price of up to $500,000,000 in aggregate (or the equivalent thereof, at the date of issue, in any other currency or currencies, as the case may be), at any time during the 25-month period that this short form base shelf prospectus (including any amendments hereto, the “Prospectus”) remains effective.
This Offering is made in the United States by a foreign issuer that is permitted, under a multijurisdictional disclosure system adopted in the United States and Canada, to prepare this Prospectus in accordance with Canadian disclosure requirements. Prospective investors should be aware that such requirements are different from those of the United States. Financial statements incorporated by reference herein have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), and may be subject to foreign auditing and auditor independence standards, and thus may not be comparable to financial statements of United States companies.
The enforcement by investors of civil liabilities under the United States federal securities laws may be affected adversely by the fact that the Company is incorporated under and governed by the Canada Business Corporations Act, that most of its directors and officers reside principally in Canada, that some or all of the Underwriters or experts named in the Registration
(continued on next page)
(continued from cover)
Statement may be residents of a foreign country, and that all or a substantial portion of the assets of the Company and said persons may be located outside the United States.
Prospective investors should be aware that the acquisition of the Securities (as defined below) may have tax consequences. Such consequences may not be described fully herein or in any applicable Prospectus Supplement. Prospective investors should read the discussion contained in this Prospectus under the heading “Certain Income Tax Considerations” as well as the tax discussion, if any, contained in the applicable Prospectus Supplement with respect to a particular offering of Securities.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR CANADIAN SECURITIES COMMISSION OR REGULATORY AUTHORITY NOR HAS THE SEC OR ANY STATE OR CANADIAN SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
The Common Shares, Debt Securities, Subscription Receipts, Warrants, Convertible Securities and Units (collectively, “Securities”) offered hereby may be offered in one or more offerings, separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more prospectus supplements (each, a “Prospectus Supplement”). One or more securityholders of the Company may also offer and sell Securities under this Prospectus (the “Selling Securityholders” and each a “Selling Securityholder”). See “Secondary Offering by Selling Securityholders”.
All shelf information permitted under applicable securities legislation to be omitted from this Prospectus will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of applicable securities legislation as of the date of such Prospectus Supplement and only for the purposes of the distribution of the Securities to which such Prospectus Supplement pertains. The offerings are subject to approval of certain legal matters on behalf of the Company by Bennett Jones LLP.
The specific terms of any offering of Securities will be set forth in the applicable Prospectus Supplement and may include, where applicable: (i) in the case of Common Shares, the number of Common Shares offered, offering price (in the event the offering is a fixed price distribution), manner of determining the offering price(s) (in the event the offering is not a fixed price distribution), and any other specific terms; (ii) in the case of Debt Securities, the specific designation, aggregate principal amount, currency or currency unit for which the Debt Securities may be purchased, maturity, interest provisions, authorized denominations, offering price, covenants, events of default, any terms for redemption at the option of the Company or the option of the holder, any exchange or conversion terms, and any other specific terms; (iii) in the case of Subscription Receipts, the number of Subscription Receipts offered, offering price, terms, conditions and procedures for the exchange of the Subscription Receipts into or for Common Shares and/or other securities of the Company, and any other specific terms; (iv) in the case of Warrants, the number of Warrants offered, offering price, terms, conditions and procedures for the exercise of such Warrants into or for Common Shares and/or other securities of the Company, and any other specific terms; (v) in the case of Convertible Securities, the number of Convertible Securities offered, the offering price (in the event the offering is a fixed price distribution), the manner of determining the offering price(s) (in the event the offering is a non-fixed price distribution), the procedures for the conversion or exchange of such Convertible Securities into or for Common Shares and/or other securities of the Company, and any other specific terms; and (vi) in the case of Units, the number of Units offered, offering price, terms of the underlying Common Shares, Debt Securities, Subscription Receipts, Warrants and/or Convertible Securities, and any other specific terms.
This Prospectus constitutes a public offering of Securities only in those jurisdictions where they may be lawfully offered for sale, and therein only by persons permitted to sell the Securities. The Company, or any Selling Securityholders, may offer and sell the Securities to or through underwriters purchasing as principal and may also sell the Securities to one or more purchasers directly, through applicable statutory exemptions, or through agents designated by the Company from time to time. The Securities may be sold from time to time in one or more transactions at fixed prices or not at fixed prices, such as market prices prevailing at the time of sale, prices related to such prevailing market prices or prices to be negotiated with purchasers, which prices may vary as between purchasers and during the period of distribution of the Securities. The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged in connection with the offering and sale of such Securities, as well as the method of distribution and the terms of the offering of such Securities, including the initial offering price (in the event the offering is a fixed price distribution), the manner of determining the offering price(s) (in the event the offering is not a fixed price distribution), the net proceeds to the Company or the Selling Securityholders and, to the extent applicable, any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms. See “Plan of Distribution”.
(continued on next page)
(continued from cover)
This Prospectus may qualify an “at-the-market distribution”. The Securities may be offered and sold pursuant to this Prospectus through underwriters, dealers, directly or through agents designated from time to time at amounts and prices and other terms determined by us or any selling securityholders. In connection with any underwritten offering of Securities other than an “at-the-market distribution” (as defined in National Instrument 44-102 — Shelf Distributions (“NI 44-102”)), unless otherwise specified in the relevant Prospectus Supplement, the underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at levels other than those that might otherwise prevail on the open market. Such transactions, if commenced, may be commenced, interrupted or discontinued at any time. See “Plan of Distribution”. No underwriter or dealer who is involved in an “at-the-market distribution” under this Prospectus, no affiliate of such an underwriter or dealer and no person or company acting jointly or in concert with such underwriter or dealer will over-allot Securities in connection with such distribution or effect any other transactions that are intended to stabilize or maintain the market price of the Securities, including selling an aggregate number of principal amount of Securities that would result in the underwriter or dealer creating an over-allocation position in the Securities.
The Common Shares are listed and posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol “BRAG”, on the OTCQX under the symbol “BRGGF”, and on the Frankfurt Stock Exchange under the symbol “SL4A:FRA”.
Unless otherwise specified in the applicable Prospectus Supplement, Debt Securities, Subscription Receipts, Warrants, Convertible Securities and Units will not be listed on any securities exchange. There is currently no market through which Securities other than Common Shares may be sold, and purchasers may not be able to resell such Securities purchased under this Prospectus. This may affect the pricing of the Securities in the secondary market, the transparency and availability of trading prices, the liquidity of the Securities, and the extent of issuer regulation. See “Risk Factors”.
An investment in the Securities is highly speculative and involves significant risks that should be carefully considered by prospective investors before purchasing such Securities. The risks outlined in this Prospectus and in the documents incorporated by reference herein should be carefully reviewed and considered by prospective investors in connection with an investment in such Securities. See “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”.
No underwriter has been involved in the preparation of this Prospectus or performed any review of the contents hereof.
No person is authorized by the Company to provide any information or to make any representation other than as contained in this Prospectus in connection with the issue and sale of the Securities offered hereunder. Prospective investors should assume that the information appearing in this Prospectus or any Prospectus Supplement is accurate only as of the date of such document unless otherwise specified. The Company’s business, financial condition, results of operations and prospects may have changed since such date.
Richard Carter (Chief Executive Officer and Director), Ronen Kannor (Chief Financial Officer), Matevž Mazij (Director and Promoter), and Lara Falzon (Director) each reside outside of Canada. Mr. Carter, Mr. Kannor, Mr. Mazij, and Ms. Falzon appointed the following agents for service of process:
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Name of Person
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Name and Address of Agent
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Richard Carter
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Bennett Jones LLP, 100 King Street West, Suite 3400, Toronto, Ontario M5X 1A4,
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Ronen Kannor
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Bennett Jones LLP, 100 King Street West, Suite 3400, Toronto, Ontario M5X 1A4,
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Matevž Mazij
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LaBarge Weinstein LLP, 321 Water Street, Suite 501 Vancouver, British Columbia V6B 1B8
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Lara Falzon
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Bennett Jones LLP, 100 King Street West, Suite 3400, Toronto, Ontario M5X 1A4,
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Prospective investors are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.
The head and registered office of the Company is located at 130 King Street West, Suite 1955, Toronto, Ontario, M5X 1E3.
ABOUT THIS PROSPECTUS
Readers should rely only on the information contained or incorporated by reference in this Prospectus and any applicable Prospectus Supplement and should not rely only on certain parts of the information contained in this Prospectus to the exclusion of the remainder. The Company has not authorized anyone to provide the reader with different or additional information. If anyone provides you with additional, different or inconsistent information, including information or statements in articles about the Company or through other forms of media, readers should not rely on it. The information contained on https://www.bragg.games/ is not intended to be included in or incorporated by reference herein and prospective investors should not rely on such information when deciding whether or not to invest in the Securities. The Company is not making an offer of the Securities described in this Prospectus in any jurisdiction in which the offering of such Securities is not permitted. Readers should not assume that the information contained or incorporated by reference in this Prospectus is accurate as of any date other than the date of this Prospectus or the respective dates of the documents incorporated by reference herein, regardless of the time of delivery of this Prospectus or of any sale of the Securities pursuant thereto. The Company does not undertake to update the information contained or incorporated by reference herein, except as required by applicable securities laws. Any market data or other industry forecasts used in this Prospectus or the documents incorporated by reference herein were obtained from market research, publicly available information and industry publications. The Company believes that these sources are generally reliable but the accuracy and completeness of such information is not guaranteed. The Company has not independently verified such information and does not make any representation as to the accuracy of such information.
EXCHANGE RATE DATA
Except as otherwise indicated in this Prospectus or any Prospectus Supplement, references to “Canadian dollars”, “$”, or “C$” are to the currency of Canada, references to “U.S. dollars” or “US$” are to the currency of the United States, references to “GBP” or “£” are to the currency of the United Kingdom and references to “EUR” or “€” are to European Euros.
The following table sets forth, for the periods indicated, the high, low, average and period-end rates of exchange for one U.S. dollar, expressed in Canadian dollars, published by the Bank of Canada (in the case of the rates for the year ended December 31, 2020 and the year ended December 31, 2019, based on the daily average rates as reported by the Bank of Canada as being in effect at approximately 4:30 p.m. (Eastern time) on each trading day).
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Year Ended
December 31, 2020
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Year Ended
December 31, 2019
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High
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1.4496
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1.3600
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Low
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1.2718
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1.2988
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Average rate per period
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1.3415
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1.3269
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Rate at end of period
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1.2732
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1.2988
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As of the date of filing of this Prospectus, the last available indicative rate of exchange posted by the Bank of Canada was on May 3, 2021. Such indicative rate of exchange for conversion of U.S. dollars into Canadian dollars was US$1.00 equals C$1.23.
The following table sets forth, for the periods indicated, the high, low, average and period-end rates of exchange for one Euro, expressed in Canadian dollars, published by the Bank of Canada (in the case of the rates for the year ended December 31, 2020 and the year ended December 31, 2019, based on the daily average rates as reported by the Bank of Canada as being in effect at approximately 4:30 p.m. (Eastern time) on each trading day).
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Year Ended
December 31, 2020
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Year Ended
December 31, 2019
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High
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1.5851
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1.5441
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Low
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1.4282
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1.4438
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Average rate per period
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1.5298
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1.4856
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Rate at end of period
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1.5608
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1.4583
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As of the date of filing of this Prospectus, the last available indicative rate of exchange posted by the Bank of Canada was on May 3, 2021. Such indicative rate of exchange for conversion of Euros into Canadian dollars was €1.00 equals C$1.48.
The following table sets forth, for the periods indicated, the high, low, average and period-end rates of exchange for one GBP, expressed in Canadian dollars, published by the Bank of Canada (in the case of the rates for the year ended December 31, 2020 and the year ended December 31, 2019, based on the daily average rates as reported by the Bank of Canada as being in effect at approximately 4:30 p.m. (Eastern time) on each trading day).
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Year Ended
December 31, 2020
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Year Ended
December 31, 2019
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High
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1.7835
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1.7743
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Low
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1.6733
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1.5955
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Average rate per period
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1.7199
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1.6945
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Rate at end of period
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1.7381
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1.7174
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As of the date of filing of this Prospectus, the last available indicative rate of exchange posted by the Bank of Canada was on May 3, 2021. Such indicative rate of exchange for conversion of GBP into Canadian dollars was £1.00 equals C$1.71.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference herein contain certain “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs which are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control and many of which, regarding future business decisions, are subject to change. Such statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “would”, “intend”, or “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of historical fact. Such forward-looking statements are made as of the date of this Prospectus, or in the case of documents incorporated by reference herein, as of the date of each such document.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company is unable to guarantee future results, levels of activity, performance or achievements. Moreover, the Company nor any other person assumes responsibility for the outcome of the forward-looking statements. Many of the risks and other factors are beyond the control of the Company which could cause results to differ materially from those expressed in the forward-looking statements contained in this Prospectus and the documents incorporated by reference herein. The risks and other factors include, but are not limited to:
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new and emerging markets;
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regulatory landscape in significant jurisdictions in which the Company operates;
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the plans, costs, and timing for future research and development of the Company’s current and future technologies, including additional platforms;
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competition and changes in the competitive landscape;
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projections of market prices and costs;
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prices and price volatility of the Company’s products;
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expected revenues and the ability to attain profitability;
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expectations regarding the ability to raise capital on acceptable terms;
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currency, exchange and interest rates;
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reliance on top customers and key personnel and employees;
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the Company’s management and protection of intellectual property and other proprietary rights;
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changes in, or in the interpretation of, legislation with respect to the Company’s tax liabilities;
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changes in taxation regimes;
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money laundering and fraudulent activity;
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deriving revenue from players located in jurisdictions in which the Company does not hold a license, and the impact of customers’ operations in unregulated or prohibited jurisdictions;
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reliance on strategic alliances and relationships with third party network infrastructure developers and service platform vendors;
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risks related to COVID-19, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing;
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various recommendations, orders and measures of governmental authorities to try to limit the pandemic;
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the costs and potential impact of obtaining all necessary regulatory approvals, and complying with existing and proposed laws in a heavily regulated industry;
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disruptions to markets, economic activity, financing, and supply chains, and a deterioration of general economic conditions including a possible national or global recession; and
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the other factors discussed under “Risk Factors” in the AIF.
Readers are cautioned that the foregoing list of factors is not exhaustive and that additional information on these and other factors that could affect the Company’s operations or financial results is discussed in this Prospectus and certain of the other documents on file with Canadian securities regulatory authorities and incorporated by reference herein. Copies of these documents are available electronically under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. The above summary of assumptions and risks related to forward-looking statements is included in this Prospectus and the documents incorporated by reference herein in order to provide readers with a more complete perspective on the future operations of the Company. Readers are cautioned that this information may not be appropriate for other purposes.
Risks involving the Securities and the Company are discussed under the heading “Risk Factors” in this Prospectus and in the AIF (as defined under the heading “Documents Incorporated by Reference” in this Prospectus). With respect to forward-looking statements contained in this Prospectus and the documents incorporated by reference herein, the Company has made assumptions regarding, among other things: present and future business strategies; the impact of increasing competition; conditions in general economic and financial markets; the environment in which the Company will operate in the future, including the ability to obtain services and supplies in a timely manner to carry out the Company’s activities; current technology; cash flow; future exchange rates; timing and amount of capital expenditures; effects of regulation by governmental agencies; future operating costs; and the Company’s ability to obtain financing on acceptable terms.
The forward-looking statements contained in this Prospectus and in the documents incorporated by reference herein are expressly qualified by this cautionary statement. The Company is not under any duty to update or revise any of the forward-looking statements except as expressly required by applicable securities laws.
FINANCIAL INFORMATION AND CURRENCY PRESENTATION
The financial statements of the Company incorporated by reference in this Prospectus have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and are reported in Canadian dollars. All currency amounts in this Prospectus are expressed in Canadian dollars, unless otherwise indicated.
ENFORCEMENT OF LEGAL RIGHTS
Certain of the Company’s officers and directors, reside outside of Canada. Although the Company’s head and registered office is in Canada, it may not be possible for investors to effect service of process within Canada upon our directors or officers. In addition, it may not be possible to enforce against us or the Company’s directors or officers judgments obtained in courts in Canada predicated on the civil liability provisions of applicable securities laws of Canada.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this Prospectus from documents filed with the securities commissions or similar authorities in each of the provinces and territories of Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the secretary of the Company at 130 King Street West, Suite 1955, Toronto, Ontario M5X 1E3, by telephone at (647) 800-2282, and are also available on SEDAR at www.sedar.com. The filings of the Company through SEDAR are not incorporated by reference in this Prospectus except as specifically set out herein.
The following documents filed by the Company with the securities commissions or similar authorities in each of the provinces and territories of Canada are specifically incorporated by reference into, and form an integral part of, this Prospectus:
(a)
the annual information form of the Company dated March 25, 2021 for the year ended December 31, 2020 (the “AIF”);
(b)
the audited consolidated financial statements for the years ended December 31, 2020 and 2019, together with the independent auditor’s report thereon (the “Annual Financial Statements”);
(c)
the management discussion and analysis for the years ended December 31, 2020 and 2019;
(d)
the management information circular dated March 26, 2021 in respect of its annual general and special meeting to be held on April 28, 2021; and
(e)
the material change reports of the Company dated January 15, 2021, January 25, 2021, April 5, 2021 (the “April 5 Material Change Report”), and April 30, 2021.
Any material change reports (excluding confidential material change reports), annual information forms, annual financial statements and the auditor’s report thereon and related annual management discussion & analysis (“MD&A”), interim financial statements and related interim MD&A, management information circulars, business acquisition reports, any news release issued by the Company that specifically states it is to be incorporated by reference in this Prospectus, and any other documents as may be required to be incorporated by reference herein under applicable Canadian securities laws which are filed by the Company with a securities commission or any similar authority in Canada after the date of this Prospectus, during the 25-month period this Prospectus remains valid, shall be deemed to be incorporated by reference into this Prospectus.
Upon new interim financial statements and related interim MD&A of the Company being filed with the applicable securities regulatory authorities during the currency of this Prospectus, the previous interim financial statements and related interim MD&A of the Company most recently filed shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of future offers and sales of Securities hereunder. Upon new annual financial statements and related annual MD&A of the Company being filed with the applicable securities regulatory authorities during the currency of this Prospectus, the previous annual financial statements and related annual MD&A of the Company most recently filed shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of future offers and sales of Securities hereunder. Upon a new AIF of the Company being filed with the applicable securities regulatory authorities during the currency of this Prospectus, notwithstanding anything herein to the contrary, the following documents shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of future offers and sales of Securities hereunder: (i) the previous AIF; (ii) material change reports filed by the Company prior to the end of the financial year in respect of which the new AIF is filed; (iii) business acquisition reports filed by the Company for acquisitions completed prior to the beginning of the financial
year in respect of which the new AIF is filed; and (iv) any information circular of the Company filed prior to the beginning of the Company’s financial year in respect of which the new AIF is filed. Upon a new management information circular prepared in connection with an annual general meeting of the Company being filed with the applicable securities regulatory authorities during the currency of this Prospectus, the previous management information circular prepared in connection with an annual general meeting of the Company shall be deemed no longer to be incorporated by reference into this Prospectus for purposes of future offers and sales of Securities hereunder.
A Prospectus Supplement containing the specific variable terms in respect of an offering of Securities will be delivered to purchasers of such Securities together with this Prospectus, unless an exemption from the prospectus delivery requirements has been granted or is otherwise available, and will be deemed to be incorporated by reference into this Prospectus as of the date of such Prospectus Supplement only for the purposes of the offering of the Securities covered by such Prospectus Supplement.
Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified, replaced or superseded, for purposes of this Prospectus, to the extent that a statement contained herein or in any other subsequently filed document that also is, or is deemed to be, incorporated by reference herein modifies, replaces or supersedes such statement. The modifying, replacing or superseding statement need not state that it has modified, replaced or superseded a prior statement or include any other information set forth in the document that it modifies, replaces or supersedes. The making of such a modifying, replacing or superseding statement shall not be deemed an admission for any purposes that the modified, replaced or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified, replaced or superseded shall not be deemed to constitute a part of this Prospectus, except as so modified, replaced or superseded.
WHERE YOU CAN FIND MORE INFORMATION
The Company may, from time to time, sell any combination of the Securities described in this Prospectus in one or more offerings up to an aggregate initial offering price of $500,000,000 (or the equivalent thereof, at the date of issue, in any other currency or currencies, as the case may be). Each time the Company sells Securities, it will provide a Prospectus Supplement that will contain specific information about the terms of that offering. The Prospectus Supplement may also add, update or change information contained in this Prospectus.
The Company files annual and quarterly financial information and material change reports and other material with the securities regulatory authorities in each of the provinces and territories of Canada. Prospective investors may read and download any public document that the Company has filed with the securities commissions or similar authorities in each of the provinces and territories of Canada on SEDAR at www.sedar.com.
SUMMARY DESCRIPTION OF THE BUSINESS
Overview
The Company, through its principal subsidiary Oryx Gaming International LLC (“Oryx”), is a turnkey gaming solution supplier, and provides a business-to-business (“B2B”) cross channel gaming platform technology, product delivery platform, casino content, managed sportsbook, lottery and managed services. The Company has one reportable operating segment in its continuing operations, “B2B online gaming”, which is operated through Oryx. Oryx is a turnkey B2B online gaming solution provider, which offers a one-step solution adaptable to various gaming markets and legislative environments. Along with its proprietary content, Oryx’s content aggregator combines casino, slots, live dealer, lottery, virtual sports, and instant-win game content from gaming content providers.
For a discussion of the business of the Company, a prospective investor should read the entire Prospectus, including the AIF and all other documents incorporated by reference.
Recent Developments
Share Consolidation
On April 29, 2021, the Company completed a share consolidation on the basis of a consolidation ratio of 10:1. The Common Shares are expected to commence trading on the Toronto Stock Exchange on a post-consolidation basis at the open of trading on May 5, 2021. All figures set out in this Prospectus relating to a number, value or price of Common Shares have been adjusted to reflect the 10:1 consolidation.
Management Changes
As disclosed in the April 5 Material Change Report, Richard Carter was appointed as Chief Executive Officer of the Company on May 1, 2021. As of May 3, 2021, board member Paul Godfrey will assume the role of Chair of the Board and board member Lara Falzon will move to the role of Audit Committee Chair.
Regulatory Environment and Regulatory Framework
Prospective investors should also refer to the entire Prospectus, including the AIF and all other documents incorporated by reference, for a summary of the regulatory environment and regulatory framework in material jurisdictions in which the Company operates.
International Regulatory Matters
The regulation of the German online gambling market has been predicted to change since 2012. In 2012, the 16 federal states of Germany passed the German Interstate Treaty on Gambling, 2012/2020 (Interstate Treaty, commonly abbreviated as: IST 2012/2020), which sets out the main objectives and core elements of German gambling regulation. The Interstate Treaty had the intention of permitting sports betting in the regulated market for the first time. The new regulation is expected to come into force in July 2021 and it will lift the prohibition on online casino, slots, and poker games. It will also allow for the registration of an unlimited number of sports betting providers, as well as a limited number of online casino providers. However, the state lottery monopoly will remain in operation in the new model. While a large portion of our revenue is derived from German-facing operations, the Company has achieved growth outside of Germany, and is in the process of diversifying its exposure to any single market. The Company has been planning for the shift to state licenses since the transition period began in October 2020. Though the German market will introduce certain restrictions, such as stake limits, live-streaming limits, and limits on commercial advertising, the Company expects its model to continue to provide a fulfilling experience for end-users and expectations and guidance for 2021 remain unchanged.
Canadian Regulatory Matters
Part VII of the Criminal Code of Canada (the “Code”) sets forth prohibitions against gambling and exceptions to those prohibitions. The principal exemption from the general prohibitions against activities relating to conducting and managing gambling activities is for gambling that is conducted and managed by the provincial governments. Where gambling occurs within the ambit of the Code’s exemptions, that gambling is regulated by provincial governments.
Various sections of Part VII of the Code make the provision of all gambling activities illegal, including the aiding and abetting of the provision of such gambling, throughout Canada. The Code provides that only the provincial governments may conduct and manage gambling that is operated on or through a computer or video device, which strongly implies that online gambling may only be offered to customers in Canada by provincial governments, and that private entities that conduct and manage online gambling operations within Canada are subject to the prohibitions in the Code.
The Code also contains provisions to combat money laundering. Under the Code, anyone who knowingly, or with belief, deals with money or property obtained as a result of a designated offence, with intent to conceal or convert that property or proceeds, is guilty of an offence.
The applicability of the various offences in Part VII of the Code depends to a great extent on the nature of the specific gaming or betting activity itself, ancillary and related activities, and limitations on the
applicability of the Code to activities outside Canada. Whether the Code applies to activities carried out from offshore is not a settled matter of law. To date, there have been no prosecutions involving either a “truly” offshore online gambling B2C operator (i.e., where the operator’s only connection to Canada is the location of end users) or a B2B that provides support services to such a B2C. Accordingly, there is no established precedent that a court can apply to a “truly” offshore online gambling B2C operator or a B2B providing services in support of its operations. Thus, the question of what test would ultimately be used by the courts in such circumstances remains open to debate.
The “real and substantial connection” test first set out in the Supreme Court of Canada decision in Libman v. R. is the test most likely to be used. This test provides that Canadian criminal law extends to activities carried out from outside Canada where those activities have a “real and substantial connection” to Canada. The Canadian courts have applied this principle to online activities in a manner which indicates that the location of customers of an online gambling B2C in Canada would likely be sufficient to bring its activities and those of a B2B providing services in support of its operations within the jurisdiction of the Canadian courts.
The Company, through Oryx, maintains and regularly updates a restricted territories list for jurisdictions where gambling or interactive gaming is prohibited, which includes Canada. Some jurisdictions prohibit gaming in all or certain forms. In addition, by statute or other operation of law, certain jurisdictions provide a termination right available to a gaming licensee if a party to a contract is determined to be unfit for the gaming industry. Oryx does not market its offerings in jurisdictions where there are prohibitions that clearly apply to its activities and the business models it has adopted.
CAPITALIZATION OF THE COMPANY
Other than as set out below, since December 31, 2020, the date of the Annual Financial Statements, there have been no material changes in the Company’s share and loan capital on a consolidated basis. The table should be read in conjunction with the Annual Financial Statements which are incorporated by reference into this Prospectus as well as the other disclosure in this Prospectus.
|
|
|
|
As at December 31, 2020(1)(2)(3)
|
|
|
|
|
|
|
|
|
Before giving effect
to the Capital
Transactions
|
|
|
After giving effect to
the Capital
Transactions(4)(5)(6)(7)
|
|
|
|
Share capital
|
|
|
|
$
|
97,244
|
|
|
|
|
$
|
154,747
|
|
|
|
|
Common shares
|
|
|
|
|
13,111,248
|
|
|
|
|
|
19,823,814
|
|
|
|
|
Cash
|
|
|
|
$
|
40,740
|
|
|
|
|
$
|
41,538
|
|
|
|
|
Shares to be issued
|
|
|
|
$
|
35,287
|
|
|
|
|
|
nil
|
|
|
|
|
Warrants
|
|
|
|
$
|
2,563
|
|
|
|
|
|
nil
|
|
|
|
|
Broker warrants
|
|
|
|
$
|
623
|
|
|
|
|
$
|
59
|
|
|
|
|
Deferred and contingent consideration
|
|
|
|
$
|
17,982
|
|
|
|
|
|
nil
|
|
|
|
Notes:
(1)
Dollar Amounts in thousands.
(2)
Presented in Canadian dollars after conversion from Euros based on the exchange rate reported by the Bank of Canada on December 31, 2020.
(3)
All amounts are adjusted to reflect the completion of the Company’s share consolidation on April 29, 2021, on the basis of a consolidation ratio of 10:1. See “Summary Description of the Business — Recent Developments — Share Consolidation”.
(4)
On January 13, 2021, the Company completed a non-brokered private placement offering comprised of 247,934 Common Shares at a price of C$12.10 per share for aggregate gross proceeds of C$2,999,995 and net proceeds of C$2,970,875 (the “Private Placement”). All of the proceeds of the Private Placement were used for general working capital purposes and to develop and commercialize new products.
(5)
On January 18, 2021, the Company satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares of the Company. Cash paid totalled €11,597,984 (approximately C$17,888,730) (“Earn-Out Cash Payment”), of which €11,520,968 (approximately C$17,769,940) fully settled deferred and contingent consideration payable (composed of a cash portion of €10,547,761, and the balance being the amount of accounts receivable of €973,207 that K.A.V.O. Holdings Limited was
entitled to), €52,016 (approximately C$80,230) settled interest payable, and €25,000 (approximately C$38,560) settled legal fees. A total of 4,700,000 Common Shares of the Company were issued to the vendor with a recorded fair-value as at December 31, 2020 of €22,000,000 (approximately C$34,337,600) (the “Earn-Out Payment”). The Company’s short form prospectus dated November 13, 2020 in respect of the offering of 2,571,500 units disclosed that $16,000,000 of proceeds from that offering were expected to be used for the Earn-Out Cash Payment. The variance of $1,888,730 from that disclosure is due to the additional receivables that were paid (or collected by) K.A.V.O. and interest accrued on the outstanding balance of the Earn-Out Payment.
(6)
On January 21, 2021, the Company announced that it elected to exercise its right under the terms of a warrant indenture dated November 18, 2020 governing certain outstanding warrants of the Company issued on November 18, 2020 to accelerate the expiry date of the warrants. Accordingly, the Company gave notice to all registered warrant holders that the expiry date for the warrants was accelerated to February 22, 2021. During the period from January 1, 2021 to February 22, 2021 a total of 1,554,082 warrants were exercised for cash receipts of C$15,540,822 and a total of 160,547 broker warrants were exercised for cash receipts of C$1,123,742 (together with the Private Placement, exercise of restricted share units and the Earn-Out Payment, the “Capital Transactions”). 4,703 of outstanding warrants expired resulting in a warrants balance of nil after giving effect to the Capital Transactions.
(7)
On January 4, 2021 the Company issued 50,000 Common Shares for the exercise of 50,000 restricted share units with a recorded fair value of C$410,000.
SECONDARY OFFERING BY SELLING SECURITYHOLDERS
Securities may be sold under this Prospectus by way of a secondary offering by or for the account of certain Selling Securityholders. The Prospectus Supplement for or including any offering of Securities by Selling Securityholders will include the following information, to the extent required by applicable securities laws:
•
the name or names of the Selling Securityholders;
•
the number or amount of Securities owned, controlled or directed by each Selling Securityholder;
•
the number or amount of Securities being distributed for the account of each Selling Securityholder;
•
the number or amount of Securities to be owned, controlled or directed by the Selling Securityholders after the distribution and the percentage that number or amount represents of the total number of the Company’s outstanding Securities;
•
whether the Securities are owned by the Selling Securityholders both of record and beneficially, of record only, or beneficially only;
•
if the Selling Securityholder purchased any of the Securities in the 24 months preceding the date of the applicable Prospectus Supplement, the date or dates the Selling Securityholder acquired the Securities;
•
if the Selling Securityholder acquired any of the Securities in the 12 months preceding the date of the applicable Prospectus Supplement, the cost thereof to the Selling Securityholder in aggregate and on an average-cost-per-security basis;
•
if applicable, the disclosure required by item 1.11 of Form 41-101F1, and if applicable, the Selling Securityholders will file a non-issuer’s submission to jurisdiction form with the corresponding Prospectus Supplement; and
•
all other information that is required to be included in the applicable Prospectus Supplement.
DESCRIPTION OF THE SHARE CAPITAL
The authorized capital of the Company consists of an unlimited number of Common Shares. As at May 3, 2021, there were 19,823,814 Common Shares issued and outstanding. As at May 3, 2021, there were also (i) options to acquire 1,225,271 Common Shares, 115,000 restricted share units, 120,000 performance shares units and 253,800 deferred share units granted under the Company’s Omnibus Equity Incentive Plan; and (ii) 16,886 broker warrants issued and outstanding, each broker warrant convertible to one Common Share and one half of one warrant with an exercise price of C$7.00. These figures reflect the 10:1 consolidation described under “Summary Description of the Business — Recent Developments — Share Consolidation”.
USE OF PROCEEDS
Under the Prospectus and applicable Prospectus Supplements, the Company may from time to time offer and issue Securities having an initial offering price of up to $500,000,000 in aggregate (or the equivalent
thereof, at the date of issue, in any other currency or currencies, as the case may be), at any time during the 25-month period that this Prospectus remains effective. One or more Selling Securityholders may also offer and sell Securities under this Prospectus. Each Prospectus Supplement will contain full and specific information concerning the use of proceeds from the sale of Securities. The Company will not receive any proceeds from any sale of Securities by a Selling Securityholder.
Management anticipates that the online gaming industry will undergo significant growth and consolidation over the next few years. The Company has also recently experienced significant growth. Bragg’s revenue for the period of 12 months ended December 31, 2020 increased from the same period in the previous year by 74.6% continuing solid quarterly growth momentum since the first quarter of 2019. Over the past two years the Company has increased its customer base by over 300% through organic growth. Given the Company’s growth, it up-listed to the TSX from the TSX Venture Exchange in January 27, 2021.
Bragg intends to continue growing and diversifying its global footprint, and to pursue a significant acquisition strategy to achieve this goal. The Company plans to use the net proceeds of sales of Securities to fund growth and expansion in its core European markets and to accelerate growth in the North American market (subject in each case to applicable gaming laws and regulations and the receipt of relevant licenses and approvals). In order to continue organic growth from its existing customer base and to onboard new strategic customers in various jurisdictions, the Company’s growth plan also contemplates continued investment in product development; including enhancing features and functionality; operations; infrastructure and systems; and additional investments in marketing and user support.
At this time, the Company is involved in discussions and preliminary due diligence with a number of possible targets. Generally, the nature of the targets’ business is remote gaming server platforms, game content, and remote gaming technology, and is substantially similar to Bragg’s current business as a turnkey gaming solution supplier of B2B cross channel gaming platform technology, product delivery platforms, casino content, managed sportsbooks, lottery, and managed services. The Company has also entered separate letters of intent with three possible targets and is advancing due diligence. The letters of intent are non-binding expressions of interest only and do not create any obligation of the parties to complete a transaction. As of the date hereof, the Company does not currently anticipate that any of the foregoing proposed acquisitions, if completed, would constitute a significant acquisition for the purposes of Part 8 of National Instrument 51-102 — Continuous Disclosure Obligations. There is no assurance any of these transactions will be completed.
The use of the net proceeds of any sale of Securities to fund the Company’s growth and expansion of operations is subject to change due to the influence of many evolving variables, including the enactment and enforcement of gaming legislation and regulations, negotiation of market access, applications for direct licensure and the receipt of required licenses and other regulatory approvals. As a result, the Company cannot definitively provide details with respect to timing or specific uses of the net proceeds of any sale of Securities, nor has it specifically allocated the net proceeds among the purposes described in this section as at the date of this Prospectus. Such decisions will depend on market and competitive factors, as described herein, as they evolve over time.
The Company may, from time to time, also issue securities (including Securities) other than pursuant to this Prospectus, including by accessing capital markets outside of Canada.
Although the Company intends to expend the net proceeds from the sale of Securities as set forth above, there may be circumstances where for sound business reasons, a reallocation of funds becomes prudent or necessary, and such use of proceeds may vary materially from that set forth above. See “Risk Factors”.
PLAN OF DISTRIBUTION
The Company and/or the Selling Securityholders may sell the Securities, separately or together, to or through one or more underwriters or dealers purchasing as principal and may also sell the Securities to one or more purchasers directly, through applicable statutory exemptions, or through agents designated from time to time. The Securities offered pursuant to any Prospectus Supplement may be sold from time to time in one or more transactions at: (i) a fixed price or prices, which may be changed from time to time; (ii) market prices prevailing at the time of sale; (iii) prices related to such prevailing market prices; or (iv) other negotiated prices, including sales in transactions that are deemed to be “at-the-market distributions” as defined in
NI 44-102, including sales made directly on the TSX or other existing trading markets for the Securities. The Company may only sell Securities pursuant to a Prospectus Supplement during the period that this Prospectus, including any amendments hereto, remains effective.
The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged in connection with the offering and sale of the Securities, as well as the method of distribution and the terms of the offering of such Securities, including: the initial offering price (in the event the offering is a fixed price distribution); the manner of determining the offering price(s) (in the event the offering is not a fixed price distribution); the net proceeds to the Company and/or Selling Securityholder, if any; to the extent applicable, any fees, discounts or any other compensation payable to underwriters, dealers or agents; and any other material terms.
Only underwriters so named in an applicable Prospectus Supplement are deemed to be underwriters in connection with the Securities offered thereby. If, in connection with an offering of Securities at the initial offering price(s), the underwriters have made a bona fide effort to sell all of the Securities at the initial offering price(s) fixed in the applicable Prospectus Supplement, and have been unable to do so, the public offering price(s) may be decreased and thereafter further changed from time to time, to an amount not greater than the initial public offering price(s) fixed in such Prospectus Supplement, in which case the compensation realized by the underwriters will be decreased by the amount that the aggregate price(s) paid by purchasers is less than the gross proceeds paid by the underwriters to the Company and/or Selling Securityholders. Any public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may be changed from time to time.
Underwriters and agents may, from time to time, purchase and sell the Securities described in this Prospectus and the relevant Prospectus Supplement in the secondary market, but are not obligated to do so. No assurance can be given that there will be a secondary market for the Securities or liquidity on the secondary market if one develops. From time to time, underwriters and agents may make a market in the Securities.
If underwriters purchase Securities from the Company as principal or from any Selling Securityholders, the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale, at market prices prevailing at the time of sale or at prices related to such prevailing market prices. The obligations of the underwriters to purchase such Securities as principal will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Securities offered by the Prospectus Supplement if any of such Securities are purchased. Any public offering price and any discounts or concessions allowed or paid to underwriters, dealers or agents may be changed from time to time.
The Securities may also be sold directly by the Company, pursuant to applicable statutory exemptions, at such prices and upon such terms as agreed to by the Company and the purchaser (in which case no underwriter or agent would be involved) or through agents designated by the Company from time to time. Any agent involved in the offering and sale of the Securities in respect of which this Prospectus is delivered will be named, and any commissions payable by the Company to such agent will be set forth, in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement, any agent would be acting on a best efforts basis for the period of its appointment.
The Company may offer the Securities to the public through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. The Company or any Selling Securityholders may agree to pay the underwriters a commission for various services relating to the issue and sale of any Securities offered hereby. Any such commission will be paid out of the general funds of the Company or any Selling Securityholder. The Company may use underwriters or agents with whom it has a material relationship and, if so, it will name the underwriter or agent and the nature of any such relationship in the Prospectus Supplement. In addition, one or more Selling Securityholders of the Company may sell Securities to or through underwriters or dealers purchasing as principals and may also sell the Securities to one or more purchasers directly, through statutory exemptions, or through agents designated from time to time. See “Secondary Offering by Selling Securityholders”.
Underwriters, dealers and agents who participate in the distribution of the Securities may be entitled under agreements to be entered into with the Company or any Selling Securityholders to indemnification by
the Company and/or Selling Securityholders against certain liabilities, including liabilities under securities legislation, or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof.
Any offering of Debt Securities, Subscription Receipts, Warrants, Convertible Securities or Units will be a new issue of securities with no established trading market. Unless otherwise specified in the applicable Prospectus Supplement, no Debt Securities, Subscription Receipts, Warrants, Convertible Securities or Units will be listed on any securities exchange. Certain dealers may make a market in these Securities, but will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given that any dealer will make a market in these Securities or as to the liquidity of the trading market, if any, for these Securities.
In connection with any offering of Securities, other than an “at-the-market distribution”, underwriters, agents or dealers may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time.
No underwriter of an at-the-market distribution, and no person or company acting jointly or in concert with an underwriter, may, in connection with such distribution, enter into any transaction that is intended to stabilize or maintain the market price of the Securities or securities of the same class as the Securities distributed under the “at-the-market distribution”, including selling an aggregate number or principal amount of Securities that would result in the underwriter creating an over-allocation position in the Securities.
DESCRIPTION OF SECURITIES
Common Shares
The Company is authorized to issue an unlimited number of Common Shares. Holders of Common Shares are entitled to receive notice of and attend all meetings of the shareholders of Company and to one vote per Common Share on all matters upon which holders of Common Shares are entitled to vote at such meetings of shareholders.
The holders of Common Shares are entitled to receive dividends as and when declared by the board of directors of the Company (the “Board”). The Company has not paid dividends and currently intends to reinvest all future earnings to finance the development and growth of its business. As a result, the Company does not intend to pay dividends on the Common Shares in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Board and will depend on the financial condition, business environment, operating results, capital requirements, any contractual restrictions on the payment of dividends and any other factors that the Board deems relevant. The Company is not bound or limited in any way to pay dividends in the event that the Board determined that a dividend was in the best interest of its shareholders. In addition, in the event of a liquidation, dissolution or winding-up or other distribution of assets among shareholders, the holders of Common Shares will be entitled to share pro rata in the distribution of the balance of the assets of the Company.
All of the Common Shares are fully paid and non-assessable and are not subject to any pre-emptive rights, conversion or exchange rights, redemption, retraction, purchase for cancellation or surrender provisions, sinking or purchase fund provisions, provisions permitting or restricting the issuance of additional securities or provisions requiring a shareholder to contribute additional capital.
Provisions as to the modification, amendment or variation of the rights attached to the Common Shares are contained in the Company’s bylaws and the Canada Business Corporations Act. Generally speaking, substantive changes to the authorized share structure require the approval of our Shareholders by special resolution (at least two-thirds of the votes cast).
Common Shares may be offered separately or together with Debt Securities, Subscription Receipts, Warrants or Convertible Securities (see “Units”).
Debt Securities
The following sets forth certain general terms and provisions of the Debt Securities. The particular terms and provisions of Debt Securities offered by a Prospectus Supplement, and the extent to which the general
terms and provisions described below may apply to such Debt Securities, will be described in such Prospectus Supplement. If there are differences between the Prospectus Supplement and this Prospectus, the Prospectus Supplement will prevail. As a result, the information in this section may not apply to all Debt Securities.
The Debt Securities will be direct unsecured obligations of the Company and will be senior or subordinated indebtedness of the Company, as described in the relevant Prospectus Supplement.
The Debt Securities will be issued under one or more trust indentures between the Company and a trustee determined by the Company in accordance with applicable laws, as supplemented and amended from time to time. The applicable Prospectus Supplement will include, as applicable, disclosure regarding: (i) the designation, aggregate principal amount and authorized denominations of such Debt Securities; (ii) the currency or currency units for which the Debt Securities may be purchased and the currency or currency unit in which the principal and any interest is payable (in either case, if other than Canadian dollars); (iii) the percentage of the principal amount at which such Debt Securities will be issued; (iv) the date or dates on which such Debt Securities will mature; (v) the rate or rates per annum at which such Debt Securities will bear interest (if any), or the method of determination of such rates (if any); (vi) the dates on which interest will be payable and the record dates for such payments; (vii) the debenture trustee under the trust indenture pursuant to which the Debt Securities are to be issued; (viii) any redemption term or terms under which such Debt Securities may be defeased; (ix) whether such Debt Securities are to be issued in registered form, “book-entry only” form, bearer form or in the form of temporary or permanent global securities and the basis of exchange, transfer and ownership thereof; (x) any exchange or conversion terms; (xi) whether such Debt Securities will be subordinated to other liabilities of the Company; and (xii) any other specific terms.
Debt Securities may be offered separately or together with Common Shares, Subscription Receipts, Warrants or Convertible Securities (see “Units”).
Subscription Receipts
The following sets forth certain general terms and provisions of the Subscription Receipts. The specific terms of the Subscription Receipts as described in a Prospectus Supplement will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the Prospectus Supplement and this Prospectus, the Prospectus Supplement will prevail. As a result, the information in this section may not apply to the Subscription Receipts as described in a Prospectus Supplement.
The Subscription Receipts will be issued under a subscription receipt agreement. The following sets forth certain general terms and provisions of the Subscription Receipts. The applicable Prospectus Supplement will include, where applicable, disclosure regarding: (i) the number of Subscription Receipts; (ii) the price at which the Subscription Receipts will be offered; (iii) the terms, conditions and procedures for the exchange of the Subscription Receipts into or for Common Shares and/or other securities of the Company; (iv) the number of Common Shares and/or other securities of the Company that may be issued or delivered upon exchange of each Subscription Receipt; (v) certain material income tax consequences of owning, holding and disposing of the Subscription Receipts; and (vi) any other material terms and conditions of the Subscription Receipts. Common Shares and/or other securities of the Company issued or delivered upon the exchange of Subscription Receipts will be issued for no additional consideration. Prior to exercise, holders of Subscription Receipts will not have any of the rights of holders of Common Shares or other underlying securities issuable upon exercise of the Subscription Receipts.
Under the subscription receipt agreement, an original purchaser of Subscription Receipts may have a contractual right of rescission following the issuance of Common Shares and/or other securities of the Company issued or delivered to such purchaser upon exchange of Subscription Receipts, entitling the purchaser to receive the amount paid for the Subscription Receipts upon surrender or deemed surrender of the Subscription Receipts, if this Prospectus, the relevant Prospectus Supplement, and any amendment thereto, contains a misrepresentation or is not delivered to such purchaser, provided such remedy for rescission is exercised within 180 days of the date the Subscription Receipts are issued.
Subscription Receipts may be offered separately or together with Common Shares, Debt Securities, Warrants or Convertible Securities (see “Units”).
Warrants
The following sets forth certain general terms and provisions of the Warrants. The specific terms of a series of Warrants as described in a Prospectus Supplement will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the Prospectus Supplement and this Prospectus, the Prospectus Supplement will prevail. As a result, the information in this section may not apply to a given series of Warrants.
Each series of Warrants will be issued under a separate warrant indenture in each case between the Company and a warrant agent determined by the Company. The applicable Prospectus Supplement will include, where applicable, disclosure regarding: (i) the title or designation of the Warrants; (ii) the number of Warrants offered; (iii) the number of Common Shares and/or other securities of the Company purchasable upon exercise of the Warrants and the procedures for exercise; (iv) the exercise price of the Warrants; (v) the dates or periods during which the Warrants are exercisable and when they expire; (vi) the designation and terms of any other securities with which the Warrants will be offered, if any, and the number of Warrants that will be offered with each such security; (vii) certain material income tax consequences of owning, holding and disposing of the Warrants; and (viii) any other material terms and conditions of the Warrants including transferability and adjustment terms and whether the Warrants will be listed on a stock exchange. Prior to exercise, holders of Warrants will not have any of the rights of holders of Common Shares or other underlying securities issuable upon exercise of the Warrants.
The Company will not offer Warrants for sale separately to any member of the public in Canada unless the offering is in connection with and forms part of the consideration for an acquisition or merger transaction or unless the Prospectus Supplement containing the specific terms of the Warrants to be offered separately is first approved for filing by or on behalf of the securities commissions or similar regulatory authorities in each of the provinces and territories of Canada where the Warrants will be offered for sale.
Warrants may be offered separately or together with Common Shares, Debt Securities, Convertible Securities or Subscription Receipts (see “Units”).
Convertible Securities
The following sets forth certain general terms and provisions of the Convertible Securities. The specific terms of any Convertible Securities as described in a Prospectus Supplement will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the Prospectus Supplement and this Prospectus, the Prospectus Supplement will prevail. As a result, the information in this section may not apply to Convertible Securities as described in this section.
The Convertible Securities will be convertible or exchangeable into Common Shares and/or other securities of the Company, and may be offered separately or together with other Securities, as the case may be. The applicable Prospectus Supplement will include details of the agreement, indenture or other instrument to which such Convertible Securities will be created and issued.
Each applicable Prospectus Supplement will set forth the terms and other information with respect to the Convertible Securities being offered thereby, which may include disclosure regarding: (i) the number of such Convertible Securities offered; (ii) the price at which such Convertible Securities will be offered; (iii) the procedures for the conversion or exchange of such Convertible Securities into or for Common Shares and/or other securities of the Company; (iv) the number of Common Shares and/or other securities that may be issued upon the conversion or exchange of such Convertible Securities; (v) the period or periods during which any conversion or exchange may or must occur; (vi) the designation and terms of any other Convertible Securities with which such Convertible Securities will be offered, if any; (vii) the gross proceeds from the sale of such Convertible Securities; (viii) whether the Convertible Securities will be listed on any securities exchange; (ix) whether the Convertible Securities are to be issued in registered form, “book-entry only” form, bearer form or in the form of temporary or permanent global securities and the basis of exchange, transfer and ownership thereof; (x) certain material Canadian tax consequences of owning the Convertible Securities; and (xi) any other material terms and conditions of the Convertible Securities.
Convertible Securities may be offered separately or together with Common Shares, Debt Securities, Warrants and/or Subscription Receipts (see “Units”).
Units
Units are a security comprised of more than one of the other Securities described in this Prospectus offered together as a “Unit”. A Unit is typically issued so the holder thereof is also the holder of each Security included in the Unit. As a result, the holder of a Unit will have the rights and obligations of a holder of each Security comprising the Unit. The agreement, if any, under which a Unit is issued may provide that the Securities comprising the Unit may not be held or transferred separately at any time or at any time before a specified date.
The particular terms and provisions of Units offered by any Prospectus Supplement, and the extent to which the general terms and provisions described below may apply to them, will be described in the Prospectus Supplement filed in respect of such Units. This description will include, where applicable: (i) the designation and terms of the Units and of the Securities comprising the Units, including whether and under what circumstances those Securities may be held or transferred separately; (ii) any provisions for the issuance, payment, settlement, transfer or exchange of the Units or of the Securities comprising the Units; (iii) whether the Units will be issued in registered or global form; and (iv) any other material terms and conditions of the Units.
CERTAIN INCOME TAX CONSIDERATIONS
Owning any of the Securities may subject holders to tax consequences. The applicable Prospectus Supplement may describe certain Canadian federal income tax considerations generally applicable to investors described therein of purchasing, holding and disposing of the applicable Securities offered thereunder, including, in the case of an investor who is not a resident of Canada, Canadian non-resident withholding tax considerations. Prospective investors should consult their own tax advisors prior to deciding to purchase any of the Securities.
The applicable Prospectus Supplement may also describe certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of any Securities offered thereunder by an initial investor who is a U.S. person (within the meaning of the United States Internal Revenue Code of 1986, as amended). Prospective investors should read the tax discussion in any Prospectus Supplement with respect to a particular offering and consult their own tax advisors prior to deciding to purchase any Securities.
PRIOR SALES
Prior sales of the Securities will be provided as required in a Prospectus Supplement with respect to the issuance of Securities pursuant to such Prospectus Supplement.
TRADING PRICE AND VOLUME
Trading prices and volume of the Securities will be provided, as required, in each Prospectus Supplement to this Prospectus.
EARNINGS COVERAGE RATIOS
If the Company offers Debt Securities having a term to maturity in excess of one year under this Prospectus and any applicable Prospectus Supplement, the applicable Prospectus Supplement will include earnings coverage ratios giving effect to the issuance of such Debt Securities.
PROMOTER
Matevž Mazij is a promoter of the Company and beneficially owns, controls, or directs, directly or indirectly, 4,900,000 Common Shares, representing 24.7% of the issued and outstanding Common Shares (on a non-diluted basis), prior to giving effect to any offering under this Prospectus. The Company and Matevž Mazij will enter into a customary indemnification agreement pursuant to which the Company has agreed to provide certain indemnities in favour of Matevž Mazij.
RISK FACTORS
An investment in the Securities is highly speculative and involves significant risks. Any prospective investor should carefully consider the risk factors and all of the other information contained in this Prospectus
(including, without limitation, the AIF and the documents incorporated by reference and subsequently incorporated by reference herein) those described in the Prospectus Supplement relating to a specific offering of Securities.
The risks described herein, in any applicable Prospectus Supplement, and in the documents incorporated by reference in this Prospectus are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems immaterial, may also potentially materially and adversely affect its business.
Prospective purchasers of Securities should carefully consider the risk factors described in this Prospectus, those described in documents incorporated by reference in this Prospectus (including subsequently filed documents incorporated by reference) and those described in a Prospectus Supplement relating to a specific offering of Securities. An investment in the Securities is subject to various risks, including without limitation those risks inherent to the industry in which the Company operates. If any of the events contemplated by these risk factors occurs, the Company’s business, revenues, financial condition or prospects could be materially harmed, which could adversely affect the value of the Securities. In addition to the below, discussions of certain risks affecting the Company in connection with its business are provided in its disclosure documents filed with the various securities regulatory authorities which are incorporated by reference in this Prospectus, including in the AIF and those described in the Company’s MD&A. See “Documents Incorporated by Reference”.
The risks discussed below also include forward-looking statements and actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Additional risks not presently known to us or that the Company currently considers immaterial may also materially and adversely affect the Company. If any of the events identified in these risks and uncertainties were to actually occur, the Company’s business, financial condition, results of operations or prospects could be materially harmed.
There may be no market for the Company’s Debt Securities, Subscription Receipts, Warrants, Convertible Securities or Units.
There is no current market for any Debt Securities, Subscription Receipts, Warrants, Convertible Securities or Units that may be offered. No assurance can be given that an active or liquid trading market for these Securities will develop or be sustained. If an active or liquid market for these Securities fails to develop or be sustained, the prices at which these Securities trade may be adversely affected. Whether or not these Securities will trade at lower prices may depend on many factors, including liquidity of these Securities, prevailing interest rates and the markets for similar securities, the market price of the Common Shares, general economic conditions, and the Company’s financial condition, historic financial performance and future prospects.
The Company may use the proceeds from the sale of Securities for purposes other than those set out in this Prospectus and any Prospectus Supplement.
Unless otherwise stated in any Prospectus Supplement, the Company currently intends to allocate the net proceeds received from any sale of Securities as described under the heading “Use of Proceeds” in this Prospectus. However, management will have discretion in the actual application of the proceeds, and may elect to allocate proceeds differently from that described under the heading “Use of Proceeds” in this Prospectus and any Prospectus Supplement, as applicable, if it believes that it would be in the Company’s best interests to do so if circumstances change. The failure by management to apply these funds effectively could have a material adverse effect on the Company’s business, financial condition, results of operations or prospects.
The Company may require substantial additional equity or debt financing in order to carry out its business objectives and failure to obtain sufficient financing could have a material adverse effect on its business, financial condition, results of operations and prospects.
The Company may require substantial additional equity or debt financing in order to carry out its business objectives, including the continued development of new and upgraded functionality of its products and services. There can be no assurance that debt or equity financing or cash generated by operations would
be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it would be on terms acceptable to the Company. Failure to obtain sufficient financing may result in the delay or indefinite postponement of development or production on any or all of its products and services which could have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. In addition, any future financing may also be dilutive to the Company’s existing shareholders.
The Company may fail to complete potential future strategic acquisitions. Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt the Company’s business, dilute shareholder value and impair the Company’s financial results.
As part of its business strategy, the Company intends to consider acquisitions of companies, technologies and products that it believes could accelerate growth and its ability to compete in core markets and new jurisdictions. However, as a result of intense competition in the online gaming industry, the Company may not be able to acquire the targets which it needs to meet its growth or other strategic objectives. Acquisitions also involve numerous inherent risks, any of which could harm the Company’s business, including: (i) difficulties in integrating the technologies, products, operations, existing contracts and personnel of a target company and realizing the anticipated benefits of the combined businesses; (ii) difficulties in supporting and transitioning customers, if any, of a target company; (iii) diversion of financial and management resources from existing operations; (iv) the price paid or other resources that devoted by the Company may exceed the value realized, or the value that could have been realized if the Company had allocated the purchase price or other resources to another opportunity; (v) risks of entering new markets in which the Company has limited or no experience; (vi) risks, costs and diversion of management attention associated with compliance with applicable gaming laws and regulations and compliance with licensing regimes, including in jurisdictions in which the Company did not previously operate); (vii) potential loss of key employees, customers and strategic alliances from either the Company’s current business or a target company’s business; and the (vii) inability to generate sufficient revenue to offset acquisition costs.
While the Company seeks to conduct appropriate levels of due diligence on acquisition targets, these efforts may not always prove to be sufficient in identifying all risks and liabilities related to the acquisition, including as a result of: limited access to information; time constraints for conducting due diligence; inability to access target company facilities and/or personnel; or other limitations in the due diligence process. Additionally, the Company may identify risks and liabilities that it is not able to sufficiently mitigate through appropriate contractual or other protections. The realization of any such risks could have a material adverse effect on the Company’s business, financial condition, results of operations or prospects.
Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm financial results. In addition, if the Company finances acquisitions by issuing equity securities, the Company’s existing shareholders may be diluted. As a result, if the Company fails to properly evaluate acquisitions or investments, it may not achieve the anticipated benefits of any such acquisitions, and it may incur costs in excess of those initially anticipated. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm the Company’s business and financial results.
If the Company is unable to manage its growth or execute its strategies effectively, the Company’s business and prospects may be materially and adversely affected.
The Company’s business has grown substantially in recent years, and management expects continued growth in its business, revenues and number of employees. The Company plans to further expand its technology platform, increase content offerings and hire more employees. To support growth, the Company also plans to implement a variety of new and upgraded managerial, operating, financial and human resource systems, procedures and controls. All these efforts will require significant managerial, financial and human resources. The Company cannot assure you that it will be able to effectively manage its growth or to implement all these systems, procedures and control measures successfully or that its new business initiatives will be successful. If the Company is not able to manage growth or execute its strategies effectively, the Company’s expansion may not be successful and its business and prospects may be materially and adversely affected.
The Company may not be able to sustain its historical growth rates.
The Company has experienced rapid growth since it acquired Oryx in 2018. However, there is no assurance that the Company will be able to maintain its historical growth rates in future periods. Revenue growth may slow or the Company’s revenues may decline for any number of possible reasons, including increased regulatory scrutiny, increased competition, failure to develop new products to maintain customers, the level of general consumer spending, failure to implement its business plans, emergence of alternative business models, changes in government policies, or changes in general economic conditions.
EXEMPTION
Pursuant to a decision of the Autorité des marchés financiers dated February 15, 2021, the Company was granted a permanent exemption from the requirement to translate into French this Prospectus, as well as the documents incorporated by reference herein, and any Prospectus Supplement to be filed in relation to an “at-the-market distribution”. This exemption is granted on the condition that this Prospectus and any Prospectus Supplement (other than in relation to an “at-the-market distribution”) be translated into French if the Company offers Securities to Québec purchasers in connection with an offering other than in relation to an “at-the-market distribution”.
INTEREST OF EXPERTS
MNP LLP is the auditor of the Company and has confirmed that it is independent within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditor of the Company is MNP LLP, Chartered Professional Accountants. The transfer agent and registrar for the Common Shares is Computershare Investor Services Inc.
PURCHASERS’ STATUTORY AND CONTRACTUAL RIGHTS
Unless provided otherwise in an applicable Prospectus Supplement, the following is a description of a purchaser’s statutory rights. Securities legislation in certain of the provinces and territories of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces and territories of Canada, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revision of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for the particulars of these rights or consult with a legal advisor.
In addition, original Canadian purchasers of Securities which are convertible, exchangeable or exercisable for other securities of the Company (except for Warrants, in circumstances where the Warrants are reasonably regarded by Company as incidental to the applicable offering as a whole) will have a contractual right of rescission against the Company following the issuance of underlying securities to such original purchasers upon the conversion, exchange or exercise of such convertible, exchangeable or exercisable Securities. The contractual right of rescission will be further described in any applicable Prospectus Supplement, but will, in general, entitle such original purchasers to receive, upon surrender of the underlying securities, the amount paid for the applicable convertible, exchangeable or exercisable Securities (and any additional amount paid upon conversion, exchange or exercise) in the event that this Prospectus, the relevant Prospectus Supplement or any amendment thereto contains a misrepresentation, provided that: (i) the conversion, exchange or exercise takes place within 180 days of the date of the purchase of such Securities under this Prospectus and the applicable Prospectus Supplement; and (ii) the right of rescission is exercised within 180 days of the date of the purchase of such Securities under this Prospectus and the applicable Prospectus Supplement. This contractual right of rescission will be consistent with the statutory right of rescission described under
Section 130 of the Securities Act (Ontario), and is in addition to any other right or remedy available to original purchasers under Section 130 of the Securities Act (Ontario) or otherwise at law. Purchasers under this Prospectus and the relevant Prospectus Supplement are further advised that in certain provinces and territories, the statutory right of action for damages in connection with a prospectus misrepresentation is limited to the amount paid for the convertible, exchangeable or exercisable security purchased under a prospectus, and therefore a further payment at the time of conversion, exchange or exercise may not be recoverable under the statutory right of action for damages that applies in those provinces. Purchasers should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for the particulars of this right of action for damages or consult with a legal adviser.
At-the-Market Distributions
Securities legislation in some provinces and territories of Canada provides purchasers of securities with the right to withdraw from an agreement to purchase securities and with remedies for rescission or, in some jurisdictions, revisions of the price, or damages if the prospectus, prospectus supplement, and any amendment relating to securities purchased by a purchaser are not sent or delivered to the purchaser. However, purchasers of Securities distributed under an at-the-market distribution under this Prospectus by the Company do not have the right to withdraw from an agreement to purchase the Securities and do not have remedies of rescission or, in some jurisdictions, revisions of the price, or damages for non-delivery of this Prospectus, the applicable Prospectus Supplement, and any amendment relating to any Securities purchased thereunder by such purchaser because this Prospectus, such Prospectus Supplement, and any amendment relating to the Securities purchased thereunder by such purchaser will not be sent or delivered, as permitted under Part 9 of NI 44-102.
Securities legislation in some provinces and territories of Canada further provides purchasers with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus, prospectus supplement, and any amendment relating to securities purchased by a purchaser contains a misrepresentation. Those remedies must be exercised by the purchaser within the time limit prescribed by securities legislation. Any remedies under securities legislation that a purchaser of Securities distributed under an at-the-market distribution under this Prospectus by the Company may have against the Company or its agents for rescission or, in some jurisdictions, revisions of the price, or damages if this Prospectus, the applicable Prospectus Supplement, and any amendment relating to Securities purchased thereunder by a purchaser contain a misrepresentation will remain unaffected by the non-delivery of this Prospectus referred to above.
A purchaser should refer to applicable securities legislation for the particulars of these rights and should consult a legal adviser.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been or will be filed with the Securities and Exchange Commission as part of the Registration Statement on Form F-10 of which this Prospectus forms a part: the documents listed under “Documents Incorporated by Reference” in this Prospectus and in any Prospectus Supplement; the form of indenture for debt securities; the consent of MNP LLP; and powers of attorney from certain of the Company’s directors and officers. A copy of the form of any applicable underwriting agreement, warrant agreement, subscription receipt agreement or supplement indenture will be filed by post-effective amendment or by incorporation by reference to documents filed with or furnished to the SEC under the U.S. Securities Exchange Act of 1934, as amended.
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED TO
OFFEREES OR PURCHASERS
Indemnification of Directors and Officers.
Under the Canada Business Corporations Act (the “CBCA”), the registrant may indemnify a present or former director or officer of the registrant or another individual who acts or acted at the registrant’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the registrant or other entity. The registrant may not indemnify an individual unless the individual acted honestly and in good faith with a view to the best interests of the registrant, or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the registrant’s request, and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the conduct was lawful. The indemnification may be made in respect of all costs, charges and expenses reasonably incurred by an individual in connection with an action by or on behalf of the registrant or other entity to procure a judgment in its favor, to which the individual is made party because of the individual’s association with the registrant or other entity, only with court approval. The aforementioned individuals are entitled to indemnification from the registrant as a matter of right if they were not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done and the individual acted honestly and in good faith with a view to the best interests of the registrant, or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the registrant’s request, and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the conduct was lawful. The registrant may advance moneys to the individual for the costs, charges and expenses of the proceeding; however, the individual shall repay the moneys if the individual does not fulfill the conditions set out above.
The registrant’s by-laws require it to indemnify to the fullest extent permitted by the CBCA each of our current or former directors or officers and each individual who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity, or any other individual permitted by the CBCA, against all costs, charges and expenses, including, an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with us or another entity.
The registrant’s by-laws authorize it to subscribe for the benefit of its directors, officers or their predecessors as well as other individuals who, at its request, act or have acted in this capacity for another entity, insurance covering the liability they may incur to either act as a either to act as a director or officer of the Corporation or act in the capacity of director or officer for another entity at the request of the registrant. To this effect, the registrant maintains insurance policies relating to certain liabilities that our directors and officers may incur in such capacities.
The registrant has entered into indemnity agreements with our directors and officers (each, an “Indemnified Party”) which provide, among other things, that the registrant will indemnify an Indemnified Party to the fullest extent permitted by law from and against all costs, charges, expenses of whatever nature or kind in respect of to the fullest extent permitted by applicable laws.
In addition, our Board of Directors has authorized us to indemnify and hold harmless our directors and officers in connection with any secondary sales effected by such persons in a public offering undertaken by the registrant, including an offering made pursuant to this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Item 1. Undertaking.
Bragg Gaming Group Inc. undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Securities and Exchange Commission (the “Commission”) staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form F-10 or to transactions in said securities.
Item 2. Consent to Service of Process.
Concurrently with the filing of this Registration Statement, Bragg Gaming Group Inc. has filed with the Commission a written Appointment of Agent for Service of Process and Undertaking on Form F-X.
Any change to the name or address of the agent for service of Bragg Gaming Group Inc. shall be communicated promptly to the Commission by an amendment to Form F-X referencing the file number of this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bragg Gaming Group Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Toronto, Ontario, Canada, on August 23, 2021.
BRAGG GAMING GROUP INC.
By:
/s/ Richard Carter
Name: Richard Carter
Title: Chief Execuive Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Richard Carter and Ronen Kannor, and each of them, either of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated and on August 23, 2021:
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Signature
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Title
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/s/ Richard Carter
Richard Carter
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Chief Executive Officer and Director
(Principal Executive Officer)
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/s/ Ronen Kannor
Ronen Kannor
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
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/s/ Paul Godfrey
Paul Godfrey
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Director (Chairman of the Board of Directors)
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/s/ Lara Falzon
Lara Falzon
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Director
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/s/ Holly Gagnon
Holly Gagnon
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Director
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/s/ Rob Godfrey
Rob Godfrey
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Director
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Signature
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Title
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/s/ Matevž Mazij
Matevž Mazij
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Director
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/s/ Paul Pathak
Paul Pathak
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Director (Vice-Chairman of the Board of Directors)
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/s/ Alexander Spiro
Alexander Spiro
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Director
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AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the undersigned has signed this Registration Statement, solely in its capacity as the duly authorized representative of Bragg Gaming Group Inc. in the United States, on August 23, 2021.
PUGLISI & ASSOCIATES
By:
/s/ Donald J. Puglisi
Name: Donald J. Puglisi
Title: Managing Director
Exhibit 4.1
BRAGG GAMING GROUP
INC.
ANNUAL INFORMATION
FORM
FOR THE FINANCIAL
YEAR ENDED DECEMBER 31, 2020
DATED: March 25, 2021
TABLE OF CONTENTS
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PAGE
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explanatory notes AND OTHER INFORMATION
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1
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EXCHANGE RATE DATA
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1
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
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2
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Non-IFRS MEasures
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3
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CORPORATE STRUCTURE
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4
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Name, Address and Incorporation
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4
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Inter-corporate Relationships
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5
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GENERAL DEVELOPMENT OF THE BUSINESS
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5
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Three Year History
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5
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Description of the Business
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10
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Market
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14
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Intellectual Property
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15
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Licenses & Registrations
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15
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Regulatory Environment and Regulatory Compliance
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17
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RISK FACTORS
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21
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Risk Factors Related to the Company
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21
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Risk Factors Related to Oryx
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29
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DIVIDENDS AND DISTRIBUTIONS
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37
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DESCRIPTION OF CAPITAL STRUCTURE
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37
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Common Shares
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37
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Equity Awards
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37
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Warrants
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38
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MARKET FOR SECURITIES
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39
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Trading Price and Volume
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38
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Prior Sales
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38
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DIRECTORS AND OFFICERS
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39
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Name, Occupation and Security Holding
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39
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Cease Trade Orders, Bankruptcies, Penalties or Sanctions
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41
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LEGAL PROCEEDINGS AND REGULATORY ACTIONS
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42
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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
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43
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TRANSFER AGENT AND REGISTRAR
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43
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MATERIAL CONTRACTS
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43
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INTERESTS OF EXPERTS
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43
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TABLE OF CONTENTS
(continued)
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PAGE
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AUDIT COMMITTEE DISCLOSURE
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44
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ADDITIONAL INFORMATION
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46
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Schedule "A" AUDIT COMMITTEE CHARTER
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A-1
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explanatory
notes AND OTHER INFORMATION
In this annual information form ("AIF"
or "Annual Information Form"), unless the context otherwise requires, all references to the "Company",
"Bragg", "we", "us", or "our" refers to Bragg Gaming Group Inc., together
with its wholly-owned subsidiaries and entities.
In this AIF, unless the context otherwise requires,
all references to "Oryx" refers to Oryx Gaming International LLC, together with its wholly-owned subsidiaries and entities
on a consolidated basis.
This AIF applies to the business activities and
operations of the Company for the year ended December 31, 2020, unless otherwise indicated.
This AIF contains company names, product names,
trade names, trademarks and service marks of the Company and other organizations, all of which are the property of their respective owners.
EXCHANGE
RATE DATA
Except as otherwise indicated in this AIF, references
to "Canadian dollars" or "C$" are to the currency of Canada, references to "U.S. dollars" or "US$"
are to the currency of the United States, references to "GBP" or "£" are to the currency of the United Kingdom
and references to "EUR" or "€" are to European Euros.
The following table sets forth, for the periods
indicated, the high, low, average and period-end rates of exchange for one U.S. dollar, expressed in Canadian dollars, published by the
Bank of Canada (based on the daily average rates as reported by the Bank of Canada).
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Year Ended December 31, 2020
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Year Ended December 31, 2019
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High
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1.4496
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1.3600
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Low
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1.2718
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1.2988
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Average rate per period
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1.3415
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1.3269
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Rate at end of period
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1.2732
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1.2988
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The following table sets forth, for the periods
indicated, the high, low, average and period-end rates of exchange for one Euro, expressed in Canadian dollars, published by the Bank
of Canada (based on the daily average rates as reported by the Bank of Canada).
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Year Ended December 31, 2020
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Year Ended December 31, 2019
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High
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1.5851
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1.5441
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Low
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1.4282
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1.4438
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Average rate per period
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1.5298
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1.4856
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Rate at end of period
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1.5608
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1.4583
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The following table sets forth, for the periods
indicated, the high, low, average and period-end rates of exchange for one British pound sterling, expressed in Canadian dollars, published
by the Bank of Canada (based on the daily average rates as reported by the Bank of Canada).
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Year Ended December 31, 2020
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Year Ended December 31, 2019
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High
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1.7835
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1.7743
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Low
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1.6733
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1.5955
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Average rate per period
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1.7199
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1.6945
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Rate at end of period
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1.7381
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1.7174
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CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this AIF constitute
forward-looking statements. These statements relate to future events or future performance of the Company. All statements other than statements
of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words
such as "plans", "expects", "is expected", "budget", "scheduled", "estimates",
"continues", "forecasts", "projects", "predicts", "intends", "anticipates"
or "believes", or variations of, or the negatives of, such words and phrases, or state that certain actions, events or results
"may", "could", "would", "should", "might" or "will" be taken, occur or be
achieved. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those
forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking
statements included in, or incorporated by reference into, this AIF, should not be unduly relied upon. These statements speak only as
of the date of this AIF or as of the date specified in the documents incorporated by reference into this AIF, as the case may be.
Some of the information contained in this Annual
Information Form contains forward-looking statements that involve risks and uncertainties. Applicable risks and uncertainties include,
but are not limited to:
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new and emerging markets;
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regulatory landscape in significant jurisdictions in which the Company operates;
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the plans, costs, and timing for future research and development of the Company's current and future technologies,
including additional platforms;
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competition and changes in the competitive landscape;
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projections of market prices and costs;
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prices and price volatility of the Company's products;
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expected revenues and the ability to attain profitability;
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expectations regarding the ability to raise capital on acceptable terms;
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currency, exchange and interest rates;
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reliance on top customers and key personnel and employees;
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the Company's management and protection of intellectual property and other proprietary rights;
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changes in, or in the interpretation of, legislation with respect to the Company's tax liabilities;
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changes in taxation regimes;
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money laundering and fraudulent activity;
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deriving revenue from players located in jurisdictions in which the Company does not hold a license, and
the impact of customers' operations in unregulated or prohibited jurisdictions;
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reliance on strategic alliances and relationships with third party network infrastructure developers and
service platform vendors;
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risks related to COVID-19;
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various recommendations, orders and measures of governmental authorities to try to limit the pandemic;
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travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place
and social distancing;
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the costs and potential impact of obtaining all necessary regulatory approvals, and complying with existing
and proposed laws in a heavily regulated industry;
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disruptions to markets, economic activity, financing, and supply chains, and a deterioration of general
economic conditions including a possible national or global recession; and
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the other factors discussed under "Risk Factors".
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Readers are cautioned that the foregoing lists
of factors are not exhaustive. Should one or more of these risks and uncertainties materialize, or should the Company's estimates or underlying
assumptions prove incorrect, actual results, performance or achievements may vary materially from those described in forward-looking statements.
The Company cannot guarantee future results, levels of activity, performance, or achievements. Moreover, the Company does not assume responsibility
for the outcome of the forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements.
The forward-looking statements contained in
this AIF are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise
any forward-looking statements except as expressly required by applicable securities laws.
Non-IFRS
MEasures
This AIF makes reference to certain non-IFRS measures.
These non-IFRS measures are not recognized measures under International Financial Reporting Standards ("IFRS") and do
not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other
companies. Rather, these non-IFRS measures are provided as additional information to complement those IFRS measures by providing further
understanding of our results of operations from management’s perspective. Accordingly, these non-IFRS measures should not be considered
in isolation nor as a substitute for analysis of our financial information reported under IFRS. The Company uses the non-IFRS financial
measures "EBITDA" and "Adjusted EBITDA" (each defined below). These non-IFRS measures are used to provide investors
with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent
when relying solely on IFRS measures. The Company also believes that securities analysts, investors and other interested parties frequently
use non-IFRS measures in the evaluation of issuers. The Company's management uses non-IFRS measures in order to facilitate operating performance
comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation.
The Company defined such non-IFRS measures as
follows:
"EBITDA" is calculated by adding
back certain non-cash items to net income or loss from continuing operations and is used by management to measure operating performance.
The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization; provided that all revenue, costs and expenses
shall be recorded on an accrual basis. The Company’s method of calculating EBITDA may differ from the method used by other issuers
and, accordingly, the Company’s EBITDA calculation may not be comparable to similarly titled measures used by other issuers.
"Adjusted EBITDA" means earnings
before interest, taxes, depreciation, and amortization after:
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adding back share based payments;
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adding back transaction and acquisition costs;
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adding back exceptional costs
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adding back impairment of intangible assets and goodwill;
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deducting lease payments recorded as a depreciation and interest expense under IFRS standards; and
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adding back or deducting gain / loss on re-measurement of contingent and deferred consideration.
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CORPORATE
STRUCTURE
Name, Address and Incorporation
The Company was incorporated on March 17, 2004
under the name Rockies Financial Corporation pursuant to the Canada Business Corporations Act ("CBCA"). By Certificate
of Amendment dated October 29, 2004, the Company removed its "private company" restrictions within the meaning of applicable
securities laws. The common shares of the capital of the Company (the "Common Shares") were admitted for trading on the
TSX Venture Exchange (the "TSXV") under the ticker symbol RKI.P at the opening of the market on March 18, 2005 as a capital
pool company.
On June 22, 2007, the Company entered into a share
exchange agreement, pursuant to which it agreed to acquire all of the issued and outstanding securities of Sprylogics International Inc.
("SII"). The transaction constituted the Company's qualifying transaction and was a reverse takeover of the Company by
SII. The qualifying transaction was completed on July 4, 2007, resulting in SII becoming a wholly-owned subsidiary of the Company.
On September 19, 2007, the Company's shareholders
(the "Shareholders") approved a name change of the Company to Sprylogics International Corp., and on October 9, 2007,
the Common Shares began trading on the TSXV under the ticker symbol "SPY".
On September 3, 2013, the Company filed articles
of amendment to affect the consolidation of the Common Shares on the basis of one new post-consolidation Common Share for every 10 pre-consolidation
Common Shares.
On September 9, 2015, the Company filed articles
of amendment to change the name of the Company to "Breaking Data Corp.".
On April 13, 2017, the Company filed articles
of amendment to consolidate the Common Shares on the basis of one new post-consolidation Common Share for every ten pre-consolidation
Common Shares.
On December 21, 2018, the Company filed
articles of amendment to change the name of the Company to "Bragg Gaming Group Inc.", and on December 27, 2018, the Company
began trading on the TSXV under the ticker symbol "BRAG". The outstanding Common Shares are currently traded on the OTCQX under
the trading symbol, "BRGGF".
On January 27, 2021, the Common Shares began trading
on the TSX under the ticker symbol "BRAG" and ceased trading on the TSXV.
The registered office of the Company is located
130 King Street West, Suite 1955, Toronto, Ontario M5X 1E3.
Inter-corporate Relationships
The Company's principal subsidiary is Oryx, which
was incorporated in the State of Delaware and is headquartered in Las Vegas. Oryx is wholly-owned by the Company and, together with its
subsidiaries, carries on substantially all of the business of the consolidated enterprise. Oryx's primary operations are provided through
its wholly-owned subsidiaries in Malta, Slovenia, and Cyprus. See "Description of the Business" below.
The following table sets out material inter-corporate
relationships of the Company as of the date of this AIF:
GENERAL
DEVELOPMENT OF THE BUSINESS
This section discusses the major events or conditions
that have influenced the general development of the Company.
Three Year History
2018
Financing
– Common Shares
On January 23, 2018 the Company completed a private
placement financing. Pursuant to the offering, the Company issued 1,000,000 Common Shares at a price of C$3.00 for aggregate gross proceeds
of C$3,000,000.
Financing – Subscription
Receipt Offering
On November 29, 2018, (the "Closing Date")
the Company announced the closing of an offering of subscription receipts ("Subscription Receipts"), at an price of C$0.51
per subscription receipt for aggregate gross proceeds of C$13,799,989 ("2018 Financing").
The 2018 Financing was completed on a best efforts,
private placement basis, with Eight Capital as lead agent, and Canaccord Genuity Corp. and Haywood Securities Inc. as agents (collectively,
the "Agents"). In connection with the 2018 Financing, the Agents received a cash commission equal to 6.0% of the aggregate
gross proceeds of the 2018 Financing, excluding the gross proceeds raised from sales to "president's list" purchasers. In addition,
the Company issued to the Agents 1,601,784 non-transferrable special warrant compensation options (the "Special Warrant Compensation
Options") earned in full at the Closing Date, being an amount equal to 6.0% of the number of Subscription Receipts sold pursuant
to the 2018 Financing. Each Special Warrant Compensation Option was automatically exercised for one Compensation Option. Each Compensation
Option entitled the holder thereof to acquire one Unit (a "Compensation Option Unit") at the exercise price of C$0.51
per Compensation Option Unit for a period of 24 months following the Closing Date, each Compensation Option Unit being comprised of one
Common Share (a "Compensation Option Share") and one Warrant (a "Compensation Option Warrant"). Each
Compensation Option Warrant entitles the holder to purchase one Warrant Share at a price of C$0.76 within 24 months of the Closing Date,
subject to adjustment in certain events.
Transaction with AA Acquisition
Group Inc. and Oryx Gaming International LLC
On December 20, 2018, the Company completed a
business combination transaction with AA Acquisition Group Inc. ("AAA") by way of a "three-cornered amalgamation"
(the "Transaction") whereby the Company acquired all of the issued and outstanding securities of AAA in exchange for
the issuance to AAA shareholders of 20,999,995 Common Shares of the Company on a pro-rata basis (the "AAA Acquisition").
Pursuant to the AAA Acquisition, AAA amalgamated with a wholly-owned subsidiary of the Company (the "Amalgamation").
Upon completion of the Amalgamation, all of the property, rights, privileges and assets of AAA were continued as the property rights,
privileges and assets of the amalgamated entity, Bragg Oryx Holdings Inc., a wholly-owned subsidiary of the Company ("Holdings").
Holdings owns, directly or indirectly, all of the issued and outstanding membership interests of Oryx.
AAA was a special purpose vehicle incorporated
on April 12, 2018 under the OBCA, with the primary purpose of acquiring share capital, trade, and assets of Oryx and its two wholly-owned
subsidiaries – Oryx Gaming Ltd., a company incorporated in Malta on March 11, 2013 ("OGL"), and Oryx razvojne stortive
d.o.o, a company incorporated in Slovenia on April 4, 2014 ("ORS"). On December 20, 2018, AAA acquired all of the issued
and outstanding membership interests of Oryx (the "Oryx Acquisition") in accordance with the terms of a securities purchase
agreement (the "Oryx SPA") dated August 17, 2018, as amended, between AAA, Matevž Mazij, and K.A.V.O. Holdings
Limited ("KAVO"), a company controlled by Matevž Mazij, for the following consideration:
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€1.5 million in cash on signing of the Oryx SPA;
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€4.125 million in cash on closing of the Oryx Acquisition;
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€1.875 million worth of Common Shares on closing of the Oryx Acquisition; and
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Earn-out payments payable upon Oryx attaining certain benchmark EBITDA targets totalling up to €42.5
million ("Oryx Earn-Out").
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The Oryx SPA sets out a maximum purchase price
of €50 million after taking into consideration the Oryx Earn-Out. The Company's obligations under the Oryx Earn-Out are secured in
favour of KAVO against all of the assets of Oryx.
With the closing of the Transaction, and the satisfaction
of all conditions thereto, each Subscription Receipt issued under the 2018 Offering was automatically exercised into one special warrant
of the Company (a "Special Warrant"), subsequently each Special Warrant was automatically exercised into one unit of
the Company (each, a "Unit") consisting of one Common Share and one common share purchase warrant (each, a "Warrant"),
with each Warrant being exercisable into one Common Share for a period of 24 months from the closing date of the Transaction at a price
of C$0.76, subject to adjustment.
As a result of the Transaction, the Company carries
on the business previously carried on by Oryx. Oryx is a turnkey gaming solution provider offering a one-step solution adaptable to various
gaming markets and legislature environments. See "Description of the Business – Oryx" below for more information
on the business of Oryx.
The Transaction and Amalgamation represented
a "significant acquisition" to the Company for the purposes of Part 8 of National Instrument 51-102 – Continuous Disclosure
Obligations. Accordingly, the Company filed a Form 51-102F4 – Business Acquisition Report in respect of the Amalgamation.
The foregoing is a summary description of certain material provisions of the Oryx SPA; it does not purport to be a comprehensive summary
and is qualified in its entirety by reference to the more detailed provisions of the Oryx SPA between AAA, Matevž Mazij and KAVO,
a copy of which may be obtained on request without charge from the Company at its registered office or electronically on SEDAR at www.sedar.com.
2019
Acquisition of Win Gaming
Limited
On April 30, 2019, the Company completed an acquisition
transaction whereby it acquired all of the equity in WIN Gaming Limited ("WIN") in exchange for cash consideration of
€65,923. The purpose of the acquisition was to acquire WIN's remote gaming licence issued by the Malta Gaming Authority. WIN is a
private limited liability company incorporated in Malta.
Partnership with Kambi Group
On November 5, 2019, the Company entered into
an agreement ("SGC Agreement") with Kambi Group plc ("Kambi"), a global sports betting provider, and
Seneca Gaming Corporation ("SGC"), a gaming operator, to provide casino services and player account management to SGC's
three casinos located in Western New York. The services are provided through Oryx. The SGC Agreement sets out that the Company and Kambi
will provide Oryx's gaming platform, including a player account management system, desktop and mobile gaming portal, casino services and
integration with Kambi's portfolio of on-property sports wagering products inside the SGC's casinos.
2020
Sale of Sports New Media
Holdings Limited
On May 1, 2020, the Company entered into an agreement
with Sn&ck Media Limited ("SML") for the sale of Sports New Media Holdings Limited and its subsidiaries, including
GiveMeSport ("GMS Sale"). Pursuant to the GMS Sale, the Company received total consideration of up to £400,000.
The consideration consisted of an upfront cash payment of £50,000 upon completion of the GMS Sale and 10% of the gross revenues
from GMS for a period of 21 months following the completion of the sale. The GMS Sale was completed on May 7, 2020.
Oryx Settlement
On May 13, 2020, the Company entered into an amending
agreement with KAVO and Matevž Mazij, whereby the earn-out payment otherwise due to the Oryx Vendor on June 30, 2020 was extended
to September 30, 2020 and the first earnout payment’s range was agreed to be between €10,020,000 and €11,500,000.
On September 29, 2020, the Company entered into
an agreement with Matevž Mazij and KAVO to amend the Oryx SPA (the "Fifth Amending Agreement"). The Fifth Amending
Agreement provides, among other things, that the Company's obligations to pay the first Oryx Earn-Out (the "First Earn-Out Payment")
to KAVO would be extended for a period of four months from the deadline provided in the Oryx SPA (as amended) and upon the terms and conditions
set out in the Fifth Amending Agreement. The Company and KAVO agreed that the First Earn-Out Payment would equal €10,547,761, payable
in cash. In addition, it was agreed that €1,500,000 would be payable to the Oryx Vendor in relation to successful collection of certain
trade receivables and that interest would be payable at a rate of 10% per annum of the principal amount of the first earnout payment commencing
October 1, 2020.
On November 13, 2020, the Company amended and
restated the September 29, 2020 Fifth Amending Agreement (the “Amended and Restated Fifth Amending Agreement”) and
agreed that the second Oryx Earn-Out (the "Second Earn-Out Payment") would be converted into €22,000,000 worth of
Common Shares by January 31, 2021 at a conversion price of C$0.73 per Common Share, pending shareholder approval. If, and only if, shareholders
do not approve the transactions, or the meeting of shareholders is postponed, the due date for settlement of the equity component was
further extended to December 1, 2021 and was to be settled in cash. On November 27, 2020, shareholder approval of the transactions was
obtained, and the Second Earn-Out Payment was converted to Common Shares on January 18, 2021.
Exercise of Warrants
Between October 15, 2020 and November 30, 2020
1,601,784 Special Warrants and 19,456,928 Warrants issued upon closing of the Transaction with AA Acquisition Group Inc. and Oryx Gaming
International LLC were exercised for gross proceeds of C$15,604,175. On November 30, 2020 9,203,658 outstanding Warrants expired. All
Special Warrants were exercised prior to the expiry date.
Financing – Prospectus Offering
On November 18, 2020 the Company announced the
closing of the a "bought deal" short form prospectus offering of 29,572,250 units for total gross proceeds of C$20,700,575,
which included the exercise of an over-allotment option in full (the "2020 Offering").
Each unit issued pursuant to the 2020 Offering
consisted of one Common Share and one half of one Common Share purchase warrant of the Company. Each warrant entitled the holder thereof
to purchase one Common Share at a price equal to C$1.00 for a period of 36-months following the closing of the 2020 Offering. The warrants
include an acceleration provision, exercisable at the Company’s option, if the Company's daily volume weighted average share price
is greater than C$1.50 for at least ten consecutive trading days.
In addition to the units, the Company granted
1,774,335 broker warrants, each convertible to one Common Share and half of one warrant at a price equal to C$0.70.
Board and Management Changes
Effective August 27, 2020, the Company announced
that its Chief Executive Officer, Dominic Mansour, was taking a period of paid leave of absence for personal reasons. To cover for the
vacancy created in connection with Mr. Mansour's leave of absence, the Board appointed Adam Arviv to act as Interim Chief Executive Officer
of the Company. In addition, the Board nominated and elected Mr. Arviv to serve on the Board.
On September 30, 2020, the Company announced that
the Board nominated and elected Richard Carter to serve as the Executive Chairman of the Board. Mr. Carter has extensive experience in
the gaming industry and held the role of CEO of interactive sports betting solutions and services provider SB Tech for the past five years,
until the company's merger with digital sports entertainment and gaming company DraftKings through a three-way deal with Diamond Eagle
Acquisition Corp. in April 2020. The Company also entered into a consulting agreement with the Richard Carter for consultancy, advisory
assistance, and services relating to the Company's expansion into the U.S. market. In connection with Mr. Carter's election to the Board,
Paul Pathak was appointed as Vice-Chairman and Lead Independent Director of the Board.
On December 2, 2020, the Company announced that
the Board accepted the resignation of Dominic Mansour as the Chief Executive Officer effective November 27, 2020 and that Adam Arviv,
the Interim Chief Executive Officer, assumed the role of Chief Executive Officer on a full-time basis. Dominic Mansour vacated all executive
positions and resigned from the Board.
Recent Developments
Financing – Common Shares
On January 13, 2021, the Company completed a non-brokered
private placement. The Company raised gross proceeds of C$3,000,000 through the issuance of 2,479,335 Common Shares at a price of C$1.21
per Common Share. Insiders of the Company subscribed for 2,479,335 Common Shares.
Acceleration of Warrants
On January 21, 2021, the Company
announced that it elected to exercise its option to accelerate certain warrants issued pursuant to the 2020 Offering. Each warrant entitled
the holder thereof to purchase one Common Share at a price equal to C$1.00. The expiry date of the warrants was accelerated to February
22, 2021. As at the date of this AIF, there are nil issued and outstanding warrants and 168,861 broker warrants issued and outstanding.
Oryx Second Earn-Out
On January 18, 2021, the Second Earn-Out Payment
was converted into €22 million worth of Common Shares at a conversion price of C$0.73 per Common Share, subject to certain conditions,
including the completion of a financing transaction and the entering into of an investor rights agreement with KAVO (the "KAVO
Investor Rights Agreement"). The Fifth Amending Agreement further provides that KAVO is entitled to receive up to €1,500,000
in certain accounts receivable of the Company.
Following the completion of the Second
Earn-Out Payment, Matevž Mazij became a "control person" of the Corporation, and, as of the date of this AIF,
exercises control or direction over 24.7% of the outstanding Common Shares on a non-diluted basis. The Amalgamation and Transaction
were completed in compliance with applicable securities laws at the time, and the Fifth Amending Agreement does not substantially
change the terms of the underlying SPA. The common shares of the Corporation issued to satisfy the second earn-out payment are
subject to a statutory four-month hold period. In connection with the settlement of the Second Earn-Out Payment, Matevž Mazij
was appointed to the Board.
The full text of the Oryx SPA, the Fifth Amending
Agreement, and the KAVO Investor Rights Agreement are filed under the Company's profile on SEDAR at www.sedar.com. Readers are
encouraged to read the Oryx SPA (as amended by the Fifth Amending Agreement) and the KAVO Investor Rights Agreement in their entirety.
TSX Listing
On January 27, 2021, the Company's
Common Shares began trading on the TSX, under the symbol BRAG, and ceased trading on the TSX Venture Exchange.
Board and Management Changes
On January 12, 2021, the Company
announced that Paul Godfrey had been appointed to the Board. Mr. Godfrey is the Founder of Postmedia and held the role of President and
CEO of Postmedia Network. He continues to act as a director and non-executive Chair of Postmedia. Mr. Godfrey holds the role of Chairman
of the Board of Trustees of RioCan Real Estate Investment Trust (REI-UN.TO), and is on the Board of Directors of Canadian-based airline
Cargojet (CJT.TO). He also previously held the role of Publisher and CEO of the Toronto Sun Publishing.
On March 1, 2021, the Company
announced that Lara Falzon had been appointed to the Board. Ms. Falzon currently holds the role of Operational CFO of NetEnt and CFO at
Red Tiger Gaming. She previously held the roles of Group CFO at Evoke Gaming Ltd. and Group Financial Controller at King. Ms. Falzon is
a member of the Association of Chartered Accountants and holds a Bachelor of Commerce from the University of Malta.
Description
of the Business
General
The Company, through its principal subsidiary
Oryx, is a turnkey gaming solution supplier, and provides a business-to-business ("B2B") cross channel gaming platform
technology, product delivery platform, casino content, managed sportsbook, lottery and managed services. Since the closing of the Transaction
on December 20, 2018, Oryx became a wholly-owned subsidiary of the Company, and the Company carries on the business previously carried
on by Oryx and substantially all of the Company's revenues are derived from Oryx's operations. The Company has one reportable operating
segment in its continuing operations, "B2B online gaming", which is operated through Oryx. As a result of the sale of SNM in
May 2020, the Company discontinued its online media business unit.
Oryx is incorporated in the State of Delaware
and headquartered in Las Vegas. Its primary operations are provided through its wholly-owned subsidiaries in Malta, Slovenia, and Cyprus.
See "Risk Factors – Risks Factors Related to the Company" for related risks including with respect to currency
exchange risk.
Oryx is a turnkey B2B online gaming solution provider,
which offers a one-step solution adaptable to various gaming markets and legislative environments. Along with its proprietary content,
Oryx's content aggregator combines casino, slots, live dealer, lottery, virtual sports, and instant-win game content from gaming content
providers. A description of the principal products and services of Oryx is set out below.
Operating Segment
The
Company, through Oryx, has only one operating segment: B2B online gaming, and it derives 89% of its revenue from its games and content
services. Oryx's customer base consists of online gaming operators. The principal products and services provided by Oryx are games and
content, software platform licensing, and turnkey and management services. Approximately 94% of the Company's operating revenue is geographically
based in Malta, Curaçao, Germany, Croatia, Romania, and Serbia, though this segmentation is not correlated to the geographical
location of the Company's worldwide end-user base.
Products and Services
Oryx offers a full range of games including slot
games, table games, card games, video bingo, scratch card games, virtual sports, and live dealer games. These games are featured on the
I-Gaming Platform and are also available for use on other gaming platforms offered by third parties.
Games and Content
Oryx
offers a full range of games and content portfolio. Oryx’s content aggregation offers a single integration with immediate access
to over 10,000 game titles from over 100 top game providers. Oryx’s titles include some of the most popular games in German, Spanish,
Japanese, Romanian, Croatian, Serbian and Latin American markets. Oryx offers Unique, exclusive and localised content from Gamomat, Peter
& Sons, CandleBets, Golden Hero, Kalamba, Oryx Gaming, Givme Games, Red Tiger, Netent, Microgaming, EGT, PragmaticPlay and more. Given
the amount of content in the online casino sector, the regulatory landscape and the fact that player preference is getting more and more
sophisticated, the Oryx aggregator of games and content offers a great advantage to operators. Games and content aggregation streamlines
the process of offering games to players and eliminates a massive tech lift on the operator side. New high-quality providers, such as
the ones Oryx is offering, have emerged with attractive offerings that ultimately challenge the pocket of dominance which ‘Tier
1’ suppliers have enjoyed for too long. Operators are keen to diversify their product offering for reasons ranging from restricted
market spend and bonus capabilities to greater demand for localised content. Oryx games and content offering solves these challenges for
operators around the globe.
Software Platform Licensing
Oryx offers a multi-channel and cross-product
platform that enables operators to manage their entire product suite using one shared account and one wallet for casino, lottery, sportsbook,
and other operations ("I-Gaming Platform"). The I-Gaming Platform allows operators to maximize cross-sale opportunities
and increase player value by using the fully-integrated set of tools and solutions to manage users, transactions, campaigns, reporting,
and analytics. The I-Gaming Platform features Oryx games and content developed by third parties. The platform offers a full payment solution
integrated with a large number of payment solution providers covering local and global markets; and it also includes a player risk profile
level and an advanced rule engine for customization.
Through a single account across all products and
channels, operators get a complete overview and history of customer activities, transactions, balance, and personal data. This enables
a personalized approach in communication with players and tailor-made offers. The platform also offers player protection features such
as deposit limits, play-time limits, loss limits, and reality checks to allow operators to encourage responsible gaming.
The I-Gaming Platform has an integrated chat
function which enables quick access to customer data, and enables operators to provide unrivaled customer support as well as
up-selling and cross-selling opportunities. The platform also has bonus and wagering management, whereby the platform can enable
automatically triggered bonuses for deposits and signup promotions, manual bonuses given to players by customer support, bonus code
and many other flexible bonus configurations. In addition, the platform provides for loyalty management wherein operators can set
different levels for different game limits, transaction limits, bonuses, levels of service and predefined deposit amounts. The
platform also allows for dynamic campaign management whereby operators can create automated or bespoke campaigns to maximize
cross-selling opportunities to increase player value.
The I-Gaming Platform has a sophisticated business
intelligence tool which can create insightful dashboards and reports on customer behaviour, financial transactions, gaming income, bets,
detailed statistics of game-play, all with flexible filtering and grouping options, as well as campaigns performance reporting. The I-Gaming
Platform contains an affiliate management system and portal to enable operators to build productive relationships with affiliates using
redirect or download links, direct marketing CDs, coupon codes, and real-time earning and payment reporting. Further, the I-Gaming Platform
provides for an integrated land-based, self-serve, betting system with support for anonymous play (cash and cashless play support), and
account play (registration, login, deposit and fund transfers). Development and maintenance of the I-Gaming Platform is completed in-house
by employees and contractors of Oryx and its subsidiaries.
Turnkey and Management
Services
Oryx offers a complete solution for gaming operators
where it will manage an operator's customers and marketing communication, using the Oryx I-Gaming Platform. The operations management
services assist with hosting and security, know-your-client requirements, payment and transaction management, customer support, and risk
and fraud management. Oryx's campaign management services address retention and conversion marketing programs, VIP marketing and management,
and provide a personalized approach to players. These services are based on player data and correspondence history, and aim to create
a strong relationship and customer loyalty. Oryx's analytics and business intelligence services aggregate, manage and utilize significant
amounts of data and prepare periodic and per-request reports and insights.
Revenue and Sales
ORYX Gaming Limited (Malta)
ORYX Gaming Limited ("OGL") is
a wholly-owned subsidiary of Oryx, and holds its gaming supply license, being its Maltese B2B license ("Critical Gaming Supply
License") to supply ‘Type 1’ games (casino-games), which is regulated by the Malta Gaming Authority ("MGA"),
and its "class 2" Romanian license ("Class 2 License"), which is regulated by the Romanian Gaming Authority.
OGL generates revenue for Oryx by being the main arm through which it uses its Critical Gaming Supply License to license and/or supply
proprietary and third-party gambling software products, but it does not supply Oryx Sportsbook to MGA license holders using its Critical
Gaming License. OGL uses its Class 2 License to support Romanian-licensed operators.
ORYX Sales Distribution
Limited (Cyprus)
ORYX Sales Distribution Limited
("OSD"), is a wholly-owned subsidiary of Oryx, and is a sales and distribution company for the license and/or
supply of proprietary and third-party gambling software products to operators in non regulated markets. OSD holds no gambling
licence as this is not required for its operations. The purpose of OSD is the distribution and sale of gaming software and content
to markets that are not regulated by the MGA. The regulatory framework of the MGA does not permit MGA licensees to provide services
to businesses that do not hold a valid MGA license. The Company incorporated the OSD subsidiary to provide non-regulated services to
non-licensees. OSD is managed in a similar fashion to OGL, since both subsidiaries provide many of the same services. OGL, however,
sells gaming software and content to MGA licensees, while OSD sells gaming software and content to non-MGA licensees. OSD is
unregulated, requires and retains no licensees or certificates, has no physical office space, and retains no employees.
Oryx retains a corporate services firm in Cyprus
that provides resident directors, as Cyprus has director residency requirements, and houses the minute book and constating documents of
OSD. The nominee director of OSD can be removed or replaced by Oryx, the legal and beneficial owner of all of the issued and outstanding
shares of OSD.
Revenue
Oryx sells the products it has developed (including
the Oryx Games, Oryx Sportsbook, Oryx Lottery and the I-Gaming Platform) and third-party content within its solutions. Oryx also licenses
its Oryx Games for use on other gaming platforms offered by third parties.
Oryx derives the majority of its revenue from
operators using its platforms and proprietary and third-party content, whereby it earns a percentage of the gross gaming revenue generated
by the operators. As such, the success of Oryx is tied to the performance of its operators. In addition, the Company made significant
strides improving revenue diversification throughout the year. For the year ended December 31, 2020, 58% of revenue was derived from ten
clients, down from 72% for the twelve months ended December 31, 2019, even though the total revenue derived from these large customers
was larger than previous periods.
For the year ended December 31, 2020, the Company
achieved 74.6% year-over-year revenue growth. For the year ended December 31, 2020, the Company achieved total revenue of €46.4 million
(C$71.0 million), gross profit of €20.2 million (C$30.9 million), and Adjusted EBITDA of €5.5 million (C$8.5 million). The Company
returned a positive Adjusted EBITDA for the second year in a row.
Operations
ORYX razvojne storitve
d.o.o. (Slovenia)
ORYX
razvojne storitve d.o.o. ("ORS") is a wholly-owned subsidiary of Oryx, and its principal function is as the development
arm of Oryx. ORS develops and implements the gambling software products for Oryx and other subsidiaries for further licensing and/or supply
to operators. ORS holds no gambling licence as this is not required for its operations.
ORS
holds, together with OGL, the ISO/IEC 27001 certificate. The ISO/IEC 27001 is an international standard on how to manage information security.
The standard was originally published jointly by the International Organization for Standardization (ISO) and the International Electrotechnical
Commission (IEC) in 2005 and then revised in 2013. It details requirements for establishing, implementing, maintaining and continually
improving an information security management system (ISMS) – the aim of which is to help organizations make the information assets
they hold more secure. A European update of the standard was published in 2017. Organizations that meet the standard's requirements can
choose to be certified by an accredited certification body following successful completion of an audit.
The
ISO/IEC 27001 certificate is widely known, providing requirements for an ISMS, though there are more than a dozen standards in the ISO/IEC
27000 family. Using them enables organizations of any kind to manage the security of assets such as
financial information, intellectual property, employee details or information entrusted by third parties.
Development
With respect to development, Oryx develops some
of its own products and subcontracts out certain development activities. Software development know-how and expertise for online gambling
are contained within Oryx. The main input into the development of its products is human capital in the form of employees or contractors.
The I-Gaming Platform is owned by Oryx. All intellectual property is owned by Oryx, while physical assets for software development are
owned by Oryx's subsidiaries.
Real Property
The Company, including Oryx, holds no real property
or mortgages, but Oryx leases office space in Slovenia.
Employees
As of the date of this AIF, the Company has a
total of 249 employees, which includes 237 employees employed by Oryx and its subsidiaries.
Market
Oryx is a gaming solutions provider selling to
gaming operators that are headquartered in Malta, Schleswig-Holstein Germany, Romania, Croatia, Czech Republic, Serbia, Colombia, Sweden,
and Denmark. While a large portion of revenue is derived from German facing operations, the Company has seen significant growth outside
of Germany, which demonstrates the Company's efforts to continually diversify and reduce its exposure to any single country. Oryx intends
to maintain its position by providing compliant, localized and unique solutions, highly adaptable to regulatory requirements and third-party
integrations. See "Risk Factors – Risks Factors Related to the Company" for related risks including with respect
to operating in different jurisdictions.
Competition
The online gaming market is extremely competitive,
which is growing rapidly. Oryx is a highly sought after provider of content for operators targeting Germany, Croatia, Serbia, Romania,
Bulgaria, Spain, Denmark, Sweden, Switzerland, Latin America and elsewhere in South Eastern Europe. Oryx is a primary iGaming option for
new operators in the German, Croatian and Latin American markets.
The major competitors in its market are:
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Gaming Innovation Group
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Score Media and Gaming Inc.
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International Game Technology
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Scientific Games Corporation
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Management also believes that, while most of the
customers have the option of internalizing their content development, it is not likely to happen given the specialized skills required
to develop content and the need of operators to supply end-users with a large variety of games.
Intellectual Property
Oryx's software is copyright protected. In addition,
Oryx's protects knowledge base are considered trade secrets and it imposes non-disclosure agreements on any party it transacts with.
Oryx has a trademark registered with Slovenian
Intellectual Property Office for the following:
In addition, Oryx has recently filed two more
applications with the Slovenian Intellectual Property Office for the following:
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word mark "ORYX" and
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the sign
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Licenses & Registrations
Oryx complies with all local rules and regulations
within its operating jurisdictions and has licenses, registrations, and certificates with respect to its software and operations in the
following jurisdictions: Oryx has business-to-business software licenses in Malta and Romania and has certificates and approvals to distribute
their products in Croatia, Denmark, Spain, Colombia, Estonia, Gibraltar, Schleswig-Holstein Germany, Serbia, Czech Republic, Sweden, Latvia,
Portugal, Switzerland, Bulgaria and the United Kingdom ("Oryx Licenses and Registrations"). Please see the chart below
for further details on the licensing regime in the jurisdictions in which Oryx has material operations or currently intends to operate
in the near future. In addition to the below we are in progress of applying for the following B2B licenses: Greece, the United Kingdom,
Bahamas, New York, New Jersey and other U.S. states; and will be technically compliant for the following jurisdictions: The Netherlands
and Italy.
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Jurisdiction
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Regulatory Framework (Gaming Authority)
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Required Licenses/ Registrations/ Certificates
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Oryx Status
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Renewal
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Maintenance Requirements
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Malta
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MGA (Malta Gaming Authority)
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Supplier needs to have a B2B license.
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Compliant and Live
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Valid until October 2025
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Personnel with key functions must file
personal declaration forms:
(a)
CEO;
(b)
CFO;
(c)
Legal and compliance;
(d)
Technical and information security;
(e)
day to day gaming operations; and
(f)
internal audit.
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Jurisdiction
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Regulatory Framework (Gaming Authority)
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Required Licenses/ Registrations/ Certificates
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Oryx Status
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Renewal
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Maintenance Requirements
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Romania
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Romanian gaming authority (ONJN)
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Supplier needs to have a B2B license. Certificate required for games and platform.
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Compliant and Live
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B2B license is valid indefinitely subject
to payment of annual fees and yearly audit.
Certificate is subject to annual renewal
or upon specific changes.
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N/A
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Germany (Schleswig- Holstein)
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Ministerium für Inneres, ländliche
Räume und Integration des Schleswig- Holstein.
Currently only one state has regulated
online gambling; federal gaming regulation is in development.
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Registration required for games and platform.
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Compliant and Live
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Ongoing
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N/A
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Curacao
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E-gaming License Authority
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Suppliers are not required to hold a gaming license.
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N/A (Live)
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N/A
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N/A
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Croatia
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Croatian tax authority
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Suppliers are not required to hold a gaming license. Certificate required for games and platform.
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Compliant and Live
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Ongoing
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N/A
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Paraguay
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Comision Nacional de Juegos de Azar (CONAJZAR)
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Online gaming is not regulated.
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N/A (Live)
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N/A
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N/A
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Gibraltar
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Gibraltar Gambling Commission (GGC)
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Certificate required for games – UK game certificate is acceptable. Sheltering of Oryx by a GIB B2B licensed third party.
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Compliant and Live
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N/A
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N/A
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Colombia
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Coljuegos
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Certificate required for games and platform.
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Compliant / currently not Live
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Certificate is subject to annual renewal or upon specific changes.
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N/A
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Spain
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Directorate General for the Regulation of Gambling
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Certificate required for games and platform.
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Compliant and Live
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To be determined.
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N/A
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Sweden
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Swedish Gambling Authority
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Certificate required for games and platform.
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Compliant and Live
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To be determined.
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N/A
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Slovenia
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Slovenian Tax Authority
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Suppliers are not required to hold a gaming license.
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Compliant / currently not live
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N/A
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N/A
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Serbia
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Military Technical Institute Belgrade
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Suppliers are not required to hold a gaming license.
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Compliant and Live
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N/A
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N/A
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Montenegro
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N/A
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Certificate required for games – UK game certificate is acceptable.
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Compliant and Live
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N/A
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N/A
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Estonia
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Tax and Customs Board
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Certificate required for games – UK game certificate is acceptable.
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Complaint and Live
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N/A
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N/A
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Jurisdiction
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Regulatory Framework (Gaming Authority)
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Required Licenses/ Registrations/ Certificates
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Oryx Status
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Renewal
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Maintenance Requirements
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Czech Republic
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Ministry of Finance
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Certificate required for games. Approval for the platform.
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Compliant not Live
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N/A
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N/A
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Denmark
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Danish Gambling Authority
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Certificate required for games
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Compliant and Live
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TBD
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Servers: EU
Certification: Games
Yearly pentest
Yearly/Quarterly change management
review
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Latvia
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LOTTERIES AND GAMBLING SUPERVISORY INSPECTION OF LATVIA
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Certificate required for games
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Compliant and Live
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N/A
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N/A
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Portugal
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Portuguese Gambling Regulator (SRIJ)
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Certificate required for games
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Compliant and not live
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N/A
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N/A
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Switzerland
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Federal Gaming Board
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Certificate required for games. ISO 27001 required.
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Compliant and live
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N/A
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Yearly ISO certificate maintenance
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Notes:
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(1)
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An application is in the process of being filed with respect to a license and registration with the United
Kingdom Gaming Commission. A certificate has been issued with respect to the games and the platform.
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Regulatory Environment
and Regulatory Compliance
Generally, the development, distribution and use
of gaming software in the jurisdictions where Oryx conducts business are subject to licensing and regulation. Online gambling is generally
authorized under license, with gaming authorities generating revenue from license fees and taxation. In order to develop and distribute
Oryx's software, which is targeted to the gaming market, Oryx must comply with the applicable regulations of each jurisdiction in which
Oryx seeks to conduct business activities, which in some circumstances includes the jurisdictions in which Oryx's customers conduct their
activities.
Oryx operates in a complex environment, with jurisdictions
adopting inconsistent approaches to regulation. In keeping with the industry standards, generally, Oryx and its commercial partners have
established their core operational presence within the licensing jurisdiction of Malta, as detailed below. They will then derive revenue
from players who are located in a variety of jurisdictions, having established first the extent to which such jurisdictions' laws and
regulations apply and/or are enforceable and while also ensuring that their deriving such revenue is consistent with their ongoing compliance
with the applicable laws in the licensing jurisdictions themselves.
While a number of European jurisdictions have
enacted legislation that specifically criminalizes the activity of an unlicensed online gambling operator and have done so through legislation
that is no longer subject to any challenge through any subsequent due process (for example, such a challenge could be brought where a
piece of legislation has been enacted in contravention of previously issued advice from the European Commission), not all jurisdictions
approach the industry in this way.
In certain territories, legislation has been
enacted that may be subject to potential future challenge as to its validity (such as an aforementioned EU-law challenge).
Furthermore, there may be arguments that taking business from players located in a particular unregulated jurisdiction would not
necessarily contravene local laws, for example, on the basis that laws have not been updated to embrace remote supply, or may not
operate in such a way to be applied extra-territorially.
Nearly all the jurisdictions in which Oryx provides
products to business-to-consumer ("B2C") operators regulate B2B gaming software developers and distributors, such as
Oryx. Where B2B licensure is not required, Oryx coordinates with B2C customers to deliver products to them in a way so they may comply
with the local requirements. While certain jurisdictions require B2B gaming software companies, such as Oryx, to be licensed, the focus,
rigor, and licensure process, and ongoing regulation, is different for B2C businesses operating in those jurisdictions.
Oryx also takes certain precautions through common
industry contract provisions and the use of a compliance plan to only do business with customers who do not operate in prohibited jurisdictions.
As Oryx grows and expands into new markets or as jurisdictions regulate their markets, Oryx may require additional gaming licenses and
may be subject to different regulatory regimes.
Gaming regulations applicable to Oryx are generally
focused on two areas of Oryx's operations: (i) corporate/personnel regulations; and (ii) product/technical regulations:
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Corporate/personnel regulations establish the qualifications and conditions that Oryx must satisfy with
respect to the history and future conduct of business and the suitability of the individuals Oryx employs. This type of regulation is
intended to ensure the integrity of participants in the gaming industry.
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Product/technical regulations are the rules related to the products Oryx may offer and the specifications
those products must embody in a particular market. This type of regulation is intended to validate that the products Oryx offers to players
or related services are permitted, fair and honest.
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In order to maintain the Oryx Licenses and Registrations,
Oryx must submit to regular monitoring of Oryx's business by gaming authorities, including regular compliance audits. In some jurisdictions,
Oryx is required to submit quarterly and annual reports that detail Oryx's business activity, financial matters, and compliance processes.
Certain material events, such as key employee, director or officer appointments and dismissals, regulatory actions, share transfers, material
transactions and loans, or material litigation must be reported within short timeframes (typically within 5 and 30 days of the event).
The jurisdictions where Oryx has the Oryx Licenses
and Registrations have certain regulatory obligations requiring B2B suppliers to establish internal controls to identify potential business
circumstances, companies, and people that could be harmful to the gaming industry and to take appropriate action to avoid or remove Oryx
from such unsuitable situations. As a result, Oryx must monitor and review itself and Oryx's customers to limit Oryx's involvement in
situations where Oryx should reasonably know that its activities or Oryx's customer's activities are incompatible with its licensing requirements,
which includes the ongoing use or offering of Oryx's products in jurisdictions where gambling or interactive gaming is prohibited.
Oryx's compliance plan is a comprehensive internal
policy that outlines regulatory parameters for certain aspects of Oryx's business operations.
Oryx maintains and regularly updates a
restricted territories list for jurisdictions where gambling or interactive gaming is prohibited, which currently includes: United
States, Canada, Australia, France, Israel and Slovenia. Some jurisdictions prohibit gaming in all or certain forms. In addition, by
statute or other operation of law, certain jurisdictions provide a termination right available to a gaming licensee if a party to a
contract is determined to be unfit for the gaming industry. Oryx does not market its offerings in jurisdictions where there are
prohibitions that clearly apply to its activities and the business models it has adopted. Oryx I-Gaming platform utilises market
leading third party geo-ip services to reveal the location of the player. which mostly identify the player's location based on IP
address and known proxy service provider list. Geo-location of the player is checked at the time of registration and at every login.
The platform enforces geo-blocking procedures based on the identified location and the operation's allowed/banned country list.
There are no known circumstances where it would not be technically possible to impose geo-blocking.
Oryx's payment processors and B2C customers have
certain protective measures to prevent fraud and money laundering, which are required by regulation and their own internal business operations.
Oryx has also adopted a fraud management policy and anti-money laundering policy to assist Oryx's customers, partners and the regulators
prevent or identify illegal activity. Measures adopted under such policies include the creation of a dedicated fraud management team to
monitor suspected fraudulent activity, the implementation of internal fraud reporting procedures and the use of fraud management software
to timely communicate the information to the other stakeholders in these objectives. When contracting and integrating directly with licensed
casino operators, Oryx performs due diligence as part of the contracting process. If any suspicious activities are detected, Oryx reports
such activities to the relevant authorities.
Currently, the majority of the international operations
undertaken by Oryx are licensed directly in Malta and Romania. Oryx is also certified, but not licensed, in the UK, the State of Schleswig
Holstein (Germany), Croatia, Serbia, Estonia and Latvia. In these territories, Oryx is certified to provide its services to locally licensed
commercial partners. Malta is the key interactive gaming jurisdiction with comprehensive and mature interactive gaming policies and regulatory
frameworks. As a result, Malta hosts and licenses many of the industry's largest operators.
Malta
The MGA is the regulatory body that is responsible
for the governance of all gaming activities in Malta. The MGA issues licenses for the operation of online casino games, games of chance,
online sports betting and general games that utilise a random number generator. Pursuant to the remote gaming laws and regulations, any
person who operates, promotes, sells, supplies or manages interactive gaming in or from Malta must obtain the appropriate license from
the MGA. To qualify for a license, an applicant must be a body corporate registered and incorporated in Malta.
Applicants must provide information, including,
but not limited to:
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personal financial background information;
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interest in other commercial activities;
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criminal record information;
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information concerning all pecuniary and/or equity interests; and
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any other information that the MGA requires, for every director and key official of the applicant and
for every shareholder with 5% or more ownership of, or controlling interest, in the applicant. The MGA may, at its sole discretion, require
that all beneficial owners of shares in the applicant's company provide such information.
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Remote gambling operators are required to pay
a gambling tax to the Maltese authorities. The amount of this tax varies depending on the type of license issued and maintained by the
operator or software/services supplier.
A remote gaming license is to be renewed every
five years from the date of issue of the license. The MGA requires that the licensee commence the renewal process at least 60 days from
the date of expiry of the license.
Other Markets
All the gambling regulators that oversee the operations
of Oryx's subsidiaries have acknowledged that remote gambling operators are required to assess the applicability and enforceability of
any laws and regulations that may impact their activities, including the laws and regulations in the jurisdictions from where Oryx derives
revenue and yet in which no gambling licenses are held.
Other Regulatory
Regimes and Future Developments
While certain European countries, such as Malta
and Gibraltar, have adopted "point-of-supply" regimes which generally permit their licensees to accept wagers from any jurisdiction
that does not expressly prohibit the supply of online gaming from outside such jurisdiction, other countries, including the UK, Italy,
France, Spain and Denmark, have implemented, or are in the process of implementing, "point-of-consumption" regimes which only
permit the targeting of the domestic market, provided the appropriate local license is obtained and local taxes accounted for (regardless
of where the operator's assets, infrastructure and employees may be located). Such licensing regimes can apply onerous compliance requirements
and/or introduce product restrictions or marketing restrictions that could have an adverse effect on Oryx's operations (and correspondingly
on its financial performance) were it to obtain and maintain such licenses.
Other European territories continue to defend
limited licensing regimes that protect monopoly providers and, in certain jurisdictions, have combined this with an attempt to prohibit
or otherwise restrict all other supplies into the territory. Restrictive approaches to the regulation of internet gambling may yet be
deemed to be in potential conflict (in any specific jurisdiction) with the Treaty for the Functioning of the European Union ("TFEU")
treaty laws (governing the free movement of trade and services throughout the EU) and case law rendered by the ECJ.
A challenge to the validity of any EU jurisdiction's
approach to gambling regulation would focus on restrictions on the freedoms of establishment or the freedom to provide services. Restrictions
usually take one of a number of forms, including: (i) granting exclusive rights in certain, or all, gambling activities to one or a few
providers; (ii) implementing a blanket exclusion of all gambling activities; (iii) prohibiting, on pain of criminal penalties, the pursuit
of activities in the betting and gaming sector without a license or police authorization issued by the Relevant Member State; (iv) limiting
the number of licenses available to conduct particular gambling activities; (v) limiting the duration of licenses; (vi) unfair or discriminatory
procedures for awarding licenses; and/or (vii) requirement for local establishment.
A series of recent ECJ decisions have given EU
member states wide latitude in regulating the online gambling market. However, a framework within which member states must operate has
evolved through such jurisprudence and, once evidence of a restriction has been established, it is necessary to determine if such a restriction
can be justified by the member state. As case law developed, the assessment as to whether a restriction on the European market freedoms
is justified became divided into four criteria, which must be cumulatively met. Any restriction must be: (i) non- discriminatory; (ii)
for the public interest; (iii) suitable (such that it achieves the purposes for which the restriction is introduced); and (iv) necessary
(i.e., does not go beyond the intended purposes).
As a result of various ECJ decisions over
the past several years that clearly indicated a lack of recognition by various member states of their obligations flowing from the
TFEU, as highlighted in the aforementioned jurisprudence, the European Commission attempted to prompt the introduction of
initiatives that would harmonise the regulation of online gambling within the EU, which is in line with the TFEU's stated objective
of encouraging a free and open cross- border market. In early 2011, the European Commission's then Internal Market Commissioner,
Michel Barnier, began an EU-wide consultation and review process to assess the possibility of harmonizing the regulation of certain
aspects of online gambling regulation. Harmonization in the area of online gambling, however, has been met with substantial
opposition in the past, and it is now considered highly unlikely that the harmonization will occur (not least as the ECJ has also
made it clear, within jurisprudence, that provided it enacts legislation that is in line with the four criteria stated in the
paragraph immediately above, then it is not obliged to recognize any licenses issued to a gambling operator in any other member
state).
Contemporaneous with its efforts to harmonize
European online gambling laws, the European Commission has initiated infringement proceedings against various member states in relation
to perceived breaches of Article 56 of the TFEU, including the latest such action commenced against Sweden in late 2013, which culminated
in October 2014 with a referral of Sweden to the ECJ for lack of compliance with EU law. In other cases, there has not been such action
and some have not reached a conclusion. There remains an ongoing risk that any resolution of such cases will result in a regulatory regime
unfavorable to Oryx or its commercial partners. In the interim period, there remains uncertainty and an unpredictability around how member
states may approach the ongoing supply into their jurisdictions by operators based outside the jurisdiction. This uncertainty creates
ongoing risk to the business of any operator.
RISK
FACTORS
Risk Factors Related to
the Company
The regulatory environment
regarding the internet and electronic commerce is continually evolving and the application of existing laws can be uncertain
In addition to regulations pertaining specifically
to online gambling, the Company may become subject to any number of laws and regulations that may be adopted with respect to the internet
and electronic commerce generally. New laws and regulations that address issues such as consumer protection, user privacy, pricing, online
content regulation, taxation, advertising, intellectual property, information security and the characteristics and quality of online products
and services may be enacted. As well, current laws, which predate or are incompatible with the internet and electronic commerce, may be
applied and enforced in a manner that restricts the electronic commerce market. The application of such pre-existing laws regulating communications
or commerce in the context of the internet and electronic commerce is fluid and uncertain. Moreover, it may take years to determine the
extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy
are actually applicable to the remote supply of online gambling content and products. The adoption of new laws or regulations relating
to the internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the internet
for gaming and gambling to the extent it would indirectly impact such activities, and result in a decrease in the demand for Oryx's products
and services, increase its cost of doing business or could otherwise have a material adverse effect on Oryx's business, prospects, revenues,
operating results and financial condition.
Impact of laws
The Company and its subsidiaries are
incorporated under the laws of, and/or will operate offices in, Canada, the United Kingdom, the United States, Slovenia and Malta.
The Company and its subsidiaries are and will be subject to a variety of laws in Canada, the United Kingdom, the United States,
Slovenia, Malta, jurisdictions where it holds the Oryx Licenses and Registrations, and abroad, including laws regarding privacy,
intellectual property, taxation and distribution that are continuously evolving and developing. The scope, enforcement and
interpretation of the laws that are or may be applicable to the Company and its subsidiaries are often uncertain and may be
conflicting. It is also likely that as business grows and expands, the Company will become subject to laws and regulations in
additional jurisdictions. Compliance with applicable laws or regulations could be very difficult or liability could arise under
these laws or regulations, including due to amendments to or evolving interpretation and enforcement of such laws and regulations.
As a result, the Company could be directly harmed, and may be forced to implement new measures to reduce the exposure to this
liability. This may require substantial resources to be expended, which could harm the business, financial condition and results of
operations of the Company.
The Company operates
in a new and developing industry
The industries within which the Company operates
are relatively new and rapidly evolving and as such it is difficult to predict the prospects for growth in these industries. If these
industries grow more slowly than anticipated or the Company's existing offerings lose, or its new offerings fail to achieve market acceptance,
the Company may be unable to achieve its strategic objectives, which could have a material adverse effect on the Company's prospects,
business, financial condition or results of operations.
Competition
The industries within which the Company operates
are rapidly evolving and intensely competitive, and are subject to changing technology, shifting user needs, and frequent introductions
of new offerings. The Company's current and potential competitors include large and established companies as well as other start-up companies.
Certain competitors have more established relationships and greater financial resources and they can use their resources against the Company
in a variety of competitive ways, including by making acquisitions, investing aggressively in research and development and advertising.
Emerging start-ups may be able to innovate and provide offerings faster than the Company can. If competitors are more successful than
the Company in developing compelling offerings, the Company's revenue and growth rates could be negatively affected. There is no assurance
that the Company will be able to maintain or grow its position in the marketplace.
Restricted ability
to enforce contracts in certain jurisdictions
The legal framework, ways of working and conduct
of business affairs in certain jurisdictions can differ from what may be considered as standard market practice in other jurisdictions
in which the Company operates. To the extent that such agreements may be subject to any default, dispute or enforcement action, its recourse
to local courts or other enforcement bodies to enforce its rights under such agreements may be limited by virtue of the perceived closed
nature of such businesses and communities. The Company has sought to mitigate such risks in the course of commercially settling the existing
relevant contracts and will seek to do so in any future relevant contract being mindful of the circumstance as a matter of prudent business
conduct however any inability on the Company's part to enforce its contracts could have a direct effect on the revenue generated under
such contracts. Furthermore, any deterioration, for any reason, in the strong business relationships which the Company currently enjoys
with its customers could harm its business reputation and have a material adverse effect on its operations, financial performance and
prospects.
Additional capital
requirements
The Company has limited financial resources
and may require substantial additional equity or debt financing in order to carry out its business objectives, including the
continued development of new and upgraded functionality of the Company's offerings. There can be no assurance that debt or equity
financing or cash generated by operations would be available or sufficient to meet these requirements or for other corporate
purposes or, if debt or equity financing is available, that it would be on terms acceptable to the Company. Failure to obtain
sufficient financing may result in the delay or indefinite postponement of development or production on any or all of the Company's
offerings which could have a material adverse effect on the Company's business, financial condition and results of operations.
Brand development
The brand identities that the Company has developed
have significantly contributed to the success of its businesses. Maintaining and enhancing its brands is critical to expanding the Company's
base of customers, users, end users, advertisers and partners, as applicable. The Company believes that the importance of brand recognition
will increase due to the relatively low barriers to entry in its industries. The brands may be negatively impacted by a number of factors,
including product malfunctions, delivery of incorrect information, data privacy and security issues. If the Company fails to maintain
and enhance its brands, or if the Company incurs excessive expenses in this effort, it could have a material adverse effect on the Company's
prospects, business, financial condition and results of operations. Maintaining and enhancing its brands will depend largely on the Company's
ability to be a technology leader and to continue to provide high-quality products and services, which the Company may not do successfully.
Dependence on key
personnel and employees
The success of the Company is dependent on the
services and performance of key executives, including the directors and officers of the Company and a small number of highly skilled and
experienced executives and personnel. The Company strongly depends on the business and technical expertise of its management and key personnel.
The loss of any of these individuals or the Company's inability to attract and retain additional highly skilled employees may adversely
affect its business and future operations. The competition for highly skilled technical, research and development, management and other
employees is high and there can be no assurance that the Company will be able to engage the services of such personnel or retain its current
personnel.
Rapid technology
developments
The industries within which the Company operates
are characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life
cycles. To keep pace with the technological developments, achieve product acceptance and remain relevant to users and therefore attractive
to customers and advertisers, the Company will need to continue developing new and upgraded functionality of its offerings and adapt to
new business environments and competing technologies and offerings developed by its competitors. The process of developing new technology
is complex and uncertain. To the extent the Company is not able to adapt to new technologies and/or standards, experiences delays in implementing
adaptive measures or fails to accurately predict emerging technological trends and the changing needs of end-users, this could have a
material adverse effect on the Company's prospects, business, financial condition or results of operations. The development and application
of new technologies involve time, substantial costs and risks. There can be no certainty that the Company will be able to develop new
offerings and technologies to keep up-to-date with developments in the industries within which it operates and, in particular, to launch
such offerings or technologies in a timely manner or at all.
Reliance on collaborative
partners
The Company expects to rely on collaborative
arrangements to provide services and to develop and commercialize some of its offerings in the future. There can be no assurance
that the Company will be able to negotiate acceptable collaborative arrangements, that such collaborative arrangements will be
successful or that the Company would not be required to relinquish certain material rights to its offerings. In addition, there can
be no assurance that the Company's collaborative partners will not pursue alternative technologies or develop alternative offerings
either on their own or in collaboration with others, including the Company's competitors. To the extent that the Company succeeds in
entering into collaborative arrangements, it will be dependent on the efforts of third parties for the continued development of
certain offerings.
Additionally, the Company employs agents and subcontractors
as part of the delivery of the Company's services to its customers and as part of the development and commercialization of the Company's
offerings. The ultimate liability for the performance of the agents or subcontractors lies with the Company. Further, the Company's business
model is based on the distribution of its products and services by third parties, including communication network providers, web hosting
providers and operating system manufacturers. If these third parties are not successful in distributing the Company's products and services
it could have a material adverse effect on the Company's prospects, business, financial condition or results of operations.
Management of growth
The Company may be subject to growth-related risks
including capacity constraints and pressure on its internal systems and controls. The Company's ability to manage its growth effectively
will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee
base.
The inability of the Company to deal with this
growth could have a material adverse impact on its business, operations and prospects. While management believes that it will have made
the necessary investments in infrastructure to process anticipated volume increases in the short term, the Company may experience growth
in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for the Company's
personnel, the hiring of additional personnel and, in general, higher levels of operating expenses.
New business areas
and geographic markets
The Company's growth strategy is dependent upon
expanding its offerings into new business areas or new geographic markets. There can be no assurance that these new business areas and
geographic markets will generate the anticipated volume of customers, users or revenue. In addition, any expansion into new business areas
or geographic markets could expose the Company to new risks, including compliance with applicable laws and regulations, changes in the
regulatory or legal environment; different customer preferences or habits; adverse exchange rate fluctuations; adverse tax consequences;
differing technology standards or end-user requirements and capabilities; difficulties staffing and managing foreign operations; infringement
of third party intellectual property rights; the cost of localising software (including translations) or otherwise adapting its products
and services for new markets; difficulties collecting accounts receivable; or difficulties associated with repatriating cash generated
or held abroad in a tax-efficient manner. These factors could cause the Company's expansion into new business areas or geographic markets
to be unsuccessful or less profitable than its existing markets, or could cause the Company's operating costs to increase unexpectedly
or its revenues to decrease, any of which could have a material adverse effect on the Company's prospects, business, financial condition
or results of operations. The Company expects that a majority of its future revenue will be derived from its business operations outside
of Canada. Execution of this business strategy is subject to a variety of risks, including operating and technical problems, regulatory
uncertainties and possible delays.
Operational and
financial infrastructure
The Company is subject to growth-related risks,
capacity constraints and pressure on its internal systems and controls. The ability of the Company to manage growth effectively will require
it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. This
expansion may require the Company to commit financial, operational and technical resources in advance of an increase in the size of the
business, with no assurance that the volume of business will increase or that such initiatives to improve and upgrade its systems and
infrastructure will be successful. The inability to deal with this growth or any failure in these initiatives could have a material adverse
effect on the Company's prospects, business, financial condition or results of operations.
Information technology
defects
The integrity, reliability and operational performance
of the Company's content aggregation, parsing and distribution and other operational information technology ("IT") systems
are critical to the Company's ability to serve its businesses. The Company's IT systems may be damaged or interrupted by increases in
usage, human error, unauthorised access, natural hazards or disasters or similarly disruptive events. Any failure of these IT systems
or the telecommunications and/or other third party infrastructure on which such systems rely, as described in "— Reliance
on Third-Party Owned Communication Networks" could lead to significant costs and disruptions that could reduce the Company's
revenue, harm the Company's business reputation and have a material adverse effect on the Company's prospects, business, financial condition
or results of operations.
The Company has procedures and measures in place
to protect against network or IT system failure or disruption. However, those procedures and measures may not be effective to ensure that
the Company is able to carry on its business in the ordinary course if they fail or are disrupted. In addition, the Company's IT systems
may not be effective in detecting any intrusion or other security breaches, or safeguarding against sabotage, hackers, denial of service
attacks, viruses or cybercrime. Any failure in these protections could harm the Company's business reputation and have a material adverse
effect on the Company's prospects, business, financial condition or results of operations.
The Company may
not be able to protect its intellectual property rights and could be at risk of infringing third-party intellectual property rights
The Company's ability to compete effectively depends,
among other things, on the Company's ability to protect, register and enforce (as appropriate), the Company's intellectual property rights,
including, in particular, the Company's intellectual property rights relating to Oryx's software. Initiating and maintaining suits against
third parties that may infringe upon the Company's intellectual property rights will require substantial financial resources. The Company
may not have the financial resources to bring such suits and if the Company does bring such suits, the Company may not prevail. The Company's
inability to protect these rights and related expenses involved could have an adverse impact on the Company's operations, financial performance
and prospects.
The Company faces the risk that the Company's
intellectual property rights may be infringed by a third-party, and there can be no assurance that the Company will successfully prevent
or restrict any such infringing activity. The costs incurred in bringing or defending any infringement actions may be substantial, regardless
of the merits of the claim, and an unsuccessful outcome for the Company may result in royalties or damages being payable and/or the Company
being required to cease using any infringing intellectual property or embodiments of any such intellectual property (such as software).
If any of the Company's intellectual property is held to be infringing, there can be no assurance that the Company will be able to develop
or obtain (on favorable terms or at all) alternative non-infringing intellectual property.
The Company may receive, from time to time, letters
from intellectual property holders alleging that certain of the Company's products and services infringe the intellectual property rights
of third parties. Some of these may result in litigation proceedings being commenced against any member of the Company and the Company's
directors, or settlements for amounts that may be material to the Company. The Company will need to divert resources to address any such
claims that may arise. If any of the Company's solutions infringe a valid intellectual property claim, the Company could be prevented
from distributing that particular product, unless and until the Company can obtain a license or redesign the product in question to avoid
infringement. A license may not be available or may require the payment by the Company of substantial royalties. Additionally, the Company
may not be successful in any attempt to redesign the infringing product. Infringement and other intellectual property claims, with or
without merit, can be expensive and time-consuming to litigate, and the Company may not have the financial and human resources to defend
itself against any infringement suits that may be brought against the Company.
There can be no assurance that third parties will
not independently develop or have not so developed similar or equivalent software to the Company's software, or will not otherwise gain
access to the Company's source code, software or technology.
There can be no assurance that the Company's registered
and unregistered intellectual property is valid or enforceable and such intellectual property may be subject to challenge or circumvention
by third parties. The Company has not registered all intellectual property rights that are registrable and which are material to the Company's
business and no assurance can be given that any applications for registration made by the Company will be successful, as applied for or
at all.
Moreover, due to the differences in foreign patent,
trademark, trade dress, copyright and other laws concerning rights, the Company's intellectual property may not receive the same degree
of protection in foreign countries as it would in Canada. The Company's failure to possess, obtain or maintain adequate protection of
the Company's intellectual property rights for any reason in these jurisdictions could have a material adverse effect on the Company's
business, results of operations and financial condition.
Currency Fluctuations
The Company's reporting currency will be in Euros
but an increasing proportion of the Company's revenue may be earned and expenses may be incurred in other currencies, including the Canadian
dollar, the pound sterling, and the American dollar. The movement of any of these currencies against the Canadian dollar could have a
material adverse effect on the Company's prospects, business, financial condition and results of operations.
Changes in Taxation
Changes in taxation rates or law, or misinterpretation
of the law or any failure to manage tax risks adequately could result in increased charges, financial loss, including penalties and reputational
damage, and which could have a material adverse effect on the Company's prospects, business, financial condition and results of operations.
End-users are located in a number of different
jurisdictions. Revenues earned from end-users located in a particular jurisdiction may give rise to the imposition of direct, indirect
or turnover taxes in that jurisdiction. In addition, as customers need to continue to obtain local licenses to enable them to target specific
markets, they may be obliged to pay non-gaming local taxes too. This potentially could erode customers' margins for particular markets,
which in turn may affect the financial viability of a specific market, and/or result in the customer wishing to renegotiate its arrangements
with the Company.
If the Company is found to be, or one of the Company's
subsidiaries is found to be, or to have been, a tax resident in any jurisdiction other than that in which it is incorporated or domiciled
or to have a taxable permanent establishment or other taxable presence elsewhere, this may have a material adverse effect on the amount
of tax payable by the Company. Furthermore, any change in the Company's tax status or in taxation legislation, practice or its interpretation
could adversely affect the post-tax returns to shareholders.
With regard to regulated gaming activities, generally
speaking, such activities will not only be subject to direct corporate taxation, but also indirect taxes and gaming duties. As the regulatory
environment continues to develop, it is becoming clear that the taxation environment may become less favorable, as jurisdictions seek
to impose their own regulation and taxation regimes on what was, traditionally, an offshore activity. As a consequence of an increased
taxation burden affecting customers and/or Oryx, the Company may see a reduction in related revenue share or a pressure to re-negotiate
with key customers.
Credit Risk
Credit risk is the risk of financial loss to the
Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from
the Company's receivables from customers. The Company's exposure to credit risk is influenced by the individual characteristics of each
customer. Although the Company expects to establish an allowance for doubtful accounts that represents its estimate of potential credit
losses in respect of accounts receivables and historically has not experienced any significant losses related to individual customers
or groups of customers in any particular industry or geographical area, there is no assurance that the allowance for doubtful accounts
will be sufficient to cover credit losses in the future and future credit losses could have a material adverse effect on the Company's
prospects, business, financial condition and results of operations.
Liquidity Risk
Liquidity risk is the risk that the Company will
not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure it will always
have sufficient liquidity to meets its liabilities when due, under both normal and distressed conditions, without incurring unacceptable
losses or risking damage to the Company's reputation. There is no assurance that the Company's approach to managing liquidity will prove
successful and should the Company be unable to meet its liabilities when due it could have a material adverse effect on the Company's
prospects, business, financial condition and results of operations.
Conflicts of Interest
Certain proposed directors and officers of the
Company may become associated with other reporting issuers or other companies which may give rise to conflicts of interest. In accordance
with the CBCA, directors who have a material interest or any person who is a party to a material contract or a proposed material contract
with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution
to approve the contract. In addition, the directors are required to act honestly and in good faith with a view to the best interests of
the Company, as the case may be. Certain of the directors have either other employment or other business or time restrictions placed on
them and accordingly, these directors will only be able to devote part of their time to the affairs of the Company.
Results of operations
may be negatively impacted by the COVID-19 outbreak
In December 2019, the 2019 novel coronavirus
(COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergency on January 30, 2020 with respect to
the outbreak then characterized it as a pandemic on March 11, 2020. The outbreak has spread throughout Europe, South America,
Canada, and the United States, causing companies and various international jurisdictions to impose restrictions, such as
quarantines, closures, cancellations and travel restrictions.
At this time, it is unknown the extent of the
impact the COVID-19 outbreak may have on the Company in the long-term as this will depend on future developments that are highly uncertain
and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak,
including the duration of travel restrictions, business closures or disruptions, quarantine and isolation measures that are currently,
or may be put, in place by Canada and other countries to fight the virus. However, the Company derives the majority of its revenue from
online casino gaming. This sector has largely benefited from the various international "lock downs", requiring people to stay
at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses. Furthermore,
the Company has limited exposure to sports betting revenues that have obviously been impacted by the lack of professional sports. As at
the time of this AIF, the Company's financial position and cash flow had not been adversely impacted. However, future impact of the outbreak
is highly uncertain and cannot be predicted, and there is no assurance that the outbreak will not have a material adverse impact on the
future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain
COVID-19.
Cash Flow from Operations
The Company had a positive operating cash flow
for the financial year ended December 31, 2020. Although the Company anticipates it will have positive cash flow from operating activities
in future periods, the Company cannot guarantee it will have a cash flow positive status in the future. If the Company does not achieve
or maintain profitability or positive cash flow from operating activities, then there could be a material adverse effect on the Company’s
business, financial condition and results of operation.
Forward-Looking Statements May Prove
Inaccurate
Readers are cautioned not to place undue reliance
on forward-looking statements. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties,
of both a general and specific nature, that could cause actual results to differ materially from those suggested by the forward-looking
statements or contribute to the possibility that predictions, forecasts or projections will prove to be materially inaccurate.
Current Global Financial Condition
Current global financial conditions have been
subject to increased volatility and access to equity financing has been, or may be, negatively impacted by the liquidity crisis and market
turmoil, and any worsening of these situations. These factors, which include the nature, effects and timing of administrative and legislative
change, and possible changes in regulation or regulatory approach resulting from the 2020 general election in the United States, may impact
the ability of the Company to obtain equity or debt financing in the future whether on terms favourable to the Company or at all. If these
increased levels of volatility and market turmoil continue, or worsen, the Company's operations could be adversely impacted and the trading
price of the Common Shares could be adversely affected.
Contingent Liabilities
In the ordinary course of business, the
Company is involved in and potentially subject to, legal actions and proceedings. In addition, the Company is subject to tax audits
from various tax authorities on an ongoing basis. As a result, from time to time, tax authorities may disagree with the positions
and conclusions taken by the Company in its tax filings or legislation could be amended or interpretations of current legislation
could change, any of which events could lead to reassessments.
The Company believes it is impractical to disclose
a reasonable estimate of any potential contingent liability due to the wide range of assumptions and interpretations implicit in the assessments.
Risk Factors Related to
Oryx
Concentrated customer
base accounts for significant portion of revenues of Oryx
Oryx depends on a small number of significant
customers for a large portion of revenue. The business of Oryx was dependent on ten customers for approximately 58% of its revenue in
the fiscal year ended December 31, 2020. Oryx expects such demand from a small number of customers to continue to account for a substantial
portion of its revenue for the current fiscal year. In addition, Oryx's accounts receivables tend to be concentrated with a small group
of customers and it expects this to continue, though the Company is diversifying its revenue sources.
The loss of any significant customer, a significant
decrease in business from any such customer or a reduction in customer revenue due to adverse changes in the terms of contractual arrangements
or other factors could harm its results of operations and financial condition. Revenue from individual customers may fluctuate from time
to time.
Loss of license
The Oryx Licenses and Registrations, and the gaming
licenses of any of its customers may not be renewed or may be revoked for a variety of reasons, including the failure by Oryx's directors,
officers or senior management or significant shareholders or other investors to adequately comply with the suitability, information reporting
or other requirements of licensing and regulatory authorities. Such revocation or non-renewal may materially adversely affect Oryx's operations,
financial performance, and prospects. The revocation of a gaming license could also result in reputational damage to Oryx, may cause Oryx's
other licenses to be subject to review and could materially adversely affect Oryx's operations, financial performance and prospects.
Money laundering/fraudulent
activity in online transactions
Online transactions may be subject to sophisticated
schemes or collusion to defraud, launder money or other illegal activities. There is a risk that Oryx's products or systems may be used
for those purposes by Oryx's customers' players. There is also a risk that Oryx will be subject to fraudulent activities by Oryx's employees.
Any exposure to fraud and/or money laundering could subject the Company and Oryx to financial losses, business disruption and damage to
the Company's and Oryx's reputation. In addition, there is a risk that Oryx may be subject to investigation and sanctions by a regulator
and/or to civil and criminal liability if Oryx has failed to comply with Oryx's legal obligations relating to the reporting of money laundering
or other offences. Oryx has implemented policies and procedures designed to minimise the risk of fraud and money laundering, including
conducting anti-money laundering checks on Oryx's customers. However, there can be no guarantee that these policies and procedures will
be effective in all cases.
User data
Oryx may require the registration of its
users or end users prior to accessing its offerings or certain features of its offerings and it may be subject to increased
legislation and regulations on the collection, storage, retention, transmission and use of user-data that is collected. Oryx's
efforts to protect the personal information of its users may be unsuccessful due to the actions of third parties, software bugs or
technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently
induce employees or users to disclose information in order to gain access to Oryx's data or its user's data. If any of these events
occur, users' information could be accessed or disclosed improperly. Any incidents involving the unauthorized access to or improper
use of the information of users or incidents involving violation of Oryx's terms of service or policies, could damage Oryx's
reputation and Oryx's brands and diminish its competitive position. In addition, the affected users or governmental authorities
could initiate legal or regulatory action against Oryx in connection with such incidents, which could cause Oryx to incur
significant expense and liability or result in orders or consent decrees forcing Oryx to modify its business practices and remediate
the effects of any such incidents of unauthorized access or use. Any of these events could have a material adverse effect on Oryx's
prospects, business, financial condition or results of operations.
Oryx transmits and stores a large volume of data
in the course of supporting its offerings. The interpretation of privacy and data protection laws and their application to the Internet
is unclear and subject to rapid change in numerous jurisdictions. There is a risk that these laws may be interpreted and applied in a
manner that is not consistent with Oryx's data protection practices and results in additional compliance or changes in Oryx's business
practices, or both, and liability or sanction under these laws. In addition, because its offerings are accessible in many jurisdictions,
certain foreign jurisdictions may claim that Oryx is required to comply with local laws, even where Oryx has no local operating entity,
employees, infrastructure or other physical presence in those jurisdictions.
Reputational challenge
of dealing in the gaming industry
The gaming industry is subject to negative publicity
relating to perceptions of underage gaming, exploitation of vulnerable customers and the historical link of the gaming industry to criminal
enterprise. As a supplier to the industry, such negative publicity can affect Oryx's reputation and correspondingly affect Oryx's financial
performance.
Typically, under the terms of the applicable laws
and the Oryx Licenses and Registrations, Oryx must avoid making the promotion or advertisement of gaming that is directed at or could
be directed at underage players. To the extent that Oryx's respective sites are accessed by minors and/or problem gamblers, brand reputation
could be tarnished. Situations can arise where minors or compulsive gamblers could access Oryx's websites or those of Oryx's customers.
Where they do so, as well as negative publicity and potential regulatory censure, all of which would have a corresponding detrimental
effect on the Company and Oryx.
Reliance on third-party
owned communication networks
The delivery of Oryx's offerings and a significant
portion of Oryx's revenues are dependent on the continued use and expansion of third-party-owned communication networks, including wireless
networks and the Internet. No assurance can be given of the continued use and expansion of these networks as a medium of communications
for Oryx.
Effective delivery of Oryx's products and
services through the Internet is dependent on Internet service providers continuing to expand high-speed Internet access,
maintaining reliable networks with the necessary speeds, data capacity and security, and developing complementary products and
services for providing reliable and timely access and services. Changes in access fees (for example, revising the application of
bandwidth caps or other metered usage schemes) to users may adversely affect the ability or willingness of users to access Oryx's
content. Changes in access fees to distributors, such as Oryx or its service providers, or a departure from "net
neutrality" (the principle that all forms of Internet traffic (including video, voice, and text) are subject to equal treatment
in transmission speed and quality) or its governing regulations, as described in " Governmental Regulation of the
Internet" below, could result in increased costs to Oryx. All of these factors are out of Oryx's control and the
manifestation of any of them could ultimately have a material adverse effect on Oryx's prospects, business, financial condition or
results of operations.
In addition, increasing traffic, user numbers
or bandwidth requirements may result in a decline in Internet (or a subset thereof, including in particular mobile Internet) performance
and/or Internet reliability. Internet outages or delays or loss of network connectivity may result in partial or total failure of Oryx's
offerings, additional and unexpected expenses to fund further development or to add programming personnel to complete a development project,
loss of revenue which could have a material adverse effect on Oryx's prospects, business, financial condition or results of operations.
Governmental regulation
of the internet
Governments and regulatory authorities in some
jurisdictions in which Oryx's content originates or its users reside, impose rules and regulations affecting the third-party-owned communications
networks over which Oryx's services are accessed, including Internet and mobile connectivity, and affecting the content distributed to
the public as part of Oryx's offerings. In certain circumstances this governmental regulation of the Internet, which is frequently controversial,
protects Oryx's activities from certain tactics by competitors or potential competitors. Should efforts to overturn this governmental
regulation prove successful, network services providers could impose restrictions that adversely impact Oryx's ability to deliver content
on an equal footing with other audiovisual media providers, which could have an adverse effect on Oryx's prospects, business, financial
condition and results of operations.
Network services and media distribution are frequently
subject to particular rules or regulations. Guidelines or rules are in place in a number of jurisdictions, with varying degrees of enforcement,
with respect to both network services, including network neutrality and media, including content exclusivity and standards. However, although
regulatory schemes can vary significantly from jurisdiction to jurisdiction, Oryx is not aware of regulations in any material jurisdiction
that would require it to be licensed to carry on its activities over the public Internet in those jurisdictions, except with respect to
the Oryx Licenses and Registrations.
Gaming industry
is highly regulated
The development and distribution of gaming solutions
is, in some jurisdictions, subject to extensive scrutiny and regulation on all levels of government including, but not limited to, federal,
state, provincial, local and in some instances, tribal authorities. Accordingly, Oryx only conducts business in jurisdictions where gaming
is legal or not strictly prohibited without a local license. Many jurisdictions require licenses, permits and documentation of suitability,
demonstrating the financial stability for the providers of such gaming solutions in addition to their officers, directors, major shareholders
and other key personnel. Oryx's delay or failure to obtain these licenses and approvals in any jurisdiction may prevent Oryx from distributing
Oryx's solutions and generating revenues in those jurisdictions. A gaming regulatory body may refuse to issue or renew a registration,
including the Oryx Licenses and Registrations, if Oryx, or one of its directors, officers, employees or associates: (i) are considered
to be a detriment to the integrity or lawful conduct or management of gaming; (ii) no longer meet a registration requirement; (iii) have
breached or are in breach of a condition of registration or an operational agreement with a lottery corporation; (iv) have made a material
misrepresentation, omission or misstatement in an application for registration or in reply to an enquiry by a person conducting an audit,
investigation or inspection under the gaming control legislation; (v) have been refused a similar registration in another jurisdiction;
(vi) have held a similar registration, or license in that province or another jurisdiction which has been suspended or cancelled; or (vii)
have been convicted of an offence, inside or outside of a particular jurisdiction, that calls into question Oryx's honesty or integrity
or the honesty or integrity of one of Oryx's directors, officers, employees or associates.
Additionally, Oryx's solutions must be approved
for use in certain jurisdictions in which they are offered; this process cannot be assured or guaranteed. Obtaining these approvals is
a time consuming process that can be extremely costly and cannot be assured. A supplier of gaming solutions may pursue corporate regulatory
approval with regulators of a particular jurisdiction while it pursues technical regulatory approval for its gaming solutions by that
same jurisdiction. It is unlikely, although possible, that after incurring significant expenses and dedicating substantial time and effort
towards such regulatory approvals, that Oryx may not obtain either of them. If Oryx fails to obtain the necessary certification, registration,
license, approval or finding of suitability in a given jurisdiction, including the Oryx Licenses and Registrations, Oryx would likely
be prohibited from distributing Oryx's solutions in that particular jurisdiction all together. Furthermore, some jurisdictions require
license holders to obtain government approval before engaging in some transactions, such as business combinations, reorganizations, stock
offerings and repurchases. Oryx may not be able to obtain all necessary registrations, licenses, permits, approvals or findings of suitability
in a timely manner, or at all. Oryx's failure to obtain the necessary regulatory approvals in jurisdictions, whether individually or collectively,
would have a material adverse effect on Oryx's business. Further, changes in existing gaming regulations may hinder or prevent Oryx from
continuing to operate in those jurisdictions where Oryx currently carries on business, which would harm Oryx's operating results and financial
condition. In particular, the enactment of unfavorable legislation or government efforts affecting or directed at suppliers or gaming
operators, such as referendums to increase gaming taxes or requirements to use local distributors or service providers, may have a negative
impact on Oryx's operations. Furthermore, gaming regulatory bodies may from time to time require changes to Oryx's practice in complying
with the various disclosures and reporting requirements. If Oryx fails to comply with any existing or future disclosure requirements,
the regulators may take action against Oryx which could ultimately include cancellation of a gaming registration, including the Oryx Licenses
and Registrations.
Impact of customers'
operations in unregulated or prohibited jurisdictions
Certain of Oryx's customers may, from time to
time, provide gaming services to players in unregulated markets. This activity by any of Oryx's customers does not necessarily amount
to an infringement of laws or regulation in a given jurisdiction, but it is not uncommon for customers to cease providing interactive
gaming services in an unregulated market in response to changes or intimated changes to laws or regulation. If a customer is found to
have infringed laws or regulations in an unregulated jurisdiction this could materially adversely affect Oryx's operations, financial
performance and prospects.
Oryx cannot be certain that its customers will
not provide interactive gaming services to end-users in markets which prohibit interactive gambling. Oryx may be considered by a regulatory
body in such a restricted jurisdiction as infringing the laws or regulations of that jurisdiction on the basis that Oryx is aiding the
infringement by providing products or services to that customer. If a customer is found to be operating in a prohibited market, this could
materially adversely affect Oryx's operations, financial performance, reputation and prospects, as well as jeopardize any one or all of
the Oryx Licenses and Registrations by virtue of Oryx's association with, or provision of products or services to, such customer.
Oryx derives revenues
from players located in jurisdictions in which Oryx does not hold a licence
In certain jurisdictions, online gaming and
gambling is either not regulated at all, is subject to very limited regulation, or its legality is unclear. These jurisdictions are
commonly referred to in the gaming industry as "unregulated jurisdictions". It is perhaps misleading to refer to Oryx's
derivation of revenues from such jurisdictions as being "unregulated". The relevant transactions and the associated player
relationships that underpin them are, in fact, regulated in either Malta or Gibraltar, being the jurisdictions in which Oryx either
holds point-of-supply licenses or in which its commercial partners do. As such, such transactions are in fact heavily regulated but
are not themselves regulated in the jurisdiction within which the player is ultimately located. There is a risk that such
jurisdictions may enact regulations relating to online real money or social gaming and that Oryx may be required to register its
activities or obtain licenses (or obtain further registrations or licenses, as applicable), pay taxes, royalties or fees, or that
the operation of online gaming and gambling businesses in such jurisdictions may be prohibited entirely. The implementation of
additional regulatory requirements or payments in such jurisdictions may have an adverse effect on the viability of Oryx's
operations, business, or financial performance. Where Oryx or its partners fail to obtain the necessary registrations or licenses,
make the necessary payments, or operate in a jurisdiction where online gaming and gambling is deemed to be or becomes prohibited,
Oryx or its partners may be subject to investigation, penalties or sanctions, or be forced to discontinue operations entirely, which
may negatively impact Oryx's business, prospects, revenues, operating results and financial condition.
Certain of Oryx's technology providers, payment
processing partners, or other suppliers of content or services (collectively, "Infrastructure Services") may cease to
provide, or limit the availability of, such Infrastructure Services to the extent Oryx derives revenue from, or makes such Infrastructure
Services available to customers in, unregulated jurisdictions. Were Oryx's access to such Infrastructure Services to become unavailable
or limited as a result of operations servicing customers located in unregulated jurisdictions, Oryx's business, prospects, revenues, operating
results and financial condition may be adversely affected. There is also a risk that they may not be able to source suitable or economical
replacements if such Infrastructure Services becomes unavailable.
Unregulated jurisdictions may lack or have diminished
regulations relating to, amongst other things, consumer protection, the prevention of money-laundering, game fairness and technology or
data security which may be detrimental to customers. There is a risk that unscrupulous online gaming and gambling operators that actually
operate from within unregulated jurisdictions may fail to maintain effective policies, procedures and safeguards in the aforementioned
areas and that the actions or omissions of such unscrupulous operators may damage the reputation of all online gaming and gambling businesses
operating in unregulated jurisdictions or lead to the adoption of new regulations. This may negatively impact the Oryx's business, prospects,
revenues, operating results and financial condition.
Oryx operates in
regulated jurisdictions in which existing online gaming and gambling regulations may retrench or increase.
Some countries from which the online gambling
industry has historically derived revenue have introduced regulations attempting to restrict or prohibit online gaming and gambling, while
other jurisdictions have taken the position that online gaming and gambling should be regulated and have adopted or are in the process
of considering legislation to enable that regulation. The introduction of new gambling regulations or changes to the nature and scope
of existing gaming and gambling regulations (and applicable laws and regulations more generally) in the territories in which Oryx operates
or may operate or from where Oryx derives or may derive revenue could have a material adverse effect on Oryx's business, prospects, revenues,
operating results and financial condition.
While certain European countries such as Malta
and Gibraltar have adopted "point-of-supply" regimes which generally permit their licensees to accept wagers from any jurisdiction
that does not expressly prohibit the supply of online gambling from outside such jurisdiction, other countries, including the UK, Spain
and Denmark have implemented, or are in the process of implementing, "point-of- consumption" regimes which only permit the targeting
of the domestic market, provided the appropriate local license is obtained and local taxes accounted for (regardless of where the operator's
assets, infrastructure and employees may be located). Such licensing regimes can apply onerous compliance requirements and/or introduce
product restrictions or marketing restrictions that could have an adverse effect on Oryx's operations (and correspondingly on its financial
performance).
Operators within the online gambling industry,
including Oryx, traditionally have based their own risk rationales on a remoteness of supply, adopting a "country of origin"
approach that justifies supplying gambling services into a jurisdiction unless there was something within the laws of that jurisdiction
that explicitly outlawed such provision, and explicitly applied to such inward supply emanating from outside its borders.
Other European territories continue to defend
limited licensing regimes that protect monopoly providers or favour local incumbents and, in certain jurisdictions, have combined this
with an attempt to prohibit or otherwise restrict operators established and licensed in other countries from offering gaming or gambling
products into the territory entirely.
A number of jurisdictions do not agree with this
justification but have historically been unable to prevent inward remote supply due to a lack of extra-territorial enforceability of their
laws. As a result, a number of jurisdictions have sought to regulate online gambling whilst a small number of other jurisdictions have
sought to expand their existing legislation to explicitly prohibit such inward supply. Some jurisdictions include wording in their legislation
which seeks to apply it extra territorially, thereby challenging the aforementioned country-of-origin approach. Conflict of law arguments
do continue to arise, however, notably in the European Union where Member States remain subject to the TFEU and jurisprudence in the ECJ
has applied EU freedom principles to the online gambling industry and eroded any protectionism where identified.
Future legislative initiatives and court decisions
may have a material impact on Oryx's operations and financial results. There is a risk that governmental authorities may view Oryx as
having violated their local gaming regulations and laws if they fail to comply with local rules and requirements, including those relating
to the licenses they hold. There is also a risk that civil and criminal proceedings, including class actions brought by or on behalf of
prosecutors or public entities, incumbent monopoly providers, or private individuals, could be initiated against Oryx and its internet
service providers, credit card processors, advertisers and others involved in the online gaming and gambling industry. Such potential
proceedings could involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being
imposed on Oryx or its business partners, and may divert the attention of key executives of Oryx and the Company. Such proceedings could
have a material adverse effect on Oryx's business, prospects, revenues, operating results and financial condition as well as its reputation.
There can be no assurance that prohibitive legislation
will not be proposed and passed in jurisdictions relevant or potentially relevant to Oryx's business to regulate various aspects of the
internet or the online gaming and gambling industry (or that existing laws in those jurisdictions will not be interpreted negatively).
Compliance with any such legislation may have a material adverse effect on Oryx's business, financial condition and results of operations,
either as a result of determining that a jurisdiction should be blocked, or because a local license may be costly to obtain and/or such
licenses may contain other commercially undesirable conditions.
In addition, certain countries in which laws
currently prohibit or restrict online gaming or the marketing of those services, or protect monopoly providers of gaming or gambling
services, may implement changes to open their markets through the adoption of competitive licensing and regulatory frameworks. While
these changes may provide growth opportunities for Oryx, a new licensing and regulatory regime adopted in any such country may not
grant a license to Oryx or may impose onerous conditions such as a requirement to locate significant technical infrastructure within
the relevant territory or establish and maintain real-time data interfaces with the regulator, together with enforcement sanctions
for breach thereof, taxation liabilities that make the market unattractive to Oryx, or impose restrictions that limit its ability to
offer certain of its key products or to market its products in the way it would wish to do so. Moreover, licensing regimes may
require licensees to ring-fence player liquidity, as has happened in the development of the Italian and French licensing regimes,
and limitations on player liquidity could have a detrimental effect on Oryx's wider business, particularly in relation to
liquidity-reliant product verticals, such as bingo. There is also an associated cost with creating specific bespoke, localized
platforms.
If regulation is liberalized or clarified in some
jurisdictions, then Oryx may face increased competition from other providers. The opening of new markets, and the clarification of restrictions
surrounding online gaming and gambling in other markets where the legal position is currently unclear, may encourage new entrants to the
online gaming sector or strengthen the position of competing operators. A significant increase in competition may have a material adverse
effect on Oryx's business, prospects, revenues, operating results and financial condition.
Legislative interpretation
may result in criminality of activities
Oryx generates the majority of its income through
licensing Oryx's technology and games to enable gaming operators to provide gaming services to customers where such services are dependent
on that software and the functionality it provides. One of the consequences of Oryx's supply of operational gaming software to customers
is the potential regulatory risk associated with doing so. While in many jurisdictions laws and regulations may not specifically apply
to gaming software licensors (as distinct from its customers' delivery to end customers), this is not universally the case and, indeed,
some jurisdictions have sought to regulate or prohibit such supply explicitly.
Furthermore, Oryx relies on the continuity of
supply by Oryx's customers to their end-users using the gaming related software and technology which Oryx licenses. Laws and regulations
relating to the supply of gaming services are complex, inconsistent and evolving and Oryx may be subject to such laws either directly
through explicit service provision or indirectly insofar as it has assisted the supply to customers who are themselves subject to such
laws.
Operators within the remote gaming industry have
sought, in the past, to justify their activities by asserting that if remote gaming is permitted from the country of origin (i.e., from
the point of supply) then the laws in the country of receipt would have to specifically outlaw the activity of the customer (remotely
accessing interactive gaming services) or an entity in that jurisdiction or have the authority to implement laws that impacted outside
the jurisdiction in order to render the activity illegal, or entitle the country of receipt to assert jurisdiction. Operators have sought
to reduce any associated risks of jurisdictions forming a contrary view by limiting or omitting to have physical presence in such jurisdictions
where any connected activities are not clearly legal. There are a number of jurisdictions that consider this rationale to be unjustified.
Indeed in some territories, laws have been passed to expressly criminalize the provision of (and sometimes the participation in) gaming,
irrespective of where the operator is located and licensed. There is a corresponding, continuing risk to any participant in the gaming
industry (be they an operator, supplier or other service provider) that jurisdictions in which customers are located may seek to argue
that such a participant was acting illegally in accepting or assisting in the acceptance of wagers from its citizens or in the manner
in which it operates gaming networks. This could lead to actions being brought against customers which, in turn, could have a detrimental
effect on the financial performance and Oryx's reputation. Similarly, where supply by Oryx to the customer is critical to the gaming transaction,
one cannot rule out the risk that direct enforcement action will be taken against Oryx or any of Oryx's employees and directors.
Many jurisdictions have not updated their
laws to address the supply of remote gaming, which by its nature is a multi-jurisdictional activity. Moreover, the legality of
interactive gaming and the provision of software, services and gaming network management is subject to uncertainties arising from
differing approaches by legislatures, regulators and enforcement agents including in relation to determining in which jurisdiction
the gaming takes place and therefore which law applies. This uncertainty creates a risk for Oryx that even in instances where older
laws have not been updated to address new technology, courts may interpret older legislation in an unfavorable way and determine
customers' and/or Oryx's activities to be illegal. This could lead to actions being brought against customers and/or Oryx or any of
Oryx's employees and directors, all or any of which may, individually or collectively, have a detrimental effect on Oryx's financial
performance and Oryx's reputation.
Oryx seeks to keep abreast of legal and regulatory
developments affecting the gaming industry as a whole. However, Oryx does not necessarily monitor, on a continuous basis, the laws and
regulations in every jurisdiction where Oryx's customers derive business and, correspondingly, from where Oryx may derive revenue. Oryx
adapts its regulatory policy and, therefore, the scope of Oryx's ongoing monitoring on the basis that an individual market's materiality
to both any relevant customer and to Oryx may change. As such, Oryx may receive revenue from customers' dealing in jurisdictions where
Oryx may be unaware of the full extent of enforcement risk.
Despite the monitoring undertaken by Oryx and
the precautions Oryx takes as to the location of employees or assets, there remains a prospect that, in the event of legislation being
interpreted in an unfavorable or unanticipated way, such measures are not sufficient and result in actions being brought against Oryx
or Oryx's employees and directors, all of which would have a detrimental effect on financial performance and Oryx's reputation. Furthermore,
similar actions could be brought against customers with the consequence that revenue streams from such customers may be frozen or traced
at the behest of authorities even if none of Oryx's entities are made a party to any legal proceedings against any such customer. Customers
may also face problems in legitimately moving monies in and out of certain jurisdictions which will impact upon payments from customers.
Finally, there is also a risk that Oryx's directors or employees or individuals engaged by Oryx (or directors, employees or individuals
connected to any customer) may face extradition, arrest and/or detention in (or from) such territories even if they are only temporarily
present.
Evolving nature
of gaming regulation
The application of laws designed to enshrine trade
freedoms is the subject of ongoing and developing jurisprudence which, ultimately, may result in a regulatory environment that impacts
negatively on multi-national stakeholders in the gaming industry such as the Company and its customers.
The way in which gaming laws are evolving is unpredictable
and, in some instances, laws have appeared to have been fully implemented by certain jurisdictions in contravention of the jurisprudence
and guidance given by related jurisdictions, even following review and comment on draft laws and regulations. As a result, the Company
and its customers remain subject to some ongoing uncertainty and to the associated risks that such laws may, ultimately, be interpreted
and implemented in a disadvantageous way.
While much global legislative action focuses on
liberalizing interactive gambling regulations, in many cases these efforts move slowly, and it may take many years for markets to actually
open up to licensed competitors even after laws pass. In addition, there is still potential for legislation that is intended to reduce
or eliminate interactive gambling. Furthermore, credit card companies have tightened restrictions on the use of credit cards for interactive
gambling transactions.
Regulatory perception
of gaming operators and suppliers, and their respective regulatory risk
While from a gaming regulatory perspective, operators
that directly provide gaming services to their customers are generally perceived to be exposed to a greater degree of enforcement risk
than their suppliers, in some jurisdictions laws extend to directly impact such gaming suppliers. Furthermore, a supplier's nexus with
a particular jurisdiction may expose it to specific enforcement risks, irrespective of whether there has been an attempt to bring proceedings
against any supported operator.
The interactive gaming market has developed such
that the nature of some of the services undertaken by suppliers on behalf of operators places them closer to the actual customer transaction,
arguably rendering them quasi-operators in their own right. A number of fundamental points have begun to emerge from these market developments.
Suppliers cannot claim ignorance of, or indifference to, the origin of an operator's business. Indeed, enforcement proceedings brought
against an operator may result in action being taken against a supplier (and even brought in the absence of the former). From a reputational
and risk perspective, therefore, it is not sufficient for a supplier to avoid evaluating the risks associated with the businesses of the
entities it supplies.
Ultimately, the market may view, or in the future
may view, the regulatory risk associated with the business of supplying software and services to gaming operators as being comparable
with the regulatory risk attaching to operators themselves. In such circumstances, there is an associated risk that investors may apply
valuation methods to any such supplier that are the same as the valuation methods used to value operators, and which build in the same
regulatory risk even though, in many territories, such suppliers would be considered sufficiently removed from the transactional activity
to warrant the application of a discrete risk analysis.
DIVIDENDS
AND DISTRIBUTIONS
The Company has neither declared nor paid any
dividends on its Common Shares since the date of its incorporation. Any payments of dividends on the Common Shares will be made in
accordance with the CBCA and will be dependent upon the financial requirements of the Company to finance future growth, the financial
condition of the Company and other factors which the Board may consider appropriate under the circumstances. It is unlikely that the Company
will pay dividends in the immediate or foreseeable future.
DESCRIPTION
OF CAPITAL STRUCTURE
Common Shares
The authorized share capital of the Company consists
of an unlimited number of Common Shares without nominal or par value. As of the date of this AIF, there are 198,238,111 Common Shares
issued and outstanding. The holders of Common Shares are entitled to one vote per Common Share at any meeting of the Shareholders and
to receive the property of the Company on liquidation, dissolution or winding-up. The Common Shares carry no special rights or restrictions.
Equity Awards
In addition to streamlining the administration
of equity incentives, the purpose of the Company's Omnibus Equity Incentive Plan ("Omnibus Plan") is to advance the interests
of the Company and its affiliates by: (a) attracting, rewarding and retaining highly competent persons as directors, officers, employees
and consultants of the Company; (b) providing additional incentives to such persons by aligning their interests with those of the shareholders;
and (c) promoting the success of the Company's business.
The Omnibus Plan is a "fixed" security-based
compensation plan, and the Company has authorized up to 31,800,000 Common Shares available for issuance under the Omnibus Plan, less stock
options ("Options") and deferred share units ("DSUs") previously awarded and outstanding under former
stock option plans.
The number of Common Shares issuable to
insiders of the Company within any one-year period under the Omnibus Plan, together with any other security-based compensation
arrangement, may not exceed 10% of the issued and outstanding Common Shares (on a non-diluted basis). In addition, the aggregate
number of Common Shares issuable to any one person in any one-year period under the Omnibus Plan, together with any other security
based compensation arrangement, may not exceed 5% of the outstanding Common Shares (on a non-diluted basis).
The Incentive Plan provides for the grant of Options.
DSUs, restricted share units ("RSUs"), performance share units ("PSUs"), stock appreciation rights ("SARs")
and other share-based awards (each an "Award" and collectively, the "Awards"). All Awards are granted
by an agreement or other instrument or document evidencing the Award granted under the Incentive Plan (an "Award Agreement").
Awards may be granted alone, in addition to, or in tandem with any other Award or any award granted under another plan of the Company
or an affiliate. Awards granted in addition to or in tandem with other Awards may be granted either at the same time or at different times.
The date of grant, the number of Common Shares, the vesting period and any other terms and conditions of Awards granted pursuant to the
Incentive Plan are to be determined by the Board, subject to the express provisions of the Incentive Plan and the applicable award agreement.
The Incentive Plan also gives the Board discretion to make other equity incentive awards, subject to the approval of the TSX.
As at the date of this AIF, there are 14,270,852
Options, 400,000 RSUs, 1,200,000 PSUs, and 1,299,000 DSUs granted and outstanding pursuant to the Omnibus Plan.
Additional information regarding the Omnibus
Plan and the criteria the Board uses in determining grants of Equity Awards is discussed in the Company's management information circular
dated October 29, 2020 filed on www.sedar.com under the Company's profile.
Warrants
As of this date of this AIF, the Company has 168,861
broker warrants issued and outstanding. Broker warrants are convertible to one Common Share with an exercise price of C$0.70.
MARKET
FOR SECURITIES
Trading Price and Volume
In 2020, the Common Shares were listed and posted
for trading on the TSXV under the symbol "BRAG". The following table sets out trading information for the Common Shares for
the periods indicated as reported by the TSXV for the most recently completed financial year.
|
Period
|
|
|
High (C$/share)
|
|
|
Low (C$/share)
|
|
|
Volume
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
1.860
|
|
|
|
0.830
|
|
|
|
44,094,389
|
|
|
November
|
|
|
|
0.940
|
|
|
|
0.670
|
|
|
|
30,398,747
|
|
|
October
|
|
|
|
0.980
|
|
|
|
0.470
|
|
|
|
16,122,416
|
|
|
September
|
|
|
|
0.550
|
|
|
|
0.375
|
|
|
|
4,215,834
|
|
|
August
|
|
|
|
0.520
|
|
|
|
0.395
|
|
|
|
2,730,188
|
|
|
July
|
|
|
|
0.610
|
|
|
|
0.400
|
|
|
|
2,855,292
|
|
|
June
|
|
|
|
0.580
|
|
|
|
0.320
|
|
|
|
3,000,483
|
|
|
May
|
|
|
|
0.390
|
|
|
|
0.280
|
|
|
|
2,238,728
|
|
|
April
|
|
|
|
0.400
|
|
|
|
0.160
|
|
|
|
5,065,585
|
|
|
March
|
|
|
|
0.240
|
|
|
|
0.150
|
|
|
|
1,296,055
|
|
|
February
|
|
|
|
0.245
|
|
|
|
0.155
|
|
|
|
2,509,089
|
|
|
January
|
|
|
|
0.240
|
|
|
|
0.165
|
|
|
|
2,034,385
|
|
Prior Sales
The following table sets out the securities issued
during the most recently completed financial year that are not listed or quoted in a marketplace other than Options. The principal terms
of Equity Awards are described above under "Description of Capital Structure – Equity Awards".
|
Date Issued
|
Type of Security
|
Amount Issued
|
Issue Price
|
|
May 4, 2020
|
Stock Options
|
700,000
|
C$0.30
per share(1)
|
|
July 31, 2020
|
Stock Options
|
160,000
|
C$0.23
per share(2)
|
|
November 30, 2020
|
Stock Options
|
7,328,579
|
C$0.78
per share(3)
|
|
November 30, 2020
|
Deferred Share Units
|
800,000
|
n/a
|
|
November 30, 2020
|
Restricted Share Units
|
900,000
|
n/a
|
|
November 30, 2020
|
Performance Share Units
|
1,200,000
|
n/a
|
Notes:
|
|
(1)
|
Each Stock Option is exercisable into one Common Share at a price of C$0.30 per share, for a period of
five-years from the date of grant.
|
|
|
(2)
|
Modification of original grant of Stock Options on December 31, 2020 resulting in cancellation of 100,000
Stock Options and issue of 160,000 Stock Options on July 31, 2020. Each Stock Option is exercisable into one Common Share at a price of
C$0.23 per share, for a period of four-years and five months from the date of modification of July 31, 2020.
|
|
|
(3)
|
Each Stock Option is exercisable into one Common Share at a price of C$0.78 per share, for a period of five-years
from the date of grant.
|
DIRECTORS
AND OFFICERS
Name, Occupation and Security
Holding
At the date of this AIF, in respect of each officer
and director of the Company, the following table sets out such officer's or director's municipality of residence, the number and percentage
of voting securities beneficially owned, directly or indirectly, or over which such officer or director exercises control or direction,
the office held by such officer or director and his principal occupation during the past five years.
Name City, Province
and Country of
Residence
|
Position
|
Principal
Occupation(s) During
the Five Preceding
Years
|
Director / Officer
Since
|
Number of
Common
Shares
Beneficially
Owned or Over
which Control
is Exercised
|
Percentage
of
Common Shares
Beneficially
Owned or Over
which Control is
Exercised(1)
|
Adam Arviv
Toronto, ON, CA
|
Chief Executive Officer
Director
Member of Compensation Committee
|
Executive Chairman of Legacy Eight Group
Founder of Gaming Nation Inc.
|
August 27, 2020(2)
|
8,973,394
|
4.5%
|
Ronen Kannor
London, UK
|
Chief Financial Officer
|
CFO of Stride Gaming Plc
|
May 15, 2020
|
66,115
|
0.0%
|
Yaniv Spielberg
Toronto, ON, CA
|
Chief Strategy Officer
Corporate Secretary
|
Director of Business Development with the Company
Founding member of Legacy Eight Group
|
January 1, 2020
|
2,633,546
|
1.3%
|
Name City, Province
and Country of
Residence
|
Position
|
Principal
Occupation(s) During
the Five Preceding
Years
|
Director / Officer
Since
|
Number of
Common
Shares
Beneficially
Owned or Over
which Control
is Exercised
|
Percentage
of
Common Shares
Beneficially
Owned or Over
which Control is
Exercised(1)
|
Richard Carter
Isle of Man
|
Executive Chairman of the Board
Member of Nomination and Governance Committee
|
CEO of interactive
sports betting solutions and services provider SB Tech
|
September 30, 2020
|
826,446
|
0.4%
|
Paul Pathak
Toronto, ON, CA
|
Vice-Chairman of the Board
Lead Director
Member of Audit Committee
Member of Nomination and Governance Committee
|
Securities and investment industry lawyer, partner at Chitiz Pathak
LLP
Served as a director of Gamesys Plc formerly JPJ Group Plc, the Intertain
Group Limited, and Wayland Group Corp.
|
March 15, 2019
|
332,644
|
0.2%
|
James A. Ryan
Caledon, ON, CA
|
Director
Chairman of Audit Committee
Member of Compensation Committee
|
CEO of Pala Interactive LLC
Held Board roles at: JPJ Group plc (LSE), Gaming Realms, Pala
Interactive LLC, and Fralis LLC
|
March 15, 2019
|
332,644
|
0.2%
|
|
Rob Godfrey
Toronto, ON, CA
|
Director
Member of Audit Committee
Chairman of Compensation Committee
|
President of Brown Lab Industries Inc.
Portfolio companies: Qwatro USA and UrbanDog Holdings
Active in Brown Lab's real estate activities
|
June 27, 2019
|
206,611
|
0.1%
|
|
Matevž Mazij
Ljubljana, Slovenia
|
Director
|
Founder and Managing Director of Oryx
|
January 20, 2021
|
49,000,000
|
24.7%
|
|
Paul Godfrey
Toronto, ON, CA
|
Director
Chairman of Nomination and Governance Committee
|
Executive Chair of the Board of Directors of Postmedia Network Canada
Corp.
Chairman of the Board of Trustees of RioCan Real Estate Investment
Trust
|
January 12, 2021
|
495,867
|
0.3%
|
|
Lara Falzon
Xemxija, Malta
|
Director
|
CFO of NetEnt Star; and CFO of Red Tiger Gaming
|
March 1 ,2021
|
nil
|
nil
|
Notes:
|
|
(2)
|
Appointed as a director on August 27, 2020 and CEO on November
27, 2020. See "General Development of the Business – Recent Developments".
|
The directors of the Company are elected by the
Shareholders at each annual general meeting and serve until the next annual general meeting, or until their successors are duly elected
or appointed. Officers of the Company are appointed by the Board.
At the date of this AIF, 62,867,267 Common Shares
were beneficially owned, or controlled or directed, directly or indirectly, by the current directors and executive officers of the Company
as a group, representing 31.7% of the issued and outstanding Common Shares on a non-diluted basis.
Cease Trade Orders, Bankruptcies,
Penalties or Sanctions
Cease Trade Orders
For purposes of this section, "order"
means (a) a cease trade order; (b) an order similar to a cease trade order; or (c) an order that denied the relevant company access to
any exemption under securities legislation that was in effect for a period of more than 30 consecutive days.
Paul Pathak was formerly a director of Wayland
Group Inc. ("Wayland"), a reporting issuer previously listed on the Canadian Securities Exchange. In April 2019, the
Ontario Securities Commission issued a failure-to-file cease trade order against Wayland as a result of Wayland's failure to file its
audited financial statements for the year ended December 31, 2018. Subsequently, in December 2019, Wayland was granted an order from the
Ontario Superior Court of Justice (commercial list) under the Companies' Creditors Arrangement Act.
Bankruptcies
Except as disclosed below, to the Company's knowledge,
no director or executive officer of the Company, and no shareholder holding a sufficient number of securities of the Company to affect
materially the control of the Company:
|
|
·
|
is, or has been within the ten years before the date of this AIF, a director or executive officer of any
company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt,
made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement
or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
|
|
|
·
|
has, within the ten years before the date of this AIF become bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or become subject to or instituted any proceedings, arrangement or compromise with creditors, or
had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.
|
Penalties or Sanctions
To the Company's knowledge, no director or executive
officer of the Company or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the
Company, has been subject to any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a securities
regulatory authority or has entered into a settlement agreement with a securities regulatory authority or has been subject to any other
penalties or sanctions imposed by a court, or regulatory body that would likely be considered important to a reasonable investor in making
an investment decision.
Conflicts of Interest
Some of the directors or officers of the Company
are also directors, officers and/or promoters of other reporting and non-reporting issuers. Accordingly, conflicts of interest may arise
which could influence these persons in evaluating possible acquisitions or in generally acting on behalf of the Company, notwithstanding
that they will be bound by the provisions of the CBCA to act at all times in good faith in the interest of the Company and to disclose
such conflicts to the Company if and when they arise. To the best of its knowledge, the Company is not aware of the existence of any conflicts
of interest between the Company and any of its directors and officers as of the date of this AIF. The Shareholders must appreciate that
they will be required to rely on the judgment and good faith of its directors and officers in resolving any conflicts of interest that
may arise.
LEGAL
PROCEEDINGS AND REGULATORY ACTIONS
On August 11, 2017, shareholders of Full Color
Games, Inc. ("FCGI") filed a derivative lawsuit in District Court, Clark County, Nevada against David Mahon, the CEO
of FGCI ("Mahon"), and his solely-owned companies (the "Lawsuit"). The Lawsuit was filed against Mahon
for self-dealing, embezzling money from FCGI, and defrauding the shareholders of FCGI. The plaintiff-shareholders in the Lawsuit allege
that, from 2012 through 2017, Mahon solicited multiple investors, including the named plaintiff-shareholders (a group which included Mark
Munger, a former director of the Company who ceased being a director in August 2019) in the Lawsuit, and informed them that FCGI would
be using its intellectual property to develop and commercialize gaming products based on Mahon’s Full Color System. However, Mahon
used the shareholders' money for his own personal use.
On June 22, 2018, Mahon filed an Answer and Counterclaim;
on February 1, 2019, Mahon, on behalf of FCGI filed an Answer and Third-Party Complaint; and on February 4, 2019, Mahon, on behalf of
FCGI, filed a First Amended Answer and Third-Party Complaint. On November 13, 2019, Mahon, on behalf of FCGI, filed a Second Amended Complaint
which added additional claims against existing counter-defendants, and added new claims against the Company, Holdings, Oryx, and Matevž
Mazij ("Bragg Parties") as third-party defendants. On December 16, 2019, without discussing the substantive merits of
the claims, the Clark County District Court granted Mahon’s Motion to Amend allowing him to file the Second Amended Complaint alleging
additional claims and adding the Bragg Parties to the litigation. Mahon's counterclaim focuses on Mark Munger, and alleges that he intended
to use the Company to wrest control of the FCGI intellectual property from Mahon by way of wrongful conduct.
The Bragg Parties have not received any proprietary
information from FCGI and have not used any proprietary information of FCGI or the FCGI System., The Company views its liability as very
limited, and, without a contractual relationship, the Bragg Parties owed no duty to FCGI. Management and the Board is of the view that
the Lawsuit does not materially affect the operations of the Company, nor should it have a material financial impact, considering its
remoteness. Local counsel has advised that the claims are wholly without merit. The Lawsuit is in its very early stage. The Clark County
District Court decided to provisionally set trial for April 2022, and set the discovery cut-off for December 9, 2021 and the dispositive
motion deadline for January 20, 2022. The Bragg Parties will defend against the Lawsuit and the Company has retained Nevada counsel for
all the Bragg Parties
INTEREST
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as disclosed in this AIF, no director
or executive officer of the Company or any shareholder holding, of record or beneficially, directly or indirectly, more than 10% of the
issued Common Shares, or any of their respective associates or affiliates, had any material interest, directly or indirectly, in any material
transaction with the Company within the three years preceding the date of this AIF or in any proposed transaction, which has materially
affected or would materially affect Company.
TRANSFER
AGENT AND REGISTRAR
The Company's transfer agent and registrar is
Computershare Investor Services Inc. at its principal office in Toronto, Ontario.
MATERIAL
CONTRACTS
The following are the material contracts entered
into by the Company, including certain contracts entered into in the last fiscal year and material contracts entered into before the last
fiscal year which are still in effect:
|
|
·
|
On January 18, 2021, the Company entered the KAVO Investor Rights Agreement with KAVO. See "Recent
Developments – Oryx Second Earn-Out" for more information on the Fifth Amending Agreement and KAVO Investor Rights Agreement.
|
INTERESTS
OF EXPERTS
There is no person or company whose profession
or business gives authority to a statement made by such person or company and who is named as having prepared or certified a statement,
report or valuation described or included in a filing, or referred to in a filing, made under National Instrument 51-102 by the Company
during, or related to, the Company's most recently completed financial year other than MNP LLP, the Company's auditors. MNP LLP are independent
in accordance with the auditor's rules of professional conduct of the Institute of Chartered Accountants of Ontario.
In addition, none of the aforementioned persons
or companies, nor any director, officer or employee of any of the aforementioned persons or companies, is or is expected to be elected,
appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company. Neither MNP LLP
nor its partners or associates beneficially own, directly or indirectly, any of the outstanding Common Shares of the Company.
AUDIT
COMMITTEE DISCLOSURE
The following information regarding the audit
committee of the Board (the "Audit Committee") is required to be disclosed pursuant to National Instrument 52-110 –
Audit Committees ("NI 52-110").
Pursuant to applicable laws, the policies of the
TSX and NI 52-110, the Company is required to have an audit committee comprised of not less than three directors, a majority of
whom are not officers, control persons or employees of the Company or an affiliate of the Company. NI 52-110 requires the Company, as
a venture issuer, to disclose annually in its information circular certain information concerning the constitution of its audit committee
and its relationship with its independent auditor.
The Audit Committee is responsible for the Company's
financial reporting process and the quality of its financial reporting. In addition to its other duties, the Audit Committee reviews all
financial statements, annual and interim, intended for circulation among Shareholders and reports upon these to the Board. In addition,
the Board may refer to the Audit Committee other matters and questions relating to the financial position of the Company. In performing
its duties, the Audit Committee maintains effective working relationships with the Board, management and the external auditors and monitors
independence of those auditors.
Audit Committee's
Charter
The Board is responsible for reviewing and approving
the unaudited interim financial statements together with other financial information of the Company and for ensuring that management fulfills
its financial reporting responsibilities. The Audit Committee assists the Board in fulfilling this responsibility. The Audit Committee
meets with management to review the financial reporting process and the unaudited interim financial statements together with other financial
information of the Company. The Audit Committee reports its findings to the Board for its consideration in approving the unaudited interim
financial statements together with other financial information of the Company for issuance to the Shareholders.
The Audit Committee has the general responsibility
to review and make recommendations to the Board on the approval of the Company's annual and interim financial statements, the management
discussion and analysis and the other financial information or disclosure of the Company. More particularly, it has the mandate to:
|
|
(a)
|
Oversee all the aspects pertaining to the process of reporting and divulging financial information, the
internal controls and the insurance coverage of the Company;
|
|
|
(b)
|
Oversee the implementation of the Company's rules and policies pertaining to financial information and
internal controls and management of financial risks and to insure that the certifications process of annual and interim financial statements
is conformed with the applicable regulations; and
|
|
|
(c)
|
Evaluate and supervise the risk control program and review all related party transactions.
|
The Audit Committee makes sure that the external
auditors are independent from management. The Audit Committee reviews the work of outside auditors, evaluates their performance, evaluates
their remuneration and makes recommendations to the Board. The Audit Committee also authorizes non- related audit work. A copy of the
Charter of the Audit Committee is annexed hereto as Schedule "A".
Composition of the
Audit Committee
The following are the members of the Audit Committee:
|
Name
|
Independence and Financial Literacy(2)
|
|
James A. Ryan(1)
|
Independent and Financially Literate
|
|
Paul Pathak
|
Independent and Financially Literate
|
|
Rob Godfrey
|
Independent and Financially Literate
|
Notes:
|
|
(1)
|
Chairman of audit committee.
|
|
|
|
|
|
|
(2)
|
Within the meaning of NI 52-110.
|
Relevant Education
and Experience
The education and experience of each Audit Committee
member that is relevant to the performance of his responsibilities as an audit committee member is as follows:
James A. Ryan, Director
Mr. Ryan is an experienced online gaming executive
who is currently the CEO of Pala Interactive LLC. He has also held a number of other roles within the online gaming sector, including
Co-Chief Executive Officer of bwin.party Digital Entertainment plc, Chief Executive Officer at PartyGaming plc, and Chief Financial Officer
of Cryptologic Software Limited. Mr. Ryan currently sits on the boards of Gamesys plc, Gaming Realms plc, Pala Interactive LLC, and Fralis
LLC. Mr. Ryan has served on the boards of several public and private companies.
Mr. Ryan holds a Chartered Accountant qualification from the Canadian Institute of Chartered Accountants and degree in business from the
Goodman School of Business at Brock University.
Paul Pathak, Director
Mr. Pathak has been a partner of Chitiz Pathak
LLP since 1996, a Toronto-based law firm serving clients in the securities and investment industries, including issuers and dealers on
a full range of securities transactions. Mr. Pathak practices principally in the areas of corporate and commercial law, securities law,
and mergers and acquisitions.
Mr. Pathak has acted for issuers in a broad range
of securities transactions, including initial public offerings, reverse take-overs, establishment of capital pool companies, going-private
transactions and numerous financing structures. Mr. Pathak has served as a member of the board of directors of several private and public
corporations. Mr. Pathak currently serves as a director of JPJ PLC (LSE), The Intertain Group Limited (TSX) and Wayland Group Corp. (TSXV).
Mr. Pathak was called to the Ontario Bar in 1994,
having completed his LL.B. at Osgoode Hall Law School in 1992.
Rob Godfrey, Director
Mr. Godfrey is the President
of Brown Lab Industries Inc. and oversees two portfolio companies: Qwatro USA (specialty chemicals) and UrbanDog Holdings (pet services).
In addition, Rob is active in Brown Lab's real estate activities including the management of commercial and industrial properties in
Ajax, Etobicoke and Toronto. Previous work experience includes Senior Vice President of the Toronto Blue Jays Baseball Club, President
of the Toronto Phantoms Arena Football Team and Associate at TD Securities, and audit committee member of the Ontario Society for the
Prevention of Cruelty to Animals (Ontario SPCA). Rob holds a BA from the University of Western Ontario, and a J.D./MBA from Pepperdine
University in California.
Audit Committee
Oversight
At no time since the commencement of the fiscal
year ended December 31, 2020 was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by
the Board.
Reliance on Certain
Exemptions
At no time since the commencement of the fiscal
year ended December 31, 2020 has the Company relied on the exemption in Section 2.4 of NI 52-110 (De Minimis Non-audit Services),
or an exemption from NI 52-110, in whole or in part, granted under Part 8 of NI 52-110.
Pre-Approval Policies
and Procedures
The Audit Committee has not adopted specific policies
and procedures for the engagement of non-audit services.
External Auditor
Service Fees (By Category)
Aggregate fees from the Auditor for the fiscal
year ended December 31, 2020 and fiscal year ended December 31, 2019 were as follows:
|
|
|
Fiscal Year Ended
December 31, 2020
(C$)
|
|
|
Fiscal Year Ended
December 31, 2019
(C$)
|
|
|
Audit Fees
|
|
|
348,218
|
|
|
|
380,445
|
|
|
Audit-related Fees
|
|
|
149,800
|
|
|
|
29,217
|
|
|
Tax Fees(1)
|
|
|
46,801
|
|
|
|
62,315
|
|
Notes:
|
|
(1)
|
Fees charged for tax compliance, tax advice and tax planning services.
|
ADDITIONAL
INFORMATION
Additional information, including particulars
of directors' and officers' remuneration and indebtedness, principal holders of the Company's securities and interests of insiders in
material transactions, where applicable, is contained in the Company's management information circular filed on SEDAR at www.sedar.com.
Additional financial information is contained in the Company's audited financial statements and MD&A for the Company's most recently
completed financial year, copies of which have been filed with the securities regulatory authorities in the provinces of British Columbia,
Alberta, Ontario and Quebec.
Such documents, as well as additional information
about the Company, may be found on SEDAR at www.sedar.com under the Company's name.
Schedule
"A"
AUDIT COMMITTEE CHARTER
See attached.
BRAGG GAMING GROUP
INC.
AUDIT COMMITTEE
CHARTER
Effective as of January 29, 2021
This Audit Committee charter (the "Charter")
sets forth the purpose, composition, responsibilities, duties, powers and authority of the Audit Committee (the "Committee")
of the directors (the "Board") of Bragg Gaming Group Inc. (the "Company").
The purpose of the Committee is to assist the
Board in fulfilling its oversight responsibilities with respect to:
|
|
(a)
|
financial reporting and disclosure requirements;
|
|
|
(b)
|
ensuring that an effective risk management and financial control framework has been implemented by management
of the Company; and
|
|
|
(c)
|
external and internal audit processes.
|
|
|
2.
|
COMPOSITION AND MEMBERSHIP
|
|
|
(a)
|
The members (collectively "Members" and individually a "Member") of
the Committee shall be appointed by the Board to serve one-year terms and shall be permitted to serve an unlimited number of consecutive
terms. The Board may remove a Member at any time and may fill any vacancy occurring on the Committee. A Member may resign at any time
and a Member will cease to be a Member upon ceasing to be a director of the Company.
|
|
|
(b)
|
The Committee will consist of at least three Members. Every Member must be a director of the Company.
Each Member shall be independent to the extent required by (and subject to the exemptions and other provisions set out in) applicable
laws, rules, regulations and stock exchange requirements (collectively "Applicable Laws").
|
|
|
(c)
|
The chair of the Committee (the "Chair") will be appointed by the Board and confirmed
by the Committee or appointed by the Committee from time to time and must have such accounting or related financial management expertise
as the Board or Committee may determine in their business judgment is necessary. The Chair must be financially literate to the extent
required by (and subject to the exemptions and other provisions set out in) applicable laws, rules, regulations and stock exchange requirements.
In this Charter, the terms "independent" and "financially literate" have the meanings ascribed to such
terms in Applicable Laws and include the meanings given to similar terms in Applicable Laws to the extent such similar terms are used
in this Charter and are applicable under Applicable Laws.
|
|
|
(a)
|
Meetings of the Committee will be held at such times and places as the Chair may determine, but in any
event not less than four (4) times per year. Any Member may call a meeting of the Committee at any time upon not less than forty-eight
(48) hours advance notice being given to each Member orally, by telephone, by facsimile or by email, unless all Members are present and
waive notice, or if those absent waive notice before or after a meeting. Members may attend all meetings either in person or by conference
call.
|
|
|
(b)
|
At the request of the external auditors of the Company, the Chief Executive Officer or the Chief Financial
Officer of the Company or any Member will convene a meeting of the Committee. Any such request will set out in reasonable detail the business
proposed to be conducted at the meeting so requested.
|
|
|
(c)
|
The Chair, if present, will act as the Chair of meetings of the Committee. If the Chair is not present
at a meeting of the Committee, then the Members present may select one of their number to act as chair of the meeting.
|
|
|
(d)
|
A majority of Members will constitute a quorum for a meeting of the Committee. Each Member will have one
vote and decisions of the Committee will be made by an affirmative vote of the majority of Members present at the meeting at which the
vote is taken. The Chair will not have a deciding or casting vote in the case of an equality of votes. Powers of the Committee may also
be exercised by written resolution signed by all Members.
|
|
|
(e)
|
The Committee may invite from time to time such persons as the Committee considers appropriate to attend
its meetings and to take part in the discussion and consideration of the affairs of the Committee, except to the extent the exclusion
of certain persons is required pursuant to this Charter or by Applicable Laws.
|
|
|
(f)
|
In advance of every regular meeting of the Committee, the Chair will prepare and distribute to the Members
and others as deemed appropriate by the Chair, an agenda of matters to be addressed at the meeting together with appropriate briefing
materials. The Committee may require officers and employees of the Company to produce such information and reports as the Committee may
deem appropriate in order to fulfill its duties.
|
|
|
(g)
|
meet in camera with only the auditors (if present), with only management (if present), and with only the
Members at every Committee meeting;
|
|
|
4.
|
DUTIES AND RESPONSIBILITIES
|
The duties and responsibilities of the Committee
as they relate to the following matters, to the extent considered appropriate or desirable or required by Applicable Laws, are to:
|
|
4.1
|
Financial Reporting and Disclosure
|
The Committee and its membership
shall meet all applicable legal, regulatory and listing requirements, including, without limitation, those of the Ontario Securities Commission
("OSC"), the Toronto Stock Exchange ("TSX"), the Canada Business Corporations Act ("CBCA")
and all applicable securities regulatory authorities.
|
|
(a)
|
Review and recommend to the Board for approval, the audited annual financial statements of the Company,
including the auditors' report thereon, the management's discussion and analysis of the Company prepared in connection with the annual
financial statements, financial reports of the Company, and any initial public release of financial information of the Company through
press release or otherwise, with such documents to indicate whether such information has been reviewed by the Board or the Committee;
|
|
|
(b)
|
review and approval of the quarterly financial statements of the Company including the management's discussion
and analysis prepared in connection with the quarterly financial statements, with such documents to indicate whether such information
has been reviewed by the Board or the Committee;
|
|
|
(c)
|
review and recommend to the Board for approval, where appropriate, financial information contained in
any prospectuses, annual information forms, annual reports to shareholders, management proxy circulars, material change disclosures of
a financial nature and similar disclosure documents;
|
|
|
(d)
|
review with management and with the external auditors significant accounting principles and disclosure
issues and alternative treatments under International Financial Reporting Standards ("IFRS") all with a view to gaining
reasonable assurance that financial statements are accurate, complete and present fairly the Company's financial position and the results
of its operations in accordance with IFRS; and
|
|
|
(e)
|
annually review the Company's corporate disclosure policy and recommend any proposed changes to the Board
for consideration.
|
|
|
4.2
|
Internal Controls and Audit
|
|
|
(a)
|
review and assess the adequacy and effectiveness of the Company's system of internal control and management
information systems through discussions with management and the external auditor of the Company to ensure that the Company maintains:
(i) the necessary books, records and accounts in sufficient detail to accurately and fairly reflect the Company's transactions; (ii) effective
internal control systems; and (iii) adequate processes for assessing the risk of material misstatement of the financial statements of
the Company and for detecting control weaknesses or fraud. From time to time the Committee will assess whether a formal internal audit
department is necessary or desirable having regard to the size and stage of development of the Company at any particular time, with any
such internal audit department reporting directly to the Audit Committee;
|
|
|
(b)
|
satisfy itself that management has established adequate procedures for the review of the Company's disclosure
of financial information extracted or derived directly from the Company's financial statements;
|
|
|
(c)
|
periodically assess the adequacy of such systems and procedures to ensure compliance with regulatory requirements
and recommendations;
|
|
|
(d)
|
review and discuss the major financial risk exposures of the Company and the steps taken to monitor and
control such exposures, including the use of any financial derivatives and hedging activities;
|
|
|
(e)
|
review and assess, and in the Committee's discretion make recommendations to the Board regarding, the
adequacy of the Company's risk management policies and procedures with regard to identification of the Company's principal risks and implementation
of appropriate systems to manage such risks including an assessment of the adequacy of insurance coverage maintained by the Company; and
|
|
|
(f)
|
review and assess annually, and in the Committee's discretion make recommendations to the Board regarding,
the investment policy, if any, of the Company.
|
|
|
(a)
|
recommend to the Board a firm of external auditors to be engaged by the Company;
|
|
|
(b)
|
ensure the external auditors report directly to the Committee on a regular basis;
|
|
|
(c)
|
review the independence of the external auditors, including a written report from the external auditors
respecting their independence and consideration of applicable auditor independence standards;
|
|
|
(d)
|
review and approve the compensation of the external auditors, and the scope and timing of the audit and
other related services rendered by the external auditors;
|
|
|
(e)
|
review the audit plan of the external auditors prior to the commencement of the audit;
|
|
|
(f)
|
establish and maintain a direct line of communication with the Company's external and, if applicable,
internal auditors; review the performance of the external auditors who are accountable to the Committee and the Board as representatives
of the shareholders, including the lead partner of the independent auditors team;
|
|
|
(g)
|
oversee the work of the external auditors appointed by the shareholders of the Company with respect to
preparing and issuing an audit report or performing other audit, review or attest services for the Company, including the resolution of
issues between management of the Company and the external auditors regarding financial disclosure;
|
|
|
(h)
|
review the results of the external audit and the report thereon including, without limitation, a discussion
with the external auditors as to the quality of accounting principles used and any alternative treatments of financial information that
have been discussed with management of the Company and the ramifications of their use, as well as any other material changes. Review a
report describing all material written communication between management and the auditors such as management letters and schedule of unadjusted
differences;
|
|
|
(i)
|
discuss with the external auditors their perception of the Company's financial and accounting personnel,
records and systems, the cooperation which the external auditors received during their course of their review and availability of records,
data and other requested information and any recommendations with respect thereto;
|
|
|
(j)
|
review the reasons for any proposed change in the external auditors which is not initiated by the Committee
or Board and any other significant issues related to the change, including the response of the incumbent auditors,
and enquire as to the qualifications of the proposed auditors before making its recommendations to the Board; and
|
|
|
(k)
|
review annually a report from the external auditors in respect of their internal quality- control procedures,
any material issues raised by the most recent internal quality-control review, or peer review of the external auditors, or by any inquiry
or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits
carried out by the external auditors, and any steps taken to deal with any such issues.
|
|
|
(a)
|
pre-approve all non-audit services to be provided to the Company or any subsidiary entities by its external
auditors or by the external auditors of such subsidiary entities. The Chair shall have the authority to pre-approve non-audit services
but pre-approval by the Chair so delegated shall be presented to the Committee at its first scheduled meeting following such pre-approval.
|
While the Committee has the responsibilities and
powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate or are in accordance with IFRS and applicable rules and regulations. These are the responsibilities
of the management of the Company. The Committee is not accountable or responsible for the day-to-day operation or performance of such
activities.
The Committee shall provide the Board with a summary
of all actions taken at each Committee meeting or by written resolution. The Committee will annually review and approve the Committee's
report for inclusion in the management proxy circular. Minutes of each meeting of the Committee and each written resolution passed by
the Committee will be circulated to the Board. The Committee shall produce and provide the Board with all reports or other information
required to be prepared under Applicable Laws.
|
|
6.
|
ACCESS TO INFORMATION AND AUTHORITY
|
The Committee will be granted unrestricted access
to all information regarding the Company and all directors, officers and employees will be directed to cooperate as requested by Members.
The Committee has the authority to retain, at the Company's expense, independent legal, financial and other advisors, consultants and
experts, to assist the Committee in fulfilling its duties and responsibilities. The Committee also has the authority to communicate directly
with external and, if applicable, internal auditors of the Company.
The Committee will annually review and assess
the adequacy of this Charter and recommend any proposed changes to the Board for consideration.
Exhibit 4.2
BRAGG GAMING GROUP INC.
CONSOLIDATED
FINANCIAL
STATEMENTS
Years ended December 31,
2020 and 2019
Presented in Euros (Thousands)
TABLE OF CONTENTS
|
|
CONSOLIDATED
|
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
|
1
|
|
|
CONSOLIDATED
|
STATEMENTS OF FINANCIAL POSITION
|
2
|
|
|
CONSOLIDATED
|
STATEMENTS OF CHANGES IN EQUITY
|
3
|
|
|
CONSOLIDATED
|
STATEMENTS OF CASH FLOWS
|
4
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1
|
BASIS OF PRESENTATION AND GOING CONCERN
|
5
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES
|
7
|
|
3
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
|
19
|
|
4
|
LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE
|
22
|
|
5
|
DISCONTINUED OPERATIONS
|
23
|
|
6
|
SHARE CAPITAL
|
26
|
|
7
|
PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020
|
27
|
|
8
|
WARRANTS
|
28
|
|
9
|
SHARE BASED PAYMENTS
|
31
|
|
10
|
GOODWILL
|
34
|
|
11
|
DEFERRED AND CONTINGENT CONSIDERATION
|
35
|
|
12
|
INTANGIBLE ASSETS
|
37
|
|
13
|
CASH AND CASH EQUIVALENTS
|
37
|
|
14
|
TRADE AND OTHER RECEIVABLES
|
38
|
|
15
|
TRADE PAYABLES AND OTHER LIABILITIES
|
38
|
|
16
|
RELATED PARTY TRANSACTIONS
|
39
|
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|
40
|
|
18
|
SUPPLEMENTARY CASHFLOW INFORMATION
|
44
|
|
19
|
SEGMENT INFORMATION
|
45
|
|
20
|
INCOME TAXES
|
46
|
|
21
|
CONTINGENT LIABILITIES
|
49
|
|
22
|
SUBSEQUENT EVENTS
|
50
|
Management’s Statement of Responsibility
for Financial Reporting
The management of Bragg Gaming Group
Inc. is responsible for the preparation, presentation and integrity of the accompanying consolidated financial statements. This responsibility
includes the selection and consistent application of appropriate accounting principles and methods in addition to making the judgments
and estimates necessary to prepare the consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
Management is also responsible for
providing reasonable assurance that assets are safeguarded, and that relevant and reliable financial information is produced. Management
is required to design a system of internal controls and certify as to the design and operating effectiveness of internal controls over
financial reporting.
MNP LLP, whose report follows, were
appointed as independent auditors by a vote of the Company’s shareholders to audit the consolidated financial statements.
The Board of Directors, acting through
an Audit Committee comprised solely of directors who are independent, is responsible for determining that management fulfils its responsibilities
in the preparation of the consolidated financial statements and the financial control of operations. The Audit Committee recommends the
independent auditors for appointment by the shareholders. The Audit Committee meets regularly with senior and financial management and
the independent auditors to discuss internal controls, auditing activities and financial reporting matters. The independent auditors have
unrestricted access to the Audit Committee. These consolidated financial statements have been approved by the Board of Directors based
on the review and recommendation of the Audit Committee.
|
Adam Arviv
|
Ronen Kannor
|
|
Chief Executive Officer
|
Chief Financial Officer
|
Toronto, Canada
March 25, 2021
Independent
Auditor's Report
To the Shareholders of Bragg Gaming Group Inc.:
Opinion
We have audited the consolidated
financial statements of Bragg Gaming Group Inc. and its subsidiaries (the "Company"), which comprise the consolidated statements
of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of loss and comprehensive loss, changes
in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December
31, 2020 and December 31, 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audits in accordance
with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance
with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters
that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period.
These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
Description
Impairment Analysis of Goodwill
and Long-Lived Assets
We draw attention to Note 3 and
10 to the consolidated financial statements. The Company has recorded goodwill, property and equipment, right-of-use assets and intangibles
assets of EUR 35,197 (in thousands) as of December 31, 2020. The Company performs impairment testing for goodwill and long-lived assets
on an annual basis or more frequently when there is an indication of impairment. An impairment is recognized if the carrying amount of
an asset, or its cash generating unit (CGU), exceeds its estimated recoverable amount. The recoverable amount of an asset is the greater
of its value-in-use and its fair value less costs of disposal. In determining the estimated recoverable amounts using a discounted cash
flow model, the Company’s significant assumptions include future cash flows based on expected operating results, long-term growth
rates and the discount rate.
We considered this a key audit
matter due to the significant judgment made by management in estimating the recoverable amount for goodwill and long-lived assets and
a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s
estimates. This resulted in an increased extent of audit effort, including the involvement of internal valuation specialists.
Audit Response
We responded to this matter by
performing procedures over the impairment of goodwill and long-lived assets. Our audit work in relation to this included, but was not
restricted to, the following:
|
|
-
|
Tested management’s key assumptions, including a ‘retrospective review’
to compare management’s assumptions in prior year expected future cash flows to the actual results to assess the Company’s
budgeting process.
|
|
|
-
|
Evaluated the reasonableness of key assumptions in the impairment model, including
future cash flows based on expected operating results, long-term growth rates and the discount rate.
|
|
|
-
|
Tested the mathematical accuracy of management’s impairment model and supporting calculations.
|
|
|
-
|
With the assistance of internal valuation specialists, we evaluated the reasonableness of the Company’s
impairment model, which included:
|
|
|
(i)
|
Evaluating the reasonableness of the discount rates by comparing the Company’s weighted average
cost of capital against publicly available market data.
|
|
|
(ii)
|
Developing a range of independent estimates and comparing those to the discount rate selected by management.
|
|
|
(iii)
|
Performing sensitivity analysis by developing a range of independent estimates of growth rates and weighted
average cost of capital.
|
Other Information
Management is responsible for the
other information. The other information comprises Management’s Discussion and Analysis.
Our opinion on the consolidated
financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audits
of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise
appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report.
If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
Responsibilities
of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for
the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial
statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible
for overseeing the Company’s financial reporting process.
Auditor's Responsibilities
for the Audit of the Consolidated Financial Statements
Our objectives are to obtain
reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not
a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance
with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout
the audit. We also:
|
·
|
Identify and assess the
risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
|
|
·
|
Obtain an understanding
of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control.
|
|
·
|
Evaluate the appropriateness
of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
|
|
·
|
Conclude on the appropriateness
of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures
in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
|
|
·
|
Evaluate the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.
|
|
·
|
Obtain sufficient appropriate
audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on
the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
|
We communicate with those charged
with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any
significant deficiencies in internal control that we identify during our audits.
We also provide those charged
with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with
them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated
with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law
or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit
resulting in this independent auditor's report is Ajmer Singh Sran.
|
Toronto, Ontario
|
Chartered Professional Accountants
|
|
March 25, 2021
|
Licensed Public Accountants
|
BRAGG GAMING GROUP INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE
LOSS PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
Note
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Revenue
|
|
|
4
|
|
|
|
46,421
|
|
|
|
26,592
|
|
|
Cost of revenue
|
|
|
|
|
|
|
(26,232
|
)
|
|
|
(14,562
|
)
|
|
Gross Profit
|
|
|
|
|
|
|
20,189
|
|
|
|
12,030
|
|
|
Selling, general and administrative expenses
|
|
|
4
|
|
|
|
(22,828
|
)
|
|
|
(14,764
|
)
|
|
Gain on remeasurement of consideration receivable
|
|
|
|
|
|
|
19
|
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
4, 11
|
|
|
|
(9,276
|
)
|
|
|
(5,347
|
)
|
|
Operating Loss
|
|
|
|
|
|
|
(11,896
|
)
|
|
|
(8,081
|
)
|
|
Net interest expense and other financing charges
|
|
|
4
|
|
|
|
(1,384
|
)
|
|
|
(1,754
|
)
|
|
Loss Before Income Taxes
|
|
|
4
|
|
|
|
(13,280
|
)
|
|
|
(9,835
|
)
|
|
Income taxes
|
|
|
20
|
|
|
|
(1,196
|
)
|
|
|
(541
|
)
|
|
Net Loss from Continuing Operations
|
|
|
|
|
|
|
(14,476
|
)
|
|
|
(10,376
|
)
|
|
Net loss from discontinued operations after tax
|
|
|
5
|
|
|
|
(90
|
)
|
|
|
(1,571
|
)
|
|
Net Loss
|
|
|
|
|
|
|
(14,566
|
)
|
|
|
(11,947
|
)
|
|
Items to be reclassified to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment - continuing operations
|
|
|
|
|
|
|
157
|
|
|
|
(247
|
)
|
|
Cumulative translation adjustment - discontinued operations
|
|
|
|
|
|
|
(95
|
)
|
|
|
74
|
|
|
Net Comprehensive Loss
|
|
|
|
|
|
|
(14,504
|
)
|
|
|
(12,120
|
)
|
|
Basic and Diluted Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
(0.17
|
)
|
|
|
(0.14
|
)
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.00
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
(0.17
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
Millions
|
|
|
|
Millions
|
|
|
Weighted average number of shares - basic and diluted
|
|
|
|
|
|
|
85.9
|
|
|
|
73.0
|
|
See accompanying notes to the consolidated financial statements.
BRAGG GAMING GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
As at
December 31,
|
|
|
|
As at
December 31,
|
|
|
|
|
|
Note
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Cash and cash equivalents
|
|
|
13
|
|
|
|
26,102
|
|
|
|
682
|
|
|
Trade and other receivables
|
|
|
14
|
|
|
|
10,297
|
|
|
|
6,180
|
|
|
Prepaid expenses and other assets
|
|
|
|
|
|
|
263
|
|
|
|
333
|
|
|
Consideration receivable
|
|
|
5
|
|
|
|
148
|
|
|
|
-
|
|
|
Assets held for sale
|
|
|
5
|
|
|
|
-
|
|
|
|
1,142
|
|
|
Total Current Assets
|
|
|
|
|
|
|
36,810
|
|
|
|
8,337
|
|
|
Property and equipment
|
|
|
|
|
|
|
272
|
|
|
|
163
|
|
|
Right-of-use assets
|
|
|
|
|
|
|
708
|
|
|
|
843
|
|
|
Consideration receivable
|
|
|
5
|
|
|
|
44
|
|
|
|
-
|
|
|
Intangible assets
|
|
|
12
|
|
|
|
14,279
|
|
|
|
14,561
|
|
|
Goodwill
|
|
|
10
|
|
|
|
19,938
|
|
|
|
19,938
|
|
|
Other assets
|
|
|
|
|
|
|
43
|
|
|
|
38
|
|
|
Total Assets
|
|
|
|
|
|
|
72,094
|
|
|
|
43,880
|
|
|
Trade payables and other liabilities
|
|
|
15
|
|
|
|
16,968
|
|
|
|
8,857
|
|
|
Deferred revenue
|
|
|
|
|
|
|
102
|
|
|
|
-
|
|
|
Income taxes payable
|
|
|
20
|
|
|
|
1,318
|
|
|
|
778
|
|
|
Lease obligations on right of use assets - current
|
|
|
|
|
|
|
133
|
|
|
|
185
|
|
|
Deferred and contingent consideration
|
|
|
11
|
|
|
|
11,521
|
|
|
|
9,482
|
|
|
Liabilities held for sale
|
|
|
5
|
|
|
|
-
|
|
|
|
1,499
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
30,042
|
|
|
|
20,801
|
|
|
Deferred income tax liability
|
|
|
20
|
|
|
|
1,415
|
|
|
|
1,539
|
|
|
Non-current lease obligations on right of use assets
|
|
|
|
|
|
|
593
|
|
|
|
674
|
|
|
Other non-current liabilities
|
|
|
|
|
|
|
147
|
|
|
|
-
|
|
|
Deferred and contingent consideration
|
|
|
11
|
|
|
|
-
|
|
|
|
14,250
|
|
|
Total Liabilities
|
|
|
|
|
|
|
32,197
|
|
|
|
37,264
|
|
|
Share capital
|
|
|
6
|
|
|
|
62,304
|
|
|
|
40,204
|
|
|
Warrants
|
|
|
8
|
|
|
|
1,642
|
|
|
|
1,565
|
|
|
Broker warrants
|
|
|
8
|
|
|
|
399
|
|
|
|
-
|
|
|
Special warrants - compensation options
|
|
|
8
|
|
|
|
-
|
|
|
|
660
|
|
|
Shares to be issued
|
|
|
11, 13
|
|
|
|
22,608
|
|
|
|
-
|
|
|
Contributed surplus
|
|
|
|
|
|
|
14,325
|
|
|
|
11,064
|
|
|
Deficit
|
|
|
|
|
|
|
(61,231
|
)
|
|
|
(46,665
|
)
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(150
|
)
|
|
|
(212
|
)
|
|
Total Equity
|
|
|
|
|
|
|
39,897
|
|
|
|
6,616
|
|
|
Total Liabilities and Equity
|
|
|
|
|
|
|
72,094
|
|
|
|
43,880
|
|
|
Going Concern
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board
|
Adam Arviv
|
Jim Ryan
|
|
Chief Executive Officer
|
Non Executive Director
|
BRAGG GAMING GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PRESENTED IN EUROS (THOUSANDS, EXCEPT SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
warrants
-
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
broker
|
|
|
warrants -
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
Shares to
|
|
|
|
|
|
Special
|
|
|
compensation
|
|
|
compensation
|
|
|
Broker
|
|
|
Contributed
|
|
|
|
|
|
comprehensive
|
|
|
Total
|
|
|
|
|
Note
|
|
|
capital
|
|
|
be
issued
|
|
|
Warrants
|
|
|
warrants
|
|
|
options
|
|
|
options
|
|
|
warrants
|
|
|
surplus
|
|
|
Deficit
|
|
|
loss
|
|
|
Equity
|
|
|
Balance as at January 1,
2019
|
|
|
|
|
|
|
32,892
|
|
|
|
-
|
|
|
|
579
|
|
|
|
7,641
|
|
|
|
660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,838
|
|
|
|
(34,675
|
)
|
|
|
(39
|
)
|
|
|
15,896
|
|
|
Impact of adoption of IFRS 16
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
(43
|
)
|
|
Shares issued as settlement of deferred consideration
|
|
|
11
|
|
|
|
1,236
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,236
|
|
|
Conversion of special warrants
|
|
|
6,
8
|
|
|
|
6,076
|
|
|
|
-
|
|
|
|
1,565
|
|
|
|
(7,641
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Conversion of special warrants - broker
compensation options
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(660
|
)
|
|
|
660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expiry of
warrants
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(579
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
579
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Share-based
compensation
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,647
|
|
|
Net loss for the period
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,947
|
)
|
|
|
-
|
|
|
|
(11,947
|
)
|
|
Other comprehensive income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(173
|
)
|
|
|
(173
|
)
|
|
Balance as at December
31, 2019
|
|
|
|
|
|
|
40,204
|
|
|
|
-
|
|
|
|
1,565
|
|
|
|
-
|
|
|
|
-
|
|
|
|
660
|
|
|
|
-
|
|
|
|
11,064
|
|
|
|
(46,665
|
)
|
|
|
(212
|
)
|
|
|
6,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2020
|
|
|
|
|
|
|
40,204
|
|
|
|
-
|
|
|
|
1,565
|
|
|
|
-
|
|
|
|
-
|
|
|
|
660
|
|
|
|
-
|
|
|
|
11,064
|
|
|
|
(46,665
|
)
|
|
|
(212
|
)
|
|
|
6,616
|
|
|
Issue of securities upon Public Offering, net of issuance
costs
|
|
|
7
|
|
|
|
10,086
|
|
|
|
-
|
|
|
|
1,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
399
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,127
|
|
|
Shares to be issued upon completion of Oryx earn-out
|
|
|
11
|
|
|
|
-
|
|
|
|
22,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000
|
|
|
Shares to be issued upon completion of private placement
|
|
|
13,
22
|
|
|
|
-
|
|
|
|
608
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
608
|
|
|
Exercise of deferred stock units
|
|
|
6,
9
|
|
|
|
219
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(219
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of stock options
|
|
|
6,
9
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
Exercise of warrants
|
|
|
8
|
|
|
|
10,708
|
|
|
|
-
|
|
|
|
(1,168
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,540
|
|
|
Expiry of warrants
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(526
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
526
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of special warrants - broker compensation options
|
|
|
8
|
|
|
|
1,060
|
|
|
|
-
|
|
|
|
129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(660
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
529
|
|
Share-based compensation
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,963
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,963
|
|
|
Net loss for the period
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,566
|
)
|
|
|
-
|
|
|
|
(14,566
|
)
|
|
Other comprehensive income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62
|
|
|
|
62
|
|
|
Balance as at December
31, 2020
|
|
|
|
|
|
|
62,304
|
|
|
|
22,608
|
|
|
|
1,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
399
|
|
|
|
14,325
|
|
|
|
(61,231
|
)
|
|
|
(150
|
)
|
|
|
39,897
|
|
See accompanying notes to the consolidated financial statements.
BRAGG GAMING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
Year Ended December 31,
|
|
|
|
|
Note
|
|
|
2020
|
|
|
2019
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
|
|
|
|
(14,476
|
)
|
|
|
(10,376
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense and other financing charges
|
|
|
|
|
|
|
1,384
|
|
|
|
1,754
|
|
|
Depreciation and amortization
|
|
|
4
|
|
|
|
2,873
|
|
|
|
2,080
|
|
|
Share based payments
|
|
|
4
|
|
|
|
2,963
|
|
|
|
1,647
|
|
|
Gain on remeasurement of consideration receivable
|
|
|
|
|
|
|
(19
|
)
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
11
|
|
|
|
9,276
|
|
|
|
5,347
|
|
|
Deferred income tax recovery
|
|
|
20
|
|
|
|
(125
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
1,876
|
|
|
|
340
|
|
|
Change in non-cash working capital
|
|
|
18
|
|
|
|
4,313
|
|
|
|
(660
|
)
|
|
Change in income taxes payable
|
|
|
|
|
|
|
540
|
|
|
|
222
|
|
|
Cash Flows From (Used In) Operating Activities
|
|
|
|
|
|
|
6,729
|
|
|
|
(98
|
)
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(223
|
)
|
|
|
(120
|
)
|
|
Proceeds from sale of equipment
|
|
|
|
|
|
|
-
|
|
|
|
16
|
|
|
Additions of intangible assets
|
|
|
12
|
|
|
|
(2,286
|
)
|
|
|
(1,555
|
)
|
|
Proceeds from sale of discontinued operations
|
|
|
5
|
|
|
|
259
|
|
|
|
-
|
|
|
Deferred and contingent consideration payments
|
|
|
11
|
|
|
|
(527
|
)
|
|
|
(639
|
)
|
|
Cash Flows Used In Investing Activities
|
|
|
|
|
|
|
(2,777
|
)
|
|
|
(2,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common shares and warrants, net of costs
|
|
|
7, 8
|
|
|
|
12,127
|
|
|
|
-
|
|
|
Proceeds from exercise of warrants and broker compensation options
|
|
|
8
|
|
|
|
10,069
|
|
|
|
-
|
|
|
Proceeds from exercise of stock options
|
|
|
9
|
|
|
|
18
|
|
|
|
-
|
|
|
Proceeds from shares to be issued upon private placement
|
|
|
13, 22
|
|
|
|
608
|
|
|
|
-
|
|
|
Repayment of lease liability
|
|
|
|
|
|
|
(212
|
)
|
|
|
(109
|
)
|
|
Repayment of loans
|
|
|
|
|
|
|
-
|
|
|
|
(375
|
)
|
|
Interest income
|
|
|
|
|
|
|
6
|
|
|
|
4
|
|
|
Interest and financing fees
|
|
|
|
|
|
|
(353
|
)
|
|
|
(41
|
)
|
|
Cash Flows From (Used In) Financing Activities
|
|
|
|
|
|
|
22,263
|
|
|
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(307
|
)
|
|
|
(276
|
)
|
|
Net cash flow used in discontinued operations
|
|
|
5
|
|
|
|
(488
|
)
|
|
|
(1,605
|
)
|
|
Change in Cash and Cash Equivalents
|
|
|
|
|
|
|
25,420
|
|
|
|
(4,798
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
|
|
|
|
|
682
|
|
|
|
5,480
|
|
|
Cash and Cash Equivalents at end of year
|
|
|
|
|
|
|
26,102
|
|
|
|
682
|
|
|
See accompanying notes to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1 BASIS OF
PRESENTATION AND GOING CONCERN
Nature of operations
Bragg Gaming Group Inc. and its
subsidiaries ("Bragg", "BGG", the "Company" or the "Group") is primarily a B2B online gaming technology
platform and casino content aggregator through its acquisition of Oryx Gaming International LLC ("Oryx" or "Oryx Gaming")
in 2018.
The registered and head office of
the Company is located at 130 King Street West, Suite 1955, Toronto, Ontario, Canada M5X 1E3.
Oryx Gaming
Oryx Gaming is a B2B gaming solution
provider. Oryx offers a turnkey solution, including an omni-channel retail, online and mobile iGaming platform, as well as an advanced
content aggregator, sportsbook, lottery, marketing, and operational services. Oryx is incorporated in the State of Delaware and headquartered
in Las Vegas. Its primary operations are provided through its wholly owned subsidiaries in Malta, Cyprus, and Slovenia.
Acquisition of Oryx Gaming
On December 20, 2018, the Company
completed a business combination transaction with AA Acquisition Group Inc. ("AAA") by way of a "three-cornered amalgamation"
whereby the Company acquired all of the issued and outstanding securities of AAA in exchange for the issuance to AAA shareholders of 20,999,995
Common Shares of the Company on a pro-rata basis amongst AAA shareholders, and whereby AAA amalgamated with a wholly owned subsidiary
of the Company. Upon completion of the Amalgamation, all of the property, rights, privileges and assets of AAA have continued as the property
rights, privileges and assets of the amalgamated entity, Bragg Oryx Holdings Inc., a wholly owned subsidiary of the Company.
AAA was a special purpose vehicle
incorporated on April 12, 2018 under the Ontario Business Corporations Act, with the primary purpose of acquiring share capital, trade
and assets of Oryx Gaming and its wholly owned subsidiaries. On December 20, 2018, AAA acquired all of the issued and outstanding membership
interests of Oryx Gaming before the three-cornered amalgamation as discussed above.
Acquisition of Win Gaming
On April 30, 2019, the Company completed
an acquisition transaction whereby it acquired all of the equity in WIN Gaming Limited ("WIN") in exchange for cash consideration
of EUR 66. The purpose of the acquisition was to acquire WIN’s remote gaming licence issued by the Malta Gaming Authority. WIN is
a private limited liability company incorporated in Malta.
Classification of online media business
unit as held for sale and discontinued operations
During the year ended December 31,
2019, the Company decided to discontinue its online media business unit. The associated assets and liabilities within the disposal group
are presented as held for sale and the net loss attributable as discontinued operations in the consolidated financial statements ("financial
statements"). The Company completed the sale of the majority of its online media business unit on May 7, 2020 (Note 5).
Statement of compliance and basis
of presentation
The accompanying financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting
Standards Board (“IASB”).
The financial statements are prepared
on a historical cost basis except for financial instruments classified at fair value through profit or loss (“FVTPL”) which
are measured at fair value. The significant accounting policies set out below have been applied consistently in the preparation of the
consolidated financial statements for all periods presented.
These financial statements were,
at the recommendation of the audit committee, approved and authorized for issuance by the Company’s Board of Directors on March
25, 2021.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
1
|
BASIS OF PRESENTATION AND GOING CONCERN (CONTINUED)
|
Going concern
The financial statements have been
prepared on the going concern basis, which assumes that the Company will be able to continue as a going concern and realize its assets
and discharge its liabilities in the normal course of business, and do not give effect to any adjustments which would be necessary should
the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those reflected in the financial statements. If the going concern
assumption is not appropriate, material adjustments to the financial statements could be required.
As at December 31, 2020, the Company
had current assets of EUR 36,810 (December 31, 2019: EUR 8,337) and current liabilities of EUR 30,042 (December 31, 2019: EUR 20,801).
As of December 31, 2020, the Company has a cumulative deficit of EUR 61,231 (December 31, 2019: EUR 46,665).
In the subsequent period to March
25, 2021, the Company raised additional cash proceeds of EUR 10,817 via exercise of share warrants and broker warrants issued November
18, 2020 (Note 7) and all contingent liabilities with K.A.V.O. Holdings Limited were settled in full on January 18, 2021 based upon shareholder
agreement obtained on November 27, 2020 (Note 22). In addition, on January 13, 2021, the Company completed a non-brokered private placement
offering comprised of 2,479,335 Common Shares at a price of CAD 1.21 per share for aggregate gross proceeds of EUR 1,937. These events
or conditions, along with the Company generating positive cash flows from operations indicates that the Company will be able to continue
on a going concern basis and any material uncertainty related to this basis no longer exists.
COVID-19
In December 2019, there was a global
outbreak of COVID-19 (coronavirus), which continued to have a significant impact on businesses through the restrictions put in place by
the national, provincial and municipal governments around the world regarding travel, business operations and isolation and quarantine
orders.
At this time, it is unknown the extent
of the impact the COVID-19 outbreak may have on the Company in the long term as this will depend on future developments that are highly
uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration
of the outbreak, including the duration of travel restrictions, business closures or disruptions, quarantine and isolation measures that
are currently, or may be put, in place by Canada and other countries to fight the virus.
However, the Company derives the
majority of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”,
requiring people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming
businesses such as Netflix. Furthermore, the Company has limited exposure to sports betting revenues that have obviously been impacted
by the lack of professional sports.
As at the time of release of these
financial statements, the Company’s financial performance, financial position and cash flow had not been adversely impacted by COVID-19
and the Company has determined no impairment of its goodwill is required.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of consolidation
The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. Control exists when the Company is exposed, or has rights, to variable
returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The
Company assesses control on an ongoing basis. The Company’s interest in the voting share capital of all its subsidiaries is 100%.
Transactions and balances between
the Company and its consolidated entities have been eliminated on consolidation.
The table below summarizes the Company’s subsidiaries
and the functional currency for each subsidiary:
|
|
Place of
incorporation
/ operation
|
Principal activity
|
Functional currency
|
|
Bragg Gaming Group - Group Services Ltd
|
United Kingdom
|
Corporate activities
|
GBP
|
|
Bragg Gaming Group - Parent Services Ltd
|
United Kingdom
|
Corporate activities
|
GBP
|
|
Bragg Oryx Holdings Inc.
|
Canada
|
Intermediate holding company
|
CAD
|
|
Breaking Data Inc.
|
Canada
|
Dormant
|
CAD
|
|
DSMIC Inc.
|
Canada
|
Dormant
|
CAD
|
|
GMB Operations Ltd.
|
United Kingdom
|
Dormant
|
GBP
|
|
Innovation Fund III Inc
|
United States
|
Dormant
|
USD
|
|
Oryx Gaming Distribution Ltd.
|
Cyprus
|
Distribution
|
EUR
|
|
Oryx Gaming International LLC
|
United States
|
Gaming solution provider
|
EUR
|
|
Oryx Gaming Ltd.
|
Malta
|
Gaming solution provider
|
EUR
|
|
Oryx Marketing Poslovne Storitve D.o.o.
|
Slovenia
|
Marketing
|
EUR
|
|
Oryx Podpora D.o.o.
|
Slovenia
|
B2B support services
|
EUR
|
|
Oryx Razyojne-Storitve D.o.o.
|
Slovenia
|
Gaming solution developer
|
EUR
|
|
Poynt Inc.
|
Canada
|
Distribution
|
CAD
|
|
Unomobi Inc.
|
United States
|
Dormant
|
USD
|
|
Win Gaming Ltd.
|
Malta
|
Gaming licence holder
|
EUR
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Presentation currency
The presentation currency of the
Company is the Euro, whilst the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British
pound sterling due to primary location of individual entities within the Group. The presentation currency of the Euro has been selected
as it best represents the majority of the Company’s economic inflows, outflows as well as its assets and liabilities.
The assets and liabilities of operations
that have a functional currency different from that of the Company’s reporting currency are translated into Euros at the foreign
currency exchange rate in effect at the reporting date. The resulting foreign currency exchange gains or losses are recognized in the
foreign currency translation adjustment as part of other comprehensive income (loss). When such foreign operations are disposed of, the
related foreign currency translation reserve is recognized in net earnings as part of the gain or loss on disposal.
Revenues and expenses of foreign
operations are translated into Euros at the foreign currency exchange rates that approximate the rates in effect at the dates when such
items are transacted.
Business combinations
Business combinations are accounted
for using the acquisition method as of the date when control is transferred to the Company. The Company measures goodwill as the excess
of the sum of the fair value of the consideration transferred over the net identifiable assets acquired and liabilities assumed, all measured
as at the acquisition date. Transaction costs that the Company incurs in connection with a business combination, other than those associated
with the issuance of debt or equity securities, are expensed as incurred.
Net earnings (loss) per share (“EPS”)
Basic EPS is calculated by dividing
the net earnings (loss) available to shareholders by the weighted average number of shares outstanding during the period. Diluted EPS
is calculated by adjusting the net earnings available to shareholders and the weighted average number of shares outstanding for the effects
of all potential dilutive instruments.
Diluted loss per share is equal to basic
loss per share when the effect of dilutive securities is anti-dilutive.
Cash and cash equivalents
Cash equivalents consist of highly
liquid marketable investments with an original maturity date of 90 days or less from the date of acquisition and prepaid credit cards.
Cash and cash equivalents also include cash held in trust as proceeds from future private placement.
Trade and other receivables
Trade and other receivables consist
primarily of trade receivables from customers for which Oryx Gaming provides services during the year and accrued income in relation to
receivables from customers that have yet to be invoiced, for services provided during the year ended December 31, 2020. Upon invoicing,
amounts are transferred from accrued income to trade receivables and any differences between the accrued and invoiced values are recognized
in the consolidated statements of loss and comprehensive loss.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Revenue recognition
The Company recognizes revenue when
control of the goods or services has been transferred. Revenue is measured at the amount of consideration to which the Company expects
to be entitled to, including variable consideration to the extent that it is highly probable that a significant reversal will not occur.
Revenue from continuing operations is derived from software platform licensing, maintenance of source code, bespoke development, management
service fees, marketing fees, content and hosting fees. Revenue is recognized when the service provided to the customer is complete. Specifically:
-
Games and content: revenues from content and platform licensing are linked to revenues a customer earns from utilizing the Company’s
software platform and aggregated content in that period. The Company’s revenue is therefore linked to the revenue of the underlying
customer, i.e., the subsequent sale. The Company recognizes revenue once the customer has earned the revenue from the subsequent sale/services
as this is the point where the performance obligation is satisfied.
-
iGaming and turnkey projects: the Company charges a fixed monthly management and marketing fee for its services in the month in
which the services are provided, and performance obligations are met. Charges for development projects are charged on a time and materials
basis upon delivery at agreed milestones. Revenue is recognized as it is billed unless services and performance obligations are provided
in a future period. If services and performance obligations are not provided in the reporting period, then revenue is not recognized.
Revenue from discontinued operations
is derived from programmatic advertising, branded content and social media management, sales of software maintenance agreements, software
customization services, technical support services and consulting services. Revenue is recognized on a monthly basis as it is billed.
Consideration receivable
Consideration receivable consists
of cash receivables due as a result of the sale of discontinued operations. The fair value of the consideration receivable is determined
by calculating the present value of expected future cashflows relating to the consideration receivable, applying the Company’s discount
rate.
Assets held for sale
Non-current assets are classified
as assets held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing
use. To qualify as assets held for sale, the sale must be highly probable, assets must be available for immediate sale in their present
condition and management must be committed to a plan to sell assets that should be expected to close within one year from the date of
classification. Assets held for sale are recognized at the lower of their carrying amount and fair value less costs to sell and are not
depreciated.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income taxes
Current and deferred taxes are recognized
in the consolidated statements of earnings, except for current and deferred taxes related to a business combination, or amounts charged
directly to equity or other comprehensive loss, which are recognized in the consolidated statements of financial position.
Current tax is the expected tax
payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using
the asset and liability method of accounting on temporary differences arising between the financial statement carrying values of existing
assets and liabilities and their respective income tax bases. Deferred tax is measured using enacted or substantively enacted income tax
rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. A deferred tax asset
is recognized for temporary differences as well as unused tax losses and credits to the extent that it is probable that future taxable
profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied
by the same taxation authority on the same taxable entity, or on different taxable entities where the Company intends to settle its current
tax assets and liabilities on a net basis.
Deferred tax is recorded on temporary
differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled
by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Property and equipment
Property and equipment are recognized
and subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that
are directly attributable to the acquisition of the asset, including costs incurred to prepare the asset for its intended use and capitalized
borrowing costs. The commencement date for capitalization of costs occurs when the Company first incurs expenditures for the qualifying
assets and undertakes the required activities to prepare the assets for their intended use.
Borrowing costs directly attributable
to the acquisition, construction or production of property and equipment, that necessarily take a substantial period of time to prepare
for their intended use and a proportionate share of general borrowings, are capitalized to the cost of those assets, based on a quarterly
weighted average cost of borrowing. All other borrowing costs are expensed as incurred and recognized in net interest expense and other
financing charges.
The cost of replacing a component
of property and equipment is recognized in the carrying amount if it is probable that the future economic benefits embodied within the
component will flow to the Company and the cost can be measured reliably. The carrying amount of the replaced component is derecognized.
The cost of repairs and maintenance of property and equipment is expensed as incurred and recognized in the consolidated statements of
loss and comprehensive loss.
Gains and losses on disposal of property
and equipment are determined by comparing the fair value of proceeds from disposal with the net book value of the assets and are recognized
on a net basis in the consolidated statements of loss and comprehensive loss.
Property and equipment are depreciated
on a straight-line basis over their estimated useful lives of 3 years to their estimated residual value when the assets are available
for use. When significant parts of a property and equipment have different useful lives, they are accounted for as separate components
and depreciated separately. Depreciation methods, useful lives and residual values are reviewed annually and are adjusted for prospectively,
if appropriate.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Leases
Effective January 1, 2019, the Company
adopted IFRS 16 Leases which replaces IAS 17, Leases. This standard brings most leases on the statement of financial position for
lessees under a single model, eliminating the distinction between operating and financing leases and adding a requirement for the recognition
of a right-of-use asset and a lease liability at the commencement of all leases except short-term leases and leases of low value assets
for which the election has been applied.
In accordance with the transitional
provisions, the Company adopted the standard applying the modified retrospective approach, with right-of-use assets being measured at
the amount equal to the lease liability, adjusted for any amount of applicable prepaid or accrued lease payments recognized on the consolidated
statement of financial position as at December 31, 2018.
For contracts entered into on or
after January 1, 2019, the Company assesses whether a contract is, or contains, a lease. If a contract conveys the right to control the
use of an identified asset for a period of time in exchange for consideration, then the contract may contain a lease. The Company assesses
whether a contract conveys the right to control the use of an asset by performing the following tests:
|
|
-
|
assess whether the contract involves the use of an identified asset and may be
specified explicitly or implicitly. It should be physically distinct or represent substantially all of the capacity of a physically distinct
asset. If the supplier has a significant right to substitution, then the asset is not identified;
|
|
|
-
|
assess whether the Company has the right to obtain substantially all of the economic
benefits arising from the use of the asset throughout the period of use; and
|
|
|
-
|
assess that the Company has the right to direct enjoyment of the asset. This right
is identified when the Company has the decision-making rights in how and for what purpose the asset is used. In cases where the decision
on how and for what purpose to use the asset has been predetermined, the Company has the right to direct the use of the asset if either
it has the right to operate the asset, or the Company has designed the asset in a manner that predetermines how and for what purpose the
asset will be used.
|
For contracts entered into prior to January 1, 2019, the
Company had determined whether the arrangement contained a lease based on the following tests:
|
|
-
|
assess whether fulfilment of the agreement was dependent on the use of specific assets; and
|
|
|
-
|
assess whether the arrangement conveyed the right to use the asset if one of the following was met:
|
|
|
-
|
the purchaser had the ability or right to operate the asset while obtaining or
controlling more than an insignificant amount of the output;
|
|
|
-
|
the purchaser had the ability or right to control physical access to the asset
while obtaining or controlling more than an insignificant amount of the output;
|
|
|
-
|
circumstances indicated that it was unlikely that third parties would take more
than an insignificant amount of the output, and the price per unit was not fixed per unit of output and not equal to the current market
price per unit of output.
|
The Company recognizes a right-of-use
asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Leases (continued)
The right-of-use asset is subsequently
depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use
asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property
and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements
of the lease liability.
The lease liability is initially
measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit
in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses
its incremental borrowing rate as the discount rate.
Lease payments included in the measurement
of the lease liability comprise the following:
|
|
-
|
fixed payments, including in-substance fixed payments;
|
|
|
-
|
variable lease payments that depend on an index or a rate, initially measured using
the index or rate as at the commencement date;
|
|
|
-
|
amounts expected to be payable under a residual value guarantee; and
|
|
|
-
|
the exercise price under a purchase option that the Group is reasonably certain
to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties
for early termination of a lease unless the Company is reasonably certain not to terminate early.
|
The lease liability is measured at
amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change
in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value
guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured
in this way, a corresponding adjustment is made to the carrying amount of the right of-use asset or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to zero.
The Company has elected not to recognize
right-of-use assets and lease liabilities for short-term leases of equipment that have a lease term of twelve months or less and leases
of low-value assets, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
Goodwill
Goodwill arising in a business combination
is recognized as an asset at the date that control is acquired. Goodwill is subsequently measured at cost less accumulated impairment
losses. Goodwill is not amortized but is tested for impairment on an annual basis or more frequently if there are indicators that goodwill
may be impaired as described in the Impairment of Non-Financial assets policy.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Intangible assets
Intangible assets are measured at
cost less any amortization and accumulated impairment losses. These intangible assets are tested for impairment on an annual basis or
more frequently if there are indicators that intangible assets may be impaired as described in the Impairment of Non-financial assets
policy.
Intangible assets are amortized on a straight-line
basis over their estimated useful lives as follows:
|
Intellectual property identified upon business combination
|
8 years
|
|
Intellectual property acquired from third-parties
|
3 years
|
|
Customer relationships
|
10 years
|
|
Brands
|
10 years
|
|
Deferred development costs
|
3 years
|
|
Trademarks
|
3 years
|
|
Gaming licences
|
over the term of the licence
|
Trademarks and gaming licences are classified under “Other”
in the intangible assets disclosure note (Note 12). The Company capitalizes the costs of intangible assets if and only if:
|
|
-
|
it is probable that the expected future economic benefits attributable to the asset will flow to the entity; and
|
|
|
-
|
the cost of the asset can be measured reliably.
|
Certain costs incurred in connection
with the development of intellectual property relating to proprietary technology are capitalized to intangible assets as development costs.
Intangible assets are recorded at cost, which consists of directly attributable costs necessary to create such intangible assets, less
accumulated amortization and accumulated impairment losses, if any. The costs mainly include the salaries paid to the software developers
and consulting fees.
These costs are recognized as development costs assets when
the following criteria are met:
|
|
-
|
it is technically feasible to complete the software product so that it will be available for use;
|
|
|
-
|
management intends to complete the software product;
|
|
|
-
|
it can be demonstrated how the software product will generate future economic benefits;
|
|
|
-
|
adequate technical, financial, and other resources to complete the development and to use or sell the
products are available; and
|
|
|
-
|
the expenditure attributable to the software product during its development can be reliably measured.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Impairment of non-financial assets
At each statement of financial position
date, the Company reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment.
If any such indication exists, the asset is then tested for impairment by comparing its recoverable amount to its carrying value. Goodwill
is tested for impairment at least annually.
For the purpose of impairment testing,
assets, including right-of-use assets, are grouped together into the smallest group of assets that generate cash inflows from continuing
use that are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a cash generating
unit ("CGU").
Corporate assets, which include head
office facilities and distribution centres, do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum
grouping of CGUs to which the corporate assets can be reasonably and consistently allocated. Goodwill arising from a business combination
is tested for impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU
or CGU grouping is the higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future
cash flows from the CGU or CGU grouping, discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the CGU or CGU grouping. If the CGU or CGU grouping includes right-of-use
assets in it’s carrying amount, the pre-tax discount rate reflects the risks associated with the exclusion of lease payments from
the estimated future cash flows. The fair value less costs to sell is based on the best information available to reflect the amount that
could be obtained from the disposal of the CGU or CGU grouping in an arm’s length transaction between knowledgeable and willing
parties, net of estimates of the costs of disposal.
An impairment loss is recognized
if the carrying amount of a CGU or CGU grouping exceeds its recoverable amount. For asset impairments other than goodwill, the impairment
loss reduces the carrying amounts of the non-financial assets in the CGU on a pro-rata basis, up to an asset’s individual recoverable
amount. Any loss identified from goodwill impairment testing is first applied to reduce the carrying amount of goodwill allocated to the
CGU grouping, and then to reduce the carrying amounts of the other non-financial assets in the CGU or CGU grouping on a pro-rata basis.
For assets other than goodwill,
an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of
goodwill is not reversed.
Financial instruments
Financial assets and liabilities
are recognized when the Company becomes party to the contractual provisions of the financial instrument. Upon initial recognition, financial
instruments are measured at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of financial
instruments that are not classified as fair value through profit or loss.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Financial instruments – classification
and measurement
The classification and measurement
approach for financial assets reflect the business model in which assets are managed and their cash flow characteristics. Financial assets
are classified and measured based on these categories: amortized cost, fair value through other comprehensive income ("FVOCI"),
or fair value through profit and loss ("FVTPL"). A financial asset is measured at amortized cost if it meets both of the following
conditions and is not designated as FVTPL:
|
|
-
|
the financial asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and
|
|
|
-
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
|
A financial asset is measured at FVOCI
if it meets both of the following conditions and is not designated as at FVTPL:
|
|
-
|
the financial asset is held within a business model in which assets are managed to achieve a particular
objective by both collecting contractual cash flows and selling financial assets; and
|
|
|
-
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
|
A financial asset shall be measured at
FVTPL unless it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified
subsequent to their initial recognition unless the Company identifies changes in its business model in managing financial assets.
Financial liabilities are classified and
measured based on two categories: amortized cost or FVTPL.
Fair values are based on quoted
market prices where available from active markets, otherwise fair values are estimated using valuation methodologies, primarily discounted
cash flows taking into account external market inputs where possible.
The amortized cost of a financial
asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal payments,
plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized
and the maturity amount, minus any reduction for impairment.
The following table summarizes the classification
and measurement of the Company’s financial assets and liabilities:
|
Asset / Liability
|
|
Classification / Measurement
|
|
|
|
Cash and cash equivalents
|
|
FVTPL
|
|
Trade and other receivables
|
|
Amortized cost
|
|
Consideration receivable
|
|
FVTPL
|
|
Other assets
|
|
Amortized cost
|
|
Trade payables and other liabilities
|
|
Amortized cost
|
|
Deferred and contingent consideration
|
|
FVTPL
|
|
Lease obligations on right of use assets
|
|
Amortized cost
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
|
Financial instruments – valuation
The determination of the fair value
of financial instruments is performed by the Company’s treasury and financial reporting departments on a quarterly basis. There
was no change in the valuation techniques applied to financial instruments during the current year.
The carrying amounts reported for
cash and cash equivalents, trade and other receivables, consideration receivable, trade payables and other liabilities, and deferred and
contingent consideration approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying
value of lease obligations on right of use assets approximates the fair value based on rates currently available from financial institutions
and various lenders.
Gains and losses on FVTPL financial
assets and financial liabilities are recognized in net earnings in the period in which they are incurred. Settlement date accounting is
used to account for the purchase and sale of financial assets. Gains or losses between the trade date and settlement date on FVTPL financial
assets are recorded in the consolidated statements of loss and comprehensive loss.
Financial instruments – derecognition
Financial assets are derecognized
when the contractual rights to receive cash flows and benefits from the financial asset expire, or if the Company transfers the control
or substantially all the risks and rewards of ownership of the financial asset to another party. The difference between the carrying amount
of the financial asset and the sum of the consideration received and receivable is recognized in earnings before income taxes.
Financial liabilities are derecognized
when obligations under the contract expire, are discharged, or cancelled. The difference between the carrying amount of the financial
liability derecognized and the consideration paid and payable is recognized in earnings before income taxes.
Financial instruments – impairment
The Company applies a forward-looking
expected credit loss ("ECL") model at each reporting date to financial assets measured at amortized cost or those measured at
FVOCI, except for investments in equity instruments. The ECL model outlines a three-stage approach to reflect the increase in credit risks
of a financial instrument:
|
|
-
|
Stage 1 is comprised of all financial instruments that have not had a significant
increase in credit risks since initial recognition or that have low credit risk at the reporting date. The Company is required to recognize
impairment for Stage 1 financial instruments based on the expected losses over the expected life of the instrument arising from loss events
that could occur during the 12 months following the reporting date.
|
|
|
-
|
Stage 2 is comprised of all financial instruments that have had a significant
increase in credit risks since initial recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial
instruments the impairment is recognized based on the expected losses over the expected life of the instrument arising from loss events
that could occur over the expected life. The Company is required to recognize a lifetime ECL for Stage 2 financial instruments.
|
|
|
-
|
Stage 3 is comprised of all financial instruments that have objective evidence
of impairment at the reporting date. The Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments.
The ECL model applied to financial assets require judgment, assumptions, and estimations on changes in credit risks, forecasts of future
economic conditions and historical information on the credit quality of the financial asset. Consideration of how changes in economic
factors affect ECLs are determined on a probability-weighted basis.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
|
Financial instruments – impairment
(continued)
The carrying amount of the financial
asset or group of financial assets are reduced through the use of impairment allowance accounts. In periods subsequent to the impairment
where the impairment loss has decreased, and such decrease can be related objectively to conditions and changes in factors occurring after
the impairment was initially recognized, the previously recognized impairment loss is reversed. The impairment reversal is limited to
the lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the date the impairment is reversed
does not exceed what the amortized cost would have been had the impairment not been recognized.
Deferred and contingent consideration
The company has deferred and contingent
consideration payable to the vendor of Oryx Gaming. Between December 20, 2018 and November 13, 2020 earnout payments were agreed based
upon a multiple of EBITDA in financial years ended December 31, 2019 and December 31, 2020 with a minimum amount payable in each twelve-month
period. In each reporting period the present value of the deferred and contingent consideration payable was measured by discounting achieved
and forecasted EBITDA by applying the Company’s weighted average cost of capital. A Black-Scholes calculation was then applied to
account for probability of payout and to determine present value of payout after counter-party risk.
Prior to the next remeasurement
period an accretion expense is recorded in the consolidated statements of loss and comprehensive loss as the discount is unwound towards
the reporting date. Upon remeasurement, any gain or loss on remeasurement is also recorded in the consolidated statements of loss and
comprehensive loss.
On November 13, 2020, the Company
entered into an amending agreement with the vendor of Oryx Gaming whereby the second payment of deferred and contingent consideration
was agreed at a fixed cash value and, following shareholder agreement on November 27, 2020, could be settled in fixed amount of common
shares. As the payment can only be settled by way of common shares, there is no obligation of the Company to deliver cash or cash equivalents,
and the underlying fair value of the liability and number of common shares is fixed, the payment qualifies as an equity instrument and
is recorded as shares to be issued in the consolidated statements of changes in equity.
Short term employee benefits
Short term employee benefits include
wages, salaries, compensated absences, and bonuses. Short term employee benefit obligations are measured on an undiscounted basis and
are recognized in operating income as the related service is provided or capitalized if the service rendered is in connection with the
creation of an intangible asset. A liability is recognized for the amount expected to be paid under short term cash bonus plans if the
Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the
obligation can be estimated reliably.
Share based payments
The Company has stock option plans
for directors, officers, employees, and consultants. Each tranche of an award is considered a separate award with its own vesting period
and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model.
In addition, the Company also has deferred share unit (“DSU”), restricted share unit (“RSU”) and performance share
unit (“PSU”) plans for directors, officers, employees, and consultants. The fair value of each unit is measured as the share
price on date of grant with nil exercise price.
Compensation expense is recognized
over each tranche’s vesting period, based on the number of awards expected to vest, with the offset credited to contributed surplus.
The number of awards expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised,
the amount received is credited to share capital and the fair value attributed to these options is transferred from contributed surplus
to share capital. In the case of DSUs, RSUs or PSUs, only the fair value attributed to these options is transferred from contributed surplus
to share capital.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
|
Equity
Shares are classified as equity.
Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Contributed surplus includes
amounts in connection with conversion options embedded in compound financial instruments, share based payments and the value of expired
options and warrants. Deficit includes all current and prior period income and losses.
Warrants
The Company accounts for warrants using the Black-Scholes option
pricing model at the date of issuance. If and when warrants ultimately expire, the applicable amounts are transferred to contributed surplus.
Accounting standards implemented
in 2020 – Definition of a business (amendments to IFRS 3)
In October 2018, the IASB issued
amendments to IFRS 3, Business Combinations, incorporated into Part I of the CPA Canada Handbook – Accounting by the Accounting
Standards Board in December 2018. The amendments clarify the definition of a business, permitting a simplified assessment to determine
whether a transaction should be accounted for as a business combination or as an asset acquisition.
The amendments were effective for
transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January
1, 2020 with earlier application permitted. Effective January 1, 2019, the Company adopted the amendments and assessed various asset purchase
transactions entered into during the year to determine whether a transaction should be accounted for as a business combination or as an
asset acquisition.
Based on the clarification related
to the definition of a business, the Company determined the acquisition of WIN Gaming in April 2019 meets the criteria to be classified
as an asset acquisition.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
3
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
|
The preparation of the consolidated
financial statements requires management to make estimates and judgments in applying the Company’s accounting policies that affect
the reported amounts and disclosures made in the consolidated financial statements and accompanying notes.
Within the context of these consolidated
financial statements, a judgment is a decision made by management in respect of the application of an accounting policy, a recognized
or unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that may include estimates
and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances recognized or disclosed in the consolidated
financial statements and are based on a set of underlying data that may include management’s historical experience, knowledge of
current events and conditions and other factors that are believed to be reasonable under the circumstances.
Management continually evaluates the estimates
and judgments it uses.
The following are the accounting
policies subject to judgments and key sources of estimation uncertainty that the Company believes could have the most significant impact
on the amounts recognized in the consolidated financial statements. The Company’s significant accounting policies are disclosed
in Note 2.
Impairment of non-financial assets
(property and equipment, right-of-use assets, intangible assets and goodwill)
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management is required to use judgment
in determining the grouping of assets to identify their CGUs for the purposes of testing property and equipment, intangible assets and
right-of-use assets for impairment. Judgment is further required to determine appropriate groupings of CGUs for the level at which goodwill
and intangible assets are tested for impairment.
The Company has determined that B2B
Online Gaming and Online Media are two separate CGUs for the purposes of property and equipment, intangible assets and right-of-use asset
impairment testing. For the purpose of goodwill impairment testing, CGUs are grouped at the lowest level at which goodwill is monitored
for internal management purposes. In addition, judgment is used to determine whether a triggering event has occurred requiring an impairment
test to be completed.
|
|
-
|
Key sources of estimation
|
In determining the recoverable amount
of a CGU or a group of CGUs, various estimates are employed. The Company determines fair value less costs to sell using such estimates
as market rental rates for comparable properties, recoverable operating costs for leases with tenants, non-recoverable operating costs,
discount rates, capitalization rates and terminal capitalization rates. The Company determines value in use by using estimates including
projected future revenues, earnings and capital investment consistent with strategic plans presented to the Board. Discount rates are
consistent with external industry information reflecting the risk associated with the specific cash flows.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
3
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)
|
Impairment of accounts receivable
In each stage of the ECL impairment
model, impairment is determined based on the probability of default, loss given default, and expected exposures at default. The application
of the ECL model requires management to apply the following significant judgments, assumptions, and estimations:
|
|
-
|
movement of impairment measurement between the three stages of the ECL model,
based on the assessment of the increase in credit risks on accounts receivables. The assessment of changes in credit risks includes qualitative
and quantitative factors of the accounts, such as historical credit loss experience and external credit scores;
|
|
|
|
|
|
|
-
|
thresholds for significant increase in credit risks based on changes in probability
of default over the expected life of the instrument relative to initial recognition; and
|
|
|
|
|
|
|
-
|
forecasts of future economic conditions.
|
|
|
|
|
Leases
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in
determining the appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create an economic
incentive to exercise a renewal option or to not exercise a termination option including investments in major leaseholds and past business
practice and the length of time remaining before the option is exercisable. The periods covered by renewal options are only included in
the lease term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold. Changes in
the economic environment or changes in the office rental industry may impact management’s assessment of lease term, and any changes
in management’s estimate of lease terms may have a material impact on the Company’s consolidated statements of financial position
and consolidated statements of loss and comprehensive loss.
|
|
-
|
Key sources of estimation
|
In determining the carrying amount
of right-of-use assets and lease liabilities, the Company is required to estimate the incremental borrowing rate specific to each leased
asset or portfolio of leased assets if the interest rate implicit in the lease is not readily determined. Management determines the incremental
borrowing rate using a base risk-free interest rate estimated by reference to the bond yield with an adjustment that reflects the Company’s
credit rating, the security, lease term and value of the underlying leased asset, and the economic environment in which the leased asset
operates. The incremental borrowing rates are subject to change due to changes in the business and macroeconomic environment.
Warrants and share options
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in
determining the model used and the inputs therein to evaluate the value of share option grants and issued warrants. Management considers
all facts and circumstances for each grant issuance on an individual basis.
|
|
-
|
Key sources of estimation
|
In determining the fair value of
warrants and share options, the Company is required to estimate the future volatility of the market value of the Company’s shares
by reference to its historical volatility or comparable companies over the previous years, a risk-free interest rate estimated by reference
to the Government of Canada bond yield, and a dividend yield of nil.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
3
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)
|
Contingent consideration
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in
determining the appropriate fair value of contingent consideration and considers all facts and circumstances relevant to the acquisition’s
future earnings upon which the liability is calculated. Any changes in the economic environment or operational activity of the acquisition
may impact management’s assessment of the liability and may have a material impact on the Company’s consolidated statements
of financial position and consolidated statements of loss and comprehensive loss.
|
|
-
|
Key sources of estimation
|
In determining the fair value of
contingent consideration, the Company is required to estimate the future earnings generated by the acquisition over an agreed period after
the acquisition and apply defined and fixed rules in order to calculate the expected future payment. The Company determines fair value
by using estimates including projected future earnings of the acquisition consistent with strategic plans presented to the Board. Discount
rates are consistent with external industry information reflecting the risk associated with the specific cash flows.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
4
|
LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE
|
The loss before income taxes is classified as follows:
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
Note
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
|
|
|
|
46,421
|
|
|
|
26,592
|
|
|
Third-party content
|
|
|
|
|
(26,232
|
)
|
|
|
(14,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
20,189
|
|
|
|
12,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and subcontractors
|
|
|
|
|
(9,011
|
)
|
|
|
(6,834
|
)
|
|
Share based payments
|
|
|
|
|
(2,963
|
)
|
|
|
(1,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
employee costs
|
|
|
|
|
(11,974
|
)
|
|
|
(8,481
|
)
|
|
Depreciation and amortization
|
|
|
|
|
(2,873
|
)
|
|
|
(2,080
|
)
|
|
IT and hosting
|
|
|
|
|
(1,372
|
)
|
|
|
(1,177
|
)
|
|
Professional fees
|
|
|
|
|
(1,481
|
)
|
|
|
(825
|
)
|
|
Corporate costs
|
|
|
|
|
(749
|
)
|
|
|
(488
|
)
|
|
Sales and marketing
|
|
|
|
|
(213
|
)
|
|
|
(283
|
)
|
|
Bad debt expense
|
|
14
|
|
|
(1,076
|
)
|
|
|
(283
|
)
|
|
Travel and entertainment
|
|
|
|
|
(176
|
)
|
|
|
(455
|
)
|
|
Transaction and acquisition costs
|
|
|
|
|
(2,212
|
)
|
|
|
(166
|
)
|
|
Other operational costs
|
|
|
|
|
(702
|
)
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
|
|
|
|
(22,828
|
)
|
|
|
(14,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on remeasurement of consideration receivable
|
|
5
|
|
|
19
|
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
11
|
|
|
(9,276
|
)
|
|
|
(5,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
|
|
(11,896
|
)
|
|
|
(8,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
6
|
|
|
|
4
|
|
|
Accretion on liabilities
|
|
11
|
|
|
(1,037
|
)
|
|
|
(1,717
|
)
|
|
Interest and financing fees
|
|
|
|
|
(353
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Expense and Other Financing Charges
|
|
|
|
|
(1,384
|
)
|
|
|
(1,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Income Taxes
|
|
|
|
|
(13,280
|
)
|
|
|
(9,835
|
)
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
5
|
DISCONTINUED OPERATIONS
|
During the year ended December 31,
2019, the Company decided to discontinue its online media business unit. The associated assets and liabilities within the disposal group
are presented as held for sale and the associated net loss is presented as discontinued operations in the consolidated financial statements.
On April 30, 2020, the Company discontinued
its GIVEMEBET operation and as of December 31, 2020, this subsidiary is considered dormant with no remaining assets and liabilities. The
associated net loss for this subsidiary continues to be presented as discontinued operations in the consolidated financial statements.
On May 7, 2020, the Company completed
the sale of its GIVEMESPORT operation for cash consideration of GBP 50 (EUR 56) plus additional consideration equivalent to the net current
assets disposed plus consideration receivable of 10% of GIVEMESPORT aggregate revenues for a period of twenty-one months from date of
completion. As of December 31, 2020, consideration receivable has been recognized at a present value of EUR 192 of which EUR 148 is due
within twelve months of the reporting date. Consideration is settled in cash at three-month intervals from the date of sale.
Prior to disposal, during the year
ended December 31, 2020, after comparing the carrying value of the assets and liabilities designated as held for sale to their recoverable
value, no impairment was recognized. As of December 31, 2020, the Company has not identified any assets or liabilities as held for sale.
Consolidated statements of financial
position
|
|
|
As at
December 31
|
|
|
As at
December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Trade and other receivables
|
|
|
-
|
|
|
|
469
|
|
|
Prepaid expenses and other assets
|
|
|
-
|
|
|
|
20
|
|
|
Property and equipment
|
|
|
-
|
|
|
|
44
|
|
|
Right-of-use assets
|
|
|
-
|
|
|
|
522
|
|
|
Other assets
|
|
|
-
|
|
|
|
87
|
|
|
Assets held for sale
|
|
|
-
|
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables and other liabilities
|
|
|
-
|
|
|
|
923
|
|
|
Deferred revenue
|
|
|
-
|
|
|
|
21
|
|
|
Lease liabilities
|
|
|
-
|
|
|
|
555
|
|
|
Liabilities held for sale
|
|
|
-
|
|
|
|
1,499
|
|
Consolidated statements of cash flows
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net cash used in operating activities
|
|
|
(584
|
)
|
|
|
(1,176
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(245
|
)
|
|
Net cash used in financing activities
|
|
|
(74
|
)
|
|
|
(268
|
)
|
|
Effect of currency translation
|
|
|
170
|
|
|
|
84
|
|
|
Net cash flows for the year
|
|
|
(488
|
)
|
|
|
(1,605
|
)
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
5
|
DISCONTINUED OPERATIONS (CONTINUED)
|
Consolidated statements of loss and comprehensive loss
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
|
|
559
|
|
|
|
2,972
|
|
|
Cost of revenue
|
|
|
(120
|
)
|
|
|
(1,300
|
)
|
|
Gross Profit
|
|
|
439
|
|
|
|
1,672
|
|
|
Selling, general and administrative expenses
|
|
|
(624
|
)
|
|
|
(2,881
|
)
|
|
Impairment of goodwill and intangible assets
|
|
|
-
|
|
|
|
(201
|
)
|
|
Operating Loss
|
|
|
(185
|
)
|
|
|
(1,410
|
)
|
|
Net interest expense and other financing charges
|
|
|
(41
|
)
|
|
|
(156
|
)
|
|
Gain on disposal of discontinued operations
|
|
|
136
|
|
|
|
-
|
|
|
Loss Before Income Taxes
|
|
|
(90
|
)
|
|
|
(1,566
|
)
|
|
Income taxes
|
|
|
-
|
|
|
|
(5
|
)
|
|
Net Loss
|
|
|
(90
|
)
|
|
|
(1,571
|
)
|
|
Cumulative translation adjustment
|
|
|
(95
|
)
|
|
|
74
|
|
|
Net Comprehensive Loss
|
|
|
(185
|
)
|
|
|
(1,497
|
)
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
5
|
DISCONTINUED OPERATIONS (CONTINUED)
|
Disposal of discontinued operation
|
Cash consideration received
|
|
|
56
|
|
|
Net assets working capital adjustment
|
|
|
127
|
|
|
Consideration receivable - current
|
|
|
150
|
|
|
Consideration receivable - non-current
|
|
|
108
|
|
|
Total net consideration
|
|
|
441
|
|
|
Net
assets disposed of:
|
|
|
|
|
|
Accounts receivable
|
|
|
170
|
|
|
Prepaid expenses and other assets
|
|
|
107
|
|
|
Cash and cash equivalents
|
|
|
118
|
|
|
Property and equipment
|
|
|
34
|
|
|
Right-of-use assets
|
|
|
431
|
|
|
Trade payables and other liabilities
|
|
|
(249
|
)
|
|
Deferred revenue
|
|
|
(20
|
)
|
|
Lease liabilities
|
|
|
(546
|
)
|
|
Total net assets disposed
|
|
|
45
|
|
|
Disposal costs
|
|
|
(75
|
)
|
|
Cumulative foreign exchange losses realised on disposal
|
|
|
(185
|
)
|
|
Gain on disposal of discontinued operation
|
|
|
136
|
|
In the year ended December 31, 2020, remeasurement of the
present value of the consideration receivable resulted in a gain on remeasurement of consideration receivable of EUR 19 (year ended December
31, 2019: EUR nil).
During the year ended December 31, 2020, proceeds from sale
of discontinued operations amounted to EUR 259 (year ended December 31, 2019: EUR nil).
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Authorized - Unlimited common shares,
fully paid
The following is a continuity
of the Company’s share capital:
|
|
|
|
|
|
Note
|
|
|
Number
|
|
|
Value
|
|
|
January 1, 2019
|
|
|
Balance
|
|
|
|
|
|
|
50,805,049
|
|
|
|
32,892
|
|
|
March 14, 2019
|
|
|
Conversion of special warrants
|
|
|
8
|
|
|
|
27,058,802
|
|
|
|
6,076
|
|
|
September 23, 2019
|
|
|
Shares issued as settlement of deferred
consideration
|
|
|
11
|
|
|
|
2,000,000
|
|
|
|
1,236
|
|
|
December 31, 2019
|
|
|
Balance
|
|
|
|
|
|
|
79,863,851
|
|
|
|
40,204
|
|
|
January
1, 2020
|
|
|
Balance
|
|
|
|
|
|
|
79,863,851
|
|
|
|
40,204
|
|
|
June 2, 2020
|
|
|
Issuance of share capital upon exercise of DSUs
|
|
|
9
|
|
|
|
500,000
|
|
|
|
219
|
|
|
October
15, 2020 to
December
18, 2020
|
|
|
Exercise
of warrants
|
|
|
8
|
|
|
|
19,457,928
|
|
|
|
10,708
|
|
|
October
16, 2020 to
November
23, 2020
|
|
|
Exercise
of special warrants - broker compensation options
|
|
|
8
|
|
|
|
1,601,784
|
|
|
|
1,060
|
|
|
November 18, 2020
|
|
|
Shares issued on completion of Public Offering
|
|
|
7
|
|
|
|
29,572,250
|
|
|
|
10,086
|
|
|
December 22, 2020
|
|
|
Issuance of share capital upon exercise
of FSOs
|
|
|
9
|
|
|
|
116,667
|
|
|
|
27
|
|
|
December 31 2020
|
|
|
Balance
|
|
|
|
|
|
|
131,112,480
|
|
|
|
62,304
|
|
The Company’s common shares have no par value.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
7
|
PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020
|
On October 26, 2020, the Company
announced that it had entered into an agreement with a syndicate of underwriters co- pursuant to which the underwriters have agreed to
purchase 17,860,000 units (the "Units") from the treasury of the Company, at a price of $0.70 CAD per Unit and offer them to
the public by way of short form prospectus for total gross proceeds of approximately CAD 12,500 (the "Offering"). On October
27, 2020 the Company agreed to increase the size of the Offering whereby the Underwriters agreed to purchase 25,715,000 Units for aggregate
gross proceeds of CAD 18,001.
The Company granted the underwriters
an option (the "Over-Allotment Option") to purchase up to an additional 15% of the Units of the Offering on the same terms exercisable
at any time up to 30 days following the closing of the Offering, for market stabilization purposes and to cover over-allotments, if any.
The underwriters exercised the Over-Allotment Option in full and agreed to purchase 29,572,250 Units in total for aggregate gross proceeds
of EUR 13,343 (CAD 20,701). Issuance costs directly associated with raise of funds amounted to EUR 1,216 (CAD 1,887) resulting in cash
proceeds, net of issuance costs, of EUR 12,127 (CAD 18,814). Closing of the Offering occurred on November 18, 2020 and the net proceeds
shall be used for growth initiatives, working capital and general corporate purposes.
Each Unit consists of one Common
Share (each a "Common Share") of the Company and one half of one warrant (each whole warrant, a "Public Offering Warrant")
of the Company. Each Public Offering Warrant will entitle the holder thereof to purchase one Common Share at a price equal to CAD 1.00
for a period of 36 months following the closing of the Offering (Note 8). The Warrants include an acceleration provision, exercisable
at the Company's option, if the Company's daily volume weighted average share price is greater than CAD 1.50 for at least ten consecutive
trading days (Note 22).
In addition to the Units, the Company
granted 1,774,335 broker warrants (“Broker Warrants”), each convertible to one Common Share and half of one Public Offering
Warrant at a price equal to CAD 0.70 (Note 8).
For the year ended December 31, 2020,
share issuance costs of EUR 1,370 and warrant issuance costs of EUR 245 have been recognized in the consolidated statements of changes
in equity of which EUR 399 relates to non-cash issuance of Broker Warrants, resulting in a net increase in share capital of EUR 10,086,
a net increase in warrants of EUR 1,642 and a fair value of Broker Warrants of EUR 399.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
The following are continuities of the Company’s warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants -
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
broker
|
|
|
warrants -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued upon
|
|
|
Special
|
|
|
compensation
|
|
|
compensation
|
|
|
Broker
|
|
|
Number
Of Units
|
|
|
|
|
Warrants
|
|
|
Public
Offering
|
|
|
warrants
|
|
|
options
|
|
|
options
|
|
|
warrants
|
|
|
January
1, 2019
|
|
|
Balance
|
|
|
756,250
|
|
|
|
-
|
|
|
|
27,058,802
|
|
|
|
1,601,784
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Deemed exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 14, 2019
|
|
|
- special warrants to common share and Warrants
|
|
|
27,058,802
|
|
|
|
-
|
|
|
|
(27,058,802
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
March 14, 2019
|
|
|
- special warrants - broker compensation options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,601,784
|
)
|
|
|
1,601,784
|
|
|
|
-
|
|
|
April 11, 2019
|
|
|
Expiry
of warrants
|
|
|
(756,250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
December
31, 2019
|
|
|
Balance
|
|
|
27,058,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,601,784
|
|
|
|
-
|
|
|
January
1, 2020
|
|
|
Balance
|
|
|
27,058,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,601,784
|
|
|
|
-
|
|
|
|
|
|
Exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
15, 2020 to
December
18, 2020
|
|
|
- warrants
|
|
|
(19,456,928
|
)
|
|
|
(1,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
October
16, 2020 to
November
23, 2020
|
|
|
- special warrants - compensation options
|
|
|
1,601,784
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,601,784
|
)
|
|
|
-
|
|
|
November 30, 2020
|
|
|
Expiry of warrants
|
|
|
(9,203,658
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
November 18, 2020
|
|
|
Issue of warrants upon Public Offering
|
|
|
-
|
|
|
|
14,786,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,774,335
|
|
|
December
31, 2020
|
|
|
Balance
|
|
|
-
|
|
|
|
14,785,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,774,335
|
|
Each unit consists of the following characteristics:
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
warrants -
|
|
|
Special
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
|
|
|
broker
|
|
|
warrants -
|
|
|
|
|
|
|
|
|
issued
|
|
|
issued upon
|
|
|
Special
|
|
|
compensation
|
|
|
compensation
|
|
|
Broker
|
|
|
|
|
|
March
14, 2019
|
|
|
Public
Offering
|
|
|
warrants
|
|
|
options
|
|
|
options
|
|
|
warrants
|
|
|
Number
of shares
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Number
of Warrants
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
0.5
|
|
|
Exercise
price of unit (CAD)
|
|
|
|
0.76
|
|
|
|
1.00
|
|
|
|
0.76
|
|
|
|
0.76
|
|
|
|
0.51
|
|
|
|
0.70
|
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Warrants issued March 14, 2019
On March 14, 2019, the special warrants
were converted to warrants. This resulted in an issuance of 27,058,802 shares, an increase in share capital of EUR 6,076 (Note 6) and
an increase in the fair value of warrants of EUR 1,565. The assumptions used to measure the fair value of the new warrants under the Black-Scholes
valuation model were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
57.9
|
|
|
Risk-free interest rate (%)
|
|
|
2.5
|
|
|
Expected life of warrants (years)
|
|
|
2.0
|
|
|
Underlying share price (CAD)
|
|
|
0.61
|
|
During the period of October 15,
2020 to November 30, 2020 19,456,928 warrants were exercised resulting in issuance of 19,456,928 shares and cash receipt upon exercise
in the amount of EUR 9,540.
9,203,658 outstanding warrants expired
on November 30, 2020 resulting in a reduction in warrants and corresponding increase in contributed surplus of EUR 526.
Exercise of special warrants –
compensation options
Between October 16, 2020 and November
23, 2020, all 1,601,784 special warrants - compensation options were converted to 1,601,784 warrants and resulted in an issuance of 1,601,784
shares and cash receipt upon exercise in the amount of EUR 529. An increase in share capital of EUR 1,060, an increase in the fair value
of warrants of EUR 129 and a decrease in special warrants – compensation options of EUR 660 was recognized in the consolidated statements
of changes in equity. The warrants were issued with an exercise price of CAD 0.76 and were convertible to one common share per warrant
expiring November 30, 2020 in line with the warrants issued on March 14, 2019. The assumptions used to measure the fair value of the new
warrants under the Black-Scholes valuation model were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.7 - 105.7
|
|
|
Risk-free interest rate (%)
|
|
|
0.08 - 0.10
|
|
|
Expected life of warrants (years)
|
|
|
0.0 - 0.1
|
|
|
Underlying share price (CAD)
|
|
|
0.73 - 0.81
|
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Warrants issued upon completion of
Public Offering
Upon completion of the Public Offering
on November 18, 2020 (Note 7) 14,786,125 warrants (“Public Offering Warrants”) were issued resulting in an increase in the
fair value of Public Offering Warrants of EUR 1,887, before issuance costs. The assumptions used to measure the fair value of the Public
Offering Warrants under the Black-Scholes valuation model were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.5
|
|
|
Risk-free interest rate (%)
|
|
|
0.11
|
|
|
Expected life of warrants (years)
|
|
|
1.0
|
|
|
Underlying share price (CAD)
|
|
|
0.80
|
|
The Public Offering Warrants were
issued with an exercise price of CAD 1.00 and were convertible to one common share per Public Offering Warrant expiring November 18, 2023.
On December 18, 2020, 1,000 Public Offering Warrants were converted resulting in issuance of 1,000 shares and cash receipt of EUR 1. An
increase in share capital of EUR 1 and decrease in fair value of warrants of EUR 1 was recognized in the consolidated statements of changes
in equity.
The Public Offering Warrant indenture
includes an acceleration provision, exercisable at the Company's option, if the Company's daily volume weighted average common share price
is greater than CAD 1.50 for at least ten consecutive trading days. The Company may accelerate the exercise period of the Public Offering
Warrants to a period ending at least 30 days from the date notice of such acceleration is provided to the holders of the Public Offering
Warrants. On January 21, 2021, the Company announced the notice of warrant acceleration (Note 22).
Broker Warrants issued upon completion
of Public Offering
Upon completion of the Public Offering
on November 18, 2020 (Note 7), 1,774,335 broker warrants (“Broker Warrants”) were issued resulting in an increase in the fair
value of warrants of EUR 399, a decrease in share capital of EUR 331 and decrease in fair value of warrants of EUR 68. The Broker Warrants
were issued with an exercise price of CAD 0.70 and are convertible to one common share plus one-half of a Public Offering Warrant per
Broker Warrant expiring November 18, 2023. The assumptions used to measure the fair value of the new Broker Warrants under the Black-Scholes
valuation model were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.5
|
|
|
Risk-free interest rate (%)
|
|
|
0.11
|
|
|
Expected life of warrants (years)
|
|
|
1.0
|
|
|
Underlying share price (CAD)
|
|
|
0.80
|
|
The underlying Public Offering Warrants
are subject to the same acceleration provision and notice of acceleration was given on January 21, 2021 (Note 22). Broker Warrants may
still be converted to common shares until date of expiry.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
The Company maintains an Omnibus
Incentive Equity Plan ("OEIP") for certain employees and consultants. The plan was approved in an annual and special meeting
of shareholders on November 27, 2020. Under the plan, the company may grant options for up to 31,800,000 of its shares. Of this 1,200,000
has been utilized for grant of deferred share units (“DSU”), 2,100,000 for grant of restricted share units (“RSU”)
and 12,284,102 for grant of fixed stock options (“FSO”). At December 31, 2020 16,099,231 units are reserved under the OEIP
after deducting 116,667 of share options exercised in the year ended December 31, 2020 under the OEIP plan.
The following is a continuity of the Company’s
equity incentive plans:
|
|
|
DSU
|
|
|
RSU
|
|
|
FSO
|
|
|
|
|
Outstanding
DSU Units
(Number of
of shares)
|
|
|
Outstanding
RSU Units
(Number of
of shares)
|
|
|
Outstanding
FSO Options
(Number
of shares)
|
|
|
Weighted
Average
Exercise
Price / Share
CAD
|
|
|
As at January 1, 2019
|
|
|
1,450,000
|
|
|
|
-
|
|
|
|
6,592,168
|
|
|
|
1.27
|
|
|
Granted
|
|
|
2,630,000
|
|
|
|
-
|
|
|
|
4,376,000
|
|
|
|
0.37
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
3.94
|
|
|
Forfeited / Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,462,403
|
)
|
|
|
1.59
|
|
|
As at December 31, 2019
|
|
|
4,080,000
|
|
|
|
-
|
|
|
|
7,455,765
|
|
|
|
0.60
|
|
|
Granted
|
|
|
800,000
|
|
|
|
2,100,000
|
|
|
|
8,188,579
|
|
|
|
0.73
|
|
|
Exercised
|
|
|
(500,000
|
)
|
|
|
-
|
|
|
|
(116,667
|
)
|
|
|
0.23
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,500
|
)
|
|
|
4.49
|
|
|
Forfeited / Cancelled
|
|
|
(3,180,000
|
)
|
|
|
-
|
|
|
|
(3,236,075
|
)
|
|
|
0.79
|
|
|
As at December 31, 2020
|
|
|
1,200,000
|
|
|
|
2,100,000
|
|
|
|
12,284,102
|
|
|
|
0.64
|
|
The following table summarizes
information about the outstanding share options as at December 31, 2020:
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
Options
|
|
|
Weighted
Average
Remaining
|
|
|
Weighted
Average
Exercise
|
|
|
Options
|
|
|
Weighted
Average
Exercise
|
|
|
Range of exercise prices (CAD)
|
|
|
(Number
of shares)
|
|
|
Contractual
Life (Years)
|
|
|
Price / Share
CAD
|
|
|
(Number
of shares)
|
|
|
Price / Share
CAD
|
|
|
0.23
- 0.50
|
|
|
|
2,690,000
|
|
|
|
4
|
|
|
|
0.30
|
|
|
|
1,209,833
|
|
|
|
0.35
|
|
|
0.51
- 0.56
|
|
|
|
2,250,000
|
|
|
|
3
|
|
|
|
0.56
|
|
|
|
1,666,667
|
|
|
|
0.56
|
|
|
0.57
- 0.78
|
|
|
|
7,328,579
|
|
|
|
5
|
|
|
|
0.78
|
|
|
|
7,328,579
|
|
|
|
0.78
|
|
|
0.79
- 3.33
|
|
|
|
15,523
|
|
|
|
5
|
|
|
|
3.33
|
|
|
|
15,523
|
|
|
|
3.33
|
|
|
|
|
|
|
12,284,102
|
|
|
|
4
|
|
|
|
0.64
|
|
|
|
10,220,602
|
|
|
|
0.70
|
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
9
|
SHARE BASED PAYMENTS (CONTINUED)
|
The following table summarizes information
about the outstanding share options as at December 31, 2019:
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
Range of exercise prices
|
|
|
(Number
|
|
|
Contractual
|
|
|
Price / Share
|
|
|
(Number
|
|
|
Price / Share
|
|
|
(CAD)
|
|
|
of shares)
|
|
|
Life (Years)
|
|
|
CAD
|
|
|
of shares)
|
|
|
CAD
|
|
|
0.23 - 0.50
|
|
|
|
3,103,575
|
|
|
|
5
|
|
|
|
0.29
|
|
|
|
844,242
|
|
|
|
0.46
|
|
|
0.51 - 0.56
|
|
|
|
3,366,667
|
|
|
|
4
|
|
|
|
0.56
|
|
|
|
1,116,667
|
|
|
|
0.56
|
|
|
0.57 - 4.50
|
|
|
|
985,523
|
|
|
|
7
|
|
|
|
1.72
|
|
|
|
548,856
|
|
|
|
1.94
|
|
|
|
|
|
|
7,455,765
|
|
|
|
5
|
|
|
|
0.60
|
|
|
|
2,509,765
|
|
|
|
0.89
|
|
During the year ended December 31,
2020, the Company granted 8,188,579 share options with a weighted average exercise price of CAD 0.73 per share (year ended December 31,
2019: 4,376,000 share options with a weighted average exercise price of CAD 0.37 per share) and a fair value of EUR 2,234 (year ended
December 31, 2019: EUR 716). The assumptions used to measure the grant date fair value of FSO options under the Black-Scholes valuation
model were as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
65.0 - 85.8
|
|
|
|
55.0 - 61.0
|
|
|
Risk-free interest rate (%)
|
|
|
0.2 - 0.4
|
|
|
|
1.4 - 2.5
|
|
|
Expected life of options (years)
|
|
|
0.9 - 5.0
|
|
|
|
4.5 - 5.0
|
|
|
Share price (CAD)
|
|
|
0.30 - 0.82
|
|
|
|
0.23 - 0.74
|
|
|
Forfeiture rate (%)
|
|
|
0.0
|
|
|
|
0.0
|
|
During the year ended December 31,
2020, 116,667 share options were exercised at an exercise price of CAD 0.23 per option resulting in gross proceeds of EUR 18, an increase
in share capital of EUR 27 and decrease in contributed surplus of EUR 9 (year ended December 31, 2019: nil).
During the year ended December 31,
2020, a share based payment charge of EUR 2,159 has been recognized in the consolidated statements of loss and comprehensive loss (year
ended December 31, 2019: EUR 1,206) in relation to the fixed stock options. For share options exercised during the period, the weighted
average share price at the date of exercise was CAD 1.42.
During the year ended December 31,
2020, the Company modified 100,000 options that were previously granted to certain employees (year ended December 31, 2019: 700,000 to
certain employees and consultants). These modifications resulted in an additional 60,000 options being granted (2019: nil) and an increase
in incremental fair value of CAD 3 (year ended December 31, 2019: nil) which was measured as the difference between the fair value of
the modified option and that of the original option, both estimated as at the date of the modification.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
9
|
SHARE BASED PAYMENTS (CONTINUED)
|
Deferred Share Units
Exercises of grants may only be settled
in shares, and only when the employee or consultant has left the Company. Under the plan, the company may grant options of its shares
at nil cost that vest immediately.
During the year ended December 31,
2020, 800,000 DSUs (year ended December 31, 2019: 2,630,000 DSUs) were granted with a fair value of CAD 0.82 per unit (year ended December
31, 2019: 2,530,000 at CAD 0.24 per unit and 100,000 DSUs at CAD 0.58 per unit) determined as the share price on the date of grant.
During the year ended December 31,
2020 a share based payment charge of EUR 427 has been recognized in the consolidated statements of loss and comprehensive loss (year ended
December 31, 2019: EUR 441) in relation to the deferred share units.
During the year ended December 31,
2020, 500,000 DSUs were exercised in exchange for 500,000 common shares of the Company resulting in an increase in share capital of EUR
219 and corresponding decrease in contributed surplus of EUR 219 (year ended December 31, 2019: nil). For deferred share units exercised
during the period, the weighted average share price at the date of exercise was CAD 0.39.
Restricted Share Units
During the year ended December 31,
2020, 900,000 RSUs (year ended December 31, 2019: nil) were granted with a fair value of CAD 0.75-0.82 per unit of which 450,000 vested
immediately and 450,000 vest in future periods. An additional 1,200,000 RSUs were granted with a fair value of CAD 0.82 per unit with
vesting conditions based on success in meeting future-period performance targets.
During the year ended December 31,
2020 a share based payment charge of EUR 377 has been recognized in the consolidated statements of loss and comprehensive loss (year ended
December 31, 2019: EUR nil) in relation to the restricted share units. Fair value was determined as the share price on the date of grant.
Exercises of grants can only be settled in shares.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
The following is a continuity of the Company’s goodwill:
|
As at December 31, 2018
|
|
|
20,400
|
|
|
Working capital adjustment
|
|
|
(462
|
)
|
|
As at December 31, 2020 and December 31, 2019
|
|
|
19,938
|
|
The carrying amount of goodwill
is attributed to the B2B Online Gaming CGU. The Company completed its annual impairment tests for goodwill as at December 31, 2020 and
concluded that there was no impairment.
Key Assumptions
The recoverable amount of the Company’s
B2B Online Gaming CGU was determined based on a value in use calculation which uses cash flow projections based on financial budgets approved
by the Board and covering a five-year period and an after-tax discount rate of 16.0% (pre-tax rate 20.5%) per annum. The cash flows beyond
the five-year period have been extrapolated using a steady 3.0% per annum growth rate.
The cash flow projections used in
estimating the recoverable amounts are generally consistent with results achieved historically adjusted for anticipated growth. The Company
believes that any reasonably possible change in key assumptions on which the recoverable amounts were based would not cause the aggregate
carrying amount to exceed the aggregate recoverable amount of the CGU.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
11
|
DEFERRED AND CONTINGENT CONSIDERATION
|
The Company completed the acquisition
of Oryx Gaming International LLC together with its subsidiaries on December 20, 2018. The vendor is now part of the Company’s key
management, though was not at the time of the acquisition. Deferred and contingent consideration on December 31, 2020 relates to two earnout
payments due, comprised of both cash and shares to be issued.
|
The following is a continuity of the Company’s deferred and contingent consideration:
|
|
|
|
|
|
|
|
|
|
As at January 1, 2019
|
|
|
19,263
|
|
|
Shares issued as settlement of deferred consideration
|
|
|
(1,236
|
)
|
|
Cash paid on settlement of deferred consideration
|
|
|
(639
|
)
|
|
Accretion expense
|
|
|
1,662
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
5,347
|
|
|
Working capital adjustment
|
|
|
(462
|
)
|
|
Other due from vendor
|
|
|
(356
|
)
|
|
Effect of movements in exchange rates
|
|
|
153
|
|
|
As at December 31, 2019
|
|
|
23,732
|
|
|
Cash paid on settlement of deferred and contingent consideration
|
|
|
(527
|
)
|
|
Accretion expense
|
|
|
1,037
|
|
|
Shares to be issued
|
|
|
(22,000
|
)
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
9,276
|
|
|
Effect of movements in exchange rates
|
|
|
3
|
|
|
As at December 31, 2020
|
|
|
11,521
|
|
Deferred and contingent consideration
is disclosed on the consolidated statement of financial position as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current
liabilities
|
|
|
11,521
|
|
|
|
9,482
|
|
|
Non-current
liabilities
|
|
|
-
|
|
|
|
14,250
|
|
|
Deferred
and Contingent Consideration
|
|
|
11,521
|
|
|
|
23,732
|
|
During year ended December 31, 2019,
the fair value of the contingent consideration was determined using an options pricing model with the following assumptions: stock price
of EUR 3,644 – EUR 5,611; strike price of EUR 2,000 – EUR 3,000, expected life of 0.5 years, risk free rate of 0.78% and volatility
of 50.0%. Some of the key estimates involved were budgeted EBITDA for fiscal 2020 and discount rate of 16.73%, which reflected the market
rate of return.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
11
|
DEFERRED AND CONTINGENT CONSIDERATION (CONTINUED)
|
On May 13, 2020, the Company entered
into an amending agreement with K.A.V.O. Holdings Limited, as vendor (the "Oryx Vendor"), and Matevž Mazij, whereby the
earn-out payment otherwise due to the Oryx Vendor on June 30, 2020 was extended to September 30, 2020 and the first earnout payment’s
range was agreed to be between EUR 10,020 and EUR 11,500. This resulted in a loss on remeasurement of deferred and contingent consideration
of EUR 415.
On September 29, 2020, the Company
entered into a further amending agreement with the Oryx Vendor, and Matevž Mazij, pursuant to which, the earnout payment otherwise
due to the Oryx Vendor on September 30, 2020 was further extended to January 31, 2021 and the first earnout payment was confirmed as EUR
10,548. In addition, it was agreed that EUR 1,500 would be payable to the Oryx Vendor in relation to successful collection of certain
trade receivables. This resulted in a loss on remeasurement of deferred and contingent consideration of EUR 2,028. It was also agreed
that interest would be payable at a rate of 10% per annum of the principal amount of the first earnout payment commencing October 1, 2020.
On November 13, 2020, the Company
amended and restated the September 29, 2020 amending agreement. As a part of this amendment, the second earnout payment was agreed to
be EUR 22,000, to be settled with 47,000,000 Common Shares of the Company, pending shareholder approval (the “equity component”).
If, and only if, shareholders do not approve the transactions, or the meeting of shareholders is postponed, the due date for settlement
of the equity component was further extended to December 1, 2021 and was to be settled in cash. A loss on remeasurement of deferred and
contingent consideration of EUR 6,758 was recognized in the consolidated statements of loss and comprehensive loss.
Upon shareholder approval of the
transactions on November 27, 2020, EUR 22,000 was transferred from deferred and contingent consideration payable in current liabilities
to shares to be issued in equity.
During the year ended December 31,
2020, an interest expense of EUR 266 was included in the consolidated statements of loss and comprehensive loss (2019: EUR nil), of which
EUR 176 was paid during the year. As of December 31, 2020, an interest payable balance of EUR 88 was recorded as a part of trade payables
and other liabilities within the consolidated statements of financial position (2019: EUR nil).
All contingent liabilities were settled
in full to the Oryx Vendor on January 18, 2021 (Note 22) upon shareholder approval on November 27, 2020.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual
|
|
|
Development
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
Costs
|
|
|
Relationships
|
|
|
Brands
|
|
|
Other
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2018
|
|
|
8,596
|
|
|
|
-
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
-
|
|
|
|
14,856
|
|
|
Additions
|
|
|
205
|
|
|
|
1,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
1,555
|
|
|
As
at December 31, 2019
|
|
|
8,801
|
|
|
|
1,222
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
128
|
|
|
|
16,411
|
|
|
Additions
|
|
|
165
|
|
|
|
2,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
2,286
|
|
|
As
at December 31, 2020
|
|
|
8,966
|
|
|
|
3,297
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
174
|
|
|
|
18,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2018
|
|
|
31
|
|
|
|
-
|
|
|
|
14
|
|
|
|
4
|
|
|
|
-
|
|
|
|
49
|
|
|
Amortization
|
|
|
1,088
|
|
|
|
76
|
|
|
|
490
|
|
|
|
136
|
|
|
|
11
|
|
|
|
1,801
|
|
|
As
at December 31, 2019
|
|
|
1,119
|
|
|
|
76
|
|
|
|
504
|
|
|
|
140
|
|
|
|
11
|
|
|
|
1,850
|
|
|
Amortization
|
|
|
1,169
|
|
|
|
754
|
|
|
|
490
|
|
|
|
136
|
|
|
|
19
|
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2020
|
|
|
2,288
|
|
|
|
830
|
|
|
|
994
|
|
|
|
276
|
|
|
|
30
|
|
|
|
4,418
|
|
|
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2019
|
|
|
7,682
|
|
|
|
1,146
|
|
|
|
4,399
|
|
|
|
1,217
|
|
|
|
117
|
|
|
|
14,561
|
|
|
As
at December 31, 2020
|
|
|
6,678
|
|
|
|
2,467
|
|
|
|
3,909
|
|
|
|
1,081
|
|
|
|
144
|
|
|
|
14,279
|
|
|
|
13
|
CASH AND CASH EQUIVALENTS
|
As at December 31, 2020 and December
31, 2019, cash and cash equivalents comprised of cash held in banks, marketable investments with an original maturity date of 90 days
or less from the date of acquisition, and prepaid credit cards.
As at December 31, 2020, EUR 608
(December 31, 2019: EUR nil) was held in trust on behalf of the Company for subscription receipts related to a non-brokered private placement
offering that completed on January 13, 2021 (Note 22). This amount was recorded in cash and cash equivalents.
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
14
|
TRADE
AND OTHER RECEIVABLES
|
|
The following is an aging of the Company’s trade and other receivables:
|
|
|
|
|
|
|
As at
December
31,
|
|
|
As at
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Less than one month
|
|
|
9,563
|
|
|
|
5,452
|
|
|
Between two and three months
|
|
|
1,193
|
|
|
|
253
|
|
|
Greater than three months
|
|
|
1,296
|
|
|
|
1,416
|
|
|
|
|
|
12,052
|
|
|
|
7,121
|
|
|
Provision for expected credit losses
|
|
|
(1,755
|
)
|
|
|
(941
|
)
|
|
Trade and Other Receivables
|
|
|
10,297
|
|
|
|
6,180
|
|
The balance of accrued income is included in receivables aged
less than one month as this balance will be converted to accounts receivable upon issuance of sales invoices.
The following is a continuity of the Company’s provision
for expected credit losses related to trade and other receivables:
|
As at December 31, 2018
|
|
|
1,771
|
|
|
Reclassified as assets held for sale
|
|
|
(442
|
)
|
|
Bad debt written-off
|
|
|
(762
|
)
|
|
Net additional provision for doubtful debts
|
|
|
283
|
|
|
Effect of movements in exchange rates
|
|
|
91
|
|
|
As at December 31, 2019
|
|
|
941
|
|
|
Bad debt written-off
|
|
|
(419
|
)
|
|
Net additional provision for doubtful debts
|
|
|
1,076
|
|
|
Provision for late interest receivable
|
|
|
157
|
|
|
As at December 31, 2020
|
|
|
1,755
|
|
|
15
|
TRADE PAYABLES AND OTHER LIABILITIES
|
Trade payables and other liabilities comprises:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
December
31,
|
|
|
December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Trade payables
|
|
|
6,406
|
|
|
|
5,146
|
|
|
Accrued liabilities
|
|
|
6,099
|
|
|
|
2,048
|
|
|
Sales tax payable
|
|
|
4,356
|
|
|
|
1,058
|
|
|
Other
payables
|
|
|
107
|
|
|
|
605
|
|
|
Trade
Payables and Other Liabilities
|
|
|
16,968
|
|
|
|
8,857
|
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
16
|
RELATED PARTY TRANSACTIONS
|
The Company’s policy is to
conduct all transactions and settle all balances with related parties on market terms and conditions for those in the normal course of
business. Transactions between the Company and its consolidated entities have been eliminated on consolidation and are not disclosed in
this note.
Key Management Personnel
The Company’s key management
personnel are comprised of members of the Board and the executive team which consists of the Interim Chief Executive Officer (“CEO”),
Chief Financial Officer (“CFO”), Chief Strategy Officer (“CSO”) and Managing Director of Oryx. Three key management
employees are also shareholders in the Company. Transactions and balances between the Company and its key management personnel are as
follows:
|
|
·
|
Revenues for the year ended December 31, 2020 to a shareholder of the Company totalled
EUR 23 (year ended December 31, 2019: EUR 33)
|
|
|
·
|
Total compensation for salaries, director fees, share-based payments and short-term
employee benefits of key management personnel of the Company for the year ended December 31, 2020 totalled EUR 4,559 (year ended December
31, 2019: EUR 2,230)
|
|
|
·
|
Loss on remeasurement of deferred and contingent consideration payable to the
Managing Director of Oryx for the year ended December 31, 2020 totalled EUR 9,276 (year ended December 31, 2019: EUR 5,347)
|
|
|
·
|
Interest expense on deferred and contingent consideration payable to the Managing
Director of Oryx for the year ended December 31, 2020 totalled EUR 266 (year ended December 31, 2019: nil)
|
|
|
·
|
During the year ended December 31, 2020, a total of EUR 560 in payments were made
to the Managing Director of Oryx for deferred consideration (year ended December 31, 2019: EUR 639)
|
|
|
·
|
During the year ended December 31, 2020, a total of EUR 176 in payments were made
to the Managing Director of Oryx for interest on deferred and contingent consideration payable (year ended December 31, 2019: nil)
|
|
|
·
|
As at December 31, 2020, EUR 4 of trade and other receivables was receivable from
the Managing Director of Oryx and other shareholders (December 31, 2019: EUR nil)
|
|
|
·
|
As at December 31, 2020, EUR nil of prepaid expenses and other assets was receivable
from a shareholder of the Company (December 31, 2019: EUR 98)
|
|
|
·
|
As at December 31, 2020, EUR 166 of trade payables and other liabilities was due
to the CEO, CFO, the Managing Director of Oryx and member of Board (December 31, 2019: EUR 278)
|
|
|
·
|
As at December 31, 2020, EUR 11,521 of deferred and contingent consideration (Note
11) was payable to the Managing Director of Oryx (December 31, 2019: EUR 23,732)
|
|
|
·
|
As at December 31, 2020 EUR 22,000 of shares to be issued to the Managing Director
of Oryx was recognized in the consolidated statements of changes in equity (Note 11) (December 31, 2019: EUR nil)
|
|
|
·
|
During the year ended December 31, 2020, EUR 246 additional share capital was recognized
in the consolidated statements of changes in equity with a corresponding reduction in contributed surplus for exercise of stock options
by former key management personnel of the Company (Note 6) (year ended December 31, 2019: nil)
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|
The financial instruments measured at amortized cost are summarised
below:
Financial Assets
|
|
|
Financial assets as subsequently measured at amortized cost
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Trade and other receivables
|
|
|
10,297
|
|
|
|
6,180
|
|
Financial Liabilities
|
|
|
Financial liabilities as subsequently measured at amortized cost
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Trade payables
|
|
|
6,406
|
|
|
|
5,146
|
|
|
Accrued liabilities
|
|
|
6,099
|
|
|
|
2,048
|
|
|
Other liabilities
|
|
|
107
|
|
|
|
605
|
|
|
Lease obligations on right of use assets
|
|
|
726
|
|
|
|
859
|
|
|
|
|
|
13,338
|
|
|
|
8,658
|
|
The carrying values of the financial instruments approximate
their fair values.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Fair Value Hierarchy
The
following table presents the fair values and fair value hierarchy of the Company’s financial instruments.
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
Level 1
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
26,102
|
|
|
|
-
|
|
|
|
26,102
|
|
|
|
682
|
|
|
|
-
|
|
|
|
682
|
|
|
Consideration receivable
|
|
|
-
|
|
|
|
192
|
|
|
|
192
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred and contingent consideration
|
|
|
11,521
|
|
|
|
-
|
|
|
|
11,521
|
|
|
|
-
|
|
|
|
23,732
|
|
|
|
23,732
|
|
Due to the agreed amount of deferred and contingent consideration
payable as at December 31, 2020 (Note 11) there has been a transfer between level 3 and level 1 of the fair value hierarchy during the
periods.
There were no further transfers between the levels of the fair
value hierarchy during the periods.
During the year ended December 31,
2020, a loss of EUR 9,276 (year ended December 31, 2019: EUR 5,347), was recognized in the consolidated statements of loss and comprehensive
loss as loss on remeasurement of deferred and contingent consideration (Note 11) for financial instruments designated as FVTPL.
The fair value of the contingent
consideration liability is equal to the agreed earn-out payment of fixed value payable in a combination of cash and common shares plus
an additional cash settlement of up to EUR 973 as per the amending agreement with K.A.V.O. Holdings Limited dated September 29, 2020.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
As a result of holding and issuing
financial instruments, the Company is exposed to certain risks. The following is a description of those risks and how the exposures are
managed:
Liquidity
risk
Liquidity risk is the risk that the
Company is unable to generate or obtain sufficient cash and cash equivalents in a cost-effective manner to fund its obligations as they
come due. The Company will experience liquidity risks if it fails to maintain appropriate levels of cash and cash equivalents, is unable
to access sources of funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could
adversely affect the financial performance of the Company.
The Company has a planning and budgeting
process in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates
this planning and budgeting process with its financing activities through its capital management process. The Company holds sufficient
cash and cash equivalents and working capital, maintained through stringent cash flow management, to ensure sufficient liquidity is maintained.
The Company is not subject to any externally imposed capital requirements.
The following are the undiscounted
contractual maturities of significant financial liabilities and the total contractual obligations of the Company as at December 31, 2020:
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
Trade payables and other liabilities
|
|
|
16,968
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,968
|
|
|
Lease obligations on right of use assets
|
|
|
160
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
788
|
|
|
Deferred and contingent consideration
|
|
|
11,521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,521
|
|
|
|
|
|
28,649
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
29,277
|
|
Foreign
currency exchange risk
The Company’s financial statements
are presented in EUR, however a portion of the Company’s net assets and operations are denominated in other currencies, particularly
the Canadian dollar. Such net assets are translated into EUR at the foreign currency exchange rate in effect at the reporting date, and
operations at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are recognized. As
a result, the Company is exposed to foreign currency translation gains and losses, which are recorded in accumulated other comprehensive
loss.
The Company is also exposed to risk
on transaction in currencies other than its functional currency resulting in realized and unrealized foreign currency gains and loss which
are recorded in other operational costs. The Company estimates that an appreciation of the EUR of 10% relative to other currencies would
result in a decrease of EUR 884 in earnings before income taxes while a depreciating EUR will have the opposite impact.
The Company has no derivative instruments
in the form of futures contracts and forward contracts to manage its current and anticipated exposure to fluctuations in EUR exchange
rates.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Credit risk
The Company is exposed to credit
risk resulting from the possibility that counterparties could default on their financial obligations to the Company including cash and
cash equivalents, other assets and accounts receivable. Failure to manage credit risk could adversely affect the financial performance
of the Company.
The risk related to cash and cash
equivalents is reduced by policies and guidelines that require that the Company enters into transactions only with counterparties or issuers
that have a minimum long term “BBB” credit rating from a recognized credit rating agency. The Company mitigates the risk of
credit loss relating to accounts receivable by evaluating the creditworthiness of new customers and establishes a provision for expected
credit losses. The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, Financial
Instruments, which permits the use of the lifetime expected loss provision for all accounts receivable. The expected credit loss provision
is based on the Company’s historical collections and loss experience and incorporates forward-looking factors, where appropriate.
The provision matrix below shows
the expected credit loss rate for each aging category of accounts receivable as at December 31, 2020:
|
|
|
|
|
|
Aging (months)
|
|
|
|
|
|
|
|
Note
|
|
|
<1
|
|
|
1 - 3
|
|
|
>3
|
|
|
Total
|
|
|
Gross accounts receivable
|
|
|
14
|
|
|
|
9,563
|
|
|
|
1,193
|
|
|
|
1,296
|
|
|
|
12,052
|
|
|
Expected loss rate
|
|
|
|
|
|
|
4.51
|
%
|
|
|
14.84
|
%
|
|
|
88.50
|
%
|
|
|
14.56
|
%
|
|
Expected Loss Provision
|
|
|
14
|
|
|
|
431
|
|
|
|
177
|
|
|
|
1,147
|
|
|
|
1,755
|
|
The provision matrix below shows
the expected credit loss rate for each aging category of accounts receivable as at December 31, 2019:
|
|
|
|
|
|
Aging (months)
|
|
|
|
|
|
|
|
Note
|
|
|
<1
|
|
|
1 - 3
|
|
|
>3
|
|
|
Total
|
|
|
Gross accounts receivable
|
|
|
14
|
|
|
|
5,452
|
|
|
|
253
|
|
|
|
1,416
|
|
|
|
7,121
|
|
|
Expected loss rate
|
|
|
|
|
|
|
1.69
|
%
|
|
|
10.28
|
%
|
|
|
58.12
|
%
|
|
|
13.21
|
%
|
|
Expected Loss Provision
|
|
|
14
|
|
|
|
92
|
|
|
|
26
|
|
|
|
823
|
|
|
|
941
|
|
Gross accounts receivable includes the
balance of accrued income within the aging category of less than one month.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Concentration risk
For the year ended December 31,
2020, one customer (year ended December 31, 2019: three customers) contributed more than 10% each to the Company’s revenues. Aggregate
revenues from this customer totalled EUR 6,342 (year ended December 31, 2019: EUR 10,011).
As at December 31, 2020, one customer
(December 31, 2019: two customers) constituted more than 10% each to the Company’s accounts receivable. Balances owed by this customer
totalled EUR 1,247 (December 31, 2019: EUR 1,700). The Company continues to expand its customer base to reduce the concentration risk.
|
18
|
SUPPLEMENTARY CASHFLOW INFORMATION
|
Cash flows arising from changes in non-cash working capital
are summarized below:
|
|
|
Year Ended December 31,
|
|
|
Cash flows arising from movement in:
|
|
2020
|
|
|
2019
|
|
|
Trade and other receivables
|
|
|
(4,117
|
)
|
|
|
(2,921
|
)
|
|
Prepaid expenses and other assets
|
|
|
70
|
|
|
|
(168
|
)
|
|
Deferred revenue
|
|
|
102
|
|
|
|
-
|
|
|
Trade payables and other liabilities
|
|
|
8,111
|
|
|
|
2,429
|
|
|
Other liabilities - non-current
|
|
|
147
|
|
|
|
-
|
|
|
Changes in Non-Cash Working Capital
|
|
|
4,313
|
|
|
|
(660
|
)
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating
The Company has one reportable operating segment in its continuing
operations, B2B Online Gaming.
The accounting policies of the reportable
operating segments are the same as those described in the Company’s summary of significant accounting policies (Note 2). The Company
measures each reportable operating segment’s performance based on adjusted EBITDA. No reportable operating segment is reliant on
any single external customer.
Intersegment charges have been eliminated
on consolidation.
Geography – Revenue
Revenue for
continuing operations was generated from the following jurisdictions:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Malta
|
|
|
31,416
|
|
|
|
14,758
|
|
|
Curaçao
|
|
|
8,772
|
|
|
|
4,106
|
|
|
Croatia
|
|
|
1,633
|
|
|
|
1,070
|
|
|
Germany
|
|
|
684
|
|
|
|
3,739
|
|
|
Romania
|
|
|
569
|
|
|
|
380
|
|
|
Serbia
|
|
|
554
|
|
|
|
486
|
|
|
Other
|
|
|
2,793
|
|
|
|
2,053
|
|
|
Revenue
|
|
|
46,421
|
|
|
|
26,592
|
|
This segmentation is not correlated to
the geographical location of the Company’s worldwide end-user base.
Geography – Non-Current Assets
Non-current assets are held in the following
jurisdictions:
|
|
|
As at
December 31
|
|
|
As at
December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
United States
|
|
|
34,104
|
|
|
|
34,367
|
|
|
Other
|
|
|
1,180
|
|
|
|
1,176
|
|
|
Non-Current Assets
|
|
|
35,284
|
|
|
|
35,543
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of income taxes recognized in the consolidated
statements of financial position are as follows:
|
|
|
As at
December 31,
|
|
|
As at
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Income taxes payable
|
|
|
1,318
|
|
|
|
778
|
|
|
Deferred income tax liabilities
|
|
|
1,415
|
|
|
|
1,539
|
|
The components of income taxes recognized in the consolidated
statements of loss and comprehensive loss are as follows:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current period
|
|
|
1,194
|
|
|
|
643
|
|
|
Adjustment in respect of prior periods
|
|
|
127
|
|
|
|
10
|
|
|
Current Income Taxes
|
|
|
1,321
|
|
|
|
653
|
|
|
Deferred income tax recovery
|
|
|
(125
|
)
|
|
|
(112
|
)
|
|
Deferred Income Tax Recovery
|
|
|
(125
|
)
|
|
|
(112
|
)
|
|
Income Taxes
|
|
|
1,196
|
|
|
|
541
|
|
There is no income tax expense recognized in other comprehensive
loss.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
20
|
INCOME TAXES (CONTINUED)
|
The effective income tax rates in
the consolidated statements of loss and comprehensive loss were reported at rates different than the combined Canadian federal and provincial
statutory income tax rates for the following reasons:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
%
|
|
|
2019
%
|
|
|
Canadian statutory tax rate
|
|
|
26.5
|
|
|
|
26.5
|
|
|
Effect of tax rate in foreign jurisdictions
|
|
|
1.8
|
|
|
|
1.5
|
|
|
Impact of foreign currency translation
|
|
|
(3.1
|
)
|
|
|
1.1
|
|
|
Non-deductible and non-taxable items
|
|
|
(5.6
|
)
|
|
|
(8.3
|
)
|
|
Remeasurement of contingent and deferred consideration
|
|
|
(18.4
|
)
|
|
|
(14.2
|
)
|
|
Accretion expense of contingent consideration
|
|
|
(2.1
|
)
|
|
|
(4.5
|
)
|
|
Share issue costs and financing costs
|
|
|
3.1
|
|
|
|
-
|
|
|
Capital losses from sale of discontinued operation
|
|
|
26.1
|
|
|
|
-
|
|
|
Change in tax benefits not recognized
|
|
|
(35.3
|
)
|
|
|
(5.1
|
)
|
|
Adjustments in respect of prior periods
|
|
|
0.8
|
|
|
|
(2.2
|
)
|
|
Adjustment of prior year tax payable
|
|
|
1.8
|
|
|
|
-
|
|
|
Other
|
|
|
(4.6
|
)
|
|
|
(0.3
|
)
|
|
Effective Income Tax Rate Applicable to Loss Before Income Taxes
|
|
|
(9.0
|
)
|
|
|
(5.5
|
)
|
Deferred income tax liabilities recognized
on the consolidated statements of financial position were attributable solely to acquired intangible assets (Note 12).
Deferred taxes are provided as a
result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and
liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Income tax losses - Canada
|
|
|
22,609
|
|
|
|
21,055
|
|
|
Income tax losses - United Kingdom
|
|
|
1,743
|
|
|
|
9,958
|
|
|
Deductible temporary differences
|
|
|
4,901
|
|
|
|
2,564
|
|
|
Total unrecognized deductible temporary difference
|
|
|
29,253
|
|
|
|
33,577
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
20
|
INCOME TAXES (CONTINUED)
|
Unrecognized
deductible temporary differences have been summarized between discontinued and continuing operations as follows:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
Income tax losses - Canada
|
|
|
14,087
|
|
|
|
15,113
|
|
|
Income tax losses - United Kingdom
|
|
|
720
|
|
|
|
9,955
|
|
|
Deductible temporary differences
|
|
|
764
|
|
|
|
699
|
|
|
Total unrecognized deductible temporary difference
|
|
|
15,571
|
|
|
|
25,767
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
Income tax losses - Canada
|
|
|
8,522
|
|
|
|
5,942
|
|
|
Income tax losses - United Kingdom
|
|
|
1,023
|
|
|
|
3
|
|
|
Deductible temporary differences
|
|
|
4,137
|
|
|
|
1,865
|
|
|
Total unrecognized deductible temporary difference
|
|
|
13,682
|
|
|
|
7,810
|
|
The portion of the income tax losses related to Canada which
have a limited carry-forward period expire in the years 2026 to 2040 as follows:
|
2026
|
|
|
97
|
|
|
2027
|
|
|
182
|
|
|
2028
|
|
|
170
|
|
|
2029
|
|
|
87
|
|
|
2030
|
|
|
60
|
|
|
2031
|
|
|
60
|
|
|
2032
|
|
|
101
|
|
|
2033
|
|
|
68
|
|
|
2034
|
|
|
126
|
|
|
2035
|
|
|
126
|
|
|
2036
|
|
|
134
|
|
|
2037
|
|
|
279
|
|
|
2038
|
|
|
1,897
|
|
|
2039
|
|
|
2,001
|
|
|
2040
|
|
|
3,100
|
|
|
|
|
|
8,488
|
|
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
20
|
INCOME TAXES (CONTINUED)
|
The United Kingdom losses are carried
forward indefinitely unless subject to certain restrictions and are now classified in the current year as discontinued operations as unrecognized
deferred income tax assets. The deductible temporary differences do not expire under current income tax legislation. Deferred income tax
assets were not recognized in respect of these items because it is not probable that future taxable income will be available to the Company
to utilize the benefits.
|
21
|
CONTINGENT LIABILITIES
|
In the ordinary course of business,
the Company is involved in and potentially subject to, legal actions and proceedings. In addition, the Company is subject to tax audits
from various tax authorities on an ongoing basis. As a result, from time to time, tax authorities may disagree with the positions and
conclusions taken by the Company in its tax filings or legislation could be amended or interpretations of current legislation could change,
any of which events could lead to reassessments.
The Company is not aware of any
legal, administrative, or other proceedings pending, which would materially affect its financial condition.
BRAGG GAMING GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
PRESENTED IN EUROS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Private placement
On January 13, 2021, the Company
completed a non-brokered private placement offering comprised of 2,479,335 Common Shares at a price of CAD 1.21 per share for aggregate
gross proceeds of EUR 1,937. This offering was exclusively taken up by Company employees and Board members and is subject to a hold period
expiring May 14, 2021. No commission or finder's fee was paid in connection with the offering.
As of December 31, 2020, EUR 608
(CAD 950) was held in trust in respect of the private placement, representing 785,124 in Common Shares to be issued at a price of CAD
1.21 per share.
Settlement of deferred and contingent
consideration
On January 18, 2021, the Company
satisfied its earn-out obligations to K.A.V.O. Holdings Limited (Note 11) via a combination of cash and Common Shares of the Company.
Cash paid totalled EUR 11,598, of which EUR 11,521 fully settled deferred and contingent consideration payable, EUR 52 settled interest
payable and EUR 25 settled legal fees. A total of 47,000,000 Common Shares of the Company were issued to the vendor with a recorded fair-value
as at December 31, 2020 of EUR 22,000. The Common Shares are subject to a hold period expiring May 19, 2021.
Subsequent to this transaction Matevž
Mazij became a “control person” of the Company, in accordance with section 1(1) of the Ontario Securities Act, with total
shareholding of 49,000,000 representing over 27% of the outstanding Common Shares of the Company as of the settlement date.
|
22
|
SUBSEQUENT EVENTS (CONTINUED)
|
Warrant acceleration
On January 21, 2021, the Company
announced that it elected to exercise its right under the terms of a warrant indenture dated November 18, 2020 governing the Public Offering
Warrants (Note 8) of the Company issued on November 18, 2020 to accelerate the expiry date of the warrants. Accordingly, the Company gave
notice to all registered warrant holders that the expiry date for the Warrants is accelerated to February 22, 2021.
During the period from January 1,
2021 to February 22, 2021 a total of 15,540,822 Public Offering Warrants were exercised for cash receipts of EUR 10,087 and a total of
1,605,474 Broker Warrants were exercised for cash receipts of EUR 730.
Graduation to the Toronto Stock Exchange
(“TSX”)
On January 27, 2021, the Company
announced that it had graduated to the Toronto Stock Exchange. As of market open at 09:30 am ET on the date of announcement, the Company
began trading on TSX under the symbol “BRAG”. Concurrent with the TSX listing, the Company’s Common Shares were delisted
from the TSX Venture Exchange.
Exhibit 4.3
Bragg Gaming Group Inc
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE THREE- AND TWELVE-MONTH PERIODS ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
MANAGEMENT DISCUSSION & ANALYSIS FOR THE THREE-
AND TWELVE-MONTH PERIODS ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
|
1.
|
MANAGEMENT DISCUSSION & ANALYSIS
|
2
|
|
|
|
|
2.
|
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
|
3
|
|
|
|
|
3.
|
LIMITATIONS OF KEY METRICS AND OTHER DATA
|
4
|
|
|
|
|
4.
|
OVERVIEW OF FINANCIAL YEAR 2020
|
6
|
|
|
|
|
|
4.1
|
Executive summary
|
6
|
|
|
|
|
5.
|
FINANCIAL RESULTS
|
15
|
|
|
|
|
|
5.1
|
Basis of financial discussion
|
15
|
|
|
|
|
|
5.2
|
Selected Annual Information
|
16
|
|
|
|
|
|
5.3
|
Other Financial Information
|
18
|
|
|
|
|
|
5.4
|
Selected Financial Information
|
19
|
|
|
|
|
|
5.5
|
Summary of Quarterly Results
|
21
|
|
|
|
|
|
5.6
|
Liquidity and Capital Resources
|
21
|
|
|
|
|
|
5.7
|
Cash Flow Summary
|
24
|
|
|
|
|
6
|
TRANSACTIONS BETWEEN RELATED PARTIES
|
25
|
|
|
|
|
7
|
DISCLOSURE OF OUTSTANDING SHARE DATA
|
26
|
|
|
|
|
8
|
CRITICAL ACCOUNTING ESTIMATES
|
28
|
|
|
|
|
9
|
CHANGES IN ACCOUNTING POLICY
|
31
|
|
|
|
|
10
|
RISK FACTORS AND UNCERTAINTIES
|
31
|
|
|
|
|
|
Limited Operating History
|
31
|
|
|
|
|
|
Key Personnel
|
32
|
|
|
|
|
|
Additional Financing Requirements
|
32
|
|
|
|
|
|
Competition
|
32
|
|
|
|
|
|
Management of Growth
|
32
|
|
|
|
|
|
Absence of Profits
|
33
|
|
|
|
|
|
Conflicts of Interest
|
33
|
|
|
|
|
|
COVID-19
|
34
|
|
|
|
|
11
|
ADDITIONAL INFORMATION
|
34
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
1
|
|
|
1.
|
MANAGEMENT DISCUSSION & ANALYSIS
|
This Management Discussion and Analysis
(“MD&A”) provides a review of the results of operations, financial condition and cash flows for Bragg Gaming Group Inc
on a consolidated basis, for the three months (“Q4 2020”) and year ended December 31, 2020. References to “Bragg”,
the “Company”, the “Group” or the “Corporation” in this MD&A refer to Bragg Gaming Group Inc and
its subsidiaries, unless the context requires otherwise. This document should be read in conjunction with the information presented in
the audited consolidated financial statements for the year ended December 31, 2020 (the “2020 Financial statements”).
For reporting purposes, the Corporation
prepared the 2020 Financial statements in European Euros (“EUR”) and, unless otherwise indicated, in conformity with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The
financial information contained in this MD&A was derived from the 2020 Financial statements. Unless otherwise indicated, all references
to a specific “note” refer to the notes to the 2020 Financial statements.
This MD&A references non-IFRS financial
measures, including those under the headings “Selected Financial Information” and “Key Metrics” below. The Corporation
believes these non- IFRS financial measures will provide investors with useful supplemental information about the financial performance
of its business, enable comparison of financial results between periods where certain items may vary independent of business performance,
and allow for greater transparency with respect to key metrics used by management in operating its business and making decisions. Although
management believes these financial measures are important in evaluating the Corporation, they are not intended to be considered in isolation
or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. Non- IFRS measures are not
recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS
financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of certain of these
measures is provided for period-over-period comparison purposes, and investors should be cautioned that the effect of the adjustments
thereto provided herein have an actual effect on the Corporation’s operating results.
For purposes of this MD&A, the
term “gaming license” refers collectively to all the different licenses, consents, permits, authorizations, and other regulatory
approvals that are necessary to be obtained in order for the recipient to lawfully conduct (or be associated with) gaming in a particular
jurisdiction.
Unless otherwise stated, in preparing
this MD&A the Corporation has considered information available to it up to March 25, 2021, the date the Corporation’s board
of directors (the “Board”) approved this MD&A.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
2
|
|
|
2.
|
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
|
This MD&A may constitute forward-looking
information and statements (collectively, “forward- looking statements”) within the meaning of the Canadian securities legislation
and applicable securities laws, including financial and operational expectations and projections. These statements, other than statements
of historical fact, are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions,
including market and economic conditions, business prospects or opportunities, future plans and strategies, projections, technological
developments, anticipated events and trends and regulatory changes that affect the Corporation, its subsidiaries and their respective
customers and industries. Although the Corporation and management believe the expectations reflected in such forward-looking statements
are reasonable and are based on reasonable assumptions and estimates as of the date hereof, there can be no assurance that these assumptions
or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements are inherently subject to
significant business, regulatory, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ
materially from those expressed or implied in such statements. Forward-looking statements are often, but not always, identified by the
use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”,
“expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”,
“intend”, “could”, “might”, “would”, “should”, “believe”, “objective”,
“ongoing”, “imply” or the negative of these words or other variations or synonyms of these words or comparable
terminology and similar expressions.
By their nature forward-looking statements
are subject to known and unknown risks, uncertainties, and other factors which may cause actual results, events or developments to be
materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors
include, among other things, the Corporation’s stage of development, long-term capital requirements and future ability to fund operations,
future developments in the Corporation’s markets and the markets in which it expects to compete, risks associated with its strategic
alliances and the impact of entering new markets on the Corporation’s operations. Each factor should be considered carefully, and
readers are cautioned not to place undue reliance on such forward-looking statements. See the section, “Risk Factors and Uncertainties”,
below noting that these factors are not intended to represent a complete list of the factors that could affect the Corporation.
Shareholders and investors should not
place undue reliance on forward-looking statements as the plans, assumptions, intentions or expectations upon which they are based might
not occur. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Unless otherwise
indicated by the Corporation, forward-looking statements in this MD&A describe the Corporation’s expectations as of March 25,
2021 and, accordingly, are subject to change after such date. The Corporation does not undertake to update or revise any forward-looking
statements, except in accordance with applicable securities laws.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
3
|
|
|
3.
|
LIMITATIONS OF KEY METRICS AND OTHER DATA
|
The Corporation’s key metrics
are calculated using internal Corporation data. While these numbers are based on what the Corporation believes to be reasonable judgments
and estimates of customer numbers for the applicable period of measurement, there are certain challenges and limitations in measuring
the usage of its product offerings across its customer base. In addition, the Corporation’s key metrics and related estimates may
differ from estimates published by third parties or from similarly titled metrics of its competitors due to differences in methodology
and access to information.
For important information on the Corporation’s
non-IFRS measures, see the information presented in “Key metrics” and “Selected financial information” below.
The Corporation continually seeks to improve its estimates of its active customer base and the level of customer activity, and such estimates
may change due to improvements or changes in the Corporation’s methodology.
Bragg Gaming: Overview and Strategy
Bragg is an innovative B2B online gaming
solution provider. Leveraging its industry-leading technology, it offers a turnkey solution, including a proprietary omni-channel retail,
online and mobile iGaming platform, as well as advanced casino content aggregator, sportsbook, lottery, marketing, and operational services.
Renowned for its rapid and seamless integration, its content aggregator combines casino, slots, live dealer, lottery, virtual sports and
instant-win game content from top tier gaming content providers, along with proprietary content, and is fully compliant with major regulated
jurisdictions, allowing operators to access over 10,000 world- class games through a single account. Bragg aims to become the leading
online gaming solution provider. It focuses on three key pillars in order to achieve this goal: investment in its proprietary platforms,
diversification of its revenues and expansion into new geographies, and engagement with key strategic partners in the industry. Bragg
has heavily invested in its platform technology since the Company’s inception, introducing new key features and capabilities each
year that distinguishes it from competitors. In addition, Bragg continues to invest in its gaming content, partnering with top-tier names
in the space and consistently supplementing its portfolio of games, all available via a single integration.
Bragg has nearly tripled its customer
base in the last two years and continues to win large, notable clients with its popular and exclusive gaming content. Bragg’s content
partners include some of the most reputable companies in the space including Evolution, NetEnt, Golden Hero and Gamomat. Its primary operations
are provided through its wholly owned subsidiaries in Malta, Slovenia, and Cyprus. Bragg is compliant in Malta, Schleswig-Holstein Germany,
Romania, Croatia, Czech Republic, Serbia, Columbia, Sweden, and Denmark and anticipates further new licences into the next year. The Company
is particularly focused on expanding into lucrative geographies such as the United States, the UK and Latin America and has made significant
strides engaging with partners in these areas.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
4
|
Bragg continues to invest in building
a strong, experienced management team to drive these strategic initiatives. In the third quarter of 2020, Bragg introduced a new Chief
Executive Officer, Adam Arviv and a new Chairman of the Board, Richard Carter. Adam is the founder and a continued significant shareholder
of Bragg Gaming and brings over 30 years of experience in the gaming industry. Richard is an industry veteran and the previous CEO of
SBTech, which he led through their merger with DraftKings.
The Company was incorporated by Articles
of Incorporation pursuant to the provisions of the Canada Business Corporations Act on March 17, 2004.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
5
|
|
|
4.
|
OVERVIEW OF FINANCIAL YEAR 2020
|
Financial performance in 2020
The Group is pleased to report on an
exceptional trading performance for the year ended December 31, 2020. The year was characterized with vast operational activity alongside
a global pandemic, with onboarding of new customers triggering high demand for Bragg’s products and services and supporting its
underlying growth. The Group has continued to deliver against its strategic objectives, achieving accelerated growth while remaining committed
to revenue diversification and geographic expansion.
Revenue
The Group’s revenue1
for the period of 12 months ended December 31, 2020 increased from the same period in the previous year by 74.6% to EUR 46.4m (2019:
EUR 26.6m) continuing a solid quarterly growth momentum since Q1 2019. The Group’s positive year-on-year revenue growth was derived
from organic growth from its existing customer base, alongside onboarding of new strategic customers in various jurisdictions. The Group’s
revenue growth was mainly derived from the games and content services which accounted for 89% of total revenues as demand for the Group’s
unique games and content and technology proposition continues to grow. The Company’s growth has been underpinned by continued investment
and innovation in its technology and product offering. These investments supported the hard launch of Oryx Hub and the launch of a new
data analytics platform and customer engagement platform earlier this year, demonstrating the potential of the Group to further leverage
its technology to accelerate growth.
The management is pleased that it continues
to see positive momentum in game play, unique player numbers and its engagements level. Total wagering generated by our customers in the
period were up by 73.5% from the same period in the previous year to EUR 11.8 billion (2019: EUR 6.8 billion) and the number of unique
players2 using our games and content increased by 113.6% to 5.87m (2019: 2.75m). These strong numbers are a result of significant
improvements to our core content offering including the recent technical developments giving the group a powerful competitive advantage.
Gross profit increased compared to the same period in the
previous year by 67.8% to EUR 20.2m (2019: EUR 12.0m) with gross margins decreasing by 1.7 base points to 43.5% (2019: 45.2%). The decline is mainly attributed to a relative
increase in revenues from iGaming and platform fees to games and content services which have higher associated cost of sales.
|
1
|
Revenue includes group share in Game and content, platform fees and
management and turnkey solutions
|
|
2
|
Unique players individuals who made a real money bet at least once
during the period
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
6
|
Selling, general and administrative
expenses increased from the same period in the previous year by 54.6% to EUR 22.8m (2019: EUR 14.8m) amounting to 49.2% of total revenue
(2019: 55.5%) which reflects an improvement in the operational leverage and cost control. Main movements in the year are driven by the
following:
|
A.
|
Salaries and subcontractors increased by 31.9% to EUR 9.0m (2019: EUR 6.8m) mainly as the Group's continued investment in expanding
its software development, product and analytics teams during 2020 to support the rapid growth of new customers, growth of existing customers
base and enhancement of its technology offering.
|
Share based payment costs increased
by 79.9% to EUR 3.0m (2019: EUR 1.6m) predominantly due to the new share-based incentive plan award for the Bragg directors, management,
and consultants. During the year ended December 31, 2020, a total of 11.1m (2019: 7.0m) share based units were issued of which a
total of 10.2m were issued as part of the reorganisation of the capital structure in November 2020 supported by Bragg shareholders.
Share based units issued as part of the reorganisation of the capital structure contributed EUR 3.0m (2019: Nil) to share based payment
costs, EUR 0.4m (2019: 1.9m) was due to vesting of other share based units which was offset by EUR 0.4m (2019: EUR 0.3m) due to expiration
of awards.
Total employee costs increased by 41.2%
to EUR 12.0m (2019: EUR 8.5m).
|
B.
|
IT hosting cost increased by 16.6% to EUR 1.4m (2019: EUR 1.2m) mainly due to increase of traffic and servers cost in line
with the revenue growth.
|
|
C.
|
Professional fees increased by 79.5% to EUR 1.5m (2019: EUR 0.8m) mainly relating to increase of audit, legal and corporate
advisory services, as well as group tax advisory required with regards to restructuring of companies. Many of these costs are generated
due to growth of the company and as part of the reorganisation for the uplisting to the Toronto stock exchange (“TSX”).
|
|
D.
|
Corporate costs increased by EUR 0.3m to EUR 0.8m (2019: 0.5m) as a result of the Group’s increased investment in corporate
marketing and investor relation activities.
|
|
E.
|
Bad debt expense - increased by EUR 0.8m to EUR 1.1m (2019: 0.3m) due to an expectancy of the risk of the ageing and liquidity
of trade receivables alongside a general provision in light of the global pandemic and its effect on the global economy.
|
|
F.
|
Transaction and acquisition costs - amounted to EUR 2.2m (2019: EUR 0.2m) and relates to costs associated with supporting the
financing in November 2020 in the amount of EUR 1.0m (2019: Nil), legal and financial fees relating to various debt and equity raise
processes that took place during the year amounting to EUR 1.2m (2019: Nil)
and other costs in relation to acquisitions of EUR 0.0m (2019: 0.2m).
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
7
|
|
G.
|
The Group expansion also increased other costs compared with the 2019 financial year.
|
Group profitability continues to improve,
with Adjusted EBITDA (note 5.2) increasing from the same period in the previous year by EUR 4.5m to EUR 5.5m (2019: EUR 1.0m). Adjusted
EBITDA margins significantly increased by 8.0 base points to 11.9% (2019: 3.9%), achieved as a result of reaching higher scale and tight
cost control. A reconciliation between the current year’s reported figures and the prior year’s figures to Adjusted EBITDA
is shown in note 5.2.
Total net loss for the period increased
by EUR 2.6m from the same period in the previous year to net loss of 14.6m (2019: net loss EUR 12.0m). This is as a result of several
factors in particular the increased loss on the remeasurement of deferred and contingent consideration and accretion of liabilities of
EUR 10.3m (2019: EUR 7.1m) to reflect the final earnout agreement reached between KAVO and the Group, an increase of income tax expenses
to EUR 1.2m (2019: EUR 0.5m) as a result of an improved performance and a reduction in the cost of discontinued operations for this year
of net comprehensive loss EUR 0.2m (2019: loss of EUR 1.5m).
Cash flow from operating activities
for the twelve months ended December 31, 2020 amounted to EUR 6.7m (2019: EUR Negative 0.1m), the movement was primarily due to improvement
in profitability of the underlying business and in working capital movements. Cash conversion ratio of Adjusted EBITDA to changes in cash
and cash equivalents for the period was 4.6 (2019: Negative 4.6) showing again an improvement in Group operational liquidity.
Cash flow used in investing amounted
to EUR 2.8m (2019: EUR 2.3m) mainly attributable to capitalized software development costs. Cash flow from finance activities amounted
in EUR 22.3m (2019: Negative EUR 0.5m) which is predominantly due to the net proceeds from issuance of common shares and warrants in the
November 2020 equity raise of EUR 12.1m (2019: Nil), proceeds from the exercise of warrants and broker compensation options of EUR
10.1m (2019: Nil) and proceeds from shares to be issued in a private placement that completed in January 2021 of EUR 0.6m (2019:
Nil).
Cash and cash equivalents as of December 31,
2020 amounted to EUR 26.1m (December 31, 2019: EUR 0.7m).
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
8
|
Financial performance in Q4 2020
Revenue:
The Group’s revenue for the three
months ended December 31, 2020 increased from the same period in the previous year by 75.7% to EUR 13.8m (Q4 2019: EUR 7.8m) reflecting
another consecutive quarter of strong growth momentum. The Group’s revenue was up 17.6 % from the prior quarter (Q3 2020: EUR 11.7m)
due to seasonality and growth in its customer base. Total wagering generated by our customers in the three months ended December 2020
were up by 50% from the same period in the previous year to EUR 3.2 billion (Q4 2019: EUR 2.1 billion) and the number of unique players
using our games and content increased by 70% to 2.5m (Q4 2019: 1.5m) demonstrating continuous improvements to our core content offering.
Expenses
Cost of revenue for the three months
ended December 31, 2020 amounted to EUR 7.7m (Q4 2019: EUR 4.2m) an increase of 83.0% from the same period in the previous year.
This represents 56.2% of Group revenue, an increase of 2.2 base points (Q4 2019: EUR 54.0.%) as a result of a relative increase in games
and content revenues that incur higher underlying third-party costs to iGaming and turnkey projects.
Selling, General and Administrative
Expenses increased by EUR 6.4m to EUR 10.4m (Q4 2019: EUR 4.0m) predominantly driven by the increase of share based payments of EUR 3.0m
in November 2020 awarded to directors and management, EUR 1.7m of transaction and acquisition costs relating to financing and increased
salaries and subcontractors expenses of EUR 1.0m compared to the same period in previous year.
Loss on remeasurement of deferred and
contingent consideration and accretion on liabilities (both costs relating to Oryx first and second earnout payments) decreased in the
three months ended December 2020 by EUR 3.4m to EUR 0.8m (Q4 2019: EUR 4.2m) as an adjustment for the agreed final payment of the
Oryx earnout was recorded in the third quarter.
Profitability
Adjusted EBITDA in the three months
ended December 31, 2020 amounted to EUR 1.3m (Q4 2019: EUR 0.7m) with margins decreasing by 0.3 base points to 9.1% (Q4 2019: 9.4%)
largely due to the increase in professional fees and corporate costs in total of EUR 1.2m as part of the uplisting process to the Toronto
stock exchange. Should the increase in professional fees and corporate costs when comparing Q4 2019 to Q4 2020 not take place, on a like-for-like
basis, the Adjusted EBITDA margins would increase to approximately 17.5%.
Operating loss amounted to EUR 5.3m (Q4 2019:
EUR 2.9m) an increase of EUR 2.4m from the precious period, however in order to reflect the underlying performance of the Group in the
most effective way, excluding the increase in remeasurement of the deferred and contingent consideration, share based payments and transaction
and acquisition costs the adjusted operating income for the period would be EUR 0.3m (Q4 2019: EUR 0.2m).
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
9
|
Cash and cash equivalents
Cash flows from operating activities
during the three months ended December 31, 2020, amounted to EUR 0.1m (Q4 2019: EUR 1.7m) as a result of increase of operational
expenses during the period.
Cash flow from financing activities
during the three months ended December 31, 2020 amounted to EUR 22.4m (Q4 2019: negative EUR 0.2m) attributable to proceeds from
issuance of common shares and warrants, net of costs of EUR 12.1m (Q4 2019: Nil), proceeds from exercise of warrants and broker compensation
options of EUR 10.1m (Q4 2019: Nil) and proceeds from shares to be issued upon private placement of EUR 0.6m (Q4 2019: Nil).
Cash flows used in investing activities
during the three months ended December 31, 2020 amounted to EUR 1.0m (Q4 2020: 0.1m) due to partial settlement of deferred and contingent
consideration payable of EUR 0.5m and additions to intangible assets on EUR 0.6m, offset by EUR 0.2m in proceeds from the sale of discontinued
operations.
Cash and cash equivalents as of December 31,
2020 amounted to EUR 26.1m (December 31, 2019: EUR 0.7m).
November 2020 equity raise
In November 2020 the Group successfully
raised total CAD 36.3m through a combination of a bought deal with total gross proceeds of CAD 20.7m and CAD 15.6m through exercise of
warrants and broker compensation options. The proceeds will be used to satisfy the first earn-out payment to KAVO in partial consideration
of cash and equity for a previously completed acquisition of all of the issued and outstanding membership interests of its principal subsidiary,
Oryx Gaming and to improve the working capital position of the group and support its expansion plan.
Post year material events:
|
(1)
|
Settlement of earn-out obligations
|
On January 18, 2021, the Company
satisfied its earnout obligations to the vendor of Oryx Limited (Kavo) via a combination of cash and Common Shares of the Company. Settlement
comprised of cash of EUR 11.6m and a total of 47m Common Shares of the Company issued to the vendor with a recorded fair-value as at December 31,
2020 of EUR 22m. The Common Shares are subject to a hold period expiring May 19, 2021.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
10
|
Subsequent to this transaction Matevž
Mazij became a “control person” of the Company with total shareholding of 49m representing over 27% of the outstanding Common
Shares of the Company as of the settlement date.
On January 21, 2021, the Company
announced that it has elected to exercise its right under the terms of a warrant indenture dated November 18, 2020 governing the
Public Offering Warrants of the Company issued on November 18, 2020 to accelerate the expiry date of the warrants. Accordingly, the
Company gave notice to all registered warrant holders that the expiry date for the Warrants is accelerated to February 22, 2021.
During the period from January 1,
2021 to February 22, 2021 a total of 15,540,822 Public Offering Warrants were exercised for cash raise of EUR 10.1m and a total of
1,605,474 Broker Warrants were exercised for cash raise of EUR 0.7m.
|
(3)
|
Graduation to the Toronto Stock Exchange (“TSX”)
|
On January 27, 2021, the Company
announced that it had graduated to the Toronto Stock Exchange. As the market open at 09:30 am ET on the date of announcement, the Company
began trading on TSX under the symbol “BRAG”. Concurrent with the TSX listing, the Company’s Common Shares were delisted
from the TSX Venture Exchange.
Other:
|
(1)
|
Share Capital: As at December 31, 2020, the number of issued and outstanding shares was 131,112,480 (2019: 79,863,851), the number
of outstanding awards from equity incentive plans were 15,584,102 (2019: 11,535,765), and the number of outstanding warrants were 16,559,460
(2019: 28,660,586).
|
|
(2)
|
Employees: Excluding discontinued operations, as at December 31, 2020, the Group employed 241 employees (2019: 208) across Slovenia,
UK and Canada. Approximately 138 are part of the product and technology team, 38 are part of business development, sales and marketing,
37 are part of the platform service and turnkey solutions and 28 in corporate head-office and support services.
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
11
|
Strategic progress
Bragg Gaming has a clear growth strategy
to become a leading worldwide online gaming B2B solution provider. This is based on three primary pillars of growth:
|
1.
|
Enhance technology and Product offering
|
Oryx Hub is a fully customizable aggregator
platform solution available through a one-time, seamless contract and integration process. It offers operators immediate access to an
extensive library of over 10,000 games from over 100 of the industry’s leading content providers, such as Gamomat, Red Tiger, Evolution,
iSoftBet, NetEnt, Quickfire, PlayNGO, EGT, Gamesys, Pragmatic Play, Kalamba Games, Peter and sons and others. Uniquely, the advanced technical
developments with the Hub allows Oryx to offer promotions, customization and recommendation engines that are unique in the casino content
aggregator space, giving it a powerful competitive advantage.
During the second quarter of 2020,
Oryx was awarded with the leading international ISO/IEC 27001 certification, underlining the supplier’s commitment to information
security. The certification will enable ORYX Gaming to continue its global expansion into regulated markets and to provide its extensive
content portfolio to even more operator partners. During second half of 2020, the Group has been certified and approved to provide services
in Switzerland, Bulgaria, Portugal, Latvia, Czech Republic and Spain.
The Group launched the new Player Engagement
Platform that consolidates a number of functionalities that work together to increase player engagement and customer lifetime value. This
includes a set of targeted promotions, such as free spins, bonuses, jackpots, leaderboards and tournaments; a multi-channel communication
platform which supports traditional campaign channels such as SMS, email, social media; and a real-time campaign management system which
takes the platform to the next level by allowing operators to engage players onsite in real-time. Since launch in Q2 2020, the Group has
recognized very positive trends in its underlying performance indicators supporting that leaderboard tournaments result in higher player
engagement and increased gameplay.
Throughout 2020, the Group launched
the Data Analytics Platform which allows real-time collection and analysis of data from internal as well as third-party systems, enabling
operators to gain a better understanding of its end-users and effectively segment, target and engage them by triggering activities based
on behaviour and preferences. In turn, the Group benefits from increased revenues from its customers through increased operator gaming
revenues.
The Group continues to invest in its
human capital including talents in software development, business analytics, products, and compliance to expand into new verticals and
geographies. Capitalized development costs in the year totalled EUR 2.1m (2019: EUR 1.2m) and represented 4.5% of the total revenue (2019:
4.6%).
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
12
|
|
2.
|
Revenue diversification, Expansion into new Geographies and regulatory changes
|
The Group maintains its existing customer
base with a high level of revenue retention and continues to on-board new clients and diversify its customer base. During 2020, the group
successfully signed agreements with 54 new operators3, including companies such as Skillonnet, Casino Secret, Maxent, Lucky
7 Ventures, 888 and others and is in advanced discussions to secure additional new customers in various licensed jurisdictions in Europe
and Latin America. During Q4 2020, 21 new operator agreements were signed for platform and content services and sales pipeline positively
developed for the following year.
As a result, customer concentration
from the top 10 customers4 is 58 % of total revenues for the year, down significantly from 72% of total revenues for the year
ended December 31, 2019. As of December 31, 2020, the Group’s total customer base exceeded 100 customers, an increase
of over 80% from December 31, 2019.
Regulatory changes:
The Group has exposure to revenues
derived from customers who have predominantly German facing end-users. Germany is to become one of Europe’s largest regulated gaming
markets and licences are anticipated to be issued to online casino operators by July 2021 once the transition period effectively
initiated on October 15, 2020 will be replaced by state licenses. The near-term impact of the changing regulatory landscape in the
German market is likely to create negative revenue headwinds mainly due to the introduction of restrictions on game play and social responsibility
methods. However, our view is that, in the medium and long-term, the introduction of more regulation, similar to other established regulated
markets will over time offset these negative headwinds as operators utilize more traditional marketing channels such as Television and
print media, which in turn helps increase participation and eventually the overall market size. The Group will continue to monitor how
the German market adjusts to the new regulatory framework and, is already closely working with its German facing customers on helping
to mitigate future adverse conditions.
|
3.
|
Establishing strategic partnerships
|
The Group is constantly exploring strategic
partnership opportunities in new markets, leveraging the strength of its technology, product offering and the knowledge and experience
of its talented team. During the year, the Group signed various partnership deals for its player account management system (PAM) such
as Stanleybet (Romania), Casino Arena and Senator (Croatia) and the Group also agreed to a deal with the biggest Dutch land-based casino
JHV, all of which attest to the strength of our product and technology offering and the enhance the quality and longevity of our offering. In the
end of 2019, Bragg signed a new partnership deal with New York-based Seneca Gaming Corporation (SGC), representing the Group’s
entry into the US market.
3 An operator is a licensed entity that
contracts directly or indirectly with the group for B2B gaming services
4 A customer is a licensed entity that
contracts directly with the group for B2B gaming services
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
13
|
As part of the agreement, the Group
is providing casino services and its player account management system (PAM) to SGC’s three New York Casinos. The agreement is in
partnership with Kambi Group Plc, a provider of premium sports betting services to licensed B2B gaming operators. Throughout the year,
Bragg has dedicated resources to advance its technical, product and regulatory specification work in order to finalise the integration
road map. Bragg is now fully prepared to initiate integration. Entry into the U.S. market has been an initiative for the Group since the
company’s inception, and this series of agreements marks a significant milestone for the Company.
On January 26, 2021, the Group
announced the acceleration of its investment into the US and Canadian market with further enhancement of its technology offering, regulatory
and legal and business development as part of the group strategy and to establish long term partnership with local operators in gaming
market share in the most lucrative markets in the world.
Outlook and Guidance
The Group’s solid financial growth
has continued into the first quarter of 2021 with revenue tracking management expectations for the full year results. With a solid performance
throughout the financial year 2020, management is confident in achieving its objectives for the 2021 year- end. The Group continues to
grow and diversify its global footprint, winning new customers in new jurisdictions and securing recurring revenues for next financial
year. Guidance for 2021 remains unchanged.
The global outbreak of COVID-19 (coronavirus),
has had, and continues to have, a significant impact on the global economy. The Corporation derives the majority of its revenue from online
casino gaming, a sector that has largely benefited from the various international “lock-downs” which require people to stay
at home. As a result, such virtual forms of entertainment have prevailed in a similar fashion to the various streaming businesses such
as Netflix. Furthermore, the Corporation has limited exposure to sports betting revenues, which have been impacted by the lack of professional
sports. Management continues to monitor the effects COVID-19 on the Group’s performance and will amend its forecasts as, and if,
it deems necessary.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
14
|
|
|
5.1
|
BASIS OF FINANCIAL DISCUSSION
|
The financial information presented
below has been prepared to examine the results of operations from continuing activities. During the year ended December 31, 2019,
the Company decided to discontinue its online media business unit. As such, the performance of the online media division has been excluded.
The presentation currency of the Company
is the Euro, whilst the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling
due to primary location of individual entities within the Group. The presentation currency of the Euro has been selected as it best represents
the majority of the Company’s economic inflows, outflows as well as its assets and liabilities.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
15
|
|
|
5.2
|
SELECTED ANNUAL INFORMATION
|
The following is selected financial
data of the Company for each of the three most recently completed financial years. In February 2019, the Company changed its fiscal
year-end to December 31, from its previous fiscal year-end of March 31. Consequently, the second comparative period is for the
nine months ended December 31, 2018.
The primary non-IFRS financial measure
which the Company uses is Adjusted EBITDA5. When internally analyzing underlying operating performance, management excludes
certain items from EBITDA (earnings before interest, tax, depreciation, and amortization).
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
Revenue
|
|
|
46,421
|
|
|
|
26,592
|
|
|
|
767
|
|
|
Net Loss from continuing operations
|
|
|
(14,476
|
)
|
|
|
(10,376
|
)
|
|
|
(4,765
|
)
|
|
EBITDA
|
|
|
(9,023
|
)
|
|
|
(6,001
|
)
|
|
|
(4,722
|
)
|
|
Adjusted EBITDA
|
|
|
5,546
|
|
|
|
1,041
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share-continuing operations
|
|
|
(0.17
|
)
|
|
|
(0.14
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
As at
|
|
|
|
As at
|
|
|
|
As at
|
|
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Total assets
|
|
|
72,094
|
|
|
|
43,880
|
|
|
|
45,268
|
|
|
Total non-current financial liabilities
|
|
|
593
|
|
|
|
14,924
|
|
|
|
17,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
In February 2019, the Company
changed its fiscal year-end to December 31, from its previous fiscal year-end of March 31. Consequently, the second comparative
period is for the nine months ended December 31, 2018.
After excluding the discontinued operation
of the online media division, revenues reported for the nine months ended December 31, 2018 consist of revenues from the online B2B
online gaming operation of Oryx Gaming International LLC acquired on December 20, 2018.
5 Adjusted EBITDA excludes
income or expenses that relate to exceptional items and non-cash share-based charges and includes deductions for lease expenses that are
recognized as part of depreciation and finance charges under IFRS 16.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
16
|
Non-current financial liabilities predominantly
consisted of deferred and contingent consideration payable of EUR 17.3m as at December 31, 2018, EUR 14.3m as at December 31,
2019 and EUR Nil as at December 31, 2020. All deferred and contingent consideration was settled in full on January 18, 2021.
With the exception of EBITDA and Adjusted
EBITDA, the financial data has been prepared to conform with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”). These accounting principles have been applied consistently across
for all three reporting periods.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
17
|
|
|
5.3
|
OTHER FINANCIAL INFORMATION
|
To supplement its 2020 financial statements
presented in accordance with IFRS, the Corporation considers certain financial measures that are not prepared in accordance with IFRS.
The Corporation uses such non-IFRS financial measures in evaluating its operating results and for financial and operational decision-making
purposes. The Corporation believes that such measures help identify underlying trends in its business that could otherwise be masked by
the effect of the expenses that it excludes in such measures.
The Corporation also believes that
such measures provide useful information about its operating results, enhance the overall understanding of its past performance and future
prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making.
However, these measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance
with IFRS. There are a number of limitations related to the use of such non-IFRS measures as opposed to their nearest IFRS equivalents.
A reconciliation of operating loss
to EBITDA and Adjusted EBITDA is as follows:
|
|
|
Year Ended December 31,
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Operating loss
|
|
|
(11,896
|
)
|
|
|
(8,081
|
)
|
|
Depreciation and amortization
|
|
|
2,873
|
|
|
|
2,080
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
(9,023
|
)
|
|
|
(6,001
|
)
|
|
Depreciation of right-of-use assets
|
|
|
(191
|
)
|
|
|
(167
|
)
|
|
Lease interest expense
|
|
|
(23
|
)
|
|
|
(16
|
)
|
|
Share based payments
|
|
|
2,963
|
|
|
|
1,647
|
|
|
Transaction and acquisition costs
|
|
|
2,212
|
|
|
|
166
|
|
|
Exceptional costs
|
|
|
332
|
|
|
|
65
|
|
Loss (gain) on remeasurement of deferred and contingent
consideration
|
|
|
9,276
|
|
|
|
5,347
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
5,546
|
|
|
|
1,041
|
|
Exceptional costs include one-time
costs for the Company, of which EUR 0.3m (2019: 0.1m) related to severance.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
18
|
|
|
5.4
|
SELECTED FINANCIAL INFORMATION
|
Selected financial information is as follows:
|
|
|
Year Ended December 31,
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
|
|
46,421
|
|
|
|
26,592
|
|
|
Operating loss
|
|
|
(11,896
|
)
|
|
|
(8,081
|
)
|
|
EBITDA
|
|
|
(9,023
|
)
|
|
|
(6,001
|
)
|
|
Adjusted EBITDA
|
|
|
5,546
|
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
As at
|
|
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Total assets
|
|
|
72,094
|
|
|
|
43,880
|
|
|
Total liabilities
|
|
|
32,197
|
|
|
|
37,264
|
|
TRADE AND OTHER RECEIVABLES
|
|
|
As at
|
|
|
As at
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Less than one month
|
|
|
9,563
|
|
|
|
5,452
|
|
|
Between two and three months
|
|
|
1,193
|
|
|
|
253
|
|
|
Greater than three months
|
|
|
1,296
|
|
|
|
1,416
|
|
|
|
|
|
12,052
|
|
|
|
7,121
|
|
|
Provision for expected credit losses
|
|
|
(1,755
|
)
|
|
|
(941
|
)
|
|
Trade and Other Receivables
|
|
|
10,297
|
|
|
|
6,180
|
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
19
|
TRADE PAYABLES AND OTHER LIABILITIES
|
|
|
As at
|
|
|
As at
|
|
|
|
|
December 31,
|
|
|
December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Trade payables
|
|
|
6,406
|
|
|
|
5,146
|
|
|
Accrued liabilities
|
|
|
6,099
|
|
|
|
2,048
|
|
|
Sales tax payable
|
|
|
4,356
|
|
|
|
1,058
|
|
|
Other payables
|
|
|
107
|
|
|
|
605
|
|
|
Trade Payables and Other Liabilities
|
|
|
16,968
|
|
|
|
8,857
|
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
20
|
|
|
5.5
|
SUMMARY OF QUARTERLY RESULTS
|
The following table presents the selected
financial data for continuing operations for each of the past eight quarters of the Group.
Since prior publication of these quarterly
results, the Group has modified Adjusted EBITDA to include an adjustment for right-of-use asset expenditure, i.e., office lease expenditure.
Right-of- use asset expenditure is recorded as a combination of depreciation of right-of-use asset expense and lease interest expense
under IFRS 16 and was introduced on January 1, 2019.
|
|
|
|
1Q19
|
|
|
|
2Q19
|
|
|
|
3Q19
|
|
|
|
4Q19
|
|
|
|
1Q20
|
|
|
|
2Q20
|
|
|
|
3Q20
|
|
|
|
4Q20
|
|
|
|
|
|
2019
|
|
|
2020
|
|
EUR 000
|
|
|
Q1
|
|
|
|
Q2
|
|
|
|
Q3
|
|
|
|
Q4
|
|
|
|
Q1
|
|
|
|
Q2
|
|
|
|
Q3
|
|
|
|
Q4
|
|
|
Revenue
|
|
|
6,136
|
|
|
|
5,875
|
|
|
|
6,740
|
|
|
|
7,841
|
|
|
|
8,784
|
|
|
|
12,145
|
|
|
|
11,714
|
|
|
|
13,778
|
|
|
Operating income (loss)
|
|
|
(136
|
)
|
|
|
(4,973
|
)
|
|
|
(77
|
)
|
|
|
(2,895
|
)
|
|
|
(5,080
|
)
|
|
|
762
|
|
|
|
(2,282
|
)
|
|
|
(5,296
|
)
|
|
EBITDA
|
|
|
346
|
|
|
|
(4,427
|
)
|
|
|
456
|
|
|
|
(2,376
|
)
|
|
|
(4,296
|
)
|
|
|
1,429
|
|
|
|
(1,533
|
)
|
|
|
(4,623
|
)
|
|
Adjusted EBITDA
|
|
|
379
|
|
|
|
(279
|
)
|
|
|
204
|
|
|
|
737
|
|
|
|
702
|
|
|
|
1,751
|
|
|
|
1,834
|
|
|
|
1,259
|
|
|
Loss per share (EUR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(0.00
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
|
|
(0.05
|
)
|
|
|
5.6
|
LIQUIDITY AND CAPITAL RESOURCES
|
The Corporation’s principal sources
of liquidity are its cash generated from operations. Currently available funds consist primarily of cash on deposit with banks. The Corporation
calculates its working capital requirements from continuing operations as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Cash and cash equivalents
|
|
|
26,102
|
|
|
|
682
|
|
|
Trade and other receivables
|
|
|
10,297
|
|
|
|
6,180
|
|
|
Prepaid expenses and other assets
|
|
|
263
|
|
|
|
333
|
|
|
Consideration receivable
|
|
|
148
|
|
|
|
-
|
|
|
Current liabilities excluding deferred and contingent consideration and available for sale liabilities
|
|
|
(18,521
|
)
|
|
|
(9,820
|
)
|
|
Net working capital
|
|
|
18,289
|
|
|
|
(2,625
|
)
|
|
Deferred and contingent consideration
|
|
|
(11,521
|
)
|
|
|
(9,482
|
)
|
|
Net current liabilities from continuing operations
|
|
|
6,768
|
|
|
|
(12,107
|
)
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
21
|
On November 13, 2020, the Company
amended and restated the September 29, 2020 amending agreement with K.A.V.O. Holdings Limited, as vendor (the "Oryx Vendor"),
and Matevž Mazij, to extend the due date for settlement of the equity component of the earn-out to December 1, 2021, if and
only if, shareholders do not approve the transactions, or the meeting of shareholders is postponed. The equity component of the earnout
payments was agreed at fair value of EUR 22,000 for 47,000,000 Common Shares of the Company. Upon shareholder approval on November 27,
2020, EUR 22,000 was transferred from deferred and contingent consideration payable in current liabilities to shares to be issued in equity.
All contingent liabilities were settled in full to the Oryx Vendor on January 18, 2021 upon shareholder approval.
The undiscounted contractual maturities
of significant financial liabilities and the total contractual obligations of the Company as at December 31, 2020 for each of the
next five years and thereafter are below:
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
|
Trade payables and other liabilities
|
|
|
16,968
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,968
|
|
|
Lease obligations on right of use assets
|
|
|
160
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
-
|
|
|
|
788
|
|
|
Deferred and contingent consideration
|
|
|
11,521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,521
|
|
|
|
|
|
28,649
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
-
|
|
|
|
29,277
|
|
MARKET RISK
The Corporation is exposed to market
risks, including changes to foreign currency exchange rates and interest rates.
FOREIGN CURRENCY
EXCHANGE RISK
The Corporation is exposed to foreign
currency risk, which includes risks related to its revenue and operating expenses denominated in currencies other than EUR, which is both
the reporting currency and primary contracting currency of the Corporation’s customers. Accordingly, changes in exchange rates may
in the future reduce the purchasing power of the Corporation’s customers thereby potentially negatively affecting the Corporation’s
revenue and other operating results.
The Corporation has experienced and
will continue to experience fluctuations in its net earnings as a result of translation gains or losses related to revaluing certain
current asset and current liability balances that are denominated in currencies other than the functional currency of the entities
in which they are recorded.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
22
|
LIQUIDITY RISK
The Corporation is also exposed to
liquidity risk with respect to its contractual obligations and financial liabilities. The Corporation manages liquidity risk by continuously
monitoring its forecasted and actual cash flows, and matching maturity profiles of financial assets and liabilities.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
23
|
The cash flow from continuing operations may be summarized
as follows:
|
|
|
Year Ended December 31,
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Operating activities
|
|
|
6,729
|
|
|
|
(98
|
)
|
|
Investing activities
|
|
|
(2,777
|
)
|
|
|
(2,298
|
)
|
|
Financing activities
|
|
|
22,263
|
|
|
|
(521
|
)
|
|
Effect of foreign exchange
|
|
|
(307
|
)
|
|
|
(276
|
)
|
|
Net cash flow from continuing operations
|
|
|
25,908
|
|
|
|
(3,193
|
)
|
Cash flows used in investing activities is primarily due
to capitalised development costs:
|
|
|
Year Ended December 31,
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Purchases of property and equipment
|
|
|
(223
|
)
|
|
|
(120
|
)
|
|
Proceeds from sale of equipment
|
|
|
-
|
|
|
|
16
|
|
|
Additions in intangible assets
|
|
|
(2,286
|
)
|
|
|
(1,555
|
)
|
|
Proceeds from sale of discontinued operations
|
|
|
259
|
|
|
|
-
|
|
|
Deferred and contingent consideration payments
|
|
|
(527
|
)
|
|
|
(639
|
)
|
|
Cash Flows Used in Investing Activities
|
|
|
(2,777
|
)
|
|
|
(2,298
|
)
|
Cash flows from (used in) financing
activities comprises of EUR 12.1m from November 2020 equity raise and EUR 10.1m from exercise of warrants and broker compensation
options in the year ended December 31, 2020 (2019: Nil):
|
|
|
Year Ended December 31,
|
|
|
EUR 000
|
|
2020
|
|
|
2019
|
|
|
Proceeds from issuance of common shares and warrants
|
|
|
12,127
|
|
|
|
-
|
|
|
Proceeds from exercise of warrants and broker compensation options
|
|
|
10,069
|
|
|
|
-
|
|
|
Proceeds from exercise of stock options
|
|
|
18
|
|
|
|
-
|
|
|
Proceeds from shares to be issued upon private placement
|
|
|
608
|
|
|
|
-
|
|
|
Repayment of lease liability
|
|
|
(212
|
)
|
|
|
(109
|
)
|
|
Repayment of loans
|
|
|
-
|
|
|
|
(375
|
)
|
|
Interest income
|
|
|
6
|
|
|
|
4
|
|
|
Interest
and financing fees
|
|
|
(353
|
)
|
|
|
(41
|
)
|
|
Cash Flows From (Used in) Financing Activities
|
|
|
22,263
|
|
|
|
(521
|
)
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
24
|
|
|
6
|
TRANSACTIONS BETWEEN RELATED PARTIES
|
The Company’s policy is to conduct
all transactions and settle all balances with related parties on market terms and conditions for those in the normal course of business.
Transactions between the Company and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
The Company’s key management
personnel are comprised of members of the Board and the executive team which consists of the Interim Chief Executive Officer (“CEO”),
Chief Financial Officer (“CFO”), Chief Strategy Officer (“CSO”) and Managing Director of Oryx. Three key management
employees are also shareholders in the Company. Transactions and balances between the Company and its key management personnel are as
follows:
• Revenues
for the year ended December 31, 2020 to a shareholder of the Company totalled EUR 23 (year ended December 31, 2019: EUR 33)
• Total
compensation for salaries, director fees, share-based payments and short-term employee benefits of key management personnel of the Company
for the year ended December 31, 2020 totalled EUR 4,559 (year ended December 31, 2019: EUR 2,230)
• Loss
on remeasurement of deferred and contingent consideration payable to the Managing Director of Oryx for the year ended December 31,
2020 totalled EUR 9,276 (year ended December 31, 2019: EUR 5,347)
• Interest
expense on deferred and contingent consideration payable to the Managing Director of Oryx for the year ended December 31, 2020 totalled
EUR 266 (year ended December 31, 2019: nil)
• During
the year ended December 31, 2020, a total of EUR 560 in payments were made to the Managing Director of Oryx for deferred consideration
(year ended December 31, 2019: EUR 639)
• During
the year ended December 31, 2020, a total of EUR 176 in payments were made to the Managing Director of Oryx for interest on deferred
and contingent consideration payable (year ended December 31, 2019: nil)
• As
at December 31, 2020, EUR 4 of trade and other receivables was receivable from the Managing Director of Oryx and other shareholders
(December 31, 2019: EUR nil)
• As
at December 31, 2020, EUR nil of prepaid expenses and other assets was receivable from a shareholder of the Company (December 31,
2019: EUR 98)
• As
at December 31, 2020, EUR 166 of trade payables and other liabilities was due to the CEO, CFO, the Managing Director of Oryx and
member of Board (December 31, 2019: EUR 278)
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
25
|
• As
at December 31, 2020, EUR 11,521 of deferred and contingent consideration was payable to the Managing Director of Oryx (December 31,
2019: EUR 23,732)
• As
at December 31, 2020 EUR 22,000 of shares to be issued to the Managing Director of Oryx was recognized in the consolidated statements
of changes in equity (December 31, 2019: EUR nil)
• During
the year ended December 31, 2020, EUR 246 additional share capital was recognized in the consolidated statements of changes in equity
with a corresponding reduction in contributed surplus for exercise of stock options by former key management personnel of the Company
(year ended December 31, 2019: nil)
|
|
7
|
DISCLOSURE OF OUTSTANDING SHARE DATA
|
On October 26, 2020, the Company
announced that it has entered into an agreement with a syndicate of underwriters pursuant to which the underwriters have agreed to purchase
17,860,000 units (the "Units") from the treasury of the Company, at a price of $0.70 CAD per Unit and offer them to the public
by way of short form prospectus for total gross proceeds of approximately $12,500,000 CAD (the "Offering"). On October 27,
2020, the Company agreed to increase the size of the Offering whereby the Underwriters agreed to purchase 25,715,000 Units for aggregate
gross proceeds of $18,000,500 CAD.
Each Unit consist of one Common Share
(each a "Common Share") of the Company and one half of one Warrant (each whole warrant, a "Warrant") of the Company.
Each Warrant entitles the holder thereof to purchase one Common Share at a price equal to $1.00 CAD for a period of 36 months following
the closing of the Offering. The Warrants include an acceleration provision, exercisable at the Company's option, if the Company's daily
volume weighted average share price is greater than $1.50 CAD for at least ten consecutive trading days.
In addition, the Company granted the
Underwriters an option (the "Over-Allotment Option") to purchase up to an additional 15% of the Units of the Offering on the
same terms exercisable at any time up to 30 days following the closing of the Offering, for market stabilization purposes and to cover
over-allotments, if any. Closing of the Offering occurred on November 18, 2020.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
26
|
The number of equity-based instruments
granted or issued may be summarized as follows:
|
|
|
December 31
|
|
|
March 25
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Common shares
|
|
|
131,112,480
|
|
|
|
198,238,111
|
|
|
Warrants
|
|
|
14,785,125
|
|
|
|
-
|
|
|
Broker Warrants
|
|
|
1,774,335
|
|
|
|
168,861
|
|
|
Fixed Stock Options
|
|
|
12,284,102
|
|
|
|
14,270,852
|
|
|
Restricted Share Units
|
|
|
2,100,000
|
|
|
|
1,600,000
|
|
|
Deferred Share Units
|
|
|
1,200,000
|
|
|
|
1,299,000
|
|
|
|
|
|
163,256,042
|
|
|
|
215,576,824
|
|
The increase of 67,125,631 in Common
Shares between the reporting date and the date of this MD&A is due to the issuance of 47,000,000 Common Shares as a result of the
settlement of the earnout with K.A.V.O. Holdings Limited, 15,540,822 as a result of exercise of warrants, 1,605,474 as a result of exercise
of broker warrants, 2,479,335 due to the private placement on January 13, 2021 and 500,000 were as a result of exercise of restricted
share units.
The decrease in warrants was due to
exercise of 15,540,822 warrants and expiry of 47,038 warrants, offset by an issue of 802,735 warrants upon exercise of 1,605,474 broker
warrants.
Fixed stock options increased by 1,986,750
due to issuance of 1,989,000 tandem options to members of the Board, offset by reduction of 2,250 options due to expiration. Restricted
share units reduced by 500,000 due to conversion and deferred share units increased by 99,000 due to grant of units to key management
personnel.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
27
|
|
|
8
|
CRITICAL ACCOUNTING ESTIMATES
|
The preparation of the consolidated
financial statements requires management to make estimates and judgments in applying the Company’s accounting policies that affect
the reported amounts and disclosures made in the consolidated financial statements and accompanying notes.
Within the context of the consolidated
financial statements, a judgment is a decision made by management in respect of the application of an accounting policy, a recognized
or unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that may include estimates
and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances recognized or disclosed in the consolidated
financial statements and are based on a set of underlying data that may include management’s historical experience, knowledge of
current events and conditions and other factors that are believed to be reasonable under the circumstances.
Management continually evaluates the
estimates and judgments it uses.
The following are the accounting policies
subject to judgments and key sources of estimation uncertainty that the Company believes could have the most significant impact on the
amounts recognized in the consolidated financial statements.
Impairment of non-financial assets
(property and equipment, right-of-use assets, intangible assets and goodwill)
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management is required to use judgment
in determining the grouping of assets to identify their CGUs for the purposes of testing property and equipment, intangible assets and
right-of-use assets for impairment. Judgment is further required to determine appropriate groupings of CGUs for the level at which goodwill
and intangible assets are tested for impairment.
The Company has determined that B2B
Online Gaming and Online Media are two separate CGUs for the purposes of property and equipment, intangible assets and right-of-use asset
impairment testing. For the purpose of goodwill impairment testing, CGUs are grouped at the lowest level at which goodwill is monitored
for internal management purposes. In addition, judgment is used to determine whether a triggering event has occurred requiring an impairment
test to be completed.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
28
|
|
|
-
|
Key sources of estimation
|
In determining the recoverable amount
of a CGU or a group of CGUs, various estimates are employed. The Company determines fair value less costs to sell using such estimates
as market rental rates for comparable properties, recoverable operating costs for leases with tenants, non- recoverable operating costs,
discount rates, capitalization rates and terminal capitalization rates. The Company determines value in use by using estimates including
projected future revenues, earnings and capital investment consistent with strategic plans presented to the Board. Discount rates are
consistent with external industry information reflecting the risk associated with the specific cash flows.
Impairment of accounts receivable
In each stage of the ECL impairment
model, impairment is determined based on the probability of default, loss given default, and expected exposures at default. The application
of the ECL model requires management to apply the following significant judgments, assumptions, and estimations:
|
|
-
|
movement of impairment measurement between the three stages of the ECL model, based on the assessment
of the increase in credit risks on accounts receivables. The assessment of changes in credit risks includes qualitative and quantitative
factors of the accounts, such as historical credit loss experience and external credit scores;
|
|
|
-
|
thresholds for significant increase in credit risks based on changes in probability of default over the
expected life of the instrument relative to initial recognition; and
|
|
|
-
|
forecasts of future economic conditions.
|
Leases
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining
the appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create an economic incentive
to exercise a renewal option or to not exercise a termination option including investments in major leaseholds and past business practice
and the length of time remaining before the option is exercisable. The periods covered by renewal options are only included in the lease
term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold. Changes in the economic
environment or changes in the office rental industry may impact management’s assessment of lease term, and any changes in management’s
estimate of lease terms may have a material impact on the Company’s consolidated statements of financial position and consolidated
statements of loss and comprehensive loss.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
29
|
|
|
-
|
Key sources of estimation
|
In determining the carrying amount
of right-of-use assets and lease liabilities, the Company is required to estimate the incremental borrowing rate specific to each leased
asset or portfolio of leased assets if the interest rate implicit in the lease is not readily determined. Management determines the incremental
borrowing rate using a base risk-free interest rate estimated by reference to the bond yield with an adjustment that reflects the Company’s
credit rating, the security, lease term and value of the underlying leased asset, and the economic environment in which the leased asset
operates. The incremental borrowing rates are subject to change due to changes in the business and macroeconomic environment.
Warrants and share options
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining
the model used and the inputs therein to valuate the value of share option grants and issued warrants. Management considers all facts
and circumstances for each grant issuance on an individual basis.
|
|
-
|
Key sources of estimation
|
In determining the fair value of warrants
and share options, the Company is required to estimate the future volatility of the market value of the Company’s shares by reference
to its historical volatility or comparable companies over the previous years, a risk-free interest rate estimated by reference to the
Government of Canada bond yield, and a dividend yield of nil.
Contingent consideration
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining
the appropriate fair value of contingent consideration and considers all facts and circumstances relevant to the acquisition’s future
earnings upon which the liability is calculated. Any changes in the economic environment or operational activity of the acquisition may
impact management’s assessment of the liability and may have a material impact on the Company’s consolidated statements of
financial position and consolidated statements of loss and comprehensive loss.
|
|
-
|
Key sources of estimation
|
In determining the fair value of contingent
consideration, the Company is required to estimate the future earnings generated by the acquisition over an agreed period after the acquisition
and apply defined and fixed rules in order to calculate the expected future payment. The Company determines fair value by using estimates
including projected future earnings of the acquisition consistent with strategic plans presented to the Board. Discount rates are consistent
with external industry information reflecting the risk associated with the specific cash flows.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
30
|
|
|
9
|
CHANGES IN ACCOUNTING POLICY
|
Apart from adopting new IFRS standards
on their effective date, the Company changed its accounting policy related to presentation currency in the year ended December 31,
2019 from Canadian dollars to Euros to better align the functional currency and presentation currency of its main operating business.
As a result, the Company presented its consolidated financial statements in accordance with IAS 8, Accounting policies, changes in accounting
estimates and errors ("IAS 8") and presented an opening statement of financial position as at March 31, 2018.
There have been no changes in the Company’s
accounting policies in any of the reporting periods
discussed in this MD&A.
|
|
10
|
RISK FACTORS AND UNCERTAINTIES
|
Certain factors, listed below, may
have a material adverse effect on the Corporation’s business, financial condition, and results of operations. Current and prospective
investors should carefully consider the risks and uncertainties and other information contained in this MD&A and the Financial Statements.
The risks and uncertainties described
herein and therein are not the only ones the Corporation may face. Additional risks and uncertainties that the Corporation is unaware
of, or that the Corporation currently believes are not material, may also become important factors that could adversely affect the Corporation’s
business. If any of such risks actually occur, the Corporation’s business, financial condition, results of operations, and future
prospects could be materially and adversely affected.
LIMITED OPERATING HISTORY
The Corporation has a limited operational
history. The Corporation has never paid dividends and has no present intention to pay dividends. The Corporation is in the early commercialization
stage of its business and therefore will be subject to the risks associated with early stage companies, including uncertainty of revenues,
markets and profitability and the need to obtain additional funding. The Corporation will be committing, and for the foreseeable future
will continue to commit, significant financial resources to marketing, product development and research. The Corporation's business and
prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of
development. Such risks include the evolving and unpredictable nature of the Corporation's business, the Corporation's ability to anticipate
and adapt to a developing market and the ability to identify, attract and retain qualified personnel. There can be no assurance that the
Corporation will be successful in doing what is necessary to address these risks.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
31
|
KEY PERSONNEL
The success of the Corporation may
be dependent on the services of its senior management and consultants. The experience of these individuals may be a factor
contributing to the Corporation's continued success and growth. The loss of one or more of its key employees or consultants could
have a material adverse effect on the Corporation's operations and business prospects. In addition, the Corporation's future success
will depend in large part on its ability to attract and retain additional highly skilled technical, management, sales and marketing
personnel. There can be no assurance that the Corporation will be successful in attracting and retaining such personnel and the
failure to do so could have a material adverse effect on the Corporation's business, operating results, and financial condition.
ADDITIONAL FINANCING REQUIREMENTS
In order to accelerate the Corporation's
growth objectives, it may need to raise additional funds from lenders and equity markets in the future. There can be no assurance that
the Corporation will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability
of the Corporation to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as
the business performance of the Corporation. There can be no assurance that the Corporation will be successful in its efforts to arrange
additional financing on terms satisfactory to the Corporation. If additional financing is raised by the issuance of common shares from
the treasury of the Corporation, control of the Corporation may change, and shareholders may suffer additional dilution to current levels
as a result of shares under option and broker warrants.
COMPETITION
The Corporation may not be able to
compete successfully against current and future competitors, and the competitive pressures the Corporation faces could harm its business
and prospects. Broadly speaking, the market for gambling businesses and media companies is highly competitive. The level of competition
is likely to increase as current competitors improve their product offerings and as new participants enter the market. Some of the Corporation's
current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly
greater financial, sales, marketing, technical and other resources than the Corporation. Additionally, these competitors have research
and development capabilities that may allow them to develop new or improved products that may compete with products the Corporation markets
and distributes.
New technologies and the expansion
of existing technologies may also increase competitive pressures on the Corporation. Increased competition may result in reduced operating
margins as well as loss of market share.
MANAGEMENT OF GROWTH
The Corporation may be subject to
growth-related risks including capacity constraints and pressure on its operating systems and systems of internal controls. The
Corporation's ability to manage its growth effectively will require it to continue to implement and improve its operational and
financial systems and to expand, train and manage its employee base.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
32
|
The inability of the Corporation to
deal with this growth could have a material adverse impact on its business, operations, and prospects. While management believes that
it will have made the necessary investments in infrastructure to process anticipated volume increases in the short term, the Corporation
may experience growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities
for the Corporation's personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to
manage its current operations and any future growth effectively, the Corporation will also need to continue to implement and improve its
operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be
no assurance that the Corporation will be able to manage such growth effectively, that its management, personnel or systems will be adequate
to support the Corporation's operations or that the Corporation will be able to achieve the increased levels of revenue commensurate with
the increased levels of operating expenses associated with this growth.
ABSENCE OF PROFITS
The Corporation has not earned any
profits to date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained.
A significant portion of the Corporation's financial resources will continue to be directed to the development of its products and to
marketing activities. The success of the Corporation will ultimately depend on its ability to generate revenues such that the business
development and marketing activities may be financed by revenues from operations instead of external financing. There is no assurance
that future revenues will be sufficient to generate the required funds to continue such business development and marketing activities.
CONFLICTS OF INTEREST
Certain proposed directors and officers
of the Corporation may become associated with other reporting issuers or other Companies which may give rise to conflicts of interest.
In accordance with the Canada Business Corporations Act, directors who have a material interest or any person who is a party to a material
contract or a proposed material contract with the Corporation are required, subject to certain exceptions, to disclose that interest and
generally abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly and in
good faith with a view to the best interests of the Corporation, as the case may be. Certain of the directors have either other employment
or other business or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time
to the affairs of the Corporation.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
33
|
COVID-19
In December 2019 there was a global
outbreak of COVID-19 (coronavirus), which has had a significant impact on businesses through the restrictions put in place by the national,
provincial and municipal governments around the world regarding travel, business operations and isolation/quarantine orders.
At this time, it is unknown the extent
of the impact the COVID-19 outbreak may have on the Corporation as this will depend on future developments that are highly uncertain and
that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak,
including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently,
or may be put, in place by Canada and other countries to fight the virus.
Our main priorities in dealing with
the COVID-19 situation are to minimize the risk of spreading the virus and to create a safe workplace for our employees as well as to
maintain the operation for our operators. We continue to comply with all the requirements from the authorities in the countries we operate
in, and in many instances we have taken more far-reaching initiatives. Thanks to the measures that have been implemented in terms of social
distancing, changed working processes and routines for our employees, our operations have been able to continue without any large negative
effects.
However, the Corporation derives the
majority of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”,
requiring people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming
businesses such as Netflix have. Furthermore, the Corporation has limited exposure to sports betting revenues that have obviously been
impacted by the lack of professional sports.
As at the time of publishing, the Corporation’s
financial performance, financial position and cash flow has been positively impacted as a result of people staying at home. Management
will continue to monitor events and effects to the Corporation closely and will amend its forecasts as and when it deems necessary.
|
|
11
|
ADDITIONAL INFORMATION
|
Additional information relating to the
Corporation, including the Corporation’s annual information form, quarterly and annual reports and supplementary information is
available on SEDAR at www.sedar.com.
Press releases and other information are also available in
the Investor section of the Corporation’s website at www.bragg.games.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
December 31, 2020
|
34
|
Exhibit 4.4
BRAGG GAMING GROUP INC.
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS
Three-month periods ended March 31, 2021 and
2020
Presented in Euros (Thousands)
BRAGG GAMING GROUP INC.
TABLE OF CONTENTS
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE INCOME (LOSS)
|
|
1
|
|
|
|
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
|
2
|
|
|
|
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
3
|
|
|
|
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
4
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1 BASIS OF PRESENTATION AND GOING CONCERN
|
|
5
|
|
|
|
|
|
2 SIGNIFICANT ACCOUNTING POLICIES
|
|
7
|
|
|
|
|
|
3 LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE
|
|
18
|
|
|
|
|
|
4 DISCONTINUED OPERATIONS
|
|
19
|
|
|
|
|
|
5 SHARE CAPITAL
|
|
20
|
|
|
|
|
|
6 PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020
|
|
21
|
|
|
|
|
|
7 WARRANTS
|
|
22
|
|
|
|
|
|
8 SHARE BASED COMPENSATION
|
|
25
|
|
|
|
|
|
9 DEFERRED AND CONTINGENT CONSIDERATION
|
|
28
|
|
|
|
|
|
10 INTANGIBLE ASSETS
|
|
29
|
|
|
|
|
|
11 CASH AND CASH EQUIVALENTS
|
|
29
|
|
|
|
|
|
12 TRADE AND OTHER RECEIVABLES
|
|
30
|
|
|
|
|
|
13 PREPAID EXPENSES AND OTHER ASSETS
|
|
31
|
|
|
|
|
|
14 TRADE PAYABLES AND OTHER LIABILITIES
|
|
31
|
|
|
|
|
|
15 RELATED PARTY TRANSACTIONS
|
|
32
|
|
|
|
|
|
16 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|
|
33
|
|
|
|
|
|
17 SUPPLEMENTARY CASHFLOW INFORMATION
|
|
37
|
|
|
|
|
|
18 SEGMENT INFORMATION
|
|
38
|
|
|
|
|
|
19 INCOME TAXES
|
|
39
|
|
|
|
|
|
20 CONTINGENT LIABILITIES
|
|
41
|
|
|
|
|
|
21 SUBSEQUENT EVENTS
|
|
42
|
|
BRAGG GAMING GROUP INC.
|
1
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE INCOME (LOSS)
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
Note
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Revenue
|
|
|
3
|
|
|
|
14,196
|
|
|
|
8,784
|
|
|
Cost of revenue
|
|
|
|
|
|
|
(7,547
|
)
|
|
|
(4,817
|
)
|
|
Gross Profit
|
|
|
|
|
|
|
6,649
|
|
|
|
3,967
|
|
|
Selling, general and administrative expenses
|
|
|
3
|
|
|
|
(7,154
|
)
|
|
|
(4,079
|
)
|
Gain on remeasurement of consideration receivable
|
|
|
|
|
|
|
6
|
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
3, 9
|
|
|
|
-
|
|
|
|
(4,968
|
)
|
|
Operating Loss
|
|
|
|
|
|
|
(499
|
)
|
|
|
(5,080
|
)
|
|
Net interest expense and other financing charges
|
|
|
3
|
|
|
|
(68
|
)
|
|
|
(61
|
)
|
|
Loss Before Income Taxes
|
|
|
3
|
|
|
|
(567
|
)
|
|
|
(5,141
|
)
|
|
Income taxes
|
|
|
19
|
|
|
|
(507
|
)
|
|
|
(243
|
)
|
|
Net Loss from Continuing Operations
|
|
|
|
|
|
|
(1,074
|
)
|
|
|
(5,384
|
)
|
|
Net loss from discontinued operations after tax
|
|
|
4
|
|
|
|
-
|
|
|
|
(316
|
)
|
|
Net
Loss
|
|
|
|
|
|
|
(1,074
|
)
|
|
|
(5,700
|
)
|
|
Items to be reclassified to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment - continuing operations
|
|
|
|
|
|
|
1,125
|
|
|
|
38
|
|
|
Cumulative translation adjustment - discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
Net Comprehensive Income (Loss)
|
|
|
|
|
|
|
51
|
|
|
|
(5,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
(0.67
|
)
|
|
Discontinued operations
|
|
|
|
|
|
|
0.00
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
Millions
|
|
|
|
Millions
|
|
|
Weighted average number of shares - basic and diluted
|
|
|
|
|
|
|
18.1
|
|
|
|
8.0
|
|
See accompanying notes to the interim unaudited condensed consolidated
financial statements.
|
BRAGG GAMING GROUP INC.
|
2
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
Note
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Cash and cash equivalents
|
|
|
11
|
|
|
|
30,112
|
|
|
|
26,102
|
|
|
Trade and other receivables
|
|
|
12
|
|
|
|
8,407
|
|
|
|
10,297
|
|
|
Prepaid expenses and other assets
|
|
|
13
|
|
|
|
1,096
|
|
|
|
263
|
|
|
Consideration receivable
|
|
|
4
|
|
|
|
160
|
|
|
|
148
|
|
|
Total Current Assets
|
|
|
|
|
|
|
39,775
|
|
|
|
36,810
|
|
|
Property and equipment
|
|
|
|
|
|
|
251
|
|
|
|
272
|
|
|
Right-of-use assets
|
|
|
|
|
|
|
670
|
|
|
|
708
|
|
|
Consideration receivable
|
|
|
4
|
|
|
|
1
|
|
|
|
44
|
|
|
Intangible assets
|
|
|
10
|
|
|
|
14,098
|
|
|
|
14,279
|
|
|
Goodwill
|
|
|
|
|
|
|
19,938
|
|
|
|
19,938
|
|
|
Other assets
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
|
Total Assets
|
|
|
|
|
|
|
74,776
|
|
|
|
72,094
|
|
|
Trade payables and other liabilities
|
|
|
14
|
|
|
|
16,890
|
|
|
|
16,968
|
|
|
Deferred revenue
|
|
|
|
|
|
|
496
|
|
|
|
102
|
|
|
Income taxes payable
|
|
|
19
|
|
|
|
1,913
|
|
|
|
1,318
|
|
|
Lease obligations on right of use assets - current
|
|
|
|
|
|
|
143
|
|
|
|
133
|
|
|
Deferred and contingent consideration
|
|
|
9
|
|
|
|
-
|
|
|
|
11,521
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
19,442
|
|
|
|
30,042
|
|
|
Deferred income tax liability
|
|
|
19
|
|
|
|
1,231
|
|
|
|
1,415
|
|
|
Non-current lease obligations on right of use assets
|
|
|
|
|
|
|
559
|
|
|
|
593
|
|
|
Other non-current liabilities
|
|
|
|
|
|
|
160
|
|
|
|
147
|
|
|
Total Liabilities
|
|
|
|
|
|
|
21,392
|
|
|
|
32,197
|
|
|
Share capital
|
|
|
5
|
|
|
|
99,302
|
|
|
|
62,304
|
|
|
Warrants
|
|
|
7
|
|
|
|
-
|
|
|
|
1,642
|
|
|
Broker warrants
|
|
|
7
|
|
|
|
38
|
|
|
|
399
|
|
|
Shares to be issued
|
|
|
5, 11
|
|
|
|
-
|
|
|
|
22,608
|
|
|
Contributed surplus
|
|
|
|
|
|
|
15,374
|
|
|
|
14,325
|
|
|
Deficit
|
|
|
|
|
|
|
(62,305
|
)
|
|
|
(61,231
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
975
|
|
|
|
(150
|
)
|
|
Total Equity
|
|
|
|
|
|
|
53,384
|
|
|
|
39,897
|
|
|
Total Liabilities and Equity
|
|
|
|
|
|
|
74,776
|
|
|
|
72,094
|
|
|
Going Concern
|
|
|
1
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim unaudited condensed consolidated
financial statements.
Approved on behalf of the Board
|
Richard Carter
|
Lara Falzon
|
|
Chief Executive Officer
|
Non Executive Director
|
|
BRAGG GAMING GROUP INC.
|
3
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
PRESENTED IN EUROS (THOUSANDS, EXCEPT SHARE AMOUNTS)
|
|
|
Note
|
|
|
Share
capital
|
|
|
Shares
to
be issued
|
|
|
Warrants
|
|
|
Special
warrants
- compensation
options
|
|
|
Broker
warrants
|
|
|
Contributed
surplus
|
|
|
Deficit
|
|
|
Accumulated
other
comprehensive
income
(loss)
|
|
|
Total
Equity
|
|
|
Balance as at January 1, 2020
|
|
|
|
|
|
|
40,204
|
|
|
|
-
|
|
|
|
1,565
|
|
|
|
660
|
|
|
|
-
|
|
|
|
11,064
|
|
|
|
(46,665
|
)
|
|
|
(212
|
)
|
|
|
6,616
|
|
|
Share-based compensation
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
Net loss for the period
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,700
|
)
|
|
|
-
|
|
|
|
(5,700
|
)
|
|
Other comprehensive income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
27
|
|
|
Balance as at March 31, 2020
|
|
|
|
|
|
|
40,204
|
|
|
|
-
|
|
|
|
1,565
|
|
|
|
660
|
|
|
|
-
|
|
|
|
11,115
|
|
|
|
(52,365
|
)
|
|
|
(185
|
)
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2021
|
|
|
|
|
|
|
62,304
|
|
|
|
22,608
|
|
|
|
1,642
|
|
|
|
-
|
|
|
|
399
|
|
|
|
14,325
|
|
|
|
(61,231
|
)
|
|
|
(150
|
)
|
|
|
39,897
|
|
|
Shares issued upon completion of Oryx earn-out
|
|
|
5
|
|
|
|
22,000
|
|
|
|
(22,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Shares issued upon completion of private placement, net
of issuance costs
|
|
|
5
|
|
|
|
1,918
|
|
|
|
(608
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,310
|
|
|
Exercise of RSUs
|
|
|
5,
8
|
|
|
|
267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(267
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of warrants
|
|
|
7
|
|
|
|
11,916
|
|
|
|
-
|
|
|
|
(1,831
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,085
|
|
|
Expiry of warrants
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of broker warrants
|
|
|
7
|
|
|
|
897
|
|
|
|
-
|
|
|
|
196
|
|
|
|
-
|
|
|
|
(361
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
732
|
|
|
Share-based compensation
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309
|
|
|
Net loss for the period
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,074
|
)
|
|
|
-
|
|
|
|
(1,074
|
)
|
|
Other comprehensive income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,125
|
|
|
|
1,125
|
|
|
Balance as at March 31, 2021
|
|
|
|
|
|
|
99,302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
|
|
15,374
|
|
|
|
(62,305
|
)
|
|
|
975
|
|
|
|
53,384
|
|
See accompanying notes to the interim unaudited condensed consolidated
financial statements.
|
BRAGG GAMING GROUP INC.
|
4
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
Note
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
|
|
|
|
(1,074
|
)
|
|
|
(5,384
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense and other financing charges
|
|
|
|
|
|
|
68
|
|
|
|
61
|
|
|
Depreciation and amortization
|
|
|
3
|
|
|
|
836
|
|
|
|
784
|
|
|
Share based compensation
|
|
|
3, 8
|
|
|
|
1,309
|
|
|
|
51
|
|
|
Gain on remeasurement of consideration receivable
|
|
|
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
9
|
|
|
|
-
|
|
|
|
4,968
|
|
|
Deferred income tax recovery
|
|
|
19
|
|
|
|
(184
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
949
|
|
|
|
452
|
|
|
Change in non-cash working capital
|
|
|
17
|
|
|
|
1,386
|
|
|
|
1,861
|
|
|
Change in income taxes payable
|
|
|
|
|
|
|
595
|
|
|
|
227
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
2,930
|
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(15
|
)
|
|
|
(11
|
)
|
|
Additions of intangible assets
|
|
|
10
|
|
|
|
(581
|
)
|
|
|
(351
|
)
|
|
Deferred and contingent consideration payments
|
|
|
9
|
|
|
|
(11,521
|
)
|
|
|
-
|
|
|
Cash Flows Used In Investing Activities
|
|
|
|
|
|
|
(12,117
|
)
|
|
|
(362
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants and broker warrants
|
|
|
7
|
|
|
|
10,817
|
|
|
|
-
|
|
|
Proceeds from shares issued upon private placement, net of issuance costs
|
|
|
5
|
|
|
|
1,310
|
|
|
|
-
|
|
|
Repayment of lease liability
|
|
|
|
|
|
|
(29
|
)
|
|
|
(36
|
)
|
|
Interest income
|
|
|
|
|
|
|
15
|
|
|
|
8
|
|
|
Interest and financing fees
|
|
|
|
|
|
|
(83
|
)
|
|
|
(15
|
)
|
|
Cash Flows From (Used In) Financing Activities
|
|
|
|
|
|
|
12,030
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
1,167
|
|
|
|
(14
|
)
|
|
Net cash flow used in discontinued operations
|
|
|
4
|
|
|
|
-
|
|
|
|
(316
|
)
|
|
Change in Cash and Cash Equivalents
|
|
|
|
|
|
|
4,010
|
|
|
|
1,805
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
26,102
|
|
|
|
682
|
|
|
Cash and Cash Equivalents at end of period
|
|
|
|
|
|
|
30,112
|
|
|
|
2,487
|
|
See accompanying notes to the interim unaudited condensed
consolidated financial statements.
|
BRAGG GAMING GROUP INC.
|
5
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1 BASIS
OF PRESENTATION AND GOING CONCERN
Nature of operations
Bragg Gaming Group Inc. and its subsidiaries ("Bragg",
"BGG", the "Company" or the "Group") is primarily a B2B online gaming technology platform and casino content
aggregator through its acquisition of Oryx Gaming International LLC ("Oryx" or "Oryx Gaming") in 2018.
The registered and head office of the Company
is located at 130 King Street West, Suite 1955, Toronto, Ontario, Canada M5X 1E3.
Oryx Gaming
Oryx Gaming is a B2B gaming solution provider.
Oryx offers a turnkey solution, including an omni-channel retail, online and mobile iGaming platform, as well as an advanced content aggregator,
sportsbook, lottery, marketing, and operational services. Oryx is incorporated in the State of Delaware and headquartered in Las Vegas.
Its primary operations are provided through its wholly owned subsidiaries in Malta, Cyprus, and Slovenia.
Classification of online media business unit
as held for sale and discontinued operations
During the year ended December 31, 2019,
the Company decided to discontinue its online media business unit. The associated assets and liabilities within the disposal group are
presented as held for sale and the net loss attributable as discontinued operations in the interim unaudited condensed consolidated financial
statements ("interim financial statements"). The Company completed the sale of the majority of its online media business unit
on May 7, 2020 (Note 4).
Statement of compliance and basis of presentation
The accompanying interim financial statements
have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting.
The interim financial statements do not include all of the information required for annual consolidated financial statements and should
be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020.
The financial statements are prepared on a historical
cost basis except for financial instruments classified at fair value through profit or loss (“FVTPL”) which are measured at
fair value. The significant accounting policies set out below have been applied consistently in the preparation of the interim financial
statements for all periods presented.
These interim financial statements were, at
the recommendation of the audit committee, approved and authorized for issuance by the Company’s Board of Directors on
May 13, 2021.
Going concern
The interim financial statements have been prepared
on the going concern basis, which assumes that the Company will be able to continue as a going concern and realize its assets and discharge
its liabilities in the normal course of business, and do not give effect to any adjustments which would be necessary should the Company
be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the
normal course of business and at amounts different from those reflected in the interim financial statements. If the going concern assumption
is not appropriate, material adjustments to the interim financial statements could be required.
As at March 31, 2021, the Company had current
assets of EUR 39,775 (December 31, 2020: EUR 36,810) and current liabilities of EUR 19,442 (December 31, 2020: EUR 30,042).
As of March 31, 2021, the Company has a cumulative deficit of EUR 62,305 (December 31, 2020: EUR 61,231). These conditions,
along with the continued generation of positive cash flows from operations indicates that the Company will be able to continue on a going
concern basis.
|
BRAGG GAMING GROUP INC.
|
6
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1 BASIS
OF PRESENTATION AND GOING CONCERN (CONTINUED)
COVID-19
In December 2019, there was a global outbreak
of COVID-19 (coronavirus), which continued to have a significant impact on businesses through the restrictions put in place by the national,
provincial and municipal governments around the world regarding travel, business operations and isolation and quarantine orders.
At this time, it is unknown the extent of the
impact the COVID-19 outbreak may have on the Company in the long term as this will depend on future developments that are highly uncertain
and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak,
including the duration of travel restrictions, business closures or disruptions, quarantine and isolation measures that are currently,
or may be put, in place by Canada and other countries to fight the virus.
However, the Company derives the majority of its
revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring
people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses
such as Netflix. Furthermore, the Company has limited exposure to sports betting revenues that have been impacted by the lack of professional
sports.
As at the time of release of these interim financial
statements, the Company’s financial performance, financial position and cash flow had not been adversely impacted by COVID-19 and
the Company has determined no impairment of its goodwill is required.
Graduation to the Toronto Stock Exchange (“TSX”)
On January 27, 2021, the Company announced
that it had graduated to the Toronto Stock Exchange. As of market open at 09:30 am ET on the date of announcement, the Company began trading
on TSX under the symbol “BRAG”. Concurrent with the TSX listing, the Company’s Common Shares were delisted from the
TSX Venture Exchange.
Reverse Stock Split
On April 30, 2021, the Company announced
a one-for-ten share consolidation (the “reverse stock split”). At the annual and special meeting of the Company’s shareholders
held on April 28, 2021, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to
implement a consolidation of the issued and outstanding Common Shares of the Company on the basis of a consolidation ratio of up to ten
(10) pre-consolidation Common Shares for one (1) post-consolidation Common Share. The Board of Directors selected a share consolidation
ratio of ten (10) pre- consolidation Common Shares for one (1) post-consolidation Common Share. The Company’s Common Shares
began trading on TSX on a post-consolidation basis under the Company’s existing trade symbol "BRAG" at the opening of
the market on May 5, 2021. In accordance with International Financial Reporting Standards (“IFRS”), the change has been
applied retroactively.
|
BRAGG GAMING GROUP INC.
|
7
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES
The interim financial statements were prepared
using the same basis of presentation, accounting policies and methods of computation as those of the audited consolidated financial statements
for the year ended December 31, 2020 and which are available at www.sedar.com. They were prepared using the same critical estimates
and judgments in applying the accounting policies as those of the audited consolidated financial statements for the year ended December 31,
2020.
Basis of consolidation
The interim financial statements include the accounts
of the Company and its wholly owned subsidiaries. Control exists when the Company is exposed, or has rights, to variable returns from
its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The Company assesses
control on an ongoing basis. The Company’s interest in the voting share capital of all its subsidiaries is 100%.
Transactions and balances between the Company
and its consolidated entities have been eliminated on consolidation.
The table below summarizes the Company’s
operating subsidiaries and the functional currency for each operating subsidiary:
|
|
|
Place of
incorporation
|
|
|
|
Functional
|
|
|
|
/ operation
|
|
Principal activity
|
|
currency
|
|
Bragg Gaming Group - Group Services Ltd.
|
|
United Kingdom
|
|
Corporate activities
|
|
GBP
|
|
Bragg Gaming Group - Parent Services Ltd.
|
|
United Kingdom
|
|
Corporate activities
|
|
GBP
|
|
Bragg Oryx Holdings Inc.
|
|
Canada
|
|
Intermediate holding company
|
|
CAD
|
|
Oryx Sales Distribution Ltd.
|
|
Cyprus
|
|
Distribution
|
|
EUR
|
|
Oryx Gaming International LLC
|
|
United States
|
|
Gaming solution provider
|
|
EUR
|
|
Oryx Gaming Ltd.
|
|
Malta
|
|
Gaming solution provider
|
|
EUR
|
|
Oryx Marketing Poslovne Storitve D.o.o.
|
|
Slovenia
|
|
Marketing
|
|
EUR
|
|
Oryx Podpora D.o.o.
|
|
Slovenia
|
|
B2B support services
|
|
EUR
|
|
Oryx Razyojne-Storitve D.o.o.
|
|
Slovenia
|
|
Gaming solution developer
|
|
EUR
|
|
Poynt Inc.
|
|
Canada
|
|
Distribution
|
|
CAD
|
|
Win Gaming Ltd.
|
|
Malta
|
|
Gaming licence holder
|
|
EUR
|
|
BRAGG GAMING GROUP INC.
|
8
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Presentation currency
The presentation currency of the Company is the
Euro, whilst the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling
due to primary location of individual entities within the Group. The presentation currency of the Euro has been selected as it best represents
the majority of the Company’s economic inflows, outflows as well as its assets and liabilities.
The assets and liabilities of operations that
have a functional currency different from that of the Company’s reporting currency are translated into Euros at the foreign currency
exchange rate in effect at the reporting date. The resulting foreign currency exchange gains or losses are recognized in the foreign currency
translation adjustment as part of other comprehensive income (loss). When such foreign operations are disposed of, the related foreign
currency translation reserve is recognized in net earnings as part of the gain or loss on disposal.
Revenues and expenses of foreign operations are
translated into Euros at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are transacted.
Business combinations
Business combinations are accounted for using
the acquisition method as of the date when control is transferred to the Company. The Company measures goodwill as the excess of the sum
of the fair value of the consideration transferred over the net identifiable assets acquired and liabilities assumed, all measured as
at the acquisition date. Transaction costs that the Company incurs in connection with a business combination, other than those associated
with the issuance of debt or equity securities, are expensed as incurred.
Net earnings (loss) per share (“EPS”)
Basic EPS is calculated by dividing the net earnings
(loss) available to shareholders by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by
adjusting the net earnings available to shareholders and the weighted average number of shares outstanding for the effects of all potential
dilutive instruments.
Diluted loss per share is equal to basic loss
per share when the effect of dilutive securities is anti-dilutive.
Cash and cash equivalents
Cash equivalents consist of highly liquid marketable
investments with an original maturity date of 90 days or less from the date of acquisition and prepaid credit cards. Cash and cash equivalents
also include any cash held in trust as proceeds from future private placement.
Trade and other receivables
Trade and other receivables consist primarily
of trade receivables from customers for which Oryx Gaming provides services during the period and accrued income in relation to receivables
from customers that have yet to be invoiced, for services provided during the three months ended March 31, 2021 and 2020. Upon invoicing,
amounts are transferred from accrued income to trade receivables and any differences between the accrued and invoiced values are recognized
in the interim unaudited condensed consolidated statements of loss and comprehensive income (loss).
|
BRAGG GAMING GROUP INC.
|
9
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Revenue recognition
The Company recognizes revenue when control of
the goods or services has been transferred. Revenue is measured at the amount of consideration to which the Company expects to be entitled
to, including variable consideration to the extent that it is highly probable that a significant reversal will not occur. Revenue from
continuing operations is derived from software platform licensing, maintenance of source code, bespoke development, management service
fees, marketing fees, content and hosting fees. Revenue is recognized when the service provided to the customer is complete. Specifically:
- Games
and content: revenues from content and platform licensing are linked to revenues a customer earns from utilizing the Company’s software
platform and aggregated content in that period. The Company’s revenue is therefore linked to the revenue of the underlying customer,
i.e., the subsequent sale. The Company recognizes revenue once the customer has earned the revenue from the subsequent sale/services as
this is the point where the performance obligation is satisfied.
- iGaming
and turnkey projects: the Company charges a fixed monthly management and marketing fee for its services in the month in which the services
are provided, and performance obligations are met. Charges for development projects are charged on a time and materials basis upon delivery
at agreed milestones. Revenue is recognized as it is billed unless services and performance obligations are provided in a future period.
If services and performance obligations are not provided in the reporting period, then revenue is not recognized.
Revenue from discontinued operations is derived
from programmatic advertising, branded content and social media management, sales of software maintenance agreements, software customization
services, technical support services and consulting services. Revenue is recognized on a monthly basis as it is billed.
Consideration receivable
Consideration receivable consists of cash receivables
due as a result of the sale of discontinued operations. The fair value of the consideration receivable is determined by calculating the
present value of expected future cashflows relating to the consideration receivable, applying the Company’s discount rate.
Income taxes
Current and deferred taxes are recognized in the
interim unaudited condensed consolidated statements of loss and comprehensive income (loss), except for current and deferred taxes related
to a business combination, or amounts charged directly to equity or other comprehensive income (loss), which are recognized in the interim
unaudited condensed consolidated statements of financial position.
Current tax is the expected tax payable or receivable
on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous periods.
|
BRAGG GAMING GROUP INC.
|
10
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Income taxes (continued)
Deferred tax is recognized using the asset and
liability method of accounting on temporary differences arising between the financial statement carrying values of existing assets and
liabilities and their respective income tax bases. Deferred tax is measured using enacted or substantively enacted income tax rates expected
to apply in the periods in which those temporary differences are expected to be recovered or settled. A deferred tax asset is recognized
for temporary differences as well as unused tax losses and credits to the extent that it is probable that future taxable profits will
be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset
if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same
taxation authority on the same taxable entity, or on different taxable entities where the Company intends to settle its current tax assets
and liabilities on a net basis.
Deferred tax is recorded on temporary differences
arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Company
and it is probable that the temporary difference will not reverse in the foreseeable future.
Property and equipment
Property and equipment are recognized and subsequently
measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable
to the acquisition of the asset, including costs incurred to prepare the asset for its intended use and capitalized borrowing costs. The
commencement date for capitalization of costs occurs when the Company first incurs expenditures for the qualifying assets and undertakes
the required activities to prepare the assets for their intended use.
Borrowing costs directly attributable to the acquisition,
construction or production of property and equipment, that necessarily take a substantial period of time to prepare for their intended
use and a proportionate share of general borrowings, are capitalized to the cost of those assets, based on a quarterly weighted average
cost of borrowing. All other borrowing costs are expensed as incurred and recognized in net interest expense and other financing charges.
The cost of replacing a component of property
and equipment is recognized in the carrying amount if it is probable that the future economic benefits embodied within the component will
flow to the Company and the cost can be measured reliably. The carrying amount of the replaced component is derecognized. The cost of
repairs and maintenance of property and equipment is expensed as incurred and recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive income (loss).
Gains and losses on disposal of property and equipment
are determined by comparing the fair value of proceeds from disposal with the net book value of the assets and are recognized on a net
basis in the interim unaudited condensed consolidated statements of loss and comprehensive income (loss).
Property and equipment are depreciated on a straight-line
basis over their estimated useful lives of 3 years to their estimated residual value when the assets are available for use. When significant
parts of a property and equipment have different useful lives, they are accounted for as separate components and depreciated separately.
Depreciation methods, useful lives and residual values are reviewed annually and are adjusted for prospectively, if appropriate.
|
BRAGG GAMING GROUP INC.
|
11
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Leases
The Company assesses whether a contract is, or
contains, a lease. If a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration,
then the contract may contain a lease. The Company assesses whether a contract conveys the right to control the use of an asset by performing
the following tests:
|
|
-
|
assess whether the contract involves the use of an identified asset and may be specified explicitly or
implicitly. It should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier
has a significant right to substitution, then the asset is not identified;
|
|
|
-
|
assess whether the Company has the right to obtain substantially all of the economic benefits arising
from the use of the asset throughout the period of use; and
|
|
|
-
|
assess that the Company has the right to direct enjoyment of the asset. This right is identified when
the Company has the decision-making rights in how and for what purpose the asset is used. In cases where the decision on how and for what
purpose to use the asset has been predetermined, the Company has the right to direct the use of the asset if either it has the right to
operate the asset, or the Company has designed the asset in a manner that predetermines how and for what purpose the asset will be used.
|
The Company recognizes a right-of-use
asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated
using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the
end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment.
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the
present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental
borrowing rate as the discount rate.
Lease payments included in the measurement of
the lease liability comprise the following:
|
|
-
|
fixed payments, including in-substance fixed payments;
|
|
|
-
|
variable lease payments that depend on an index or a rate, initially measured using the index or rate
as at the commencement date;
|
|
|
-
|
amounts expected to be payable under a residual value guarantee; and
|
|
|
-
|
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments
in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination
of a lease unless the Company is reasonably certain not to terminate early.
|
The lease liability is measured at amortized cost
using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or
if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.
|
BRAGG GAMING GROUP INC.
|
12
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Leases (continued)
When the lease liability is remeasured in this
way, a corresponding adjustment is made to the carrying amount of the right of-use asset or is recorded in profit or loss if the carrying
amount of the right-of-use asset has been reduced to zero.
The Company has elected not to recognize right-of-use
assets and lease liabilities for short-term leases of equipment that have a lease term of twelve months or less and leases of low-value
assets, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
Intangible assets
Intangible assets are measured at cost less any
amortization and accumulated impairment losses. These intangible assets are tested for impairment on an annual basis or more frequently
if there are indicators that intangible assets may be impaired as described in the Impairment of non-financial assets policy.
Intangible assets are amortized on a straight-line
basis over their estimated useful lives as follows:
|
Intellectual property identified upon business combination
|
8 years
|
|
Intellectual property acquired from third-parties
|
3 years
|
|
Customer relationships
|
10 years
|
|
Brands
|
10 years
|
|
Deferred development costs
|
3 years
|
|
Trademarks
|
3 years
|
|
Gaming licences
|
over the term of the licence
|
Trademarks and gaming licences are classified under “Other”
in the intangible assets disclosure note (Note 10). The Company capitalizes the costs of intangible assets if and only if:
|
|
-
|
it is probable that the expected future economic benefits attributable to the asset will flow to the entity; and
|
|
|
-
|
the cost of the asset can be measured reliably.
|
Certain costs incurred in connection with the
development of intellectual property relating to proprietary technology are capitalized to intangible assets as development costs. Intangible
assets are recorded at cost, which consists of directly attributable costs necessary to create such intangible assets, less accumulated
amortization and accumulated impairment losses, if any. The costs mainly include the salaries paid to the software developers and consulting
fees.
These costs are recognized as development costs assets when the following
criteria are met:
|
|
-
|
it is technically feasible to complete the software product so that it will be available for use;
|
|
|
-
|
management intends to complete the software product;
|
|
|
-
|
it can be demonstrated how the software product will generate future economic benefits;
|
|
|
-
|
adequate technical, financial, and other resources to complete the development and to use or sell the products are available; and
|
|
|
-
|
the expenditure attributable to the software product during its development can be reliably measured.
|
|
BRAGG GAMING GROUP INC.
|
13
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Goodwill
Goodwill arising in a business combination is
recognized as an asset at the date that control is acquired. Goodwill is subsequently measured at cost less accumulated impairment losses.
Goodwill is not amortized but is tested for impairment on an annual basis or more frequently if there are indicators that goodwill may
be impaired as described in the Impairment of non-financial assets policy.
Impairment of non-financial assets
At each statement of financial position date,
the Company reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any
such indication exists, the asset is then tested for impairment by comparing its recoverable amount to its carrying value. Goodwill is
tested for impairment at least annually.
For the purpose of impairment testing, assets,
including right-of-use assets, are grouped together into the smallest group of assets that generate cash inflows from continuing use that
are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a cash generating unit ("CGU").
Corporate assets, which include head office facilities
and distribution centres, do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum grouping of
CGUs to which the corporate assets can be reasonably and consistently allocated. Goodwill arising from a business combination is tested
for impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU or CGU grouping
is the higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows from
the CGU or CGU grouping, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the CGU or CGU grouping. If the CGU or CGU grouping includes right-of-use assets in its
carrying amount, the pre-tax discount rate reflects the risks associated with the exclusion of lease payments from the estimated future
cash flows. The fair value less costs to sell is based on the best information available to reflect the amount that could be obtained
from the disposal of the CGU or CGU grouping in an arm’s length transaction between knowledgeable and willing parties, net of estimates
of the costs of disposal.
An impairment loss is recognized if the carrying
amount of a CGU or CGU grouping exceeds its recoverable amount. For asset impairments other than goodwill, the impairment loss reduces
the carrying amounts of the non-financial assets in the CGU on a pro-rata basis, up to an asset’s individual recoverable amount.
Any loss identified from goodwill impairment testing is first applied to reduce the carrying amount of goodwill allocated to the CGU grouping,
and then to reduce the carrying amounts of the other non-financial assets in the CGU or CGU grouping on a pro-rata basis.
For assets other than goodwill, an impairment
loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.
|
BRAGG GAMING GROUP INC.
|
14
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2 SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Financial instruments
Financial assets and liabilities are recognized
when the Company becomes party to the contractual provisions of the financial instrument. Upon initial recognition, financial instruments
are measured at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of financial instruments
that are not classified as fair value through profit or loss.
Financial instruments – classification
and measurement
The classification and measurement approach for
financial assets reflect the business model in which assets are managed and their cash flow characteristics. Financial assets are classified
and measured based on these categories: amortized cost, fair value through other comprehensive income ("FVOCI"), or fair value
through profit and loss ("FVTPL"). A financial asset is measured at amortized cost if it meets both of the following conditions
and is not designated as FVTPL:
|
|
-
|
the financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows;
and
|
|
|
-
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
|
A financial asset is measured at FVOCI if it meets
both of the following conditions and is not designated as at FVTPL:
|
|
-
|
the financial asset is held within a business model in which assets are managed to achieve a particular objective by both collecting
contractual cash flows and selling financial assets; and
|
|
|
-
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
|
A financial asset shall be measured at FVTPL unless
it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified subsequent
to their initial recognition unless the Company identifies changes in its business model in managing financial assets.
Financial liabilities are classified and measured
based on two categories: amortized cost or FVTPL.
Fair values are based on quoted market prices
where available from active markets, otherwise fair values are estimated using valuation methodologies, primarily discounted cash flows
taking into account external market inputs where possible.
The amortized cost of a financial asset or liability
is the amount at which the financial asset or liability is measured at initial recognition, minus principal payments, plus or minus the
cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount,
minus any reduction for impairment.
The following table summarizes the classification
and measurement of the Company’s financial assets and liabilities:
|
Asset / Liability
|
|
Classification / Measurement
|
|
Cash and cash equivalents
|
|
FVTPL
|
|
Trade and other receivables
|
|
Amortized cost
|
|
Consideration receivable
|
|
FVTPL
|
|
Other assets
|
|
Amortized cost
|
|
Trade payables and other liabilities
|
|
Amortized cost
|
|
Deferred and contingent consideration
|
|
FVTPL
|
|
Lease obligations on right of use assets
|
|
Amortized cost
|
|
BRAGG GAMING GROUP INC.
|
15
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Financial instruments – valuation
The determination of the fair value of financial
instruments is performed by the Company’s treasury and financial reporting departments on a quarterly basis. There was no change
in the valuation techniques applied to financial instruments during the current period.
The carrying amounts reported for cash and cash
equivalents, trade and other receivables, consideration receivable, trade payables and other liabilities, and deferred and contingent
consideration approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of
lease obligations on right of use assets approximates the fair value based on rates currently available from financial institutions and
various lenders.
Gains and losses on FVTPL financial assets and
financial liabilities are recognized in net earnings in the period in which they are incurred. Settlement date accounting is used to account
for the purchase and sale of financial assets. Gains or losses between the trade date and settlement date on FVTPL financial assets are
recorded in the interim unaudited condensed consolidated statements of loss and comprehensive income (loss).
Financial instruments – derecognition
Financial assets are derecognized when the contractual
rights to receive cash flows and benefits from the financial asset expire, or if the Company transfers the control or substantially all
the risks and rewards of ownership of the financial asset to another party. The difference between the carrying amount of the financial
asset and the sum of the consideration received and receivable is recognized in earnings before income taxes.
Financial liabilities are derecognized when obligations
under the contract expire, are discharged, or cancelled. The difference between the carrying amount of the financial liability derecognized
and the consideration paid and payable is recognized in earnings before income taxes.
Financial instruments – impairment
The Company applies a forward-looking expected
credit loss ("ECL") model at each reporting date to financial assets measured at amortized cost or those measured at FVOCI,
except for investments in equity instruments. The ECL model outlines a three-stage approach to reflect the increase in credit risks of
a financial instrument:
|
|
-
|
Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risks
since initial recognition or that have low credit risk at the reporting date. The Company is required to recognize impairment for Stage
1 financial instruments based on the expected losses over the expected life of the instrument arising from loss events that could occur
during the 12 months following the reporting date.
|
|
|
-
|
Stage 2 is comprised of all financial instruments that have had a significant increase in credit risks
since initial recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial instruments the impairment
is recognized based on the expected losses over the expected life of the instrument arising from loss events that could occur over the
expected life. The Company is required to recognize a lifetime ECL for Stage 2 financial instruments.
|
|
|
-
|
Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting
date. The Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments. The ECL model applied
to financial assets require judgment, assumptions, and estimations on changes in credit risks, forecasts of future economic conditions
and historical information on the credit quality of the financial asset. Consideration of how changes in economic factors affect ECLs
are determined on a probability-weighted basis.
|
|
BRAGG GAMING GROUP INC.
|
16
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Financial instruments – impairment (continued)
The carrying amount of the financial asset or
group of financial assets are reduced through the use of impairment allowance accounts. In periods subsequent to the impairment where
the impairment loss has decreased, and such decrease can be related objectively to conditions and changes in factors occurring after the
impairment was initially recognized, the previously recognized impairment loss is reversed. The impairment reversal is limited to the
lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the date the impairment is reversed
does not exceed what the amortized cost would have been had the impairment not been recognized.
Deferred and contingent consideration
Prior to January 18, 2021, the Company had
deferred and contingent consideration payable to the vendor of Oryx Gaming. Between December 20, 2018 and November 13, 2020
earnout payments were agreed based upon a multiple of EBITDA in financial years ended December 31, 2019 and December 31, 2020
with a minimum amount payable in each twelve-month period. In each reporting period the present value of the deferred and contingent consideration
payable was measured by discounting achieved and forecasted EBITDA by applying the Company’s weighted average cost of capital. A
Black- Scholes calculation was then applied to account for probability of payout and to determine present value of payout after counter-party
risk.
Prior to the next remeasurement period an accretion
expense was recorded in the interim unaudited condensed consolidated statements of loss and comprehensive income (loss) as the discount
was unwound towards the reporting date. Upon remeasurement, any gain or loss on remeasurement was also recorded in the interim unaudited
condensed consolidated statements of loss and comprehensive income (loss).
On November 13, 2020, the Company entered
into an amending agreement with the vendor of Oryx Gaming whereby the second payment of deferred and contingent consideration was agreed
at a fixed cash value and, following shareholder agreement on November 27, 2020, could be settled in fixed amount of Common Shares.
As the payment can only be settled by way of Common Shares, there is no obligation of the Company to deliver cash or cash equivalents,
and the underlying fair value of the liability and number of Common Shares is fixed, the payment qualifies as an equity instrument and
was recorded as shares to be issued in the interim unaudited condensed consolidated statements of changes in equity. On January 18,
2021, the agreed fixed number of Common Shares was issued from treasury to the vendor and the balance recorded in shares to be issued
was transferred to the share capital account.
Short term employee benefits
Short term employee benefits include wages, salaries,
compensated absences, and bonuses. Short term employee benefit obligations are measured on an undiscounted basis and are recognized in
operating income as the related service is provided or capitalized if the service rendered is in connection with the creation of an intangible
asset. A liability is recognized for the amount expected to be paid under short term cash bonus plans if the Company has a present legal
or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated
reliably.
|
BRAGG GAMING GROUP INC.
|
17
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Share based payments
The Company has stock option plans for directors,
officers, employees, and consultants. Each tranche of an award is considered a separate award with its own vesting period and grant date
fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. In addition,
the Company also has deferred share unit (“DSU”), restricted share unit (“RSU”) and performance share unit (“PSU”)
plans for directors, officers, employees, and consultants. The fair value of each unit is measured as the share price on date of grant
with nil exercise price.
Compensation expense is recognized over each tranche’s
vesting period, based on the number of awards expected to vest, with the offset credited to contributed surplus. The number of awards
expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised, the amount received
is credited to share capital and the fair value attributed to these options is transferred from contributed surplus to share capital.
In the case of DSUs, RSUs or PSUs, only the fair value attributed to these options is transferred from contributed surplus to share capital.
Equity
Shares are classified as equity. Incremental costs
directly attributable to the issuance of shares are recognized as a deduction from equity. Contributed surplus includes amounts in connection
with conversion options embedded in compound financial instruments, share based payments and the value of expired options and warrants.
Deficit includes all current and prior period income and losses.
Warrants
The Company accounts for warrants using the Black-Scholes option pricing
model at the date of issuance. If and when warrants ultimately expire, the applicable amounts are transferred to contributed surplus.
|
BRAGG GAMING GROUP INC.
|
18
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS
|
|
3
|
LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE
|
The loss before income taxes is classified as follows:
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
Note
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
|
|
|
|
14,196
|
|
|
|
8,784
|
|
|
Third-party content
|
|
|
|
|
|
|
(7,547
|
)
|
|
|
(4,817
|
)
|
|
Gross Profit
|
|
|
|
|
|
|
6,649
|
|
|
|
3,967
|
|
|
Salaries and subcontractors
|
|
|
|
|
|
|
(2,636
|
)
|
|
|
(2,116
|
)
|
|
Share based payments
|
|
|
8
|
|
|
|
(1,309
|
)
|
|
|
(51
|
)
|
|
Total employee costs
|
|
|
|
|
|
|
(3,945
|
)
|
|
|
(2,167
|
)
|
|
Depreciation and amortization
|
|
|
|
|
|
|
(836
|
)
|
|
|
(784
|
)
|
|
IT and hosting
|
|
|
|
|
|
|
(387
|
)
|
|
|
(320
|
)
|
|
Professional fees
|
|
|
|
|
|
|
(495
|
)
|
|
|
(242
|
)
|
|
Corporate costs
|
|
|
|
|
|
|
(185
|
)
|
|
|
(71
|
)
|
|
Sales and marketing
|
|
|
|
|
|
|
(63
|
)
|
|
|
(92
|
)
|
|
Bad debt expense
|
|
|
12
|
|
|
|
(242
|
)
|
|
|
(89
|
)
|
|
Travel and entertainment
|
|
|
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
Transaction and acquisition costs
|
|
|
|
|
|
|
(563
|
)
|
|
|
(37
|
)
|
|
Other operational costs
|
|
|
|
|
|
|
(438
|
)
|
|
|
(169
|
)
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
(7,154
|
)
|
|
|
(4,079
|
)
|
|
Gain on remeasurement of consideration receivable
|
|
|
4
|
|
|
|
6
|
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
9
|
|
|
|
-
|
|
|
|
(4,968
|
)
|
|
Operating Loss
|
|
|
|
|
|
|
(499
|
)
|
|
|
(5,080
|
)
|
|
Interest income
|
|
|
|
|
|
|
15
|
|
|
|
8
|
|
|
Accretion on liabilities
|
|
|
9
|
|
|
|
-
|
|
|
|
(54
|
)
|
|
Interest and financing fees
|
|
|
|
|
|
|
(83
|
)
|
|
|
(15
|
)
|
|
Net Interest Expense and Other Financing Charges
|
|
|
|
|
|
|
(68
|
)
|
|
|
(61
|
)
|
|
Loss Before Income Taxes
|
|
|
|
|
|
|
(567
|
)
|
|
|
(5,141
|
)
|
|
BRAGG GAMING GROUP INC.
|
19
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
4
|
DISCONTINUED OPERATIONS
|
During the year ended December 31, 2019,
the Company decided to discontinue its online media business unit.
On April 30, 2020, the Company discontinued
its GIVEMEBET operation and as of March 31, 2021, this subsidiary is considered dormant with no remaining assets and liabilities.
Any associated net loss for this subsidiary continues to be presented as discontinued operations in the interim unaudited condensed consolidated
financial statements.
On May 7, 2020, the Company completed the
sale of its GIVEMESPORT operation for cash consideration of GBP 50 (EUR 56) plus additional consideration equivalent to the net current
assets disposed plus consideration receivable of 10% of GIVEMESPORT aggregate revenues for a period of twenty-one months from date of
completion. As of March 31, 2021, consideration receivable has been recognized at a present value of EUR 161 of which EUR 160 is
due within twelve months of the reporting date. Consideration is settled in cash at three-month intervals from the date of sale. As of
March 31, 2021, the Company has not identified any assets or liabilities as held for sale.
Consolidated statements of cash flows
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Net cash used in operating activities
|
|
|
-
|
|
|
|
(253
|
)
|
|
Net cash used in financing activities
|
|
|
-
|
|
|
|
(63
|
)
|
|
Net cash flows for the period
|
|
|
-
|
|
|
|
(316
|
)
|
Consolidated statements of loss and comprehensive
loss
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
-
|
|
|
|
478
|
|
|
Cost of revenue
|
|
|
-
|
|
|
|
(156
|
)
|
|
Gross Profit
|
|
|
-
|
|
|
|
322
|
|
|
Selling, general and administrative expenses
|
|
|
-
|
|
|
|
(606
|
)
|
|
Operating Loss
|
|
|
-
|
|
|
|
(284
|
)
|
|
Net interest expense and other financing charges
|
|
|
-
|
|
|
|
(32
|
)
|
|
Net Loss
|
|
|
-
|
|
|
|
(316
|
)
|
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
(11
|
)
|
|
Net Comprehensive Loss
|
|
|
-
|
|
|
|
(327
|
)
|
In the three months ended March 31, 2021,
remeasurement of the present value of the consideration receivable resulted in a gain on remeasurement of consideration receivable of
EUR 6 (three months ended March 31, 2020: EUR nil).
|
BRAGG GAMING GROUP INC.
|
20
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS
Authorized - Unlimited Common Shares, fully paid
The following is a continuity of the Company’s share capital:
|
|
|
|
|
Note
|
|
|
Number
|
|
|
Value
|
|
|
January 1, 2020 and
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Balance
|
|
|
|
|
|
|
7,986,385
|
|
|
|
40,204
|
|
|
January 1, 2021
|
|
Balance
|
|
|
|
|
|
|
13,111,248
|
|
|
|
62,304
|
|
|
January 11, 2021 to February 22, 2021
|
|
Exercise of warrants
|
|
|
7
|
|
|
|
1,554,082
|
|
|
|
11,916
|
|
|
January 21, 2021 to February 18, 2021
|
|
Exercise of broker warrants
|
|
|
7
|
|
|
|
160,548
|
|
|
|
897
|
|
|
January 13, 2021
|
|
Shares issued on completion of private placement
|
|
|
|
|
|
|
247,934
|
|
|
|
1,918
|
|
|
January 18, 2021
|
|
Shares issued upon completion of Oryx earn-out
|
|
|
|
|
|
|
4,700,000
|
|
|
|
22,000
|
|
|
March 12, 2021 to March 17, 2021
|
|
Issuance of share capital upon exercise of RSUs
|
|
|
8
|
|
|
|
50,000
|
|
|
|
267
|
|
|
|
|
Rounding of fractional shares after consolidation
|
|
|
|
|
|
|
2
|
|
|
|
-
|
|
|
March 31, 2021
|
|
Balance
|
|
|
|
|
|
|
19,823,814
|
|
|
|
99,302
|
|
The Company’s Common Shares have no par
value.
Effective as of April 30, 2021, the Company
underwent a reverse stock split on the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares (1-for-10).
The share capital has been reported on a post-consolidation basis (Note 1).
Private placement
On January 13, 2021, the Company completed
a non-brokered private placement offering comprised of 247,934 Common Shares at a price of CAD 12.10 per share for aggregate gross proceeds
of EUR 1,937. This offering was exclusively taken up by Company employees and Board members and is subject to a hold period expiring May 14,
2021. No commission or finder's fee was paid in connection with the offering.
As at March 31, 2021, EUR nil (December 31,
2020: EUR 608) was held in trust on behalf of the Company for subscription receipts related to the private placement offering. This amount
was recorded in cash and cash equivalents.
|
BRAGG GAMING GROUP INC.
|
21
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5 SHARE CAPITAL (CONTINUED)
Completion of Oryx earn-out
On January 18, 2021, the Company satisfied
its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares of the Company. A total of 4,700,000
Common Shares of the Company were issued to the vendor with a recorded fair-value of EUR 22,000. The Common Shares are subject to a hold
period expiring May 19, 2021.
In connection with this transaction Matevž
Mazij became a “control person” of the Company, in accordance with section 1(1) of the Ontario Securities Act, with a
total shareholding through K.A.V.O. Holdings Limited of 4,900,000 Common Shares representing over 27% of the outstanding Common Shares
of the Company as of the settlement date.
6 PUBLIC
OFFERING COMPLETED NOVEMBER 18, 2020
On October 26, 2020, the Company announced
that it had entered into an agreement with a syndicate of underwriters pursuant to which the underwriters agreed to purchase 1,786,000
units (the "Units") from the treasury of the Company, at a price of CAD 7.00 per Unit and offer them to the public by way of
short form prospectus for total gross proceeds of approximately CAD 12,500 (the "Offering"). On October 27, 2020 the Company
agreed to increase the size of the Offering whereby the Underwriters agreed to purchase 2,571,500 Units for aggregate gross proceeds of
CAD 18,001.
The Company granted the underwriters an option
(the "Over-Allotment Option") to purchase up to an additional 15% of the Units of the Offering on the same terms exercisable
at any time up to 30 days following the closing of the Offering. The underwriters exercised the Over-Allotment Option in full and, together
with the base offering, purchased 2,957,225 Units in total for aggregate gross proceeds of EUR 13,343 (CAD 20,701). Issuance costs directly
associated with raise of funds amounted to EUR 1,216 (CAD 1,887) resulting in cash proceeds, net of issuance costs, of EUR 12,127 (CAD
18,814). Closing of the Offering occurred on November 18, 2020 with net proceeds to be used for growth initiatives, working capital
and general corporate purposes.
Each Unit consists of one Common Share and one
half of one warrant (each whole warrant, a "Public Offering Warrant") of the Company. Each Public Offering Warrant entitled
the holder thereof to purchase one Common Share at a price equal to CAD 10.00 for a period of 36 months following the closing of the Offering
(Note 7).
The Public Offering Warrants included an acceleration
provision, exercisable at the Company's option, if the Company's daily volume weighted average share price is greater than CAD 15.00 for
at least ten consecutive trading days. On January 21, 2021, the Company announced that it elected to exercise its right under the
terms of the warrant indenture to accelerate the expiry date of the warrants. Accordingly, the Company gave notice to all registered warrant
holders that the expiry date for the Warrants was accelerated to February 22, 2021. As of March 31, 2021, all such warrants
have been exercised or have expired.
In addition to the Units, the Company
granted 177,434 broker warrants (“Broker Warrants”), each convertible to one Common Share and half of one Public
Offering Warrant at a price equal to CAD 7.00 (Note 7).
|
BRAGG GAMING GROUP INC.
|
22
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7 WARRANTS
The following are continuities of the Company’s warrants:
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
Number of Warrants
|
|
|
|
Warrants
|
|
|
Warrants
issued upon
Public Offering
|
|
|
warrants-
compensation
options
|
|
|
Broker
warrants
|
|
|
January 1, 2020 and March 31, 2020
|
|
Balance
|
|
|
2,705,880
|
|
|
|
-
|
|
|
|
160,178
|
|
|
|
-
|
|
|
January 1, 2021
|
|
Balance
|
|
|
-
|
|
|
|
1,478,512
|
|
|
|
-
|
|
|
|
177,434
|
|
|
January 11, 2021 to February 22, 2021
|
|
Exercise of warrants
|
|
|
-
|
|
|
|
(1,554,082
|
)
|
|
|
-
|
|
|
|
-
|
|
|
January 21, 2021 to February 18, 2021
|
|
Exercise of broker warrants
|
|
|
-
|
|
|
|
80,274
|
|
|
|
-
|
|
|
|
(160,548
|
)
|
|
February 22, 2021
|
|
Expiry of warrants
|
|
|
-
|
|
|
|
(4,704
|
)
|
|
|
-
|
|
|
|
-
|
|
|
March 31, 2021
|
|
Balance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,886
|
|
Each unit consists of the following characteristics:
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
warrants -
|
|
|
|
|
|
|
|
issued
|
|
|
issued upon
|
|
|
compensation
|
|
|
Broker
|
|
|
|
|
March 14, 2019
|
|
|
Public Offering
|
|
|
options
|
|
|
warrants
|
|
|
Number of underlying shares
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Number of underlying warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
0.5
|
|
|
Exercise price of unit (CAD)
|
|
|
7.60
|
|
|
|
10.00
|
|
|
|
5.10
|
|
|
|
7.00
|
|
|
BRAGG GAMING GROUP INC.
|
23
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7 WARRANTS (CONTINUED)
Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November 18,
2020 (Note 6) 1,478,612 Public Offering Warrants were issued resulting in an increase in the fair value of Public Offering Warrants of
EUR 1,887, before issuance costs. The assumptions used to measure the fair value of the Public Offering Warrants under the Black-Scholes
valuation model were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.5
|
|
|
Risk-free interest rate (%)
|
|
|
0.11
|
|
|
Expected life of warrants (years)
|
|
|
1.0
|
|
|
Underlying share price (CAD)
|
|
|
8.00
|
|
The Public Offering Warrants were issued with
an exercise price of CAD 10.00 and were convertible to one Common Share per Public Offering Warrant initially expiring November 18,
2023. The Public Offering Warrant indenture included an acceleration provision, exercisable at the Company's option, if the Company's
daily volume weighted average Common Share price is greater than CAD 15.00 for at least ten consecutive trading days. The Company had
the option to accelerate the exercise period of the Public Offering Warrants to a period ending at least 30 days from the date notice
of such acceleration is provided to the holders of the Public Offering Warrants. On January 21, 2021, the Company announced that
it elected to exercise its right under the terms of a warrant indenture to accelerate the expiry date of the warrants. Accordingly, the
Company gave notice to all registered warrant holders that the expiry date for the Warrants was accelerated to February 22, 2021.
Between January 1, 2021 and February 22,
2021, 1,554,082 Public Offering Warrants were exercised resulting in issuance of 1,554,082 shares and cash receipt of EUR 10,085. An increase
in share capital of EUR 11,916 and decrease in fair value of warrants of EUR 1,831 was recognized in the interim unaudited condensed consolidated
statements of changes in equity. On February 22, 2021, 4,704 Public Offering Warrants expired resulting in a decrease in fair value
of warrants and corresponding increase in contributed surplus of EUR 7.
|
BRAGG GAMING GROUP INC.
|
24
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7 WARRANTS (CONTINUED)
Broker Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November 18,
2020 (Note 6), 177,434 broker warrants (“Broker Warrants”) were issued resulting in an increase in the fair value of warrants
of EUR 399, a decrease in share capital of EUR 331 and decrease in fair value of warrants of EUR 68. The Broker Warrants were issued with
an exercise price of CAD 7.00 and are convertible to one Common Share plus one-half of a Public Offering Warrant per Broker Warrant expiring
November 18, 2023. The assumptions used to measure the fair value of the Broker Warrants under the Black-Scholes valuation model
were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.5
|
|
|
Risk-free interest rate (%)
|
|
|
0.11
|
|
|
Expected life of warrants (years)
|
|
|
1.0
|
|
|
Underlying share price (CAD)
|
|
|
8.00
|
|
The underlying Public Offering Warrants were subject
to the same acceleration provision and notice of acceleration that was given on January 21, 2021. Between January 21, 2021 and
February 18, 2021, 160,548 Broker Warrants were exercised for 160,548 Common Shares and 80,274 Public Offering Warrants resulting
in an increase in share capital of EUR 897, an increase in fair value of warrants of EUR 196 and decrease in fair value of Broker Warrants
of EUR 361. Broker Warrants may still be exercised for Common Shares until date of expiry.
|
BRAGG GAMING GROUP INC.
|
25
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
8
|
SHARE BASED COMPENSATION
|
The Company maintains an Omnibus Incentive Equity
Plan ("OEIP") for certain employees and consultants. The plan was approved at an annual and special meeting of shareholders
on November 27, 2020. Under the plan, the Company may grant options for up to 3,180,000 of its shares.
The following is a continuity of the Company’s
equity incentive plans:
|
|
|
DSU
|
|
|
RSU
|
|
|
|
|
|
FSO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Average
|
|
|
|
|
DSU Units
|
|
|
RSU Units
|
|
|
FSO Options
|
|
|
Exercise
|
|
|
|
|
(Number of
|
|
|
(Number of
|
|
|
(Number
|
|
|
Price / Share
|
|
|
|
|
of shares)
|
|
|
of shares)
|
|
|
of shares)
|
|
|
CAD
|
|
|
As at January 1, 2020
|
|
|
408,000
|
|
|
|
-
|
|
|
|
745,576
|
|
|
|
6.02
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(750
|
)
|
|
|
44.86
|
|
|
Forfeited / Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,321
|
)
|
|
|
11.64
|
|
|
As at March 31, 2020
|
|
|
408,000
|
|
|
|
-
|
|
|
|
697,505
|
|
|
|
5.60
|
|
|
As at January 1, 2021
|
|
|
120,000
|
|
|
|
210,000
|
|
|
|
1,228,410
|
|
|
|
6.37
|
|
|
Granted
|
|
|
133,800
|
|
|
|
75,000
|
|
|
|
-
|
|
|
|
n/a
|
|
|
Exercised
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
n/a
|
|
|
Forfeited / Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,782
|
)
|
|
|
2.30
|
|
|
As at March 31, 2021
|
|
|
253,800
|
|
|
|
235,000
|
|
|
|
1,226,628
|
|
|
|
6.38
|
|
The following table summarizes information about
the outstanding share options as at March 31, 2021:
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
Range of exercise
|
|
(Number
|
|
|
Contractual
|
|
|
Price / Share
|
|
|
(Number
|
|
|
Price / Share
|
|
|
prices (CAD)
|
|
of shares)
|
|
|
Life (Years)
|
|
|
CAD
|
|
|
of shares)
|
|
|
CAD
|
|
|
2.30 - 5.00
|
|
|
267,218
|
|
|
|
4
|
|
|
|
2.99
|
|
|
|
164,410
|
|
|
|
3.20
|
|
|
5.01 - 5.60
|
|
|
225,000
|
|
|
|
3
|
|
|
|
5.60
|
|
|
|
181,250
|
|
|
|
5.60
|
|
|
5.61 - 7.80
|
|
|
732,858
|
|
|
|
5
|
|
|
|
7.80
|
|
|
|
732,858
|
|
|
|
7.80
|
|
|
7.81 - 33.30
|
|
|
1,552
|
|
|
|
5
|
|
|
|
33.30
|
|
|
|
1,552
|
|
|
|
33.30
|
|
|
|
|
|
1,226,628
|
|
|
|
4
|
|
|
|
6.38
|
|
|
|
1,080,070
|
|
|
|
6.77
|
|
|
BRAGG GAMING GROUP INC.
|
26
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8 SHARE BASED COMPENSATION
(CONTINUED)
The following table summarizes information about the outstanding share
options as at March 31, 2020:
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
Range of exercise
|
|
(Number
|
|
|
Contractual
|
|
|
Price / Share
|
|
|
(Number
|
|
|
Price / Share
|
|
|
prices (CAD)
|
|
of shares)
|
|
|
Life (Years)
|
|
|
CAD
|
|
|
of shares)
|
|
|
CAD
|
|
|
2.30 - 5.00
|
|
|
300,703
|
|
|
|
4
|
|
|
|
2.88
|
|
|
|
128,154
|
|
|
|
3.65
|
|
|
5.01 - 5.60
|
|
|
336,667
|
|
|
|
4
|
|
|
|
5.60
|
|
|
|
138,750
|
|
|
|
5.60
|
|
|
5.61 - 33.30
|
|
|
60,135
|
|
|
|
6
|
|
|
|
19.18
|
|
|
|
47,135
|
|
|
|
19.24
|
|
|
|
|
|
697,505
|
|
|
|
4
|
|
|
|
5.60
|
|
|
|
314,039
|
|
|
|
6.85
|
|
During the three months ended March 31, 2021,
a share based payment charge of EUR 40 has been recognized in the interim unaudited condensed consolidated statements of loss and comprehensive
income (loss) (three months ended March 31, 2020: EUR 51) in relation to the fixed stock options.
Deferred Share Units
Exercises of grants may only be settled in shares,
and only when the employee or consultant has left the Company. Under the plan, the Company may grant options of its shares at nil cost
that vest immediately.
During the three months ended March 31, 2021,
133,800 DSUs (three months ended March 31, 2020: nil DSUs) were granted with a fair value of CAD 21.80 per unit (three months ended
March 31, 2020: nil) determined as the share price on the date of grant.
During the three months ended March 31, 2021
a share based payment charge of EUR 861 has been recognized in the interim unaudited condensed consolidated statements of loss and comprehensive
income (loss) (three months ended March 31, 2020: EUR nil) in relation to the deferred share units.
|
BRAGG GAMING GROUP INC.
|
27
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
8
|
SHARE BASED
COMPENSATION (CONTINUED)
|
Restricted Share Units
During the three months ended March 31, 2021,
75,000 RSUs (three months ended March 31, 2020: nil) were granted with a fair value of CAD 21.80 per unit (three months ended March 31,
2020: nil) determined as the share price on the date of grant.
During the three months ended March 31, 2021,
a share based payment charge of EUR 408 has been recognized in the interim unaudited condensed consolidated statements of loss and comprehensive
income (loss) (three months ended March 31, 2020: EUR nil) in relation to the RSUs.
During the three months ended March 31, 2021,
50,000 Common Shares were issued upon exercise of 50,000 RSUs. Upon exercise of RSUs, EUR 267 was transferred from contributed surplus
to share capital in the interim unaudited condensed consolidated statement of changes in equity.
|
BRAGG GAMING GROUP INC.
|
28
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
9
|
DEFERRED AND CONTINGENT CONSIDERATION
|
The Company completed the acquisition of Oryx
Gaming International LLC together with its subsidiaries on December 20, 2018. The vendor is now part of the Company’s key management,
though was not at the time of the acquisition. Deferred and contingent consideration on December 31, 2020 related to two earnout
payments due, comprised of both cash and shares to be issued.
The following is a continuity of the Company’s
deferred and contingent consideration:
|
As at January 1, 2020
|
|
|
23,732
|
|
|
Cash paid on settlement of deferred and contingent consideration
|
|
|
(527
|
)
|
|
Accretion expense
|
|
|
1,037
|
|
|
Shares to be issued
|
|
|
(22,000
|
)
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
9,276
|
|
|
Effect of movements in exchange rates
|
|
|
3
|
|
|
As at December 31, 2020
|
|
|
11,521
|
|
|
Cash paid on settlement of deferred and contingent consideration
|
|
|
(11,521
|
)
|
|
As at March 31, 2021
|
|
|
-
|
|
In the three month period ended March 31,
2021, EUR nil (three month period ended March 31, 2020: EUR 4,968) of loss on remeasurement of deferred and contingent consideration
and EUR nil (three month period ended March 31, 2020: EUR 54) of accretion expense was recognized in the interim unaudited condensed
consolidated statements of loss and comprehensive income (loss).
Deferred and contingent consideration is disclosed
in the interim unaudited condensed consolidated statement of financial position as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Deferred and Contingent Consideration
|
|
|
-
|
|
|
|
11,521
|
|
All contingent liabilities were settled in full
to the Oryx vendor on January 18, 2021 following shareholder approval on November 27, 2020. On January 18, 2021, the Company
satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares (Note 5) of the Company. Cash
paid totalled EUR 11,598, of which EUR 11,521 fully settled deferred and contingent consideration payable, EUR 52 settled interest payable
and EUR 25 settled legal fees.
|
BRAGG GAMING GROUP INC.
|
29
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual
|
|
|
Development
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
Costs
|
|
|
Relationships
|
|
|
Brands
|
|
|
Other
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
|
8,801
|
|
|
|
1,222
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
128
|
|
|
|
16,411
|
|
|
Additions
|
|
|
165
|
|
|
|
2,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
2,286
|
|
|
As at December 31, 2020
|
|
|
8,966
|
|
|
|
3,297
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
174
|
|
|
|
18,697
|
|
|
Additions
|
|
|
10
|
|
|
|
571
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
581
|
|
|
As at March 31, 2021
|
|
|
8,976
|
|
|
|
3,868
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
174
|
|
|
|
19,278
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
|
1,119
|
|
|
|
76
|
|
|
|
504
|
|
|
|
140
|
|
|
|
11
|
|
|
|
1,850
|
|
|
Amortization
|
|
|
1,169
|
|
|
|
754
|
|
|
|
490
|
|
|
|
136
|
|
|
|
19
|
|
|
|
2,568
|
|
|
As at December 31, 2020
|
|
|
2,288
|
|
|
|
830
|
|
|
|
994
|
|
|
|
276
|
|
|
|
30
|
|
|
|
4,418
|
|
|
Amortization
|
|
|
300
|
|
|
|
299
|
|
|
|
123
|
|
|
|
34
|
|
|
|
6
|
|
|
|
762
|
|
|
As at March 31, 2021
|
|
|
2,588
|
|
|
|
1,129
|
|
|
|
1,117
|
|
|
|
310
|
|
|
|
36
|
|
|
|
5,180
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2020
|
|
|
6,678
|
|
|
|
2,467
|
|
|
|
3,909
|
|
|
|
1,081
|
|
|
|
144
|
|
|
|
14,279
|
|
|
As at March 31, 2021
|
|
|
6,388
|
|
|
|
2,739
|
|
|
|
3,786
|
|
|
|
1,047
|
|
|
|
138
|
|
|
|
14,098
|
|
|
|
11
|
CASH AND CASH EQUIVALENTS
|
As at March 31, 2021 and December 31,
2020, cash and cash equivalents consisted of cash held in banks, marketable investments with an original maturity date of 90 days or less
from the date of acquisition, and prepaid credit cards.
As at March 31, 2021, EUR nil (December 31,
2020: EUR 608) was held in trust on behalf of the Company for subscription receipts related to a non-brokered private placement offering
that completed on January 13, 2021 (Note 5). This amount was recorded in cash and cash equivalents.
|
BRAGG GAMING GROUP INC.
|
30
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
30
|
TRADE AND
OTHER RECEIVABLES
|
The following is an aging of the Company’s trade and other receivables:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Less than one month
|
|
|
8,007
|
|
|
|
9,563
|
|
|
Between two and three months
|
|
|
763
|
|
|
|
1,193
|
|
|
Greater than three months
|
|
|
1,656
|
|
|
|
1,296
|
|
|
|
|
|
10,426
|
|
|
|
12,052
|
|
|
Provision for expected credit losses
|
|
|
(2,019
|
)
|
|
|
(1,755
|
)
|
|
Trade and Other Receivables
|
|
|
8,407
|
|
|
|
10,297
|
|
The balance of accrued income is included in receivables aged less
than one month as this balance will be converted to accounts receivable upon issuance of sales invoices.
The following is a continuity of the Company’s provision for
expected credit losses related to trade and other receivables:
|
As at December 31, 2019
|
|
|
941
|
|
|
Bad debt written-off
|
|
|
(419
|
)
|
|
Net additional provision for doubtful debts
|
|
|
1,076
|
|
|
Provision for late interest receivable
|
|
|
157
|
|
|
As at December 31, 2020
|
|
|
1,755
|
|
|
Net additional provision for doubtful debts
|
|
|
242
|
|
|
Provision for late interest receivable
|
|
|
22
|
|
|
As at March 31, 2021
|
|
|
2,019
|
|
|
BRAGG GAMING GROUP INC.
|
31
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
13
|
PREPAID EXPENSES AND OTHER ASSETS
|
Prepaid expenses and other assets comprises:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Prepayments
|
|
|
1,011
|
|
|
|
249
|
|
|
Deposits
|
|
|
68
|
|
|
|
-
|
|
|
Other assets
|
|
|
17
|
|
|
|
14
|
|
|
Prepaid Expenses and Other Assets
|
|
|
1,096
|
|
|
|
263
|
|
|
|
14
|
TRADE PAYABLES AND OTHER LIABILITIES
|
Trade payables and other liabilities comprises:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade payables
|
|
|
4,871
|
|
|
|
6,406
|
|
|
Accrued liabilities
|
|
|
9,195
|
|
|
|
6,099
|
|
|
Sales tax payable
|
|
|
2,734
|
|
|
|
4,356
|
|
|
Other payables
|
|
|
90
|
|
|
|
107
|
|
|
Trade Payables and Other Liabilities
|
|
|
16,890
|
|
|
|
16,968
|
|
|
BRAGG GAMING GROUP INC.
|
32
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
15
|
RELATED PARTY TRANSACTIONS
|
The Company’s policy is to conduct all transactions
and settle all balances with related parties on market terms and conditions for those in the normal course of business. Transactions between
the Company and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
Key Management Personnel
The Company’s key management personnel are
comprised of members of the Board and the executive team which consists of the Interim Chief Executive Officer (“CEO”), Chief
Financial Officer (“CFO”), Chief Strategy Officer (“CSO”) and Managing Director of Oryx. Three key management
employees are also shareholders in the Company. Transactions and balances between the Company and its key management personnel are as
follows:
|
|
•
|
Revenues for the three months ended March 31, 2021 to a shareholder
of the Company totalled EUR 21 (three months ended March 31, 2020: EUR 4).
|
|
|
•
|
Total compensation for salaries, director fees, share-based payments and
short-term employee benefits of key management personnel of the Company for the three months ended March 31, 2021 totalled EUR 1,668
(three months ended March 31, 2020: EUR 438).
|
|
|
•
|
Loss on remeasurement of deferred and contingent consideration payable to
the Managing Director of Oryx for the three months ended March 31, 2021 was nil (three months ended March 31, 2020: EUR 4,968).
|
|
|
•
|
Interest expense on deferred and contingent consideration payable to the
Managing Director of Oryx for the three months ended March 31, 2021 totalled EUR 52 (three months ended March 31, 2020: nil).
|
|
|
•
|
During the three months ended March 31, 2021, legal fees of EUR 25 payable
to the Managing Director of Oryx in relation to the Oryx earn-out was recognized in the interim unaudited condensed consolidated statements
of loss and comprehensive income (loss) (three months ended March 31, 2020: nil).
|
|
|
•
|
During the three months ended March 31, 2021, a total of EUR 11,521
in payments were made to the Managing Director of Oryx for deferred consideration (three months ended March 31, 2020: nil).
|
|
|
•
|
During the three months ended March 31, 2021, a total of EUR 140 in
payments were made to the Managing Director of Oryx for interest on deferred and contingent consideration payable (three months ended
March 31, 2020: nil).
|
|
|
•
|
As at March 31, 2021, EUR 5 of trade and other receivables was receivable
from the Managing Director of Oryx and other shareholders (December 31, 2020: EUR 4).
|
|
|
•
|
As at March 31, 2021, EUR 172 of trade payables and other liabilities
was due to the CEO, CFO, the Managing Director of Oryx and member of Board (December 31, 2020: EUR 166).
|
|
|
•
|
As at March 31, 2021, nil of deferred and contingent consideration (Note
9) was payable to the Managing Director of Oryx (December 31, 2020: EUR 11,521).
|
|
|
•
|
During the three months ended March 31, 2021, EUR 22,000 of share capital
(three months ended March 31, 2020: EUR nil) was issued to the Managing Director of Oryx upon completion of the earn-out (Note 9).
A corresponding decrease in shares to be issued was recognized in the interim unaudited condensed consolidated statements of changes in
equity.
|
|
|
•
|
During the three months ended March 31, 2021, EUR 267 additional share
capital was recognized in the interim unaudited condensed consolidated statements of changes in equity with a corresponding reduction
in contributed surplus for exercise of RSUs by key management personnel of the Company (Note 8) (three months ended March 31, 2020:
nil).
|
|
BRAGG GAMING GROUP INC.
|
33
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
16
|
FINANCIAL
INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|
The financial instruments measured at amortized cost are summarised
below:
Financial Assets
|
|
Financial assets as subsequently
|
|
|
measured at amortized cost
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade and other receivables
|
|
|
8,407
|
|
|
|
10,297
|
|
Financial Liabilities
|
|
Financial liabilities as subsequently
|
|
|
measured at amortized cost
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade payables
|
|
|
4,871
|
|
|
|
6,406
|
|
|
Accrued liabilities
|
|
|
9,195
|
|
|
|
6,099
|
|
|
Other liabilities
|
|
|
90
|
|
|
|
107
|
|
|
Lease obligations on right of use assets
|
|
|
702
|
|
|
|
726
|
|
|
|
|
|
14,858
|
|
|
|
13,338
|
|
The carrying values of the financial instruments approximate their
fair values.
|
BRAGG GAMING GROUP INC.
|
34
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
16
|
FINANCIAL
INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Fair Value Hierarchy
The following table presents the fair values and fair value hierarchy
of the Company’s financial instruments.
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
30,112
|
|
|
|
-
|
|
|
|
30,112
|
|
|
|
26,102
|
|
|
|
-
|
|
|
|
26,102
|
|
|
Consideration receivable
|
|
|
-
|
|
|
|
161
|
|
|
|
161
|
|
|
|
-
|
|
|
|
192
|
|
|
|
192
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred and contingent consideration
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,521
|
|
|
|
-
|
|
|
|
11,521
|
|
There were no transfers between the levels of
the fair value hierarchy during the periods.
During the three months ended March 31, 2021,
a loss of EUR nil (three months ended March 31, 2020: EUR 4,968), was recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive income (loss) as loss on remeasurement of deferred and contingent consideration (Note 9) for financial
instruments designated as FVTPL.
|
BRAGG GAMING GROUP INC.
|
35
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
16
|
FINANCIAL
INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
As a result of holding and issuing financial instruments,
the Company is exposed to certain risks. The following is a description of those risks and how the exposures are managed.
Liquidity risk
Liquidity risk is the risk that the Company is
unable to generate or obtain sufficient cash and cash equivalents in a cost-effective manner to fund its obligations as they come due.
The Company will experience liquidity risks if it fails to maintain appropriate levels of cash and cash equivalents, is unable to access
sources of funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could adversely
affect the financial performance of the Company.
The Company has a planning and budgeting process
in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates
this planning and budgeting process with its financing activities through its capital management process. The Company holds sufficient
cash and cash equivalents and working capital, maintained through stringent cash flow management, to ensure sufficient liquidity is maintained.
The Company is not subject to any externally imposed capital requirements.
The following are the undiscounted contractual
maturities of significant financial liabilities and the total contractual obligations of the Company as at March 31, 2021:
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
Trade payables and other liabilities
|
|
|
16,890
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,890
|
|
|
Lease obligations on right of use assets
|
|
|
118
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
746
|
|
|
|
|
|
17,008
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
17,636
|
|
Foreign currency exchange risk
The Company’s financial statements are presented
in EUR, however a portion of the Company’s net assets and operations are denominated in other currencies, particularly the Canadian
dollar. Such net assets are translated into EUR at the foreign currency exchange rate in effect at the reporting date, and operations
at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are recognized. As a result,
the Company is exposed to foreign currency translation gains and losses, which are recorded in accumulated other comprehensive loss.
The Company is also exposed to risk on transaction
in currencies other than its functional currency resulting in realized and unrealized foreign currency gains and loss which are recorded
in other operational costs. The Company estimates that an appreciation of the EUR of 10% relative to other currencies would result in
a decrease of EUR 355 in earnings before income taxes while a depreciating EUR will have the opposite impact.
The Company has no derivative instruments in the
form of futures contracts and forward contracts to manage its current and anticipated exposure to fluctuations in EUR exchange rates.
|
BRAGG GAMING GROUP INC.
|
36
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
16
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Credit risk
The Company is exposed to credit risk resulting
from the possibility that counterparties could default on their financial obligations to the Company including cash and cash equivalents,
other assets and accounts receivable. Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to cash and cash equivalents
is reduced by policies and guidelines that require that the Company enters into transactions only with counterparties or issuers that
have a minimum long term “BBB” credit rating from a recognized credit rating agency. The Company mitigates the risk of credit
loss relating to accounts receivable by evaluating the creditworthiness of new customers and establishes a provision for expected credit
losses. The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, Financial Instruments,
which permits the use of the lifetime expected loss provision for all accounts receivable. The expected credit loss provision is based
on the Company’s historical collections and loss experience and incorporates forward-looking factors, where appropriate.
The provision matrix below shows the expected
credit loss rate for each aging category of accounts receivable as at March 31, 2021:
|
|
|
|
|
|
|
Aging (months)
|
|
|
|
|
|
|
|
|
Note
|
|
|
<1
|
|
|
1 - 3
|
|
|
>3
|
|
|
Total
|
|
|
Gross accounts receivable
|
|
|
12
|
|
|
|
8,007
|
|
|
|
763
|
|
|
|
1,656
|
|
|
|
10,426
|
|
|
Expected loss rate
|
|
|
|
|
|
|
3.60
|
%
|
|
|
40.63
|
%
|
|
|
85.81
|
%
|
|
|
19.37
|
%
|
|
Expected Loss Provision
|
|
|
12
|
|
|
|
288
|
|
|
|
310
|
|
|
|
1,421
|
|
|
|
2,019
|
|
The provision matrix below shows the expected
credit loss rate for each aging category of accounts receivable as at December 31, 2020:
|
|
|
|
|
|
|
Aging (months)
|
|
|
|
|
|
|
|
|
Note
|
|
|
<1
|
|
|
1 - 3
|
|
|
>3
|
|
|
Total
|
|
|
Gross
accounts receivable
|
|
|
12
|
|
|
|
9,563
|
|
|
|
1,193
|
|
|
|
1,296
|
|
|
|
12,052
|
|
|
Expected loss rate
|
|
|
|
|
|
|
4.51
|
%
|
|
|
14.84
|
%
|
|
|
88.50
|
%
|
|
|
14.56
|
%
|
|
Expected Loss Provision
|
|
|
12
|
|
|
|
431
|
|
|
|
177
|
|
|
|
1,147
|
|
|
|
1,755
|
|
Gross accounts receivable includes the balance
of accrued income within the aging category of less than one month.
|
BRAGG GAMING GROUP INC.
|
37
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
16
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Concentration risk
For the three months ended March 31, 2021,
two customers (three months ended March 31, 2020: two customers) contributed more than 10% each to the Company’s revenues.
Aggregate revenues from these customers totalled EUR 4,175 (three months ended March 31, 2020: EUR 2,032).
As at March 31, 2021, one customer (December 31,
2020: one customer) constituted more than 10% each to the Company’s accounts receivable. The balance owed by this customer totalled
EUR 1,069 (December 31, 2020: EUR 1,247). The Company continues to expand its customer base to reduce the concentration risk.
|
|
17
|
SUPPLEMENTARY CASHFLOW INFORMATION
|
Cash flows arising from changes in non-cash working capital are summarized
below:
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
Cash flows arising from movement in:
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
1,890
|
|
|
|
(902
|
)
|
|
Prepaid expenses and other assets
|
|
|
(833
|
)
|
|
|
1
|
|
|
Deferred revenue
|
|
|
394
|
|
|
|
-
|
|
|
Trade payables and other liabilities
|
|
|
(78
|
)
|
|
|
2,762
|
|
|
Other liabilities - non-current
|
|
|
13
|
|
|
|
-
|
|
|
Changes in Non-Cash Working Capital
|
|
|
1,386
|
|
|
|
1,861
|
|
|
BRAGG GAMING GROUP INC.
|
38
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
Operating
The Company has one reportable operating segment in its continuing
operations, B2B Online Gaming.
The accounting policies of the reportable operating
segments are the same as those described in the Company’s summary of significant accounting policies (Note 2). The Company measures
each reportable operating segment’s performance based on adjusted EBITDA. No reportable operating segment is reliant on any single
external customer.
Intersegment charges have been eliminated on
consolidation.
Geography – Revenue
Revenue for continuing operations was generated
from the following jurisdictions:
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Malta
|
|
|
|
9,475
|
|
|
|
5,936
|
|
|
Curaçao
|
|
|
|
2,773
|
|
|
|
1,742
|
|
|
Croatia
|
|
|
|
425
|
|
|
|
286
|
|
|
Germany
|
|
|
|
426
|
|
|
|
45
|
|
|
Romania
|
|
|
|
319
|
|
|
|
150
|
|
|
Serbia
|
|
|
|
199
|
|
|
|
128
|
|
|
Other
|
|
|
|
579
|
|
|
|
497
|
|
|
Revenue
|
|
|
|
14,196
|
|
|
|
8,784
|
|
This segmentation is not correlated to the geographical location of
the Company’s worldwide end-user base.
Geography – Non-Current Assets
Non-current assets are held in the following jurisdictions:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
United States
|
|
|
33,927
|
|
|
|
34,104
|
|
|
Other
|
|
|
1,074
|
|
|
|
1,180
|
|
|
Non-Current Assets
|
|
|
35,001
|
|
|
|
35,284
|
|
|
BRAGG GAMING GROUP INC.
|
39
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
The components of income taxes recognized in the interim unaudited
condensed consolidated statements of financial position are as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Income taxes payable
|
|
|
1,913
|
|
|
|
1,318
|
|
|
Deferred income tax liabilities
|
|
|
1,231
|
|
|
|
1,415
|
|
The components of income taxes recognized in the interim unaudited
condensed consolidated statements of loss and comprehensive income (loss) are as follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Current period
|
|
|
691
|
|
|
|
271
|
|
|
Adjustment in respect of prior periods
|
|
|
-
|
|
|
|
-
|
|
|
Current Income Taxes
|
|
|
691
|
|
|
|
271
|
|
|
Deferred income tax recovery
|
|
|
(184
|
)
|
|
|
(28
|
)
|
|
Deferred Income Tax Recovery
|
|
|
(184
|
)
|
|
|
(28
|
)
|
|
Income Taxes
|
|
|
507
|
|
|
|
243
|
|
There is no income tax expense recognized in other comprehensive income
(loss).
|
BRAGG GAMING GROUP INC.
|
40
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
19
|
INCOME TAXES (CONTINUED)
|
The effective income tax rates in the interim
unaudited condensed consolidated statements of loss and comprehensive income (loss) were reported at rates different than the combined
Canadian federal and provincial statutory income tax rates for the following reasons:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
Canadian statutory tax rate
|
|
|
26.5
|
|
|
|
26.5
|
|
|
Effect of tax rate in foreign jurisdictions
|
|
|
20.5
|
|
|
|
1.5
|
|
|
Impact of foreign currency translation
|
|
|
-
|
|
|
|
1.1
|
|
|
Non-deductible and non-taxable items
|
|
|
(74.0
|
)
|
|
|
(8.3
|
)
|
|
Remeasurement of contingent and deferred consideration
|
|
|
-
|
|
|
|
(14.2
|
)
|
|
Accretion expense of contingent consideration
|
|
|
-
|
|
|
|
(4.5
|
)
|
|
Change in tax benefits not recognized
|
|
|
(62.4
|
)
|
|
|
(5.1
|
)
|
|
Adjustments in respect of prior periods
|
|
|
-
|
|
|
|
(2.2
|
)
|
|
Other
|
|
|
-
|
|
|
|
0.5
|
|
|
Effective Income Tax Rate Applicable to Loss Before Income Taxes
|
|
|
(89.4
|
)
|
|
|
(4.7
|
)
|
Deferred income tax liabilities recognized in the interim unaudited
condensed consolidated statements of financial position were attributable solely to acquired intangible assets (Note 10).
|
BRAGG GAMING GROUP INC.
|
41
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
19
|
INCOME TAXES (CONTINUED)
|
The portion of the income tax losses related
to Canada which have a limited carry-forward period expire in the years 2026 to 2041 as follows:
|
2026
|
|
|
|
97
|
|
|
2027
|
|
|
|
182
|
|
|
2028
|
|
|
|
170
|
|
|
2029
|
|
|
|
87
|
|
|
2030
|
|
|
|
60
|
|
|
2031
|
|
|
|
60
|
|
|
2032
|
|
|
|
101
|
|
|
2033
|
|
|
|
68
|
|
|
2034
|
|
|
|
126
|
|
|
2035
|
|
|
|
126
|
|
|
2036
|
|
|
|
134
|
|
|
2037
|
|
|
|
279
|
|
|
2038
|
|
|
|
1,897
|
|
|
2039
|
|
|
|
2,001
|
|
|
2040
|
|
|
|
3,100
|
|
|
2041
|
|
|
|
1,379
|
|
|
|
|
|
|
9,867
|
|
The United Kingdom losses are carried forward
indefinitely unless subject to certain restrictions and are now classified in the current year as discontinued operations as unrecognized
deferred income tax assets. The deductible temporary differences do not expire under current income tax legislation. Deferred income
tax assets were not recognized in respect of these items because it is not probable that future taxable income will be available to the
Company to utilize the benefits.
|
|
20
|
CONTINGENT LIABILITIES
|
In the ordinary course of business, the Company
is involved in and potentially subject to, legal actions and proceedings. In addition, the Company is subject to tax audits from various
tax authorities on an ongoing basis. As a result, from time to time, tax authorities may disagree with the positions and conclusions
taken by the Company in its tax filings or legislation could be amended or interpretations of current legislation could change, any of
which events could lead to reassessments.
The Company is not aware of any legal, administrative,
or other proceedings pending, which would materially affect its financial condition.
|
BRAGG GAMING GROUP INC.
|
42
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
Reverse Stock Split
At the annual and special meeting of shareholders
of the Company held on April 28, 2021, the shareholders approved a consolidation (reverse stock split) of the Common Shares. The
Board of Directors determined that the consolidation would be on the basis of one post-consolidation Common Share for every ten pre-consolidation
Common Shares (1-for-10).
The consolidation became effective as of April 30,
2021, and the Common Shares commenced trading on the Toronto Stock Exchange on a post-consolidation basis at the open of trading on May 5,
2021.
Amendment and Restatement of Omnibus Equity
Incentive Plan
The Company maintains an OEIP for certain employees
and consultants. At the annual and special meeting of shareholders of the Company held on April 28, 2021, the shareholders approved
the increase in the number of Common Shares available for issuance as awards under the plan from 3,180,000 to 3,965,000.
Base Shelf Prospectus
In order to support future growth initiatives,
on May 4, 2021, the Company filed a short form base shelf prospectus (the "Base Shelf Prospectus"), with securities regulators
in each of the provinces and territories of Canada. The Base Shelf Prospectus permits the Company to offer and sell Common Shares, unsecured
debt securities, subscription receipts, warrants, other securities convertible or exchange for Common Shares or other securities of the
Company or any combination thereof in various offerings having an aggregate value of up to CAD 500 million during the 25-month period
that the Base Shelf Prospectus remains effective.
Acquisition of Spin Games LLC
On May 12, 2021, the Company announced it
had entered into an agreement to acquire Spin Games LLC (“Spin”) in a cash and stock transaction for a purchase price of
approximately USD 30 million. Under the deal the sellers of Spin will receive USD 10 million in cash and USD 20 million in Common Shares
of the Company of which USD 5 million in Common Shares will be issued on closing and the balance over the next three years. The transaction
is expected to close following final approval from state gaming regulators and satisfaction of other customary closing conditions.
Exhibit 4.5
Bragg Gaming Group Inc
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021
TABLE OF CONTENTS
|
|
1.
|
MANAGEMENT
DISCUSSION & ANALYSIS
|
2
|
|
|
2.
|
CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
|
3
|
|
|
3.
|
LIMITATIONS
OF KEY METRICS AND OTHER DATA
|
4
|
|
|
5.1
|
Basis
of financial discussion
|
15
|
|
|
5.2
|
Selected
interim information
|
16
|
|
|
5.3
|
Other
financial information
|
17
|
|
|
5.4
|
Selected
financial information
|
18
|
|
|
5.5
|
Summary
of quarterly results
|
20
|
|
|
5.6
|
Liquidity
and capital resources
|
20
|
|
|
6
|
TRANSACTIONS
BETWEEN RELATED PARTIES
|
23
|
|
|
7
|
DISCLOSURE
OF OUTSTANDING SHARE DATA
|
24
|
|
|
8
|
CRITICAL
ACCOUNTING ESTIMATES
|
25
|
|
|
9
|
CHANGES
IN ACCOUNTING POLICY
|
28
|
|
|
10
|
RISK
FACTORS AND UNCERTAINTIES
|
28
|
|
|
11
|
ADDITIONAL
INFORMATION
|
31
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
1
|
|
|
1.
|
MANAGEMENT DISCUSSION & ANALYSIS
|
This Management Discussion and Analysis (“MD&A”)
provides a review of the results of operations, financial condition and cash flows for Bragg Gaming Group Inc on a consolidated basis,
for the three months ended March 31, 2021 (“Q1 2021”). References to “Bragg”, or the “Corporation”
in this MD&A refer to Bragg Gaming Group Inc and its subsidiaries, unless the context requires otherwise. This document should be
read in conjunction with the information presented in the interim unaudited condensed consolidated financial statements for the three
months ended March 31, 2021 (the “Interims”).
For reporting purposes, the Corporation prepared
the Interims in European Euros (“EUR”) and, unless otherwise indicated, in conformity with International Accounting Standards
(“IAS”) 34, Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).
The financial information contained in this MD&A was derived from the Interims. Unless otherwise indicated, all references to a specific
“note” refer to the notes to the Interims.
This MD&A references non-IFRS financial measures,
including those under the headings “Selected Financial Information” and “Key Metrics” below. The Corporation believes
these non-IFRS financial measures will provide investors with useful supplemental information about the financial performance of its business,
enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for
greater transparency with respect to key metrics used by management in operating its business and making decisions. Although management
believes these financial measures are important in evaluating the Corporation, they are not intended to be considered in isolation or
as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. Non-IFRS measures are not recognized
measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS financial
measures used by other companies, limiting their usefulness for comparison purposes. These non-IFRS measures and metrics are used to provide
investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may nor
otherwise be apparent when relying solely on IFRS measures.
For purposes of this MD&A, the term “gaming
license” refers collectively to all the different licenses, consents, permits, authorizations, and other regulatory approvals that
are necessary to be obtained in order for the recipient to lawfully conduct (or be associated with) gaming in a particular jurisdiction.
Unless otherwise stated, in preparing this MD&A
the Corporation has considered information available to it up to May 13, 2021, the date the Corporation’s board of directors
(the “Board”) approved this MD&A.
On April 30, 2021, the Corporation
announced a one-for-ten share consolidation. At the annual and special meeting of the Corporation’s shareholders held on
April 28, 2021, the Corporation’s shareholders granted the Corporation’s Board of Directors discretionary authority
to implement a consolidation of the issued and outstanding Common Shares of the Corporation on the basis of a consolidation ratio of
up to ten (10) pre-consolidation Common Shares for one (1) post-consolidation Common Share. The Board of Directors
selected a share consolidation ratio of ten (10) pre-consolidation Common Shares for one (1) post- consolidation Common
Share. The Corporation’s Common Shares began trading on the Toronto Stock Exchange (“TSX”) on a post-consolidation
basis under the Corporation’s existing trade symbol "BRAG" at the opening of the market on May 5, 2021. In
accordance with IFRS accounting principles, the change has been applied retroactively and all balances of Common Shares, warrants
and equity-based compensation such as share options, deferred share unites and restricted share units have been restated after
applying the consolidation ratio.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
2
|
|
|
2.
|
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
|
This MD&A may contain forward-looking
information and statements (collectively, “forward-looking statements”) within the meaning of the Canadian securities
legislation and applicable securities laws, including financial and operational expectations and projections. These statements,
other than statements of historical fact, are based on management’s current expectations and are subject to a number of risks,
uncertainties, and assumptions, including market and economic conditions, business prospects or opportunities, future plans and
strategies, projections, technological developments, anticipated events and trends and regulatory changes that affect the
Corporation, its subsidiaries and their respective customers and industries. Although the Corporation and management believe the
expectations reflected in such forward-looking statements are reasonable and are based on reasonable assumptions and estimates as of
the date hereof, there can be no assurance that these assumptions or estimates are accurate or that any of these expectations will
prove accurate. Forward-looking statements are inherently subject to significant business, regulatory, economic and competitive
risks, uncertainties and contingencies that could cause actual events to differ materially from those expressed or implied in such
statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”,
“anticipate”, “plan”, “continue”, “estimate”, “expect”,
“may”, “will”, “project”, “predict”, “potential”,
“targeting”, “intend”, “could”, “might”, “would”, “should”,
“believe”, “objective”, “ongoing”, “imply” or the negative of these words or other
variations or synonyms of these words or comparable terminology and similar expressions.
By their nature forward-looking statements are
subject to known and unknown risks, uncertainties, and other factors which may cause actual results, events or developments to be materially
different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include,
among other things, the Corporation’s stage of development, long-term capital requirements and future ability to fund operations,
future developments in the Corporation’s markets and the markets in which it expects to compete, risks associated with its strategic
alliances and the impact of entering new markets on the Corporation’s operations. Each factor should be considered carefully, and
readers are cautioned not to place undue reliance on such forward-looking statements. See the section, “Risk Factors and Uncertainties”,
below noting that these factors are not intended to represent a complete list of the factors that could affect the Corporation.
Shareholders and investors should not place undue
reliance on forward-looking statements as the plans, assumptions, intentions or expectations upon which they are based might not occur.
The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Unless otherwise indicated
by the Corporation, forward-looking statements in this MD&A describe the Corporation’s expectations as of May 13, 2021
and, accordingly, are subject to change after such date. The Corporation does not undertake to update or revise any forward-looking statements,
except in accordance with applicable securities laws.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
3
|
|
|
3.
|
LIMITATIONS OF KEY METRICS AND OTHER DATA
|
The Corporation’s key metrics are calculated
using internal Corporation data. While these numbers are based on what the Corporation believes to be reasonable judgments and estimates
of customer numbers for the applicable period of measurement, there are certain challenges and limitations in measuring the usage of its
product offerings across its customer base. In addition, the Corporation’s key metrics and related estimates may differ from estimates
published by third parties or from similarly titled metrics of its competitors due to differences in methodology and access to information.
For important information on the Corporation’s
non-IFRS measures, see the information presented in “Key metrics” and “Selected financial information” below.
The Corporation continually seeks to improve its estimates of its active customer base and the level of customer activity, and such estimates
may change due to improvements or changes in the Corporation’s methodology.
Bragg Gaming: Overview and Strategy
Bragg is an innovative B2B online gaming technology
and content provider. Leveraging its industry-leading technology, it offers a turnkey solution, including a proprietary omni-channel retail,
online and mobile iGaming platform, as well as advanced casino content aggregator, sportsbook, lottery, marketing, and operational services.
Renowned for its rapid and seamless integration, its content aggregator combines casino, slots, live dealer, lottery, virtual sports and
instant-win game content from top tier gaming content providers, along with proprietary content, and is fully compliant with major regulated
jurisdictions, allowing operators to access over 13,000 world-class games through a single account.
Bragg’s vision is to become the leading
online gaming solution provider and distributer of online casino games via its in-house studio, its exclusive partners and via third parties,
and to capture an increasing proportion of the online gaming value chain. It focuses on three key pillars in order to achieve this goal:
investment in its proprietary platforms, diversification of its revenues and expansion into new geographies, and engagement with key strategic
partners in the industry. Bragg has heavily invested in its platform technology since the Corporation’s inception, introducing new
key features and capabilities each year that distinguishes it from competitors. In addition, Bragg continues to invest in its gaming content,
partnering with top-tier names in the space and consistently supplementing its portfolio of games, all available via a single integration.
Bragg has nearly tripled its customer base in
the last two years and continues to win large, notable clients with its popular and exclusive gaming content. Bragg’s content partners
include some of the most reputable companies in the space including Evolution, NetEnt, Golden Hero and Gamomat. Its primary operations
are provided through its wholly owned subsidiaries in Malta, Slovenia, and Cyprus. Bragg is compliant in Malta, Schleswig-Holstein Germany,
Romania, Croatia, Czech Republic, Serbia, Colombia, Sweden, and Denmark and anticipates further new licences during this year. The Corporation
is particularly focused on expanding into potentially lucrative geographies such as the United States, Canada, the UK and Latin America
and has made significant strides engaging with partners in some of these areas.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
4
|
Bragg continues to invest in building a
strong, experienced management team to drive these strategic initiatives. Effective May 1, 2021, the Corporation introduced a
new Chief Executive Officer, Richard Carter, an industry veteran and the previous CEO of SBTech, which he led through their merger
with DraftKings. Mr. Carter joined in early October 2020 and acted as the chairman. Together with Adam Arviv, the founder,
a shareholder of Bragg who brings over 30 years of experience in the gaming industry, Matevz Mazij, the founder of Oryx Group, and
Bragg’s experienced management team, we believe the Corporation is well prepared to achieve its mission and create value to
shareholders.
The Corporation was incorporated by Articles
of Incorporation pursuant to the provisions of the Canada Business Corporations Act on March 17, 2004.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
5
|
Financial performance in the first quarter
of 2021
The Corporation is pleased to report continued
improvement in revenue and performance during the three months ended March 31, 2021. The Corporation has continued to deliver against
its strategic objectives and accelerated growth while achieving revenue diversification and geographic expansion.
The Corporation’s revenue1 increased
from the same period in the previous year by 62% to EUR 14.2m (Q1 2020: EUR 8.8m) and by 3% from the prior quarter (Q4 2020: EUR 13.8m)
keeping its quarterly growth momentum since Q1 2019. The Corporation’s positive revenue growth compared to the same period in the
previous year was derived from organic growth from its existing customer base alongside new customers onboarded in the period.
The Corporation’s revenue growth was mainly
derived from the games and content services which accounted for 86% (Q1 2020: 89%) of total revenues as demand for the Corporation’s
unique games and content and technology proposition continues to grow. The Corporation’s growth has been underpinned by continued
investment and innovation in its technology and product offering with the main focus on the Oryx Hub, data analytics and customer engagement
platform and new in-house content, demonstrating the potential of Bragg to further leverage its technology to accelerate growth with the
goal of achieving profitability.
The Corporation saw continued growth in game play,
unique player numbers and increased engagement levels throughout its network. Total wagering generated by our customers in the period
was up by 52% from the same period in the previous year to EUR 3.5 billion (Q1 2020: EUR 2.3 billion) and the number of unique players2
using our games and content increased by 54% to 2.4m (Q1 2020: 1.6m). These strong numbers are a result of significant improvements to
our core content offering including the recent technical developments which enhance the user-experience.
Gross profit increased compared to the same period
in the previous year by 68% to EUR 6.6m (Q1 2020: EUR 4.0m) with gross margins increasing by 2% to 47% (Q1 2020: 45%), mainly attributable
to the shift in proportion of revenue from games and content to iGaming and turnkey services, the latter of which have lower associated
cost of sales.
Selling, general and administrative expenses increased
from the same period in the previous year by 75% to EUR 7.2m (Q1 2020: EUR 4.1m) amounting to 50% of total revenue (Q1 2020: 46%). Main
movements in the year were driven by the following:
1 Revenue
includes the Corporation’s share in game and content, platform fees and management and turnkey solutions.
2 Unique
players individuals who made a real money wagers at least once during the period
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
6
|
|
|
A.
|
Salaries and subcontractors increased by 25% to EUR 2.6m (Q1 2020: EUR 2.1m) as the Corporation continued to invest in expanding
its technology and product teams including software developers, product, analytics professionals and executive team to support new customers,
growth from its existing customer base, expansion into new markets, adjustments to regulatory requirements and enhancement of its technology
offering.
|
Share based payment costs increased
by EUR 1.2m to EUR 1.3m (Q1 2020: EUR 0.1m) predominantly due to vesting related to the share-based incentive plan awards to new directors
and management on January 29, 2021 in an aggregate amount of EUR 1.1m composed of DSUs and RSUs.
Total employee costs (including share
based payments charge) increased by 82% to EUR 3.9m (Q1 2021: EUR 2.2m) primarily due to increased headcount and share based payment costs.
|
|
B.
|
IT hosting cost increased by 21% to EUR 0.4m (Q1 2020: EUR 0.3m) mainly due to increase of traffic and servers cost, which
was in line with the revenue growth.
|
|
|
C.
|
Professional fees increased by EUR 0.3m to EUR 0.5m (Q1 2020: EUR 0.2m) mainly due to the increase of audit, legal and corporate
costs to comply with quarterly reviews, additional filing, and corporate governance requirements to support the uplisting of the Corporation
to TSX.
|
|
|
D.
|
Corporate costs increased by EUR 0.1m to EUR 0.2m (Q1 2020: EUR 0.1m) as a result of the Corporation’s increased investment
in corporate marketing and investor relation activities.
|
|
|
E.
|
Bad debt expense increased by EUR 0.1m to EUR 0.2m (Q1 2020: EUR 0.1m) due to an expectancy of the risk of the aging and liquidity
of trade receivables alongside a general provision in light of the global pandemic and its effect on the global economy.
|
|
|
F.
|
Transaction and acquisition costs amounted to EUR 0.6m (Q1 2020: EUR 0.0m) and relate to activities associated with the deployment
of the Corporation’s M&A strategy which includes legal, financial and technical processes in an aggregate amount of EUR 0.4m
(Q1 2020: EUR 0.0m) and corporate strategic marketing as part of the Nasdaq listing process of EUR 0.2m (Q1 2020: EUR Nil).
|
|
|
G.
|
Other operational costs amounted to EUR 0.4m (Q1 2020: EUR 0.2m) and relate predominantly to an increase in the premium in
relation to the Corporation’s directors and officers insurance of EUR 0.1m (Q1 2020: EUR 0.0m) and a one-time financial compensation
to two customers in an aggregate amount of EUR 0.1m (Q1 2020: Nil).
|
Total net loss for the period decreased by EUR
4.6m from the same period in the previous year to net loss of 1.1m (Q1 2020: net loss EUR 5.7m) mainly due to the full settlement of the
Oryx earn-out on January 18, 2021 resulting in nil expenditure from remeasurement of deferred and contingent consideration and accretion
on liabilities in the current quarter (Q1 2020: EUR 5.0m).
The Corporation’s performance continues
to improve, with Adjusted EBITDA increasing from the same period in the previous year by EUR 1.6m to EUR 2.3m (Q1 2020: EUR 0.7m). Adjusted
EBITDA margins increased by 8% to 16% (Q1 2020: 8%) and were achieved as a result of reaching higher scale and tight cost control. A reconciliation
between the current quarter’s reported figures and the prior year quarter’s figures to Adjusted EBITDA is shown in Note 5.3.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
7
|
Cash flow from operating activities for the three
months ended March 31, 2021 amounted to EUR 2.9m (Q1 2020: EUR 2.5m). The increase was primarily due to improvement in the performance
of the underlying business and in working capital movements.
Cash flow used in investing amounted to EUR 12.1m
(Q1 2020: EUR 0.4m) mainly attributable to deferred and contingent consideration payments of the Oryx cash earn-out in the value of EUR
11.5m (Q1 2020: Nil) and the additions of intangible assets in the value of EUR 0.6m (Q1 2020: EUR 0.4m).
Cash flow from (used in) financing activities
amounted to inflow of EUR 12.0m (Q1 2020: outflow EUR 0.0m) which is predominantly related to the net proceeds from exercise of warrants
and broker compensation options in the value of EUR 10.8m (Q1 2020: Nil) relating to the November 2020 Public Offering and EUR 1.3m
(Q1 2020: Nil) relating to the private placement in which the board of directors and officers participated on January 13, 2021.
Financial position:
Cash and cash equivalents as of March 31,
2021 increased to EUR 30.1m (December 31, 2020: EUR 26.1m) primarily due to a combination net proceeds from exercise of warrants
and broker compensation warrants, increased revenue from the Oryx business in the quarter, and net proceeds from the January 13,
2021 private placement offset by deferred and contingent consideration payments of the Oryx cash earn-out.
Trade and other receivables as of March 31,
2021 totalled EUR 8.4m (December 31, 2020: EUR 10.3m) due to improvements in cash collection offset by an increase in provision against
expected credit losses of EUR 0.3m.
Prepaid expenses and other assets as of March 31,
2021 increased by EUR 0.8m to EUR 1.1m (December 31, 2020: EUR 0.3m) due to increase in prepaid expenses in relation to the Corporation’s
M&A activities.
Trade payables and other liabilities as of March 31,
2021 decreased by EUR 0.1m to EUR 16.9m (December 31, 2020: EUR 17.0m) as result of a EUR 1.6m increase in trade payables and accrued
liabilities to EUR 14.1m (December 31, 2020: EUR 12.5m) offset by a decrease in sales tax payable of EUR 1.7m to EUR 2.7m (December 31,
2020: EUR 4.4m).
Deferred and contingent considerations as of March 31,
2021 was EUR Nil (December 31, 2020: EUR 11.5m) due to the full settlement of the Oryx earn-out on January 18, 2021. Upon extinguishment
of this liability the Corporation is no longer exposed, with the exception of lease commitments, to any long-term debts.
Other activities during Q1 2021
Settlement
of earn-out obligations
On January 18, 2021, the Corporation
satisfied its earnout obligations to the vendor of Oryx Gaming International LLC (K.A.V.O. Holdings Limited) via a combination of
cash and Common Shares of the Corporation. Settlement was comprised of cash of EUR 11.6m and a total of 4.7m Common Shares of the
Corporation issued to the vendor with a recorded fair-value of EUR 22m. The Common Shares are subject to a hold period expiring
May 19, 2021.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
8
|
In the prospectus for the November 2020 Public
Offering the Corporation disclosed that it expected to use EUR 10.4m (CAD 16.0m) of the net proceeds to pay back the cash portion of the
earn-out obligations owed to K.A.V.O. Holdings Limited with the rest of the offering going towards increasing the Corporation's cash position.
The Corporation paid a total of EUR 11.6m to satisfy the cash portion of the earn-out obligation, the variance of EUR 1.2m is mostly due
to the additional receivables that were paid to K.A.V.O. Holdings Limited, and interest accrued on the outstanding balance of the earn-out
payment.
In connection with this transaction Matevž
Mazij became a “control person” of the Corporation in accordance with section 1(1) of the Ontario Securities Act, with
a total shareholding through K.A.V.O. Holdings Limited of 4,900,000 Common Shares representing over 27% of the outstanding Common Shares
of the Corporation as of the settlement date.
Warrant acceleration
On January 21, 2021, the Corporation announced
that it had elected to exercise its right under the terms of a warrant indenture dated November 18, 2020 governing the Public Offering
Warrants of the Corporation to accelerate the expiry date of the warrants. Accordingly, the Corporation gave notice to all registered
warrant holders that the expiry date for the warrants was accelerated to February 22, 2021.
During the period from January 1, 2021 to
February 22, 2021 a total of 1,554,082 Public Offering Warrants were exercised for cash receipts of EUR 10.1m and a total of 160,548
Broker Warrants were exercised for cash receipts of EUR 0.7m.
Graduation to the TSX
On January 27, 2021, the Corporation announced
that it had graduated to the Toronto Stock Exchange. At the market open at 09:30 am ET on the date of announcement, the Corporation began
trading on TSX under the symbol “BRAG”. Concurrent with the TSX listing, the Corporation’s Common Shares were delisted
from the TSX Venture Exchange.
Private placement
On January 13, 2021, the Corporation completed
a non-brokered private placement offering comprised of 247,934 Common Shares at a price of CAD 12.10 per share for aggregate gross proceeds
of EUR 1.9m. This offering was exclusively taken up by Corporation employees and board members. The Common Shares are subject to a hold
period expiring May 14, 2021. No commission or finder's fee was paid in connection with the offering.
Other:
|
|
(1)
|
Share Capital: As at March 31, 2021, the number of issued and outstanding shares was 19,823,814 (March 31, 2020: 7,986,385),
the number of outstanding awards from equity incentive plans was 1,715,428 (March 31, 2020: 1,105,505), and the number of outstanding
warrants was 16,886 (March 31, 2020: 2,866,058).
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
9
|
|
|
(2)
|
Employees: Excluding discontinued operations, as at March 31, 2021, the Corporation employed 249 employees (December 2020:
241) across Slovenia, UK and Canada. Approximately 146 are part of the product and technology team, 38 are part of business development,
sales and marketing, 35 are part of the platform service and turnkey solutions and 30 in corporate head- office and support services.
|
Subsequent events
|
|
(1)
|
Reverse stock split: At the annual and special meeting of shareholders of the Corporation held on April 28, 2021, the shareholders
approved the Corporation to implement a consolidation (reverse stock split) of the Common Shares. The board of directors determined that
the consolidation would be on the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares (1-for-10).
The consolidation became effective as of April 30, 2021, and the Common Shares commenced trading on the Toronto Stock Exchange on
a post-consolidation basis at the open of trading on May 5, 2021. In accordance with IFRS accounting principles, the change has been
applied retroactively in this MD&A.
|
|
|
(2)
|
Amendment and restatement of omnibus equity incentive plan: The Corporation maintains an Omnibus Incentive Equity Plan ("OEIP")
for certain employees and consultants. At the annual and special meeting of shareholders of the Corporation held on April 28, 2021,
the shareholders approved the increase in the number of Common Shares available for issuance as awards under the plan from 3,180,000 to
3,965,000.
|
|
|
(3)
|
Base shelf prospectus: In order to support future growth initiatives, on May 4, 2021, the Corporation filed a short form base
shelf prospectus (the "Base Shelf Prospectus"), with securities regulators in each of the provinces and territories of Canada.
The Base Shelf Prospectus permits the Corporation to offer and sell Common Shares, unsecured debt securities, subscription receipts, warrants,
other securities convertible or exchange for Common Shares or other securities of the Corporation or any combination thereof in various
offerings having an aggregate value of up to CAD 500m during the 25-month period that the Base Shelf Prospectus remains effective.
|
|
|
(4)
|
Nasdaq listing: At the annual and special meeting of shareholders on April 28, 2021, the Corporation announced that it had filed
an application to list its Common Shares on The Nasdaq Stock Market (“Nasdaq”).
|
|
|
(5)
|
Appointment of Richard Carter to Chief Executive Officer: Effective May 1, 2021, Mr. Carter succeeded Adam Arviv, the Corporation’s
Chief Executive Officer. Mr. Arviv will continue to serve as an adviser to the new Chief Executive Officer and the Board.
|
|
|
(6)
|
Acquisition of Spin Games LLC: On May 12, 2021, the Corporation announced it had entered into an agreement to acquire Spin Games
LLC (“Spin”) in a cash and stock transaction for a purchase price of approximately USD 30 million. Under the deal the sellers
of Spin will receive USD 10 million in cash and USD 20 million in Common Shares of the Corporation of which USD 5 million in Common Shares
will be issued on closing and the balance over the next three years. The transaction is expected to close following final approval
from state gaming regulators and satisfaction of other customary closing conditions.
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
10
|
Strategic progress
Bragg Gaming has a strategy to become a leading
turnkey solution provider and distributor and provider of online casino games via its existing and new exclusive studio partnerships,
in-house studio and via third content providers and to capture an increasing proportion of the online gaming value chain.
The strategy is based on three primary pillars
of growth:
|
|
(1)
|
Enhanced technology and product offering
|
The core of the Bragg Gaming product offering
is its technology.
Oryx I-gaming platform
The Oryx Player Account Management (PAM) offers
seamless access to iGaming, lottery and sports betting products in an integrated package. It is an omni-channel, cross-product solution
with real-time data processing and automated campaign, fraud and player management. It is complemented by industry-leading operational
support services including marketing and operational services.
During Q1 2021, the Corporation launched a new
platform customer in Croatia and invested in platform enhancements and improvements focused on the changes to the regulatory regimes in
Germany and the Netherlands.
Oryx Hub
The Hub is a fully customizable aggregator platform
solution available through a one-time, seamless contract with a single integration process and delivery function. It offers operators
access to an extensive library of over 13,000 games from over 100 of the industry’s leading content providers, such as Gamomat,
Red Tiger, Evolution, iSoftBet, NetEnt, Quickfire, PlayNGO, EGT, Gamesys, Pragmatic Play, Kalamba, Peter & Sons and more. The
Corporation continues to licence content from emerging and unique gaming studios on a regular basis to offer its operators a new, rich
and diversified content offering.
Player Engagement Platform
The Player Engagement Platform consolidates a
number of functionalities that work together to increase player engagement and customer lifetime value. This includes a set of targeted
promotions, such as free spins, bonuses, leaderboards, and tournaments; a multi-channel communication platform which supports traditional
campaign channels such as SMS, email, social media; and a real-time campaign management system which takes the platform to the next level
by allowing operators to engage players onsite in real-time. During Q1 2021 improvements were made to the existing back office product,
adding further leaderboard features and improving automated player behaviour segmentation in order to offer in-game promotions which improve
player retention and lifetime value.
Further development is in progress to introduce
additional features such as quests, an achievements platform, a game recommendation engine, features to enable operators to automate their
promotions and notifications, and further advanced free rounds tools.
The Corporation’s player engagement tools
launched in 2020 continued to perform well throughout Q1 2021, which saw an increase in the use of leaderboards by operators on their
online sites. Furthermore, games played with leaderboards during the quarter resulted in increased total wagering, increased total rounds
and increased active players when compared to the performance of games operating without leaderboards.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
11
|
Data Analytics Platform
The Data Analytics Platform allows real-time collection
and analysis of data from internal as well as third- party systems, enabling operators to gain a better understanding of its customers
and effectively segment, target and engage them by triggering activities based on behaviour and preferences. Further development is underway
on the game recommendation engine and enhancements to responsible and safer gaming algorithms which identify in-play risky behaviour.
Developing these machine learning tools allows for automated segmentation based on user profile behaviour, enabling appropriate processes,
limits and protections to be put in place.
The Corporation continues to invest in its human
capital such as software developers, business analytics engineers, products, and legal and compliance to expand into new verticals and
geographies.
|
|
(2)
|
Exclusive and proprietary content
|
The Corporation partners with various game studios
such as Gamomat, Kalamba, Peter & Sons providing unique casino game concepts which form a strong and diversified content offering
in the online casino market. During Q1 2021 we launched 11 new Casino games, fully certified and distributed successfully throughout the
entire network. In addition, the Corporation has signed a new partnership deal with slots studio Sakuragate, including exclusivity to
distribute their titles outside of Japan, as part of our continued drive to diversify our content offering and support its growth strategy
in different jurisdictions.
In addition, Bragg set up its own proprietary
studio of leading industry game developers and game producers, mathematicians and game artists who use the extensive analytical and learnings
information developed in Oryx over the years. The Corporation is planning to introduce at least 5 new games to be launched in 2021 to
address predominantly European operators and new anticipated US markets.
|
|
(3)
|
Revenue diversification and expansion into new geographies
|
The Corporation maintains its existing customer
base with a high level of revenue retention and continues to on-board new operators and diversify its customer base. During Q1 2021, the
Corporation successfully launched 9 operators, including PAF, a state operator based on the Aland Islands in Finland, iGaming platform
Senator (Croatia), Swiss market leader Casino Luzern and Maxbet (Romania).
Consequently, customer concentration from the
top 10 customers was 62.4% of total revenues for the quarter, down from 65.4% of total revenues for the same period in the previous year.
As of March 31, 2021, the Corporation’s total customer base exceeded 100 customers, an increase of 61% from March 31,
2020.
The Corporation is constantly exploring strategic
partnership opportunities in new markets and seeking to leverage the strength of its technology and product offering, as well as the knowledge
and experience of its talented team.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
12
|
Regulatory updates in various geographies
Germany
The Corporation has exposure to revenues derived
from customers who have predominantly German facing end-users. After the new interstate treaty was ratified by the last German states
in April 2021, Germany is to become one of Europe’s largest regulated gaming markets and the first licences are anticipated
to be issued to online casino operators after July 1, 2021 after the transition period effectively initiated on October 15,
2020. The near-term impact of the changing regulatory landscape in the German market is likely to have a negative impact on revenue mainly
due to the introduction of restrictions on game play, responsible gambling initiatives and gaming tax. However, our view is that, in the
medium and long-term, the introduction of more regulation, similar to other established regulated markets will over time offset these
negative headwinds as operators utilize more traditional marketing channels such as television and print media, which in turn is expected
to help increase participation and eventually the overall market size. The Corporation will continue to monitor how the German market
adjusts to the new regulatory framework and is already closely working with its German facing customers with a view to mitigating future
adverse conditions.
European regulated countries
The Dutch regulation permitting on-line gaming
will become effective in the fall of this year (Q3 2021) and the Corporation is seeking to onboard Dutch clients and partner with them
in the newly regulated Dutch market. In April, the Corporation applied for a Greek B2B license and is monitoring other EU (e.g., Bulgaria)
and non-EU markets for regulatory developments (e.g., Georgia and Ukraine).
The United Kingdom
The Corporation is in the process of applying for a UKGC game supply
and hosting license, which will enable it to extend its offer to the UK market and to some international clients already on board.
The United States
Further to our announcement on January 26,
2021 about our planned expansion into the US, we are in the process of applying for a supplier license in various US states (New York,
New Jersey, Michigan and others).
Other
We have also applied for a Bahamian supplier license.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
13
|
Outlook
The Corporation continues to invest in new and
proprietary content, invest in its leading technology and grow and diversify its global footprint winning new customers in new jurisdictions.
Our North American (US and Canada) market expansion is progressing according to plan and the Corporation has filed an application to list
on the Nasdaq.
The global outbreak of COVID-19, has had, and
continues to have, a significant impact on the global economy. The Corporation derives the majority of its revenue from online casino
gaming. This sector has largely benefited from the various international “lock downs”, requiring people to stay at home. As
a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses such as Netflix have. Management
continues to monitor the effects COVID-19 on the Corporation’s performance and will amend its outlook as, and if, it deems necessary.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
14
|
|
5.1
|
BASIS OF FINANCIAL DISCUSSION
|
The financial information presented below has
been prepared to examine the results of operations from continuing activities. During the year ended December 31, 2019, the Corporation
decided to discontinue its online media business unit. As such, the performance of the online media division has been excluded.
The presentation currency of the Corporation is
the Euro, while the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling
due to primary location of individual entities within our corporate group. The presentation currency of the Euro has been selected as
it best represents the majority of the Corporation’s economic inflows, outflows as well as its assets and liabilities.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
15
|
|
5.2
|
SELECTED INTERIM INFORMATION
|
The following is selected financial data of the
Corporation for the three months ended March 31, 2021 and 2020.
The primary non-IFRS financial measure which the
Corporation uses is Adjusted EBITDA3. When internally analyzing underlying operating performance, management excludes certain
items from EBITDA (earnings before interest, tax, depreciation, and amortization).
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
14,196
|
|
|
|
8,784
|
|
|
Net Loss from continuing operations
|
|
|
(1,074
|
)
|
|
|
(5,384
|
)
|
|
EBITDA
|
|
|
337
|
|
|
|
(4,296
|
)
|
|
Adjusted EBITDA
|
|
|
2,342
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share- continuing operations
|
|
|
(0.06
|
)
|
|
|
(0.67
|
)
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Total assets
|
|
|
74,776
|
|
|
|
72,094
|
|
|
Total non-current financial liabilities
|
|
|
559
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
nil
|
|
|
|
nil
|
|
Non-current financial liabilities consist of
lease obligations on right of use assets in relation to office leases.
With the exception of EBITDA and Adjusted EBITDA, the
financial data has been prepared to conform with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). These accounting principles have been applied consistently across for
all reporting periods.
3
Adjusted EBITDA excludes income or expenses that relate to exceptional items and non-cash share-based charges and includes deductions
for lease expenses that are recognized as part of depreciation and finance charges under IFRS 16.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
16
|
|
5.3
|
OTHER FINANCIAL INFORMATION
|
To supplement its March 31, 2021 interim
financial statements presented in accordance with IAS 34, Interim Financial Reporting, the Corporation considers certain financial
measures that are not prepared in accordance with IFRS. The Corporation uses such non-IFRS financial measures in evaluating its operating
results and for financial and operational decision-making purposes. The Corporation believes that such measures help identify underlying
trends in its business that could otherwise be masked by the effect of the expenses that it excludes in such measures.
The Corporation also believes that such measures
provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects
and allow for greater transparency with respect to key metrics used by management in its financial and operational decision- making. However,
these measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with IFRS.
There are a number of limitations related to the use of such non-IFRS measures as opposed to their nearest IFRS equivalents.
A reconciliation of operating loss to EBITDA and
Adjusted EBITDA is as follows:
|
|
|
Three Months Ended March 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Operating loss
|
|
|
(499
|
)
|
|
|
(5,080
|
)
|
|
Depreciation and amortization
|
|
|
836
|
|
|
|
784
|
|
|
EBITDA
|
|
|
337
|
|
|
|
(4,296
|
)
|
|
Depreciation of right-of-use assets
|
|
|
(38
|
)
|
|
|
(52
|
)
|
|
Lease interest expense
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
Share based payments
|
|
|
1,309
|
|
|
|
51
|
|
|
Transaction and acquisition costs
|
|
|
563
|
|
|
|
37
|
|
|
Exceptional costs
|
|
|
176
|
|
|
|
-
|
|
|
Loss on remeasurement of contingent consideration
|
|
|
-
|
|
|
|
4,968
|
|
|
Adjusted EBITDA
|
|
|
2,342
|
|
|
|
702
|
|
Exceptional costs include one-time costs for the
Corporation, of which EUR 0.1m (Q1 2020: Nil) is related to uplisting to TSX and potential listing on the Nasdaq.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
17
|
|
5.4
|
SELECTED FINANCIAL INFORMATION
|
Selected financial information is as follows:
|
|
|
Three Months Ended March 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
14,196
|
|
|
|
8,784
|
|
|
Operating loss
|
|
|
(499
|
)
|
|
|
(5,080
|
)
|
|
EBITDA
|
|
|
337
|
|
|
|
(4,296
|
)
|
|
Adjusted EBITDA
|
|
|
2,342
|
|
|
|
702
|
|
|
|
|
|
As at
|
|
|
|
As at
|
|
|
|
|
|
March 31,
|
|
|
|
December 31,
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Total assets
|
|
|
74,776
|
|
|
|
72,094
|
|
|
Total liabilities
|
|
|
21,392
|
|
|
|
32,197
|
|
TRADE AND OTHER RECEIVABLES
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Less than one month
|
|
|
8,007
|
|
|
|
9,563
|
|
|
Between two and three months
|
|
|
763
|
|
|
|
1,193
|
|
|
Greater than three months
|
|
|
1,656
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,426
|
|
|
|
12,052
|
|
|
Provision for expected credit losses
|
|
|
(2,019
|
)
|
|
|
(1,755
|
)
|
|
Trade and Other Receivables
|
|
|
8,407
|
|
|
|
10,297
|
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
18
|
TRADE PAYABLES AND OTHER LIABILITIES
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade payables
|
|
|
4,871
|
|
|
|
6,406
|
|
|
Accrued liabilities
|
|
|
9,195
|
|
|
|
6,099
|
|
|
Sales tax payable
|
|
|
2,734
|
|
|
|
4,356
|
|
|
Other payables
|
|
|
90
|
|
|
|
107
|
|
|
Trade Payables and Other Liabilities
|
|
|
16,890
|
|
|
|
16,968
|
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
19
|
|
5.5
|
SUMMARY
OF QUARTERLY RESULTS
|
The following table presents the selected financial
data for continuing operations for each of the past eight quarters of the Corporation.
|
|
|
2Q19
|
|
|
3Q19
|
|
|
4Q19
|
|
|
1Q20
|
|
|
2Q20
|
|
|
3Q20
|
|
|
4Q20
|
|
|
1Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
2021
|
|
|
EUR 000
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Q1
|
|
|
Revenue
|
|
|
5,875
|
|
|
|
6,740
|
|
|
|
7,841
|
|
|
|
8,784
|
|
|
|
12,145
|
|
|
|
11,714
|
|
|
|
13,778
|
|
|
|
14,196
|
|
|
Operating income (loss)
|
|
|
(4,973
|
)
|
|
|
(77
|
)
|
|
|
(2,895
|
)
|
|
|
(5,080
|
)
|
|
|
762
|
|
|
|
(2,282
|
)
|
|
|
(5,296
|
)
|
|
|
(499
|
)
|
|
EBITDA
|
|
|
(4,427
|
)
|
|
|
456
|
|
|
|
(2,376
|
)
|
|
|
(4,296
|
)
|
|
|
1,429
|
|
|
|
(1,533
|
)
|
|
|
(4,623
|
)
|
|
|
337
|
|
|
Adjusted EBITDA
|
|
|
(279
|
)
|
|
|
204
|
|
|
|
737
|
|
|
|
702
|
|
|
|
1,751
|
|
|
|
1,834
|
|
|
|
1,259
|
|
|
|
2,342
|
|
|
Loss per share (EUR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
|
(0.65
|
)
|
|
|
(0.00
|
)
|
|
|
(0.70
|
)
|
|
|
(0.67
|
)
|
|
|
(0.08
|
)
|
|
|
(0.40
|
)
|
|
|
(0.52
|
)
|
|
|
(0.06
|
)
|
|
5.6
|
LIQUIDITY AND CAPITAL RESOURCES
|
The Corporation’s principal sources of liquidity
are its cash generated from operations. Currently available funds consist primarily of cash on deposit with banks. The Corporation calculates
its working capital requirements from continuing operations as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Cash and cash equivalents
|
|
|
30,112
|
|
|
|
26,102
|
|
|
Trade and other receivables
|
|
|
8,407
|
|
|
|
10,297
|
|
|
Prepaid expenses and other assets
|
|
|
1,096
|
|
|
|
263
|
|
|
Consideration receivable
|
|
|
160
|
|
|
|
148
|
|
|
Current liabilities excluding deferred and contingent consideration
|
|
|
(19,442
|
)
|
|
|
(18,521
|
)
|
|
Net working capital
|
|
|
20,333
|
|
|
|
18,289
|
|
|
Deferred and contingent consideration
|
|
|
-
|
|
|
|
(11,521
|
)
|
|
Net current assets from continuing operations
|
|
|
20,333
|
|
|
|
6,768
|
|
All contingent liabilities were settled in full
to the Oryx vendor on January 18, 2021 following shareholder approval on November 27, 2020. On January 18, 2021, the Corporation
satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares. Cash paid totalled EUR 11.6m,
of which EUR 11.5m fully settled deferred and contingent consideration payable and EUR 0.1m settled interest payable and legal fees.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
20
|
The undiscounted contractual maturities of significant
financial liabilities and the total contractual obligations of the Corporation as at March 31, 2021 for each of the next five years
and thereafter are below:
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
Trade payables and other liabilities
|
|
|
16,890
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,890
|
|
|
Lease obligations on right of use
assets
|
|
|
118
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
746
|
|
|
|
|
|
17,008
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
17,636
|
|
MARKET RISK
The Corporation is exposed to market risks, including
changes to foreign currency exchange rates and interest rates.
FOREIGN CURRENCY EXCHANGE RISK
The Corporation is exposed to foreign currency
risk, which includes risks related to its revenue and operating expenses denominated in currencies other than EUR, which is both the reporting
currency and primary contracting currency of the Corporation’s customers. Accordingly, changes in exchange rates may in the future
reduce the purchasing power of the Corporation’s customers thereby potentially negatively affecting the Corporation’s revenue
and other operating results.
The Corporation has experienced and will continue
to experience fluctuations in its net income (loss) as a result of translation gains or losses related to revaluing certain current asset
and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are
recorded.
LIQUIDITY RISK
The Corporation is also exposed to liquidity risk
with respect to its contractual obligations and financial liabilities. The Corporation manages liquidity risk by continuously monitoring
its forecasted and actual cash flows, and matching maturity profiles of financial assets and liabilities.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
21
|
The cash flow from continuing operations may be
summarized as follows:
|
|
|
|
Three Months Ended March 31,
|
|
|
EUR 000
|
|
|
2021
|
|
|
|
2020
|
|
|
Operating activities
|
|
|
2,930
|
|
|
|
2,540
|
|
|
Investing activities
|
|
|
(12,117
|
)
|
|
|
(362
|
)
|
|
Financing activities
|
|
|
12,030
|
|
|
|
(43
|
)
|
|
Effect of foreign exchange
|
|
|
1,167
|
|
|
|
(14
|
)
|
|
Net cash flow from continuing operations
|
|
|
4,010
|
|
|
|
2,121
|
|
Cash flows used in investing activities is primarily
due to final settlement of the Oryx earn out on January 18, 2021 of EUR 11.5m (three months ended March 31, 2020: Nil) and additions
to intangible assets of EUR 0.6m (three months ended March 31, 2020: EUR 0.4m):
|
|
|
Three Months Ended March 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Purchases of property and equipment
|
|
|
(15
|
)
|
|
|
(11
|
)
|
|
Additions in intangible assets
|
|
|
(581
|
)
|
|
|
(351
|
)
|
|
Deferred and contingent consideration payments
|
|
|
(11,521
|
)
|
|
|
-
|
|
|
Cash Flows Used in Investing Activities
|
|
|
(12,117
|
)
|
|
|
(362
|
)
|
Cash flows from (used in) financing activities
comprises EUR 10.8m of net proceeds from the exercise of warrants and broker warrants issued as part of the November 2020 equity
raise and EUR 1.3m of net proceeds from shares issued to directors and officers of the Corporation in connection with a private placement
(three months ended March 31, 2020: Nil):
|
|
|
Three Months Ended March 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Proceeds from exercise of warrants and broker warrants
|
|
|
10,817
|
|
|
|
-
|
|
|
Proceeds from shares to be issued upon private placement, net of issuance costs
|
|
|
1,310
|
|
|
|
-
|
|
|
Repayment of lease liability
|
|
|
(29
|
)
|
|
|
(36
|
)
|
|
Interest income
|
|
|
15
|
|
|
|
8
|
|
|
Interest and financing fees
|
|
|
(83
|
)
|
|
|
(15
|
)
|
|
Cash Flows From (Used in) Financing Activities
|
|
|
12,030
|
|
|
|
(43
|
)
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
22
|
|
|
6
|
TRANSACTIONS BETWEEN RELATED PARTIES
|
The Corporation’s policy is to conduct all
transactions and settle all balances with related parties on market terms and conditions for those in the normal course of business. Transactions
between the Corporation and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
The Corporation’s key management personnel
are comprised of members of the Board and the executive team which consists of the Interim Chief Executive Officer (“CEO”),
Chief Financial Officer (“CFO”), Chief Strategy Officer (“CSO”) and Managing Director of Oryx. Three key management
employees are also shareholders in the Corporation. Transactions and balances between the Corporation and its key management personnel
are as follows:
|
|
·
|
Revenues for the three months ended March 31, 2021 to a shareholder
of the Corporation totalled EUR 21 (three months ended March 31, 2020: EUR 4).
|
|
|
·
|
Total compensation for salaries, director fees, share-based payments and
short-term employee benefits of key management personnel of the Corporation for the three months ended March 31, 2021 totalled EUR
1,668 (three months ended March 31, 2020: EUR 438).
|
|
|
·
|
Loss on remeasurement of deferred and contingent consideration payable to
the Managing Director of Oryx for the three months ended March 31, 2021 was nil (three months ended March 31, 2020: EUR 4,968).
|
|
|
·
|
Interest expense on deferred and contingent consideration payable to the
Managing Director of Oryx for the three months ended March 31, 2021 totalled EUR 52 (three months ended March 31, 2020: nil).
|
|
|
·
|
During the three months ended March 31, 2021, legal fees of EUR 25 payable
to the Managing Director of Oryx in relation to the Oryx earn-out we recognized in the interim unaudited condensed consolidated statements
of loss and comprehensive income (loss) (three months ended March 31, 2020: nil).
|
|
|
·
|
During the three months ended March 31, 2021, a total of EUR 11,521
in payments were made to the Managing Director of Oryx for deferred consideration (three months ended March 31, 2020: nil).
|
|
|
·
|
During the three months ended March 31, 2021, a total of EUR 140 in
payments were made to the Managing Director of Oryx for interest on deferred and contingent consideration payable (three months ended
March 31, 2020: nil).
|
|
|
·
|
As at March 31, 2021, EUR 5 of trade and other receivables was receivable
from the Managing Director of Oryx and other shareholders (December 31, 2020: EUR 4).
|
|
|
·
|
As at March 31, 2021, EUR 172 of trade payables and other liabilities
was due to the CEO, CFO, the Managing Director of Oryx and member of Board (December 31, 2020: EUR 166).
|
|
|
·
|
As at March 31, 2021, nil of deferred and contingent consideration was
payable to the Managing Director of Oryx (December 31, 2020: EUR 11,521).
|
|
|
·
|
During the three months ended March 31, 2021, EUR 22,000 of share capital
(three months ended March 31, 2020: EUR nil) was issued to the Managing Director of Oryx upon completion of the earn-out. A corresponding
decrease in shares to be issued was recognized in the interim unaudited condensed consolidated statements of changes in equity.
|
|
|
·
|
During the three months ended March 31, 2021, EUR 267 additional
share capital was recognized in the interim unaudited condensed consolidated statements of changes in equity with a corresponding reduction in contributed surplus for exercise
of RSUs by key management personnel of the Corporation (three months ended March 31, 2020: nil).
|
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
23
|
|
|
7
|
DISCLOSURE OF OUTSTANDING SHARE DATA
|
The number of equity-based instruments granted or issued may be summarized
as follows:
|
|
|
March 31,
|
|
|
May 13,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Common Shares
|
|
|
19,823,814
|
|
|
|
19,823,814
|
|
|
Broker Warrants
|
|
|
16,886
|
|
|
|
16,886
|
|
|
Fixed Stock Options
|
|
|
1,226,628
|
|
|
|
1,225,271
|
|
|
Restricted Share Units
|
|
|
235,000
|
|
|
|
235,000
|
|
|
Deferred Share Units
|
|
|
253,800
|
|
|
|
253,800
|
|
|
|
|
|
21,556,128
|
|
|
|
21,554,771
|
|
Fixed stock options decreased by 1,357 options as a result of forfeitures
from employee terminations.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
24
|
|
|
8
|
CRITICAL ACCOUNTING ESTIMATES
|
The preparation of the interim unaudited condensed
consolidated financial statements requires management to make estimates and judgments in applying the Corporation’s accounting policies
that affect the reported amounts and disclosures made in the consolidated financial statements and accompanying notes.
Within the context of the interim unaudited condensed
consolidated financial statements, a judgment is a decision made by management in respect of the application of an accounting policy,
a recognized or unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that may
include estimates and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances recognized or
disclosed in the consolidated financial statements and are based on a set of underlying data that may include management’s historical
experience, knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances.
Management continually evaluates the estimates
and judgments it uses.
The following are the accounting policies subject
to judgments and key sources of estimation uncertainty that the Corporation believes could have the most significant impact on the amounts
recognized in the interim unaudited condensed consolidated financial statements.
Impairment of non-financial assets (property
and equipment, right-of-use assets, intangible assets and goodwill)
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management is required to use judgment in determining
the grouping of assets to identify their CGUs for the purposes of testing property and equipment, intangible assets and right-of-use assets
for impairment. Judgment is further required to determine appropriate groupings of CGUs for the level at which goodwill and intangible
assets are tested for impairment.
The Corporation has determined that B2B Online
Gaming and Online Media, part of discontinued operations, are two separate CGUs for the purposes of property and equipment, intangible
assets and right-of-use asset impairment testing. For the purpose of goodwill impairment testing, CGUs are grouped at the lowest level
at which goodwill is monitored for internal management purposes. In addition, judgment is used to determine whether a triggering event
has occurred requiring an impairment test to be completed.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
25
|
|
|
-
|
Key sources of estimation
|
In determining the recoverable amount of a CGU
or a group of CGUs, various estimates are employed. The Corporation determines fair value less costs to sell using such estimates as market
rental rates for comparable properties, recoverable operating costs for leases with tenants, non-recoverable operating costs, discount
rates, capitalization rates and terminal capitalization rates. The Corporation determines value in use by using estimates including projected
future revenues, earnings and capital investment consistent with strategic plans presented to the Board. Discount rates are consistent
with external industry information reflecting the risk associated with the specific cash flows.
Impairment of accounts receivable
In each stage of the expected credit loss (“ECL”)
impairment model, impairment is determined based on the probability of default, loss given default, and expected exposures at default.
The application of the ECL model requires management to apply the following significant judgments, assumptions, and estimations:
|
|
-
|
movement of impairment measurement between the three stages of the ECL model, based on the assessment
of the increase in credit risks on accounts receivables. The assessment of changes in credit risks includes qualitative and quantitative
factors of the accounts, such as historical credit loss experience and external credit scores;
|
|
|
-
|
thresholds for significant increase in credit risks based on changes in probability of default over the
expected life of the instrument relative to initial recognition; and
|
|
|
-
|
forecasts of future economic conditions.
|
Leases
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining the
appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create an economic incentive to
exercise a renewal option or to not exercise a termination option including investments in major leaseholds and past business practice
and the length of time remaining before the option is exercisable. The periods covered by renewal options are only included in the lease
term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold. Changes in the economic
environment or changes in the office rental industry may impact management’s assessment of lease term, and any changes in management’s
estimate of lease terms may have a material impact on the Corporation’s interim unaudited condensed consolidated statements of financial
position and interim unaudited condensed consolidated statements of loss and comprehensive income (loss).
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
26
|
|
|
-
|
Key sources of estimation
|
In determining the carrying amount of right-of-use
assets and lease liabilities, the Corporation is required to estimate the incremental borrowing rate specific to each leased asset or
portfolio of leased assets if the interest rate implicit in the lease is not readily determined. Management determines the incremental
borrowing rate using a base risk-free interest rate estimated by reference to the bond yield with an adjustment that reflects the Corporation’s
credit rating, the security, lease term and value of the underlying leased asset, and the economic environment in which the leased asset
operates. The incremental borrowing rates are subject to change due to changes in the business and macroeconomic environment.
Warrants and share options
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining the
model used and the inputs therein to valuate the value of share option grants and issued warrants. Management considers all facts and
circumstances for each grant issuance on an individual basis.
|
|
-
|
Key sources of estimation
|
In determining the fair value of warrants and
share options, the Corporation is required to estimate the future volatility of the market value of the Corporation’s shares by
reference to its historical volatility or comparable companies over the previous years, a risk-free interest rate estimated by reference
to the Government of Canada bond yield, and a dividend yield of nil.
Contingent consideration
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining the
appropriate fair value of contingent consideration and considers all facts and circumstances relevant to the acquisition’s future
earnings upon which the liability is calculated. Any changes in the economic environment or operational activity of the acquisition may
impact management’s assessment of the liability and may have a material impact on the Corporation’s interim unaudited condensed
consolidated statements of financial position and interim unaudited condensed consolidated statements of loss and comprehensive income
(loss).
|
|
-
|
Key sources of estimation
|
In determining the fair value of contingent consideration,
the Corporation is required to estimate the future earnings generated by the acquisition over an agreed period after the acquisition and
apply defined and fixed rules in order to calculate the expected future payment. The Corporation determines fair value by using estimates
including projected future earnings of the acquisition consistent with strategic plans presented to the Board. Discount rates are consistent
with external industry information reflecting the risk associated with the specific cash flows.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
27
|
|
|
9
|
CHANGES IN ACCOUNTING POLICY
|
There have been no changes in the Corporation’s
accounting policies in any of the reporting periods discussed in this MD&A.
|
|
10
|
RISK FACTORS AND UNCERTAINTIES
|
Certain factors, listed below, may have a material
adverse effect on the Corporation’s business, financial condition, and results of operations. Current and prospective investors
should carefully consider the risks and uncertainties and other information contained in this MD&A and the corresponding financial
statements.
The risks and uncertainties described herein and
therein are not the only ones the Corporation may face. Additional risks and uncertainties that the Corporation is unaware of, or that
the Corporation currently believes are not material, may also become important factors that could adversely affect the Corporation’s
business. If any of such risks actually occur, the Corporation’s business, financial condition, results of operations, and future
prospects could be materially and adversely affected.
LIMITED OPERATING HISTORY
The Corporation has a limited operational history.
The Corporation has never paid dividends and has no present intention to pay dividends. The Corporation is subject to the risks including
uncertainty of revenues, markets and profitability and the need to obtain additional funding. The Corporation will be committing, and
for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. The
Corporation's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies
in the early stage of development. Such risks include the evolving and unpredictable nature of the Corporation's business, the Corporation's
ability to anticipate and adapt to a developing market and the ability to identify, attract and retain qualified personnel. There can
be no assurance that the Corporation will be successful in doing what is necessary to address these risks.
KEY PERSONNEL
The success of the Corporation may be dependent
on the services of its senior management and consultants. The experience of these individuals may be a factor contributing to the Corporation's
continued success and growth. The loss of one or more of its key employees or consultants could have a material adverse effect on the
Corporation's operations and business prospects. In addition, the Corporation's future success will depend in large part on its ability
to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that the
Corporation will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect
on the Corporation's business, operating results, and financial condition.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
28
|
ADDITIONAL FINANCING REQUIREMENTS
In order to accelerate the Corporation's
growth objectives, it may need to raise additional funds from lenders and equity markets in the future. There can be no assurance
that the Corporation will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The
ability of the Corporation to arrange such financing in the future will depend in part upon the prevailing capital market conditions
as well as the business performance of the Corporation. There can be no assurance that the Corporation will be successful in its
efforts to arrange additional financing on terms satisfactory to the Corporation. If additional financing is raised by the issuance
of Common Shares from the treasury of the Corporation, control of the Corporation may change, and shareholders may suffer additional
dilution to current levels as a result of shares under option and broker warrants.
COMPETITION
The Corporation may not be able to compete successfully
against current and future competitors, and the competitive pressures the Corporation faces could harm its business and prospects. Broadly
speaking, the market for gambling businesses and media companies is highly competitive. The level of competition is likely to increase
as current competitors improve their product offerings and as new participants enter the market. Some of the Corporation's current and
potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater
financial, sales, marketing, technical and other resources than the Corporation. Additionally, these competitors have research and development
capabilities that may allow them to develop new or improved products that may compete with products the Corporation markets and distributes.
New technologies and the expansion of existing
technologies may also increase competitive pressures on the Corporation. Increased competition may result in reduced operating margins
as well as loss of market share.
MANAGEMENT OF GROWTH
The Corporation may be subject to growth-related
risks including capacity constraints and pressure on its operating systems and systems of internal controls. The Corporation's ability
to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand,
train and manage its employee base.
The inability of the Corporation to deal with
this growth could have a material adverse impact on its business, operations, and prospects. While management believes that it will have
made the necessary investments in infrastructure to process anticipated volume increases in the short term, the Corporation may experience
growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for
the Corporation's personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage
its current operations and any future growth effectively, the Corporation will also need to continue to implement and improve its operational,
financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance
that the Corporation will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support
the Corporation's operations or that the Corporation will be able to achieve the increased levels of revenue commensurate with the increased
levels of operating expenses associated with this growth.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
29
|
ABSENCE OF PROFITS
The Corporation has not earned any profits to
date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant
portion of the Corporation's financial resources will continue to be directed to the development of its products and to marketing activities.
The success of the Corporation will ultimately depend on its ability to generate revenues such that the business development and marketing
activities may be financed by revenues from operations instead of external financing. There is no assurance that future revenues will
be sufficient to generate the required funds to continue such business development and marketing activities.
CONFLICTS OF INTEREST
Certain proposed directors and officers of the
Corporation may become associated with other reporting issuers or other Companies which may give rise to conflicts of interest. In accordance
with the Canada Business Corporations Act, directors who have a material interest or any person who is a party to a material contract
or a proposed material contract with the Corporation are required, subject to certain exceptions, to disclose that interest and generally
abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly and in good faith
with a view to the best interests of the Corporation, as the case may be. Certain of the directors have either other employment or other
business or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs
of the Corporation.
COVID-19
In December 2019 there was a global
outbreak of COVID-19 (coronavirus), which has had a significant impact on businesses through the restrictions put in place by the national,
provincial and municipal governments around the world regarding travel, business operations and isolation/quarantine orders.
At this time, it is unknown the extent
of the impact the COVID-19 outbreak may have on the Corporation as this will depend on future developments that are highly uncertain and
that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak,
including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently,
or may be put, in place by Canada and other countries to fight the virus.
Our main priorities in dealing with
the COVID-19 situation are to minimize the risk of spreading the virus and to create a safe workplace for our employees as well as to
maintain the operation for our operators. We continue to comply with all the requirements from the authorities in the countries we operate
in, and in many instances, we have taken more far-reaching initiatives. Thanks to the measures that have been implemented in terms of
social distancing, changed working processes and routines for our employees, our operations have been able to continue without any large
negative effects.
However, the Corporation derives the
majority of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”,
requiring people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming
businesses such as Netflix have. Furthermore, the Corporation has limited exposure to sports betting revenues that have obviously been
impacted by the lack of professional sports.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
30
|
As at the time of publishing, the Corporation’s
financial performance, financial position and cash flow has been positively impacted as a result of people staying at home. Management
will continue to monitor events and effects to the Corporation closely and will amend its forecasts as and when it deems necessary.
|
|
11
|
ADDITIONAL INFORMATION
|
Additional information relating to the Corporation,
including the Corporation’s annual information form, quarterly and annual reports and supplementary
information is available on SEDAR at www.sedar.com.
Press releases and other information are also available in the Investor
section of the Corporation’s website at www.bragg.games.
|
|
Bragg Gaming Group Inc
Management Discussion & Analysis
March 31, 2021
|
31
|
Exhibit 4.6
BRAGG GAMING GROUP INC.
100 King Street West, Suite 3400
Toronto, Ontario M5X 1A4
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the annual
and special meeting (the "Meeting") of the shareholders ("Shareholders") of Bragg Gaming Group Inc.
(the "Corporation") will be held at the offices of Bennett Jones LLP, One First Canadian Place, Suite 3400, Toronto,
Ontario at 10:00 a.m. (Toronto time), on April 28, 2021 for the following purposes, the particulars of which are set forth in the management
information circular dated March 26, 2021 ("Circular"):
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1.
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to receive the audited annual financial statements of the Corporation for the year ended December 31,
2020, together with the report of the auditor thereon;
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2.
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to elect the directors of the Corporation to hold office until the close of the next annual meeting of
the Shareholders of the Corporation or until their successors shall be appointed or elected;
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3.
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to re-appoint auditors and to authorize the directors to fix the auditors' remuneration;
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4.
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to consider and, if deemed advisable, to pass, with or without variation, a special resolution authorizing
the amendment of the Corporation's articles of incorporation to consolidate the common shares of the Corporation on such basis as the
directors of the Corporation may determine, provided that the consolidation shall not be greater than on a 15-to-1 basis, as more particularly
described in the Circular;
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5.
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to consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution authorizing
the amendment and restatement of the Corporation's omnibus equity incentive plan to increase the number of common shares available for
issuance as awards under the Plan from 31,800,000 to 39,650,000, as more particularly described in the Circular; and
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6.
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to transact such other business as may properly be brought before the Meeting or any adjournment thereof.
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A copy of the audited annual financial statements
of the Corporation for the year ended December 31, 2020, together with the report of the auditor thereon, also accompany this notice of
the Meeting. The directors of the Corporation have fixed the close of business on March 23, 2021 as the record date (the "Record
Date") for the determination of Shareholders of the Corporation entitled to receive notice of, and to vote at, the Meeting. Only
Shareholders whose names have been entered in the Corporation's register of Shareholders as of the close of business on the Record Date
will be entitled to receive notice of, and to vote at, the Meeting.
Registered Shareholders may attend the Meeting
in person or may be represented by proxy. If you are a registered Shareholder and are unable to attend the Meeting in person, please
exercise your right to vote by dating, signing and returning the accompanying form of proxy to Computershare Investor Services Inc.,
the transfer agent of the Corporation. To be valid, completed proxy forms must be dated, completed, signed and deposited with the Corporation's
transfer agent, Computershare Investor Services: (i) by mail using the enclosed return envelope or one addressed to Computershare Investor
Services Inc., Proxy Department, 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1; (ii) by hand delivery to Computershare
Investor Services Inc., 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1; (iii) by facsimile to 1-866-249-7775 (within Canada
& the United States) and 416-263-9524 (Internationally); or (iv) by telephone at 1-866-732-8683 (within Canada & the United States)
and 312-588-4290 (Internationally). You may also vote through the internet and if you do vote through the internet, you may also appoint
another person to be your proxyholder. Please go to www.investorvote.com and follow the instructions. You will require your 15-digit
control number found on your proxy form. Your proxy or voting instructions must be received in each case no later than 10:00 a.m. (Eastern
Daylight time) on the second to last business day preceding the day of the Meeting or any adjournment thereof. If you are unable to attend
the Meeting, we encourage you to complete the enclosed form of proxy as soon as possible. If a Shareholder received more than one form
of proxy because such Shareholder owns Common Shares registered in different names or addresses, each form of proxy should be completed
and returned. The chairman of the Meeting shall have the discretion to waive or extend the proxy deadline without notice.
If you are not a registered Shareholder
and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance
with the instructions provided to you by your broker or by the other intermediary. For information with respect to Shareholders who own
their Common Shares through an intermediary, see "General Proxy Information – Non-Registered Shareholders" in this
Circular.
The Circular, this Notice, a Form of Proxy, audited
annual financial statements of the Corporation for the year ended December 31, 2020, together with the report of the auditor thereon and
the Management Discussion and Analysis related to such financial statements will be available on SEDAR at www.sedar.com.
DATED at Toronto, Ontario as of the 26th
day of March, 2021.
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By Order of the Board of Directors
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(signed) "Adam Arviv"
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Adam Arviv
Chief Executive Officer
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BRAGG GAMING GROUP INC.
MANAGEMENT INFORMATION CIRCULAR
March 26, 2021
INDEX
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GENERAL PROXY
INFORMATION
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1
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1.
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Solicitation
of Proxies
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1
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2.
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COVID-19 Measures
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1
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3.
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Appointment
and Revocation of Proxies
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2
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4.
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Exercise of
Discretion by Proxies
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2
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5.
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Signing of
Proxy
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3
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6.
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Non-Registered
Shareholders
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3
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7.
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Quorum
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4
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INTEREST
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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4
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VOTING SECURITIES
AND PRINCIPAL HOLDERS THEREOF
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5
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1.
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Description of Share Capital
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5
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2.
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Record Date
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5
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3.
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Ownership of Securities of the Corporation
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5
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BUSINESS
OF THE MEETING
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5
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1.
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Financial Statements
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5
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2.
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Election of Directors
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5
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3.
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Re-Appointment of Auditor
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10
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4.
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Approval of the Share Consolidation
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10
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5.
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Approval of the Plan Increase
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13
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OTHER BUSINESS
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15
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INTEREST
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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15
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EXECUTIVE
COMPENSATION
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15
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Management
Contracts
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28
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EQUITY COMPENSATION
PLAN INFORMATION
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28
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INDEBTEDNESS
OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
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28
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CORPORATE
GOVERNANCE DISCLOSURE
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28
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INTEREST
OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
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31
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ADDITIONAL
INFORMATION
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31
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APPROVAL
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32
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Schedule
"A" OMNIBUS EQUITY INCENTIVE PLAN
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A-1
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Schedule "B" CORPORATE GOVERNANCE DISCLOSURE
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B-1
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Schedule "C" Board Mandate
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C-1
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BRAGG GAMING GROUP INC.
MANAGEMENT INFORMATION CIRCULAR
March 26, 2021
GENERAL
PROXY INFORMATION
1.
Solicitation of Proxies
This management information circular ("Circular")
is furnished in connection with the solicitation of proxies by the management and the directors of Bragg Gaming Group Inc. (the "Corporation"
or "Bragg") for use at the annual meeting (the "Meeting") of the shareholders of the Corporation ("Shareholders")
to be held at the offices of Bennett Jones LLP, One First Canadian Place, Suite 3400, Toronto, Ontario at 10:00 a.m. (Toronto time), on
April 28, 2021 and at all adjournments thereof for the purposes set forth in the accompanying notice of the Meeting (the "Notice
of Meeting"). The solicitation of proxies will be made primarily by mail, and may be supplemented by telephone or other personal
contact by the directors, officers and employees of the Corporation. Directors, officers and employees of the Corporation will not receive
any extra compensation for such activities. The Corporation may also retain, and pay a fee to, one or more professional proxy solicitation
firms to solicit proxies from the Shareholders of the Corporation in favour of the matters set forth in the Notice of Meeting. The Corporation
may pay brokers or other persons holding common shares ("Common Shares") of the Corporation in their own names, or in
the names of nominees, for their reasonable expenses for sending forms of proxy and this management information circular to beneficial
owners of Common Shares and obtaining proxies therefrom. The cost of any such solicitation will be borne by the Corporation.
No person is authorized to give any information
or to make any representation other than those contained herein and, if given or made, such information or representation should not be
relied upon as having been authorized by the Corporation. The delivery of this management information circular shall not, under any circumstances,
create an implication that there has not been any change in the information set forth herein since the date hereof.
A registered shareholder of the Corporation may
vote in person at the Meeting or may appoint another person to represent such shareholder as proxy and to vote the Common Shares of such
shareholder at the Meeting. Only registered Shareholders of the Corporation, or the persons they appoint as their proxies, are entitled
to attend and vote at the Meeting. For information with respect to Shareholders who own their Common Shares beneficially through an intermediary,
see "Non-Registered Shareholders" below.
2.
COVID-19 Measures
The Corporation is carefully monitoring the public
health impact of the coronavirus (COVID-19) on a daily basis, and may decide to forego the physical Meeting in favor of a virtual-only
Meeting or some other alternative depending on the situation. While we understand this could disrupt the travel plans of those who plan
to attend, our first priority is the health and safety of our communities, shareholders, employees and other stakeholders. In the event
we decide to hold a virtual Meeting or some other alternative, shareholders will be notified and provided with additional details as soon
as possible pursuant to a press release, a notice on the Corporation's website and/or additional proxy materials filed on SEDAR.
As at the date of this Circular, management
strongly encourages all Shareholders who are eligible to vote at the meeting to vote by proxy and is discouraging in-person
attendance at the Meeting. Under no circumstances should Shareholders attend the Meeting in person if you are experiencing any cold
or flu- like symptoms, or if they or someone with whom they have been in close contact has travelled to/from outside of Canada
within the 14 days prior to the Meeting. All Shareholders are strongly encouraged to vote prior to the Meeting by and of the means
described in the Circular.
3.
Appointment and Revocation of Proxies
Enclosed herewith is a form of proxy for use at
the Meeting. The persons named in the form of proxy are directors and/or officers of the Corporation. A Shareholder submitting a proxy
has the right to appoint a nominee (who need not be a Shareholder) to represent such Shareholder at the Meeting, other than the persons
designated in the enclosed form of proxy, by inserting the name of the chosen nominee in the space provided for that purpose on the form
of proxy and by striking out the printed names.
A form of proxy will not be valid for the Meeting
or any adjournment or postponement thereof unless it is signed by the Shareholder or by the Shareholder's attorney authorized in writing
or, if the Shareholder is a corporation, it must be executed by a duly authorized officer or attorney thereof. The proxy, to be acted
upon, must be dated, completed, signed and deposited with the Corporation's transfer agent, Computershare Investor Services Inc.: (i)
by mail using the enclosed return envelope or one addressed to Computershare Investor Services Inc., Proxy Department, 8th Floor, 100
University Avenue, Toronto, Ontario, M5J 2Y1; (ii) by hand delivery to Computershare Investor Services Inc., 8th Floor, 100 University
Avenue, Toronto, Ontario, M5J 2Y1; (iii) by facsimile to 1-866-249-7775 (within Canada & the United States) and 416-263-9524 (Internationally);
or (iv) by telephone at 1-866-732-8683 (within Canada & the United States) and 312-588-4290 (Internationally), by no later than 10:00
a.m. (Eastern Daylight Time) on the second to last business day preceding the day of the Meeting or any adjournment thereof.
A registered Shareholder of the Corporation who
has given a proxy may revoke the proxy at any time prior to its use by: (a) depositing an instrument in writing, including another completed
form of proxy, executed by such registered Shareholder or by his or her attorney authorized in writing or by electronic signature or,
if the registered Shareholder is a corporation or other similar entity, by an authorized officer or attorney thereof (i) at the registered
office of the Corporation, located at 130 King Street West, Suite 1968, Toronto, Ontario, M5X 1K6, at any time prior to 10:00 a.m. (Toronto
Time) on the second to last business day preceding the day of the Meeting or any adjournment thereof, (ii) with Computershare Investor
Services Inc. at Proxy Department, 100 University Avenue, 8th Floor, Toronto, Ontario M5J 2Y1, at any time prior to 10:00 a.m. (Toronto
Time) on the second to last business day preceding the day of the Meeting or any adjournment thereof, or (iii) with the chairman of the
Meeting on the day of the Meeting or any adjournment thereof; (b) transmitting, by telephonic or electronic means, a revocation that complies
with clauses (i), (ii) or (iii) above and that is signed by electronic signature, provided that the means of electronic signature permits
a reliable determination that the document was created or communicated by or on behalf of such registered Shareholder or by or on behalf
of his or her attorney, as the case may be; or (c) in any other manner permitted by law including attending the Meeting in person.
4.
Exercise of Discretion by Proxies
The Common Shares represented by an appropriate
form of proxy will be voted on any ballot that may be conducted at the Meeting, or at any adjournment thereof, in accordance with the
instructions contained on the form of proxy. In the absence of instructions, such Common Shares will be voted in favour of each of the
matters referred to in the Notice of Meeting.
The enclosed form of proxy, when properly
completed and signed, confers discretionary authority upon the persons named therein to vote on any amendments to or variations of
the matters identified in the Notice of Meeting and on other matters, if any, which may properly be brought before the Meeting or
any adjournment thereof. At the date hereof, management of the Corporation knows of no such amendments or variations or other
matters to be brought before the Meeting. However, if any other matters which are not now known to management of the Corporation
should properly be brought before the Meeting, or any adjournment thereof, the Common Shares represented by such proxy will be voted
on such matters in accordance with the judgment of the person named as proxy thereon.
5.
Signing of Proxy
The form of proxy must be signed by the Shareholder
or the duly appointed attorney thereof authorized in writing or, if the Shareholder is a corporation or other similar entity, by an authorized
officer of such entity. A form of proxy signed by the person acting as attorney of the Shareholder or in some other representative capacity,
including an officer of a corporation which is a Shareholder, should indicate the capacity in which such person is signing and the form
of proxy should be accompanied by the appropriate instrument evidencing the qualification and authority to act of such person, unless
such instrument has previously been filed with the Corporation. A Shareholder or his or her attorney may sign the form of proxy or a power
of attorney authorizing the creation of a proxy by electronic signature provided that the means of electronic signature permits a reliable
determination that the document was created or communicated by or on behalf of such shareholder or by or on behalf of his or her attorney,
as the case may be.
6.
Non-Registered Shareholders
Only registered Shareholders of the Corporation,
or the persons they appoint as their proxies, are entitled to attend and vote at the Meeting. The Common Shares of a non-registered shareholder
(a "Non-Registered Shareholder") who beneficially owns Common Shares will generally be registered in the name of either:
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(a)
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an intermediary (an "Intermediary") with whom the Non-Registered Shareholder deals in
respect of the Common Shares (including, among others, banks, trust companies, securities dealers or brokers, trustees or administrators
of a self-administered registered retirement savings plan, registered retirement income fund, registered education savings plan and similar
plans); or
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(b)
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a clearing agency (such as The Canadian Depository for Securities Limited in Canada or The Depository
Trust Company in the United States) or its nominee of which the Intermediary is a participant.
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In accordance with the requirements of National
Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer published by the Canadian Securities
Administrators, the Corporation has distributed copies of the Notice of Meeting, this Circular, the form of proxy and the applicable financial
statements (collectively, the "Meeting Materials") directly to Non-Registered Shareholders. Intermediaries often use
service companies to forward the Meeting Materials to Non-Registered Shareholders. Generally, Non-Registered Shareholders who have not
waived the right to receive Meeting Materials will either receive:
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(a)
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Voting Instruction Form: a voting instruction form which is not signed by the
Intermediary and which, when properly completed and signed by the Non-Registered Shareholder and returned to the Intermediary
or its service company, will constitute voting instructions which the Intermediary must follow. Typically, the voting
instruction form will consist of a one page pre-printed form. Sometimes, instead of the one page pre-printed form, the voting
instruction form will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label
with a bar-code and other information. In order for the form of proxy to validly constitute a voting instruction form, the
Non-Registered Shareholder must remove the label from the instructions and affix it to the form
of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the
instructions of the Intermediary or its service company; or
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(b)
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Form of Proxy: a form of proxy which has already been signed by the Intermediary (typically
by a facsimile, stamped signature), which is restricted as to the number of Common Shares beneficially owned by the Non-Registered Shareholder
but which is otherwise not completed by the Intermediary. Because the Intermediary has already signed the form of proxy, this form of
proxy is not required to be signed by the Non-Registered Shareholder when submitting the proxy. In this case, the Non-Registered Shareholder
who wishes to submit a proxy should properly complete the form of proxy and deposit it with Computershare Investor Services Inc. at Proxy
Department, 100 University Avenue, 8th Floor, Toronto, Ontario M5J 2Y1.
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In either case, the purpose of these procedures
is to permit Non-Registered Shareholders to direct the voting of the Common Shares they beneficially own. Should a Non-Registered Shareholder
who receives either a voting instruction form or a form of proxy wish to attend the Meeting and vote in person (or have another person
attend and vote on behalf of the Non-Registered Shareholder), the Non-Registered Shareholder should strike out the names of the persons
named in the form of proxy and insert the Non-Registered Shareholder's (or such other person's) name in the blank space provided or, in
the case of a voting instruction form, follow the directions indicated on the form. Non-Registered Shareholders should carefully follow
the instructions of their Intermediaries and their service companies, including those instructions regarding when and where the voting
instruction form or the form of proxy is to be delivered.
A Non-Registered Shareholder who has submitted
a proxy may revoke it by contacting the Intermediary through which the Common Shares of such Non-Registered Shareholder are held and following
the instructions of the Intermediary respecting the revocation of proxies.
7.
Quorum
The quorum for the transaction of business at
any meeting of Shareholders is two persons present and holding or representing at least 10% of the outstanding Common Shares. In the event
that a quorum is not present within such reasonable time after the time fixed for the holding of the Meeting as the persons present and
entitled to vote at the Meeting may determine, such persons may adjourn the Meeting to a fixed time and place.
INTEREST
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Management of the Corporation is not aware of
any material interest, direct or indirect, by way of beneficial ownership of common shares or otherwise, of any director or executive
officer of the Corporation at any time since the beginning of the Corporation's last financial year, of any proposed nominee for election
as a director of the Corporation, or of any associate or affiliate of any such person, in any matter to be acted upon at the Meeting (other
than the election of directors).
VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF
1.
Description of Share Capital
The Corporation is authorized to issue an unlimited
number of Common Shares of which 198,238,111 Common Shares were outstanding as of the close of business on March 23, 2021.
The holders of the Common Shares are entitled
to one vote for each Common Share held on all ballots taken at all meetings of shareholders of the Corporation, except meetings at which
only holders of another specified class or series of shares of the Corporation are entitled to vote.
2.
Record Date
The directors of the Corporation have fixed March
23, 2021 as the record date for the determination of the Shareholders entitled to receive notice of the Meeting. Holders of record of
Common Shares at the close of business on March 23, 2021 will be entitled to vote at the Meeting and at all adjournments thereof.
3.
Ownership of Securities of the Corporation
As at March 23, 2021, and to the knowledge of
the directors and officers of the Corporation, no person, firm or corporation beneficially owned, directly or indirectly, or exercised
control or direction over, voting securities of the Corporation carrying more than 10% of the voting rights attaching to any class of
voting securities of the Corporation, except for the following:
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Shareholder Name
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Number of Common Shares
Beneficially Owned or Over which
Control is Exercised
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Percentage of Class
on a Non-diluted Basis
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K.A.V.O. Holdings Limited
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49,000,000
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24.7
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%
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BUSINESS
OF THE MEETING
1.
Financial Statements
The audited financial statements of the Corporation
for the year ended December 31, 2020 together with the report of the auditor thereon have been mailed to the Shareholders who requested
to receive them. The financial statements are also available on SEDAR at www.sedar.com. The financial statements of the Corporation for
the year ended December 31, 2020 and the report of the auditor thereon will be placed before the Meeting.
2.
Election of Directors
In accordance with the articles of incorporation
of the Corporation (the "Articles"), by-laws of the Corporation, and the policies of the Toronto Stock Exchange (the
“TSX”), the board of directors of the Corporation (the "Board"), must be comprised of a minimum of
three directors and a maximum of ten directors. At the Meeting, it is proposed that the directors whose names are set forth below be elected
to the Board. Each director elected will hold office until the close of the first annual meeting of the Shareholders following their election,
unless their office is earlier vacated in accordance with the by-laws of the Corporation.
The Corporation has adopted a majority voting
policy (the “Majority Voting Policy”) as required by the rules of the TSX. Pursuant to such policy, each of the management’s
nominees for election to the Board at the Meeting has agreed, and all future nominees will be required to agree, to abide by it. The Majority
Voting Policy states that if in an uncontested election a director nominee has more votes withheld than are voted in favour of them, the
nominee will be considered by the Board not to have received the support of the shareholders, even though duly elected as a matter of
corporate law. Such a nominee will be required forthwith to submit their resignation to the Board, effective upon acceptance by the Board.
The Board (or a designated committee thereof)
will consider the resignation and, except in special circumstances that would warrant the continued service of the director on the Board,
the Board will be expected to accept the resignation. The Board will make its decision and announce it in a news release (a copy of which
shall also be provided to the TSX) within 90 days after the shareholder meeting at which the candidacy of the director was considered.
If the Board does not accept the resignation of the director, the news release will fully state the reasons for that decision.
The following table sets forth certain information
regarding the nominees, their position with the Corporation, their principal occupation during the last five years, the dates upon which
the nominees became directors of the Corporation and the number of Common Shares beneficially owned by them, directly or indirectly, or
over which control or direction is exercised by them as at March 23, 2021:
Name and
Residence(3)
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Office
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Principal Occupation
During Last Five
Years
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Date Became
Director
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Number of
Common
Shares
Beneficially
Owned or
Over which
Control is Exercised(1)
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Adam Arviv
Toronto, Ontario
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Chief Executive Officer and Director
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Executive Chairman of Legacy Eight Group Ltd. Founder of Gaming Nation Inc.
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August 27, 2020(2)
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8,973,394
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Richard Carter
Isle of Man
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Executive Chairman of the Board
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CEO of interactive sports betting solutions and services provider SB Tech.
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September 30, 2020
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826,446
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Paul Pathak
Toronto, Ontario
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Vice-Chairman of the Board and Lead Director
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Securities and investment industry lawyer, partner
at Chitiz Pathak LLP
Served as a director of Gamesys Plc formerly JPJ
Group Plc, the Intertain Group Limited, and Wayland Group Corp.
|
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March 15, 2019
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332,644
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Name and
Residence(3)
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Office
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Principal Occupation
During Last Five
Years
|
Date Became
Director
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Number of
Common
Shares
Beneficially
Owned or
Over which
Control is Exercised(1)
|
Rob Godfrey
Toronto, Ontario
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Director
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President of Brown Lab Industries Inc.
Portfolio companies: Qwatro USA and UrbanDog Holdings
Active in Brown Lab's real estate activities
|
June 27, 2019
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206,611
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Paul Godfrey
Toronto, Ontario
|
Director
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Executive Chair of the Board of Directors of Postmedia
Network Canada Corp.
Chairman of the Board of Trustees of RioCan Real
Estate Investment Trust
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January 12, 2021
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495,867
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Matevž Mazij
Ljubljana, Slovenia
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Director
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Managing Director of Oryx Gaming International LLC
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January 20, 2021
|
49,000,000
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Lara Falzon
Xemxija, Malta
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Director
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CFO of NetEnt Star; and CFO of Red Tiger Gaming
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March 1, 2021
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Nil.
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Notes:
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(2)
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Appointed as a director on August 27, 2020 and CEO on November 27, 2020
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|
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(3)
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James Ryan will not stand for re-election at the Meeting.
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The directors of the Corporation have three committees
being the audit committee (the "Audit Committee"), the compensation committee ("Compensation Committee"),
and the nomination and governance committee ("Nomination and Governance Committee"). Following the Meeting, it is expected
that the Audit Committee will consist of three directors, being Lara Falzon (chair), Paul Pathak, and Rob Godfrey; the Compensation will
consist of three directors, being Rob Godfrey (chair), Adam Arviv, and Lara Falzon; and the Nomination and Governance Committee will consist
of three directors, being Paul Godfrey (chair), Paul Pathak, and Richard Carter.
Background of Directors
Adam Arviv –Chief Executive Officer and
Director
Adam Joseph Arviv is a Canadian-Israeli
investor. He has over 20 years' experience investing in the gaming industry, along with other niche industries. Mr. Arviv has been
the founder and/or lead investor of multiple companies over his career, including PickNation, Gaming Nation, Green Growth Brands,
the BRN Group and Bragg Gaming Group Inc. Mr. Arviv is considered by some to be a private equity investor, but considers himself an
activist investor. He has six children and is married to Ashley Alter Arviv, and he splits his time between Toronto, Miami, and The
Bahamas.
Richard Carter – Executive Chairman of
the Board
Richard Carter held the role of Chief Executive
Officer of interactive sports betting solutions and services provider SB Tech for the past five years, until the company's merger with
digital sports entertainment and gaming company DraftKings through a three-way deal with Diamond Eagle Acquisition Corp in April 2020.
The transaction was valued at US $3.3 billion and the combined entity has a current market cap of US $20 billion. SB Tech is the gaming
engine behind DraftKings and transformed DraftKings from a daily fantasy site into the digital sports entertainment and gaming company
that it is today.
Paul Pathak – Vice-Chairman of the Board
and Lead Director
Paul Pathak is an established securities and investment
industry lawyer, and partner at Chitiz Pathak LLP, practicing primarily in the areas of corporate, securities, mergers, acquisitions and
commercial law. Mr. Pathak acts for issuers in a broad range of securities transactions, including Initial Public Offerings (IPOs), reverse
takeovers (RTOs), establishment of capital pool companies, going-private transactions and other financing structures. Mr. Pathak has served
on the boards on several other public and private companies.
Rob Godfrey – Director
An entrepreneur born in Toronto, Ontario, Rob
is the President of Brown Lab Industries Inc. Rob oversees two portfolio companies: Qwatro USA (specialty chemicals) and UrbanDog Holdings
(pet services). In addition, Rob is active in Brown Lab's real estate activities including the management of commercial and industrial
properties in Ajax, Etobicoke and Toronto. Previous work experience includes Senior Vice President of the Toronto Blue Jays Baseball Club,
President of the Toronto Phantoms Arena Football Team and Associate at TD Securities. Rob holds a BA from the University of Western Ontario,
and a J.D./MBA from Pepperdine University in California.
Matevž Mazij – Director
Matevž Mazij is the founder and Managing
Director of Oryx. Slovenia-based Matevz, established Oryx in 2013, after 8 years as international business development, sales, marketing
and IT professional with different online and land-based gaming companies, building business relationships throughout Asia, Europe, Central
America and North America. Matevz has led Oryx from start up to global leader in turnkey gaming solutions.
Paul Godfrey – Director
Mr. Godfrey most recently served as the
Executive Chair of the board of directors of Postmedia Network Canada Corp. ("Postmedia"). Prior to this, he served
as Executive Chair and Chief Executive Officer of Postmedia, President and Chief Executive Officer of Postmedia, President and Chief
Executive Officer of National Post Inc., President and Chief Executive Officer of the Toronto Blue Jays Baseball Club and spent 16
years with Sun Media Corporation, eventually taking the role of President and Chief Executive Officer. Mr. Godfrey has a proud
record of public service including a record four terms (11 years) as the Chairman of the Municipality of Metropolitan Toronto. He
served as the Chairman of the Ontario Lottery and Gaming Corporation from 2010 until 2013. He is Chairman of the board of RioCan
Real Estate Investment Trust. He also serves on the board of Cargojet Inc. and serves as Vice Chairman of Baycrest Centre for
Geriatric Care.
Lara Falzon – Director
Ms. Falzon has more than ten years' experience
in strategic roles, most recently as the Group Commercial CFO of Netent AB. Prior to this role Ms. Falzon was the Group CFO of Red Tiger
Gaming. Her achievements included achieving financial performance records, driving radical growth and building a world class financial
infrastructure as well as optimizing staff performance. Red Tiger was subsequently acquired by Netent AB in September 2019. Ms. Falzon
has also been the CFO of Evoke Gaming Limited, and the Group Financial Controller at King.com. At King.com she played an instrumental
role in launching King.com's IPO on the NASDAQ, and later formed part of the team which led to Activation Blizzard acquiring King.com.
Ms. Falzon has a wealth of experience in navigating companies through complex finance transformation projects, designing highly efficient
reporting systems and guiding corporate mergers and acquisitions including post-merger integrations. Lara has served as CFO in both the
B2C and B2B online gaming sectors, for both public companies and fast-growing startups. During 2020, Lara was named in iGB’s Most
Influential Women list and Gaming Intelligence’s Hot 50 2021 list.
Shareholder Nominees
Pursuant to section 93 of the Corporation's By-Law
No. 1, nominations by Shareholders for the election of directors at the Meeting (other than nominations by shareholders pursuant to a
shareholder proposal or a requisitioned meeting), are to be received by the Corporation by 5:00 p.m. (Toronto time) on March 23, 2021.
Corporate Cease Trade Orders
Except as set out below, none of the nominees
for election as a director of the Corporation is, or was within the ten years prior to the date hereof, a director, chief executive officer
or chief financial officer of any company that was subject to a cease trade order, an order similar to cease trade order or an order that
denied such company access to any exemption under securities legislation that was, in each case, in effect for a period of more than 30
consecutive days and that was issued while that person was acting in such capacity or that was issued after that person ceased to act
in such capacity and which resulted from an event that occurred while that person was acting in such capacity:
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•
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Paul Pathak was formerly a director of Wayland Group Inc. ("Wayland"), a reporting issuer
previously listed on the Canadian Securities Exchange. In April 2019, the Ontario Securities Commission issued a failure-to-file cease
trade order against Wayland as a result of Wayland's failure to file its audited financial statements for the year ended December 31,
2018. Subsequently, in December 2019, Wayland was granted an order from the Ontario Superior Court of Justice (commercial list) under
the Companies' Creditors Arrangement Act.
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Personal Bankruptcies
None of the nominees for election as a director
of the Corporation is, or was within the ten years prior to the date hereof, a director or executive officer of any company that, while
that person was acting in such capacity, or within a year of that person ceasing to act in such capacity, became bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise
with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.
None of the nominees for election as a director
of the Corporation has within the ten years prior to the date hereof become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold his assets.
Penalties or Sanctions
None of the nominees for election as a director
of the Corporation has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities
regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or
sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether
to vote for a proposed director.
The persons named in the form of proxy accompanying
this management information circular intend to vote FOR the election of the nominees whose names are set forth above, unless the shareholder
of the Corporation who has given such proxy has directed that the Common Shares represented by such proxy be withheld from voting in respect
of the election of directors of the Corporation.
Management of the Corporation does not contemplate
that any of the nominees will be unable to serve as a director of the Corporation for the ensuing year; however, if that should occur
for any reason prior to the Meeting or any adjournment thereof, the persons named in the form of proxy accompanying this management information
circular have the right to vote for the election of the remaining nominees and may vote for the election of a substitute nominee at their
discretion.
3.
Re-Appointment of Auditor
Management recommends the re-appointment of MNP
LLP ("MNP") of Toronto, Ontario, as auditor of the Corporation to hold office until the close of the next annual meeting
of the Shareholders of the Corporation, or until their successor is otherwise appointed. MNP was first appointed auditor of the Corporation
on November 1, 2012.
The persons named in the form of proxy accompanying
this management information circular intend to vote FOR the re-appointment of MNP as the auditor of the Corporation until the close of
the next annual meeting of the Shareholders of the Corporation or until its successor is appointed and the authorization of the directors
of the Corporation to fix the remuneration of MNP, unless the shareholder of the Corporation who has given such proxy has directed that
the Common Shares represented by such proxy be withheld from voting in respect of the appointment of the auditor of the Corporation.
4.
Approval of the Share Consolidation
At the Meeting, Shareholders will be asked
to consider, and if deemed advisable to approve, a special resolution, authorizing, an amendment to the Articles to consolidate its
outstanding Common Shares (the "Share Consolidation") on such basis as the Board may determine, in its sole
discretion, provided that the Share Consolidation shall not be greater than on a 15:1 basis (the "Consolidation
Ratio"). The Board may in its sole discretion determine to use a Consolidation Ratio which may be less than 15:1, and
subject always to the Corporation continuing to meet the distribution requirements of the TSX. Subject to the approval of the TSX,
approval of the special resolution by Shareholders would give the Board authority to implement the Share Consolidation at any time
prior to the next annual meeting of Shareholders. The Share Consolidation will not materially affect the percentage ownership in the
Corporation by the Shareholders even though such ownership will be represented by a smaller number of Common Shares. The Share
Consolidation will merely proportionately reduce the number of Common Shares held by the Shareholders. The exercise or conversion
price and/or the number of Common Shares issuable under any outstanding convertible securities, including under outstanding Options,
warrants, rights and any other similar securities will be proportionately adjusted upon the implementation of the Share
Consolidation, in accordance with the terms of such securities, on the same basis as the consolidation of the Common Shares.
If, as a result of the Share Consolidation, a
Shareholder would otherwise be entitled to a fraction of a Common Share in respect of the total aggregate number of pre-consolidation
Common Shares held by such Shareholder, no such fractional Common Share will be awarded. The aggregate number of Common Shares that such
Shareholder is entitled to will, if the fraction is less than one half of one share, be rounded down to the next closest whole number
of Common Shares, and if the fraction is at least one half of one share, be rounded up to one whole Common Share. Except for any change
resulting from the rounding described above, the change in the number of Common Shares outstanding that would result from the Share Consolidation
will cause no change in the stated capital attributable to the Common Shares.
Reasons for the Share Consolidation
The Corporation believes that it is desirable
for the Common Shares to trade at a higher price per share. An increase in trading price of the common shares could heighten the interest
of the financial community in the Corporation and potentially broaden the pool of investors who may consider investing or may be able
to invest in the Corporation, potentially increasing the trading volume and liquidity of its Common Shares. The Share Consolidation may
also help to attract institutional investors or fund managers who have internal policies that either prohibit them from purchasing stocks
below a certain minimum price or tend to discourage individual brokers from recommending such shares to their customers, including institutional
investors, indexes, investment funds and exchange-traded funds that are prohibited from purchasing shares below a certain minimum price
threshold. The combination of potentially lower transaction costs and increased interest from institutional investors and investment funds
could ultimately improve the trading liquidity of the Common Shares.
Share Consolidation Conditional on Decision
of the Board
If the special resolution is approved, the Share
Consolidation would be implemented, if at all, only upon a determination by Board that it is in the best interests of the Corporation
at that time. In connection with any determination to implement the Share Consolidation, the Board will determine the timing for the Share
Consolidation to become effective. No further action on the part of the shareholders will be required in order for the Board to implement
the Share Consolidation.
If the Board does not implement the Share Consolidation
prior to the next annual meeting of shareholders, the authority granted by the special resolution to implement the Share Consolidation
on these terms will lapse and be of no further force or effect. The special resolution also authorizes the Board to elect not to proceed
with, and abandon, the Share Consolidation at any time if they determine, in their sole discretion, to do so.
Certain Risks Associated with the Share Consolidation
There are certain risks associated with the Share
Consolidation, including, but not limited to the following risks:
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·
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Reducing the numbers of issued and outstanding Common Shares through the Share Consolidation is intended,
absent other factors, to increase the per share market price of the Common Shares; however, there can be no assurance that the market
price of the Common Shares will in fact increase
following the Share Consolidation or will not decrease in the future.
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·
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The Share Consolidation may not result in a per share market price that will attract institutional investors
or investment funds and such Common Share price may not satisfy the investing guidelines of institutional investors or investment funds.
As a result, the trading liquidity of the common shares may not improve.
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·
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The Share Consolidation may also result in some Shareholders owning "odd lots" of less than
100 Common Shares. Odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than Common Shares
in board lots of even multiples of 100 Common Shares.
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Procedure for Implementing the Share Consolidation
The Share Consolidation will only become effective
upon the Corporation filing articles of amendment with the Director under the CBCA giving effect to the Share Consolidation and the endorsement
by the Director of a certificate of amendment in respect thereof. Under the CBCA, Shareholders do not have dissent and appraisal rights
with respect to the proposed Share Consolidation. Prior to the completion of the Share Consolidation, the Corporation will provide registered
Shareholders with a letter of transmittal (the "Letter of Transmittal") which will need to be duly completed and
submitted by registered Shareholders wishing to receive share certificates representing the post-Consolidation Common Shares to which
he, she or it is entitled if the Corporation completes the Share Consolidation. Upon receipt of a properly completed and signed Letter
of Transmittal and the share certificate(s) referred to in the Letter of Transmittal, the Corporation will arrange to have a new share
certificate representing the appropriate number of post-consolidation Common Shares delivered in accordance with the instructions provided
by the holder in the Letter of Transmittal. No delivery of a new share certificate to a Shareholder will be made until the shareholder
has surrendered his or her current share certificates. Until surrendered, each share certificate formerly representing pre-consolidation
Common Shares will be deemed for all purposes to represent the number of post-consolidation Common Shares to which the Shareholder is
entitled as a result of the Share Consolidation. Shareholders should neither destroy nor submit any share certificates until instructed
to do so.
Non-registered Shareholders holding the Common
Shares through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for
processing the Share Consolidation than those that will be put in place by the Corporation for registered Shareholders. If a Shareholder
holds the Common Shares with such bank, broker or other nominee and if they should have questions in this regard, they are encouraged
to contact their nominee to obtain instructions for processing the Share Consolidation.
Accordingly, at the Meeting, Shareholders will
be asked to consider and if deemed advisable, to pass, with or without variation the following special resolution approving the Share
Consolidation (the "Share Consolidation Resolution") as follows:
"BE IT RESOLVED AS A SPECIAL RESOLUTION
THAT:
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1.
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the articles of the Corporation be amended to consolidate the outstanding common shares of the Corporation
on such basis as the directors of the Corporation may determine, provided that the consolidation shall not be greater than on a 15:1 basis;
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2.
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the Corporation be, and it hereby is, authorized and empowered to file articles of amendment with the
Director appointed under section 173 of the Canada Business Corporations Act at any time after the date of this special resolution
to give effect to the amendment;
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3.
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any one officer or any one director of the Corporation be, and each of them hereby is, authorized and
empowered, acting for, in the name of and on behalf of the Corporation, to execute or to cause to be executed, under the seal of the Corporation
or otherwise, and to deliver or to cause to be delivered, all such documents, all in such form and containing such terms and conditions,
as any one of them shall consider necessary or desirable in connection with the foregoing and shall approve, such approval to be conclusively
evidenced by the execution thereof by the Corporation, and to do or to cause to be done all such other acts and things as any one of them
shall consider necessary or desirable in connection with the foregoing or in order to give effect to the intent of the foregoing paragraph
of this special resolution; and
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4.
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notwithstanding that this special resolution has been approved by the shareholders of the Corporation,
the directors of the Corporation are authorized to revoke this special resolution without further notice to, or approval of, the shareholders
of the Corporation at any time prior to the endorsement by the Director of a certificate of amendment of articles in respect of the amendment."
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The amendment to the Articles implementing the
Share Consolidation must be approved by special resolution in order to become effective. To pass, a special resolution requires the affirmative
vote of not less than two-thirds (⅔) of the votes cast by the Shareholders present at the Meeting in person or by proxy. The Board
recommends that the Shareholders vote FOR the Share Consolidation Resolution.
The persons named in the form of proxy accompanying
this management information circular intend to vote FOR the Share Consolidation Resolution as set forth above, unless the shareholder
of the Corporation who has given such proxy has directed that the Common Shares represented by such proxy be voted against the Share Consolidation
Resolution.
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5.
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Approval of the Plan Increase
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Background
At the Meeting, Shareholders will be asked to
consider, and if deemed advisable to approve, an ordinary resolution to authorize the amendment and restatement of the Corporation's omnibus
equity incentive plan as set out in Schedule "A" to this Circular (the "Incentive Plan") to increase the number
of common shares available for issuance as awards under the Incentive Plan to 39,650,000 ("Plan Increase"). On October
29, 2020, the Board approved the adoption of the Incentive Plan, which was designed to replace the Corporation's previous fixed stock
option plan and deferred share unit plan into a single, streamlined, plan. The Incentive Plan was subsequently approved by Shareholders
on November 27, 2020.
Under the Incentive Plan, the Corporation authorized
up to 31,800,000 Common Shares for issuance, less the aggregate number of Common Shares issuable under all other security-based compensation
arrangements of the Corporation. As of the date of this Circular, there are 4,953,273 stock options ("Options") outstanding
pursuant to the Corporation's previous fixed stock option plan, 400,000 deferred share units ("DSUs") granted and outstanding
pursuant to the Corporation's previous deferred share unit plan, and 9,317,579 Options, 899,000 DSUs, and 1,600,000 restricted share units
("RSUs") granted and outstanding pursuant to the Incentive Plan.
Following discussions and input from an independent
consultant, and an internal review of the Corporation's plan on new strategic hires and acquisitions, the Board voted, subject to the
approval of the Shareholders and the TSX, to increase to the number of Common Shares reserved for issuance pursuant to awards granted
under the Incentive Plan to 39,650,000 Common Shares, less the aggregate number of Common Shares issuable under all other security-based
compensation arrangements of the Corporation. For a full description of the Incentive Plan see "Stock Option Plans And Other Incentive
Plans".
Approval
The Incentive Plan is considered a fixed number
plan and has been drafted to comply with the policies of the TSX as they exist at the date of this Circular. In accordance with the rules
and policies of the TSX, the Incentive Plan must receive approval of the Shareholders at the time it is implemented and any time the number
of Common Shares reserved for issuance under the plan is increased.
Accordingly, at the Meeting, Shareholders will
be asked to consider and, if deemed advisable, pass, with or without variation, the following ordinary resolution approving the adoption
by the Corporation of the Incentive Plan (the "Plan Increase Resolution") as follows:
"BE IT RESOLVED AS AN ORDINARY RESOLUTION
THAT:
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1.
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the amended and restated omnibus equity incentive plan of the Corporation ("Incentive
Plan"), which increases the total number of common shares of the Corporation issuable thereunder from 31,800,000 to 39,650,000,
less the aggregate number of Common Shares issuable under all other security-based compensation arrangements of the Corporation, as set
out in Schedule "A" to the Corporation's management information circular dated March 26, 2021, be and is hereby confirmed, ratified,
and approved in replacement of all other equity incentive plans of the Corporation;
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2.
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any officer or director of the Corporation be and is hereby authorized, subject
to the approval of the applicable regulatory authorities, for and on behalf of the Corporation, to execute and deliver all documents and
instruments and to take such other actions as they may determine to be necessary or desirable to implement this Control Person Resolution
and the matters authorized here, such determination to be conclusively evidenced by the execution and delivery of any such documents or
instruments and the taking of any such actions; and
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3.
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notwithstanding that this resolution has been passed by the shareholders of the
Corporation, the adoption of the amended and restated Incentive Plan is conditional upon receipt of final approval from the TSX and the
directors are authorized and empowered to revoke this resolution, without any further approval of the shareholders of the Corporation,
at any time if such revocation is considered necessary or desirable by the directors."
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The confirmation and approval of the Plan Increase
must be approved by ordinary resolution of the Shareholders. To pass, an ordinary resolution of the Shareholders requires the affirmative
vote of not less than half of the votes cast by the Shareholders present at the Meeting in person or by proxy. The Board recommends that
the Shareholders vote FOR the Plan Increase Resolution.
The persons named in the form of proxy accompanying
this management information circular intend to vote FOR the Plan Increase Resolution as set forth above, unless the shareholder of the
Corporation who has given such proxy has directed that the Common Shares represented by such proxy be voted against the Plan Increase
Resolution.
OTHER
BUSINESS
Management is not aware of any matters to come
before the Meeting other than those set forth in the Notice of Meeting. If any other matter properly comes before the Meeting, it is the
intention of the persons named in the form of proxy accompanying this management information circular to vote the shares represented thereby
in accordance with their best judgment on such matter.
INTEREST
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Other than the election of directors and the approval
of the Incentive Plan and as otherwise set forth herein, management of the Corporation is not aware of any material interest, direct or
indirect, by way of beneficial ownership of securities or otherwise, of any person who has been a director or executive officer of the
Corporation at any time since the beginning of the Corporation's last financial year, or of any associate or affiliate of any such persons,
in any matter to be acted upon at the Meeting.
EXECUTIVE
COMPENSATION
The purpose of this compensation discussion and
analysis is to provide information about the Corporation's philosophy, objectives and processes regarding executive compensation. This
disclosure is intended to communicate the compensation provided to each of the Chief Executive Officer ("CEO"), the Chief
Financial Officer ("CFO"), the most highly compensated executive officer of the Corporation, if any, whose individual
total compensation was more than $150,000 for the year ended December 31, 2020 (collectively, the "Named Executive Officers"
or "NEOs"). At December 31, 2020, the Named Executive Officers of the Corporation were Richard Carter (Executive Chairman),
Adam Arviv (CEO), Ronen Kannor (CFO), and Yaniv Spielberg (Chief Strategy Officer and Corporate Secretary). At December 31, 2020, the
directors of the Corporation were Richard Carter, Paul Pathak, Adam Arviv, James Ryan, and Rob Godfrey.
The responsibility for determining the principles
for compensation of NEOs (other than the CEO and Executive Chairman) and other key employees of the Company rests with the CEO and the
Executive Chairman. Subject to final approval of the Board, the Compensation Committee is responsible for reviewing and recommending to
the Board the CEO and Executive Chairman’s compensation recommendations. The Compensation Committee considers implications of the
risks associated with the Corporation’s compensation policies and practices as part of its responsibilities to review and recommend
the compensation policies and practices of the Corporation.
The executive compensation program is designed
to encourage, compensate and reward employees on the basis of individual and corporate performance, both in the short-, medium-, and long-term,
thereby enabling the Corporation to retain executives important to the Corporations success. The Corporation has no specific formal objectives,
formula, or criteria for determining total compensation, the Compensation Committee, CEO and Executive Chairman, as applicable, may consider
the following factors, among others: an individual’s performance, tenure and experience, the performance of the Corporation overall,
any retention concerns and the individual’s historical compensation, including in comparison to peers in comparable positions. The
Compensation Committee, CEO and Executive Chairman, as applicable, does not weigh any of these factors more heavily than others and does
not use any formula to assess these factors, but rather considers each factor in its judgment and at its discretion.
The Board and the Compensation Committee believe
that the Corporation’s compensation policies and practices are appropriate for its industry and stage of business and that such
policies and practices do not have associated with them any risks that are reasonably likely to have a material adverse effect on the
Corporation or which would encourage an NEO to take any inappropriate or excessive risks. The Compensation Committee will continue to
review the Corporation’s compensation policies, including its compensation related risk profile, as necessary, to ensure its compensation
policies and practices are not reasonably likely to have a material adverse effect on the Corporation or encourage an NEO to take any
inappropriate or excessive risks, and may consider adopting a formal policy in this regard in the future, if necessary.
The Corporation's executive compensation program
has three components: (i) base salary; (ii) short-term incentives in the form of bonus compensation; and (iii) long-term compensation
to align the executives with the interests of shareholders. In special circumstances the Corporation may other additional compensation
and benefits to executives. These components may be summarized as follows:
Base Salary
The base salaries of the NEOs and other
key employees are based on competitive salaries for positions of similar responsibilities from the industry knowledge of the Board and
management, along with past performance, expertise, and scarcity of the executive or employee's skills. The Corporation does not designate
a specific peer group with respect to compensation, but the level of base salary for each NEO is determined by the Corporation.
Bonus Compensation
NEOs and key employees are eligible
for annual awards in the form of cash bonuses. Annual bonuses are meant to reward both individual accomplishments and contributions to
corporate performance. Bonuses encourage and reward individual accomplishments and contributions over the financial year toward achievement
of corporate goals and objectives.
Long-Term Incentive
The Incentive Plan was adopted by the
Board to attract, retain, motivate and compensate persons who are integral to the growth and success of the Corporation as it aligns management’s
interests with those of shareholders by tying compensation to share price performance and to aid in retention through vesting schedules.
When awarding Awards, the Board considers an individual’s performance; level of responsibility and contribution as well as the aggregate
number of Awards that would be held by such individual after the award under consideration is made. See "Approval of the Plan
Increase" and Schedule "A" for a full discussion of the process the Corporation uses to grant share-based or option-based
awards to executive officers and key employees.
Performance Graph
The following chart shows the Shareholder return
on the Common Shares for the period from December 31, 2018 to December 31, 2020, together with the cumulative return for the S&P/TSX
Composite Index for the same period, based on the closing price on the last trading day of each fiscal year. The chart assumes an initial
investment of $100.
The compensation of the Corporation’s NEOs
during this period was not directly tied to the price of the Common Shares in relation to any index.
Compensation Governance
The Compensation Committee reviews the adequacy
of remuneration for the executive officers by evaluating their performance in light of the Corporation's goals and objectives, the bonus
opportunities contained in their employment agreements, and by comparing the performance of the Corporation with other reporting issuers
of similar size in the same industry.
The terms of any proposed compensation for the
directors of the Corporation who are not also officers of the Corporation (including any share-based incentive awards to be granted) will
be determined by the Compensation Committee.
The Corporation relies on its Compensation Committee,
through discussion without any formal objectives, criteria or analysis, to determine the compensation of the Corporation's executive officers.
The Compensation Committee has not established formal criteria or goals that are tied to total compensation or any significant element
of total compensation. The Compensation Committee is responsible for determining all forms of compensation, including long-term incentives
in the form of share-based compensation, to be granted to NEOs and directors, and for reviewing the recommendations respecting compensation
of other officers of the Corporation from time to time, to ensure such arrangements reflect the responsibilities and risks associated
with each position. When determining compensation, the Compensation Committee considers: (i) recruiting and retaining executives critical
to the Corporation's success and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing
the interests of management and Shareholders; and (iv) rewarding performance, both on an individual basis and with respect to the Corporation's
operations in general.
Named Executive Officer Compensation
The following table sets forth the compensation
paid to the Corporation's Named Executive Officers for the three most recently completed financial years.
Summary Compensation Table
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Non-equity
incentive plan compensation (C$)
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Name and position
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Period
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Salary
(C$)
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Option-
Based
Awards
(C$)(3)
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Annual
Incentive
Plan (C$)
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Long-Term
Incentive
Plan (C$)
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All
Other
Compensation (C$)
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Total
Compensation (C$)
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Richard Carter
Executive Chairman(1)
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Year
ended December 31, 2020
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129,968
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nil
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nil
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nil
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nil
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129,968
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Year ended December 31, 2019
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nil
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nil
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nil
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nil
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nil
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nil
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Year ended December 31, 2018
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nil
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nil
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nil
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nil
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nil
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nil
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Adam Arviv
CEO and Director(2)
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Year
ended December 31, 2020
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400,000
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2,850,130
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nil
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nil
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200,000
|
|
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3,450,130
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|
|
|
Year ended December 31, 2019
|
|
|
|
400,000
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
400,000
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
7,692
|
|
|
|
500,771
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
508,463
|
|
Ronen Kannor
CFO
|
|
|
Year
ended December 31, 2020
|
|
|
|
189,112
|
|
|
|
932,703
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
15,129
|
|
|
|
1,136,944
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
Yaniv Spielberg
Chief Strategy Officer and Corporate
Secretary
|
|
|
Year
ended December 31, 2020
|
|
|
|
180,000
|
|
|
|
820,000
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
14,400
|
|
|
|
1,014,400
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
|
160,000
|
|
|
|
84,000
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
244,000
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
3,077
|
|
|
|
155,257
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
158,334
|
|
Notes to Summary Compensation Table:
|
|
(1)
|
Mr. Carter had total compensation of $129,968 in the year ended December 31, 2020, of which director fees
amounted to $32,492.
|
|
|
|
|
|
|
(2)
|
Mr. Arviv had total compensation of $3,450,130 in the year ended December 31, 2020, of which director
fees amounted to $134,444.
|
|
|
|
|
|
|
(3)
|
Option-Based Awards in the form of Stock Options are measured at fair-value on the date of grant using
the Black-Scholes model. DSUs and RSUs are valued by using the closing share price of the Common Shares on the TSX/TSXV on the date of
grant.
|
The following table sets forth all awards outstanding
at the end of the most recently completed financial year for each NEO.
Outstanding Share-Based Awards and Option-Based
Awards
|
|
|
Option-Based Awards
|
|
|
Share Based Awards
|
|
|
Name and position
|
|
Number of
securities
underlying
unexercised
Options (#)
|
|
|
Option
Exercise
Price (C$)
|
|
|
Option
Expiration
Date
|
|
Value of Unexercised in-the-
money
(C$)(1)
|
|
|
Number of shares
or units of shares
that have
not vested
|
|
|
Market or payout
value of
share
based
awards
that have
not vested (C$)(2)
|
|
|
Market or
payout value of
vested share
based awards
not paid out or distributed
(C$)(2)
|
|
Richard Carter
Executive Chairman
|
|
nil
|
|
|
n/a
|
|
|
n/a
|
|
n/a
|
|
|
nil
|
|
|
n/a
|
|
|
n/a
|
|
Adam Arviv
CEO and Director
|
|
|
750,000
|
|
|
$
|
0.56
|
|
|
December 26, 2023
|
|
|
652,500
|
|
|
|
nil
|
|
|
|
n/a
|
|
|
|
71,500
|
|
|
|
|
|
6,328,579
|
|
|
$
|
0.78
|
|
|
November 30, 2025
|
|
|
4,113,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronen Kannor
CFO
|
|
|
700,000
|
|
|
$
|
0.30
|
|
|
May 3, 2025
|
|
|
791,000
|
|
|
|
600,000
|
|
|
|
858,000
|
|
|
|
572,000
|
|
Yaniv Spielberg
Chief Strategy Officer and Corporate Secretary
|
|
|
250,000
|
|
|
$
|
0.56
|
|
|
December 26, 2023
|
|
|
217,500
|
|
|
|
600,000
|
|
|
|
858,000
|
|
|
|
1,072,500
|
|
Notes:
|
|
(1)
|
Value per in-the-money options-based award has been determined by taking the difference between the closing
share price on December 31, 2020 of $1.43 and the exercise price of the option.
|
|
|
(2)
|
Market or payout value per share-based award has been determined as the closing share price on December
31, 2020 of $1.43.
|
The following table provides the aggregate dollar
value of outstanding option-based awards, share based awards and non-equity incentive plan compensation for NEOs as at December 31, 2020,
which would have been realized had options that vested in the fiscal year ended December 31, 2020 been exercised on the vesting dates
thereof.
Incentive Plan Awards - Value Vested or Earned
During the Year
|
Name and position
|
|
Option-based Awards – Value
vested during the year (C$)
|
|
|
Share-based Awards – Value
vested during the year (C$)
|
|
|
Non-equity incentive plan
compensation – Value earned
during the year
|
|
Richard Carter
Executive Chairman
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
Adam Arviv
CEO and Director
|
|
|
2,965,643
|
|
|
|
nil
|
|
|
|
nil
|
|
Ronen Kannor
CFO
|
|
|
58,370
|
|
|
|
366,515
|
|
|
|
nil
|
|
Yaniv Spielberg
Chief Strategy Officer and Corporate Secretary
|
|
|
38,504
|
|
|
|
366,515
|
|
|
|
nil
|
|
Employment, Consulting and Management Agreements
with Named Executive Officers
|
|
1.
|
Executive Chairman Consulting Agreement
|
Richard Carter, Executive Chairman, and his services
are made available through a consulting services agreement between the Corporation and Mr. Carter dated as of September 28, 2020 (the
"Consulting Agreement"). Under the terms of the Consulting Agreement, Mr. Carter will provide general support to the
Chief Executive Officer of the Corporation with a particular focus on developing and implementing the Corporation's U.S. Strategy and
is entitled to receive US$25,000 per month for his services. The Consulting Agreement further sets out that Mr. Carter will receive 30
days' notice prior to the termination of the Consulting Agreement by the Corporation, In such event, Mr. Carter shall be entitled to his
prorated monthly fees until the end of the notice period but shall have no further claim against the Corporation in respect of such termination.
Mr. Carter will also be entitled to participate in the Incentive Plan.
On October 2, 2020, the Corporation entered into
a binding letter agreement with Adam Arviv (the "CEO Agreement") to act as Interim Chief Executive Officer for an initial
term of 12 months, with the ability to extend the term at one-month increments at the option of the Corporation. Under the terms of the
CEO Agreement, Mr. Arviv is entitled to receive $33,333 per month for his services. If the term of the CEO Agreement is extended beyond
the initial 12-month period, then Mr. Arviv would be entitled to receive $50,000 per month for his services. Mr. Arviv will also be entitled
to receive up to 4% in the issued and outstanding Common Shares in share-based compensation, subject to completing Board assigned projects,
goals or other performance metrics.
If the Corporation terminates Mr. Arviv's
employment without cause, it is obligated to pay Mr. Arviv $400,000 plus an amount in respect of Mr. Arviv's bonus equal to the monthly
prorated amount. In the event that Mr. Arviv's employment is terminated after serving twelve months as the interim Chief Executive Officer,
Mr. Arviv's estimated payment would be equal to $800,000 plus an amount in respect of Mr. Arviv's bonus equal to the monthly prorated
amount. Any share-based awards held by Mr. Arviv become fully exercisable in the event of a change of control.
On May 15, 2020, the Corporation entered into
an employment agreement with Ronen Kannor (the "CFO Agreement") to act as Chief Financial Officer for an indefinite term,
unless terminated by either party with not less than six months' notice. Under the terms of the CFO Agreement, Mr. Kannor is entitled
to receive £175,000 per annum for his services. Additionally, Mr. Kannor will be entitled to receive up to 100% of his base salary
as a bonus payment, subject to achieving certain agreed upon objectives. Such bonus may be satisfied by the granting of share-based awards.
If the Corporation terminates Mr. Kannor's employment
without cause, it is obligated to pay Mr. Kannor £175,000 plus an amount in respect of Mr. Kannor's bonus equal to the prorated
target amount. In the event of a change of control, and within 12 months of such change, if Mr. Kannor's employment is terminated due
to constructive dismissal or dismissal without cause, then Mr. Kannor will be entitled to £175,000 plus any payment in lieu of notice.
On December 10, 2019, with effect as of January
1, 2020, the Corporation entered into an employment agreement with Yaniv Spielberg (the "CSO Agreement") to act as Chief
Strategy Officer for an indefinite term, unless terminated by either party with not less than two weeks' notice. Under the terms of the
CSO Agreement, Mr. Spielberg is entitled to receive $180,000 per annum for his services. Additionally, Mr. Spielberg will be entitled
to receive up to 100% of his base salary as a bonus payment, subject to achieving certain agreed upon objectives.
If the Corporation terminates Mr. Spielberg's
employment without cause, it is obligated to pay Mr. Spielberg his base salary, prorated to three months, plus an amount in respect of
Mr. Spielberg's additional entitlement under applicable law, if any.
Director Compensation
The following table disclose all compensation
securities granted or issued to each non-executive director by the Corporation in the year ended December 31, 2020 for services provided
to the Corporation:
Director Summary Compensation Table
|
Name
|
|
Fees earned (C$)
|
|
|
Share-based awards
(C$)(1)
|
|
|
Option-based awards (C$)
|
|
|
Non-equity incentive plan compensation (C$)
|
|
|
Pension value
(C$)
|
|
|
All other compensation
(C$)
|
|
|
Total (C$)
|
|
|
Paul Pathak
|
|
|
100,000
|
|
|
|
91,628
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
191,628
|
|
|
James Ryan(2)
|
|
|
75,000
|
|
|
|
91,628
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
166,628
|
|
|
Rob Godfrey
|
|
|
65,000
|
|
|
|
328,000
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
|
393,000
|
|
Notes:
|
|
(1)
|
Share-based awards are valued by measuring the volume weighted average trading price of the Common Shares
on the TSX/TSXV on the date of grant.
|
|
|
(2)
|
James Ryan will not stand for re-election at the Meeting.
|
The following table sets forth all awards outstanding
at the end of the most recently completed financial year for each non-executive director.
Outstanding Share-Based Awards and Option-Based
Awards
|
|
|
Option-Based Awards
|
|
|
Share Based Awards
|
|
|
Name and position
|
|
Number of securities underlying unexercised Options (#)
|
|
|
Option Exercise Price (C$)
|
|
|
Option Expiration Date
|
|
|
Value of Unexercised in-the-money (C$)(1)
|
|
|
Number of shares or units of shares that have not vested
|
|
|
Market or payout value of share based awards that have not vested
(C$)(2)
|
|
|
Market or payout value of vested share based awards not paid out or distributed (C$)(2)
|
|
|
Paul Pathak
|
|
|
250,000
|
|
|
$
|
0.56
|
|
|
|
March 14, 2024
|
|
|
|
217,500
|
|
|
|
125,000
|
|
|
|
178,750
|
|
|
|
178,750
|
|
|
James Ryan(3)
|
|
|
250,000
|
|
|
$
|
0.56
|
|
|
|
March 14, 2024
|
|
|
|
217,500
|
|
|
|
125,000
|
|
|
|
178,750
|
|
|
|
178,750
|
|
|
Rob Godfrey
|
|
|
100,000
|
|
|
$
|
0.23
|
|
|
|
December, 19, 2024
|
|
|
|
120,000
|
|
|
|
200,000
|
|
|
|
286,000
|
|
|
|
286,000
|
|
Notes:
|
|
(1)
|
Value per in-the-money options-based award has been determined by taking the difference between the closing
share price on December 31, 2020 of $1.43 and the exercise price of the option.
|
|
|
(2)
|
Market or payout value per share-based award has been determined as the closing share price on December
31, 2020 of $1.43.
|
|
|
(3)
|
James Ryan will not be standing for re-election at the Meeting.
|
The following table provides the aggregate dollar
value of outstanding option-based awards, share-based awards and non-equity incentive plan compensation for directors as at December 31,
2020, which would have been realized had options that vested in the fiscal year ended December 31, 2020 been exercised on the vesting
dates thereof.
Incentive Plan Awards - Value Vested or Earned
During the Year
|
Name and position
|
|
Option-based Awards – Value vested during the year ($)
|
|
|
Share-based Awards – Value vested during the year ($)
|
|
|
Non-equity incentive plan compensation – Value earned during the year
|
|
|
Paul Pathak
|
|
|
60,823
|
|
|
|
90,196
|
|
|
|
nil
|
|
|
James Ryan(1)
|
|
|
60,823
|
|
|
|
90,196
|
|
|
|
nil
|
|
|
Rob Godfrey
|
|
|
7,858
|
|
|
|
322,875
|
|
|
|
nil
|
|
Notes:
|
|
(1)
|
James Ryan will not be standing for re-election at the Meeting.
|
Stock Option Plans and Other Incentive
Plans
Incentive Plan
The Board adopted the Incentive Plan to improve
the equity incentives available to the Corporation and attract and retain qualified persons to serve on the Board and to service the Corporation.
Receiving a portion of their compensation for serving as a director or officer of the Corporation in the form of securities of the Corporation
also encourages ownership of the Common Shares by such persons. In addition to streamlining the administration of equity incentives, the
purpose of the Incentive Plan is to advance the interests of the Corporation and its affiliates by: (a) attracting, rewarding and retaining
highly competent persons as directors, officers, employees and consultants of the Corporation; (b) providing additional incentives to
such persons by aligning their interests with those of the Shareholders; and (c) promoting the success of the Corporation's business.
The Board believes that the current number of
Common Shares available for issuance under the Incentive Plan is insufficient to meet the above purposes. Currently, the number of Common
Shares issuable under the Incentive Plan shall not exceed 31,800,000 less the number of Common Shares issuable on exercise of any award
outstanding under the Corporation's previous share compensation arrangements, which represents approximately 16.0% of the Corporations
issued and outstanding Common Shares. The Plan Increase will change that so the number of Common Shares issuable under the Incentive Plan
shall not exceed 39,650,000 less the number of Common Shares issuable on exercise of any award outstanding under the Corporation's previous
share compensation arrangements, which represents approximately 20% of the Corporation's issued and outstanding Common Shares as at the
date of this Circular. The Board believes this better reflects the compensation goals of the Corporation and aligns it with the compensation
practices of similarly situated companies in the technology and gaming industry. Additionally, the Board believes the Plan Increase is
necessary to achieve the Corporation's plan for strategic growth by allowing the Corporation to attract key talent and personnel.
|
|
2.
|
Administration of the Incentive Plan
|
The Incentive Plan will be administered by the
Board, which may delegate its authority to the Compensation Committee or any other duly authorized committee of the Board and may revoke
or amend such delegation. The Incentive Plan shall remain in effect until terminated by the Board.
The Incentive Plan authorizes the Board (or a
committee of the Board if so authorized by the Board) to grant Awards to "Eligible Participants". Eligible Participants
are directors, officers, employees, consultants of or to the Corporation, or a subsidiary, providing ongoing services to the Corporation
and/or its subsidiaries. The aggregate number of Common Shares issued to insiders within any 12-month period, or issuable to insiders
at any time, under the Incentive Plan and any other security based compensation arrangement of the Corporation, may not exceed 10% of
the total number of issued and outstanding Common Shares during such period of time.
The Incentive Plan provides for the grant of Options,
DSUs, restricted share units ("RSUs"), performance share units ("PSUs"), stock appreciation rights ("SARs")
and other share-based awards (each an "Award" and collectively, the "Awards"). All Awards are granted
by an agreement or other instrument or document evidencing the Award granted under the Incentive Plan (an "Award Agreement").
The date of grant, the number of Common Shares, the vesting period and any other terms and conditions of Awards granted pursuant to the
Incentive Plan are to be determined by the Board, subject to the express provisions of the Incentive Plan and the applicable Award Agreement.
An Option is a right to purchase a Common
Share for a fixed exercise price. Options shall be for a fixed term and exercisable from time to time as determined in the discretion
of the Board, provided that no Option shall have a term exceeding ten years. If an Option expires during a blackout period, its term will
be extended to the date which is ten business days following the end of such period. Under no circumstances will the Corporation issue
options at less than fair market value. Fair market value is defined as the greater of: (a) the volume weighted average trading price
of the common shares of the Corporation on the Exchange for the five most recent trading days immediately preceding the grant date; and
(b) the closing price of the common shares on the Exchange on the trading day immediately prior to the grant date.
|
|
(ii)
|
Deferred Share Units.
|
A DSU is an Award denominated in units
that provides the holder thereof with a right to receive Common Shares (or cash in lieu) upon settlement of the Award, subject to any
such restrictions that the Board or its delegate may impose. Each Award Agreement will provide the extent to which the Eligible Person
will have the right to retain DSUs if they cease to be an Eligible Person. Such provisions will be determined in the sole discretion of
the Board or its delegate, and need not be uniform among all DSUs issued pursuant to the Incentive Plan.
|
|
(iii)
|
Restricted Share Units
|
A RSU is a right to receive a
Common Share (or cash in lieu) issued from treasury or, at the option of the Corporation, purchased in the market. The RSU does not
vest until after a specified period of time, or satisfaction of other vesting conditions as determined by the Board or its delegate,
and which may be forfeited if conditions to vesting are not met. If the holder of Restricted Shares or RSUs ceases to be an Eligible
Person for any reason, other than death, disability or retirement, any RSUs held by the participant that have vested before the
termination date will be paid to the participant, provided that all unvested RSUs and Restricted Shares held at the termination date
shall be immediately cancelled and forfeited on the termination date. Unless otherwise approved by the Board, unvested RSUs
previously credited to the participant's account will vest immediately upon the holder's death and will continue to vest in the
event that the recipient retires or is disabled, subject to certain adjustments. RSUs that have vested at the termination date will
be paid to the participant, or the participant's estate, as applicable.
|
|
(iv)
|
Performance Share Units
|
PSUs are awarded based on the attainment
of certain target levels of, or a specified increase or decrease (as applicable) in one or more performance goals, which may include performance
relative to the Corporation's peers or affiliates. Performance goals may also be based upon the individual recipient as determined by
the Board, in its sole discretion.
Unless otherwise determined by the Board
or its delegate, unvested PSUs previously credited to the participant's account will be immediately cancelled and forfeited to the Corporation
on the termination date in the event that the holder is terminated for any reason other than death, disability or retirement. Unvested
PSUs previously credited to the participant's account will vest immediately in the event that the holder dies and will continue to vest
if the holder retires or is disabled, subject to certain adjustments. PSUs that have vested at the termination date will be paid to the
participant, or the participant's estate, as applicable.
|
|
(v)
|
Stock Appreciation Right
|
A SAR is stock appreciate right representing
the right to receive, subject to restrictions and conditions at the time of grant, a cash payment or Common Shares in lieu of cash having
an aggregate value equal to the product of (i) the excess of (A) the Market Value on the exercise date of one Common Share divided by
(B) the base price per Common Share specified in the award, multiplied by (ii) the number of Common Shares specified by the SAR, or the
portion thereof, that is exercised. The base price per Common Share specified in the Award Agreement shall not be less than the market
value on the date of grant.
|
|
(vi)
|
Other Share-Based Awards
|
The Board or its delegate is authorized,
subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued
in whole or in part by reference to, or otherwise based on, or related to, shares or factors that may influence the value of the Common
Shares.
In the event of a change in control, unless otherwise
provided in an Award Agreement, the Board or its delegate shall have the discretion to unilaterally determine that all outstanding Awards
shall be cancelled upon a change in control, and that the value of such Awards, as determined by the Board or its delegate,shall be paid
out in cash in an amount based on the change in control price within a reasonable time subsequent to the change in control, subject to
the approval of the TSX.
Notwithstanding the foregoing, no cancellation,
acceleration of vesting, lapsing of restrictions or payment of an Award shall occur with respect to any Award if the Board or its delegate
reasonably determines in good faith prior to the occurrence of a change of control that such Award shall be honoured or assumed, or new
rights substituted therefor by any successor to the Corporation or an affiliate.
Except as may be permitted by the Board, as specifically
provided in an Award Agreement or as otherwise specifically provided by law, no Award or other benefit payable under the Incentive Plan
shall be transferred, sold, assigned, pledged or otherwise disposed in any manner other than by will or the law of descent.
The Incentive Plan contains a formal amendment
procedure. The Board may amend certain terms of the Incentive Plan without requiring the approval of the Shareholders, unless specifically
required by the TSX. Amendments not requiring shareholder approval include, without limitation:
|
|
•
|
making any amendments to the general vesting provisions of any Award, including accelerating the expiry
date of an Award;
|
|
|
•
|
making any amendments to the general term of any Award, provided that no Award held by an insider may
be extended beyond its original expiry date;
|
|
|
•
|
making any amendments to add covenants or obligations of the Corporation for the protection of participants;
|
|
|
•
|
amending provisions relating to the administration of the Incentive Plan;
|
|
|
•
|
making "housekeeping" amendments, such as those necessary to cure errors or ambiguities contained
in the Incentive Plan;
|
|
|
•
|
effecting amendments necessary to comply with the provisions of applicable laws; or
|
|
|
•
|
making such changes or corrections which are required for the purpose of curing or correcting any ambiguity
or defect or inconsistent provision or clerical omission or mistake or manifest error.
|
Shareholder approval is, however, required to
make the following amendments:
|
|
•
|
increasing the number of Common Shares issuable under the Incentive Plan;
|
|
|
•
|
An increase to the limit on the number of Common Shares issued or issuable under the Incentive Plan to
insiders of the Corporation;
|
|
|
•
|
extending the term of any Award beyond the expiry of the original term of the Award (other than as otherwise
permitted hereunder in relation to a blackout period or otherwise);
|
|
|
•
|
reducing the exercise price of an Option awarded to an insider or cancelling and replacing Options awarded
to an insider with Options with a lower exercise price;
|
|
|
•
|
amending the class of Eligible Persons which would have the potential of broadening or increasing participation
in the Incentive Plan by insiders;
|
|
|
•
|
amending the formal amendment procedures of the Incentive Plan; and making any amendments to the Incentive
Plan required to be approved by the Shareholders under applicable law.
|
Legacy Option Plan
On September 9, 2013, the Shareholders approved
and adopted the Corporation's previous stock option plan ("Legacy Option Plan") for directors, officers, employees and
consultants, pursuant to which 20% of the then issued and outstanding Common Shares as of the date of approval were available for purchase
upon the exercise of options awarded by the Corporation, including options previously awarded and outstanding under the former stock option
plans. The Legacy Option Plan was terminated by the Board on October 29, 2020, and the Corporation no longer issues Options under the
Legacy Option Plan, but such termination will not alter the terms or conditions of any options awarded prior to the date of such termination.
Any Options outstanding when the Legacy Option Plan was terminated will remain in effect until they are exercised or expire or are otherwise
terminated in accordance with the provisions of the Legacy Option Plan. If Options expire or otherwise terminate for any reason without
having been exercised, the number of Common Shares in respect of the expired or terminated Options will again be available for the purposes
of the Incentive Plan.
For a full description of the terms of the Legacy
Option Plan, please see the section entitled "Information Concerning the Company – Description of Capital Structure –
BKD Option Plan" in the Corporation's management information circular dated as of September 24, 2018, which is filed under the
Corporation's SEDAR profile at www.sedar.com.
Management
Contracts
No management functions of the Corporation or
any of its subsidiaries are performed to any substantial degree by a person other than the directors or executive officers of the Corporation.
EQUITY
COMPENSATION PLAN INFORMATION
The following table sets forth, for the year ended
December 31, 2020, information concerning securities authorized for issue under equity compensation plans of the Corporation:
|
Plan Category
|
|
Number of Securities to be Issued Upon Exercise of Outstanding Options/DSUs/RSUs(1)
|
|
|
Weighted Average Exercise Price of Outstanding Options (C$)
|
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
|
|
|
Equity Compensation Plans approved by Securityholders
|
|
|
15,584,102
|
|
|
$
|
0.64
|
|
|
|
16,099,231
|
|
|
Equity Compensation Plans not approved by Securityholders
|
|
|
nil
|
|
|
|
nil
|
|
|
|
nil
|
|
|
Total
|
|
|
15,584,102
|
|
|
$
|
0.64
|
|
|
|
16,099,231
|
|
Notes:
|
|
(1)
|
Assumes a nil exercise price of DSUs and RSUs.
|
INDEBTEDNESS
OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
As of the date hereof, there is not, nor at any
time since the beginning of the most recently completed financial year of the Corporation has there been, any indebtedness of any person
who has been a director or executive officer of the Corporation at any time since the beginning of the Corporation's last financial year,
or of any associate of such persons, to or guaranteed or supported by the Corporation or its subsidiaries either pursuant to an employee
stock purchase program of the Corporation or otherwise.
CORPORATE
GOVERNANCE DISCLOSURE
Corporate governance relates to the activities
of the Board, the members of which are elected by and are accountable to the Shareholders, and takes into account the role of the individual
members of management who are appointed by the Board and who are charged with the day-to-day management of the Corporation. NP 58-201
establishes corporate governance guidelines which apply to all public companies. These guidelines are not intended to be prescriptive
but to be used by issuers in developing their own corporate governance practices. The Board is committed to sound corporate governance
practices, which are both in the interest of the Shareholders of the Corporation and contribute to effective and efficient decision making.
Pursuant to NI 58-101, the Corporation is required
to disclose its corporate governance practices, as summarized below. The Board will continue to monitor such practices on an ongoing basis
and, when necessary, implement such additional practices as it deems appropriate.
The Corporation’s current governance practices
pursuant to National Instrument 58-101 are specifically set out in Schedule "B" to this Circular in the form required by Form
58-101F1.The Corporation values diversity, including, without limitation, diversity of experience, perspective, education, race, gender
and national origin as part of its overall business strategy. Schedule "B" also includes the diversity disclosure required pursuant
to section 172.1 of the Canada Business Corporations Act (the “CBCA”).
Board of Directors
NP 58-201 suggests that the Board of every listed
company should be constituted with a majority of individuals who qualify as "independent" directors, within the meaning set
out under NI 52-110, which provides that a director is independent if he or she has no direct or indirect "material relationship"
with the company. "Material relationship" is defined as a relationship which could, in the view of the company's Board, be reasonably
expected to interfere with the exercise of a director's independent judgment.
Of the current directors, Richard Carter, Adam
Arviv, and Matevž Mazij are executive officers of the Corporation or a material subsidiary, and accordingly are not considered
to be "independent". The remaining directors standing for re-election at the Meeting, being Paul Pathak, Paul Godfrey, Rob Godfrey,
and Lara Falzon, are considered to be independent directors since they are all independent of management and free from any material relationship
with the Corporation, therefore the majority of the members of the Board are independent.
The lead independent director ("Lead Director")
is Paul Pathak. The mandate of the Lead Director is to assist the Executive Chairman in independent leadership for the Board, namely in:
discharging its duties, responsibilities and obligations independently of management; providing leadership to foster effectiveness of
the Board; and in the absence of the Executive Chairman, chairing Board meetings, including, providing adequate time for discussion of
issues, facilitating consensus, encouraging full participation and discussion by individual directors and confirming that clarity regarding
decision-making is reached and accurately recorded. The Board believes this governance structure promotes balance between the Board's
independent authority to oversee the Corporation's business and the CEO and Executive Chairman and their management team who manage the
business on a day-to-day basis.
Board Meetings
The independent directors of the Board did not
hold any formal meetings during the most recently completed financial year. Though there were no formal meetings of the independent directors
held, the Board believes that it functions independently of management because the independent directors communicated with each other
on an informal basis throughout the year. Additionally, the independent directors are encouraged by the non-independent members of the
Board to communicate and obtain advice from such advisors and legal counsel as they may deem necessary in order to reach a conclusion
with respect to issues brought before the Board. In the event of a conflict of interest at a meeting of the Board, the conflicted director
will in accordance with corporate law and in accordance with their fiduciary obligations as a director of the Corporation, disclose the
nature and extent of their interest to the meeting and abstain from voting on or against the approval of such participation.
The attendance for the current or nominated directors
of the Corporation for meetings held from January 1, 2020 to December 31, 2020 is:
|
Name
|
|
Meetings attended
|
|
|
Meetings Eligible
|
|
|
Paul Pathak
|
|
|
11
|
|
|
|
11
|
|
|
James Ryan(1)
|
|
|
10
|
|
|
|
11
|
|
|
Rob Godfrey
|
|
|
11
|
|
|
|
11
|
|
|
Adam Arviv
|
|
|
4
|
|
|
|
4
|
|
|
Richard Carter
|
|
|
1
|
|
|
|
3
|
|
Notes:
|
|
(1)
|
James Ryan will not be standing for re-election at the Meeting.
|
Other Directorships
No other current or nominated directors are presently
a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, except as described
below:
|
Name
|
|
Name of Reporting Issuer
|
|
Exchange
|
|
|
|
JPJ Group PLC
|
|
LSE
|
|
|
|
Intertain Group Limited
|
|
TSX
|
|
Paul Pathak
|
|
Wayland Group Corp.
|
|
CSE
|
|
|
|
Skyscape Capital Inc.
|
|
TSXV
|
|
|
|
Aumento Capital VIII Corporation.
|
|
TSXV
|
|
|
|
Gamesys Group plc
|
|
LSE
|
|
James Ryan
|
|
Intertain Group Limited
|
|
TSX
|
|
|
|
Gaming Realms plc
|
|
LSE - AIM
|
|
|
|
Cargojet Inc.
|
|
TSX
|
|
Paul Godfrey
|
|
Postmedia Network Canada Corp.
|
|
TSX
|
|
|
|
RioCan Real Estate Investment Trust
|
|
TSX
|
Board Mandate
The Board is responsible for the conduct of
the Corporation's affairs generally. The Board is responsible for reviewing and approving the Corporation's operating plans and
budgets as presented by management. The Board is responsible for identifying the principal risks of the Corporation's business and
for ensuring these risks are effectively monitored and mitigated to the extent practicable. Succession planning, including the
recruitment, supervision, compensation and performance assessment of the Corporation's senior management personnel also fall within
the ambit of the Board's responsibilities. The Board is responsible for ensuring effective communications by the Corporation with
the Shareholders of the Corporation and the public and for ensuring that the Corporation adheres to all regulatory requirements with
respect to the timeliness and content of its disclosure. The full text of the Board mandate is available in Schedule
"C".
INTEREST
OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as otherwise disclosed herein, no informed
person (as that term is defined in NI 51-102) or any nominee for election as a director, or any associate or affiliate of any of them,
has or has had any material interest, direct or indirect, in any transaction within the three most recently completed financial years
or during the current financial year of the Corporation that has materially affected or is reasonably expected to materially affect the
Corporation.
ADDITIONAL
INFORMATION
Additional information relating to the Corporation
can be found under the Corporation's SEDAR profile at www.sedar.com. Financial information is provided in the comparative financial statements
and the management's discussion and analysis of the Corporation for the year ended December 31, 2020. Shareholders may also obtain these
documents, without charge, upon request to the Corporation at its offices located at 130 King Street West, Suite 1968, Toronto, Ontario,
M5X 1K6.
APPROVAL
The contents of this management information circular
and the sending thereof to the Shareholders of the Corporation have been approved by the directors of the Corporation.
DATED at Toronto, Ontario as of this 26th
day of March, 2021.
|
|
|
|
|
By Order of the Board of Directors
|
|
|
|
|
|
(signed)
"Adam Arviv"
|
|
|
Adam Arviv
Interim Chief Executive Officer
|
Schedule
"A"
amended
and restated OMNIBUS EQUITY INCENTIVE PLAN
Article
1
ESTABLISHMENT; DEFINITIONS
Bragg Gaming Group Inc., a corporation
incorporated under the federal laws of Canada (the "Company"), hereby establishes an incentive compensation plan to be
known as the Omnibus Equity Incentive Compensation Plan (the "Plan"). The Plan shall be adopted and become effective
on the date approved by the Board (the "Effective Date").
"Affiliates" has the
meaning given to this term in the Securities Act (Ontario), as such legislation may be amended, supplemented or replaced from time
to time;
"Award Agreement" means,
individually or collectively, the Option Agreement, RSU Agreement, SAR Agreement, PSU Agreement, DSU Agreement and/or the Employment Agreement
or Consulting Agreement pursuant to which an Award is granted, as the context requires;
"Awards" means Options,
SARs, RSUs, PSUs and/or DSUs granted to a Participant pursuant to the terms of the Plan;
"Black-Out Period"
means, with respect to any person, the period of time when, pursuant to any policies or determinations of the Company, securities of the
Company may not be traded by such person, including any period when such person has material undisclosed information with respect to the
Company, but excluding any period during which a regulator has halted trading in the Company's securities;
"Board" means the board
of directors of the Company as constituted from time to time;
"Broker" has the meaning
ascribed thereto in Section 3.7(b) hereof;
"Business Day" means
any day on which the Exchange is open for business/other than a Saturday, Sunday or any other day on which the principal chartered banks
located in Toronto, Ontario are not open for business;
"Cash Equivalent" means:
(a) in
the case of Share Units, the amount of money equal to the Market Value multiplied by the number of vested Share Units in the Participant's
Account, net of any applicable taxes in accordance with Section 9.4, on the Share Unit settlement date;
(b) in
the case of DSUs, the amount of money equal to the Market Value multiplied by the whole number of DSUs then recorded in the Participant's
Account which the Participant requests to redeem pursuant to the DSU Redemption Notice, net of any applicable taxes in accordance with
Section 9.4, on the date the Company receives, or is deemed to receive, the DSU Redemption Notice;
"Cause" means:
With respect to any Participant, unless
the applicable Award Agreement states otherwise:
(a)
if the Participant is a party to an Employment Agreement or service agreement with the Company or its Affiliates and such agreement
provides for a definition of Cause, the definition contained therein; or
(b) if
no such agreement exists, or if such agreement does not define Cause, any act or omission that would entitle the Company to terminate
the Participant's employment without notice or compensation under the common law for just cause.
With respect to any director, unless
the applicable Award Agreement states otherwise, a determination by a majority of the disinterested Board members.
"Change of Control"
means unless the Compensation Committee determines otherwise, the happening, in a single transaction or in a series of related transactions,
of any of the following events:
(a)
the consummation of any transaction or series of transactions (other than a transaction described in clause (b) below) pursuant
to which any person or group of persons acting jointly or in concert acquires the direct or indirect beneficial ownership of securities
of the Company representing 50% or more of the aggregate voting power of all of the Company's then issued and outstanding securities entitled
to vote in the election of directors of the Company, other than an acquisition by a person that was an Affiliate of the Company at the
time of such acquisition, and other than any such acquisition that occurs upon the exercise or settlement of options or other securities
granted by the Company under any of the Company's equity incentive plans.
|
|
(b)
|
there is consummated an arrangement, amalgamation, merger, consolidation or similar transaction involving
(directly or indirectly) the Company and, immediately after the consummation of such arrangement, amalgamation, merger, consolidation
or similar transaction, the shareholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either
(A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving or resulting entity
in such amalgamation, merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the
parent of the surviving or resulting entity in such arrangement, amalgamation merger, consolidation or similar transaction;
|
(c)
any transaction or series of transactions resulting in the consummation of (A) the sale, lease, exchange, license or other disposition
of all or substantially all of the Company's assets to a person other than a person that was an Affiliate of the Company at the time of
such sale, lease, exchange, license or other disposition or (B) a sale, lease, exchange, license or other disposition to an entity, unless
more than fifty percent (50%) of the combined voting power of the voting securities of such entity are beneficially owned by shareholders
of the Company in substantially the same proportions as their beneficial ownership of the outstanding voting securities of the Company
immediately prior to such sale, lease, exchange, license or other disposition;
(d) the
passing of a resolution by the Board or shareholders of the Company to substantially liquidate the assets of the Company or wind up
the Company's business or significantly rearrange its affairs in one or more transactions or series of transactions or the
commencement of proceedings for such a liquidation, winding-up or re-arrangement (except where such re-arrangement is part of a bona
fide reorganization of the Company in circumstances where the business of the Company is continued and the shareholdings remain
substantially the same following the re-arrangement);
(e)
individuals who, on the Effective Date, are members of the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for
election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office,
such new member will, for purposes of the Plan, be considered as a member of the Incumbent Board; or
(f)
any other matter determined by the Board to be a Change of Control.
"Code" means the U.S.
Internal Revenue Code of 1986, as amended from time to time and the Treasury Regulations promulgated thereunder;
"Compensation Committee"
means the Compensation Committee of the Board as constituted from time to time or an equivalent committee of the Board;
"Consultant" means
a Person (including an individual whose services are contracted for through another Person) with whom the Company or a Subsidiary has
a written contract for services;
"Consulting Agreement"
means, with respect to any Participant, any written consulting agreement between the Company or a Subsidiary and such Participant;
"Dividend Share Units"
has the meaning ascribed thereto in Section 7.2 hereof;
"DSU" means a deferred
share unit, which is a bookkeeping entry equivalent in value to a Share credited to a Participant's Account in accordance with Article
5 hereof;
"DSU Agreement" means
a written notice from the Company to a Participant evidencing the grant of DSUs and the terms and conditions thereof, in such form as
the Compensation Committee may approve from time to time;
"DSU Redemption Notice"
has the meaning ascribed thereto in Section 5.3(a) hereof;
"Eligible Participants"
has the meaning ascribed thereto in Section 2.3(a) hereof;
"Employment Agreement"
means, with respect to any Participant, any written employment agreement between the Company or a Subsidiary and such Participant;
"Exchange" means the
TSX Venture Exchange and at any time the Shares are not listed and posted for trading on the TSX Venture Exchange, shall be deemed to
mean such other stock exchange or trading platform upon which the Shares trade and which has been designated by the Compensation Committee.
"Exercise Notice" means
a notice in writing signed by a Participant and stating the Participant's intention to exercise or settle a particular Award, if applicable;
"Exercise Price" has
the meaning ascribed thereto in Section 3.3 hereof;
"Expiry Date" has the
meaning ascribed thereto in Section 3.4 hereof;
"Grant Date" has the
meaning ascribed thereto in Section 3.4 hereof;
"Incentive Stock Option"
means an Option that is designated by the Compensation Committee as an incentive stock option as described in Section 422 of the Code
and otherwise meets the requirements set forth in the Plan;
"Insider" has the meaning
attributed thereto in Section 1(1) of the Securities Act (Ontario), as amended from time to time;
"Investor Relations Activities"
means any activities, by or on behalf of the Company or a Subsidiary, that promote or reasonably could be expected to promote the purchase
or sale of securities of the Company, but does not include:
(a) the
dissemination of information provided, or records prepared, in the ordinary course of business of the Company or a Subsidiary: (i) to
promote the sale of products or services of the Company, or (ii) to raise public awareness of the Company, that cannot reasonably be
considered to promote the purchase and sale of securities of the Company;
(b) activities
or communications necessary to comply with the requirements of: (i) applicable securities laws. or (ii) requirements of the Exchange
or the by-laws, rules or other regulatory instruments of any other self regulatory body or exchange having jurisdiction over the Company
or any Subsidiaries;
(c) communications
by a publisher of, or writer for, a newspaper, magazine or business or financial publication, that is of general and regular paid circulation,
distributed only to subscribers to it for value or to purchasers of it, if: (i) the communication is only through the newspaper, magazine
or publication, and (ii) the publisher or writer receives no commission or other consideration other than for acting in the capacity
of publisher or writer; or
(d)
activities or communications that may be otherwise specified by the Exchange.
"ISO Entity" has the
meaning ascribed thereto in Section 2.3(a);
"Market Value" means,
unless otherwise required by any applicable provision of the Tax Act, the Code, or any regulations thereunder or by any applicable accounting
standard for the Company's desired accounting for Awards or by the rules of the Exchange, a price that is determined by the Compensation
Committee, provided that such price cannot be less than the greater of (i) the volume weighted average trading price of the Shares on
the Exchange for the five Trading Days immediately prior to the Grant Date or (ii) the closing price of the Shares on the Exchange on
the Trading Day immediately prior to the Grant Date;
"Option" means an option
granted by the Company to a Participant entitling such Participant to acquire a designated number of Shares from treasury at the Exercise
Price, but subject to the provisions hereof;
"Option Agreement"
means a written notice from the Company to a Participant evidencing the grant of Options and the terms and conditions thereof, substantially
in the form as the Compensation Committee may approve from time to time;
"Participants" means
Eligible Participants that are granted Awards under the Plan;
"Participant's Account"
means an account maintained to reflect each Participant's participation in RSUs, PSUs and/or DSUs under the Plan;
"Performance Criteria"
means criteria established by the Compensation Committee which, without limitation, may include criteria based on the Participant's personal
performance, the financial performance of the Company and/or of its Subsidiaries, total shareholder return, the achievement of corporate
goals and strategic initiatives, and that may be used to determine the vesting of the Awards, when applicable;
"Performance Period"
means the period determined by the Compensation Committee pursuant to Section 6.3 hereof;
"Person" means an individual,
corporation, company, cooperative, partnership, trust, unincorporated association, entity with juridical personality or governmental authority
or body, and pronouns which refer to a Person shall have a similarly extended meaning;
"PSU" means a performance
share unit awarded to a Participant to receive a payment in the form of Shares as provided in Article 6 hereof and subject to the terms
and conditions of the Plan;
"PSU Agreement" means
a written notice from the Company to a Participant evidencing the grant of PSUs and the terms and conditions thereof, in the form as the
Compensation Committee may approve from time to time;
"RSU" means a restricted
share unit awarded to a Participant to receive a payment in the form of Shares as provided in Article 6 hereof and subject to the terms
and conditions of the Plan;
"RSU Agreement" means
a written notice from the Company to a Participant evidencing the grant of RSUs and the terms and conditions thereof, in the form as the
Compensation Committee may approve from time to time;
"SAR" means a stock
appreciation rights awarded to a Participant to be settled in cash as provided in Article 4 and subject to the terms and conditions of
the Plan;
"SAR Agreement" means
a written notice from the Company to a Participant evidencing the grant of SARs and the terms and conditions thereof, in the form as the
Compensation Committee may approve from time to time;
"Share Compensation Arrangement"
means a stock option, stock option plan, employee stock purchase plan, long-term incentive plan or any other compensation or incentive
mechanism involving the issuance or potential issuance of Shares to one or more directors, officers, employees or Consultants of the Company
or a Subsidiary. For greater certainty, a "Share Compensation Arrangement" does not include a security based compensation arrangement
used as an inducement to person(s) or company(ies) not previously employed by and not previously an Insider of the Company;
"Shares" or "Stock"
means the common shares in the capital of the Company;
"Share Limit" has the
meaning ascribed thereto in Section 2.4(a) hereof;
"Share Unit" means
a RSU or PSU, as the context requires;
"Share Unit Vesting Determination
Date" has the meaning described thereto in Section 6.4 hereof;
"Subsidiary" means
a corporation, limited liability company, partnership or other body corporate that is controlled, directly or indirectly, by the Company;
"Tax Act" means the
Income Tax Act (Canada) and its regulations thereunder, as amended from time to time;
"Termination Date"
means, unless otherwise defined in the applicable Award Agreement, (i) with respect to a Participant who is an employee or officer of
the Company or a Subsidiary, such Participant's last day of active employment and does not include any period of statutory, reasonable
or contractual notice or any period of deemed employment or salary continuance, and (ii) with respect to a Participant who is a Consultant,
the date such Consultant ceases to provide services to the Company or a Subsidiary, and "Terminate" and "Terminated"
have corresponding meanings.
"Trading Day" means
any day on which the Exchange is opened for trading;
"transfer" includes
any sale, exchange, assignment, gift, bequest, disposition, mortgage, lien, charge, pledge, encumbrance, grant of security interest or
any arrangement by which possession, legal title or beneficial ownership passes from one Person to another, or to the same Person in a
different capacity, whether or not voluntary and whether or not for value, and any agreement to effect any of the foregoing and "transferred",
"transferring" and similar variations have corresponding meanings; and
"U.S. Participant"
means any Participant who is a United States citizen or United States resident alien as defined for purposes of Section 7701(b)(1)(A)
of the Code or for whom an Award is otherwise subject to taxation under the Code.
Article
2
PURPOSE; ADMINISTRATION; ELIGIBILITY
The purposes of the Plan are to (a)
enable the Company, and any Affiliate to attract and retain the types of employees, Consultants and Directors who will contribute to the
Company's long range success; (b) provide incentives that align the interests of employees, Consultants and Directors with those of the
security holders of the Company; and (c) promote the success of the Company's business.
|
|
(a)
|
The Board has delegated and appointed the Compensation Committee to implement, administer and interpret
the Plan for and on behalf of the Board.
|
|
|
(b)
|
Subject to the terms and conditions set forth in the Plan and the rules of the Exchange and applicable
laws, the Compensation Committee, for and on behalf of the Board, shall have the sole and absolute discretion to: (i) designate Participants;
(ii) determine the type, size, and terms, and conditions of Awards to be granted; (iii) determine the method by which an Award may be
settled, exercised, canceled, forfeited, or suspended; (iv) determine the circumstances under which the delivery of cash, property, or
other amounts payable with respect to an Award may be deferred either automatically or at the Participant's or the Compensation Committee's
election; (v) interpret and administer, reconcile any inconsistency in, correct any defect in, and supply any omission in the Plan and
any Award granted under, the Plan; (vi) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Compensation
Committee shall deem appropriate for the proper administration of the Plan; (vii) accelerate the vesting, delivery, or exercisability
of, or payment for or lapse of restrictions on, or waive any condition in respect of, Awards; and (viii) make any other determination
and take any other action that the Compensation Committee deems necessary or desirable for the administration of the Plan, to preserve
the tax treatment of the Awards, preserve the economic equivalent value of the Awards or to comply with any applicable law.
|
|
|
(c)
|
No member of the Board and no officer or employee acting for and on behalf of the Board will be liable
for any action or determination taken or made in good faith in the administration, interpretation, construction or application of the
Plan, any Award Agreement or other document or any Awards granted pursuant to the Plan.
|
|
|
(d)
|
The day-to-day administration of the Plan may be delegated to such officers and employees of the Company
as the Compensation Committee determines.
|
|
|
(e)
|
Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and
other decisions regarding the Plan or any Award or any documents evidencing any Award granted pursuant to the Plan shall be within the
sole discretion of the Compensation Committee, may be made at any time, and shall be final, conclusive, and binding upon all persons or
entities, including, without limitation, the Company, any Subsidiary, any Participant, any holder or beneficiary of any Award, and any
shareholder of the Company.
|
|
|
2.3
|
Eligible Participants.
|
|
|
(a)
|
The Persons who shall be eligible to receive Options, SARs, RSUs, DSUs and PSUs shall be the bona fide
directors, officers, employees or Consultants of or to the Company or a Subsidiary, providing ongoing services to the Company and/or its
Subsidiaries (collectively, "Eligible Participants"). Incentive Stock Options shall be granted only to Eligible Participants
who are employees of the Company or any of the Company's present or future parent or subsidiaries, as defined in Section 424(e) or (f)
of the Code, or other Affiliates the employees of which are eligible to receive Incentive Stock Options under the Code (each an "ISO
Entity").
|
|
|
(b)
|
No changes will be made to the class of Eligible Participants without the approval of shareholders.
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(c)
|
Participation in the Plan shall be entirely voluntary and may be declined.
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(d)
|
Notwithstanding any express or implied term of the Plan to the contrary, the granting of an Award pursuant
to the Plan shall in no way be construed as a guarantee of employment or appointment by the Company or a Subsidiary.
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(e)
|
Consultants engaged in Investor Relations Activities on behalf of the Company may only be Awards comprised
of Options.
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2.4
|
Shares Subject to the Plan.
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|
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(a)
|
Subject to adjustment pursuant to provisions of Article 8 hereof, the total number of Shares reserved
and available for grant and issuance pursuant to Awards under the Plan shall not exceed 39,650,000 less the number of Shares issuable
on exercise of any award outstanding under the Company's previous Share Compensation Arrangement shall be available for the grant of Awards
under the Plan (the "Share Limit"). During the terms of the Awards, the Company shall keep available at all times the
number of Shares required to satisfy such Awards. Shares available for distribution under the Plan may consist, in whole or in part, of
authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner.
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(b)
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Shares in respect of which an Award granted under the Plan but not exercised prior to the termination
of such Award, not vested or settled prior to the termination of such Award due to the expiration, termination, cancellation or lapse
of such Award, or settled in cash in lieu of settlement in Shares, shall, in each case, be available for Awards to be granted thereafter
pursuant to the provisions of the Plan; provided, however, that in the case of an Incentive Stock Option, the forgoing shall be
subject to any limitations under the Code. All Shares issued from treasury pursuant to the exercise or the vesting of the Awards granted
under the Plan shall be so issued as fully paid and non-assessable Shares.
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2.5
|
Participation Limits.
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(a)
|
Subject to adjustment pursuant to provisions of Article 8 hereof, the aggregate number of Shares (i) issued
to Insiders under the Plan or any other proposed or established Share Compensation Arrangement within any one-year period and (ii) issuable
to Insiders at any time under the Plan or any other proposed or established Share Compensation Arrangement, shall in each case not exceed
10% of the total issued and outstanding Shares subject to the Plan from time to time.
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(b)
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No more than 5% of the outstanding Common Shares may be issued under the Plan alone or when combined with
all other security-based compensation arrangements of the Company in any one-year period to any one Participant.
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(c)
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No more than 2% of the outstanding Common Shares may be issued under the Plan alone or when combined with
all other security-based compensation arrangements of the Company in any one-year period to: (i) any one Consultant of or to the Company
or a Subsidiary; and (ii) and all Persons retained to provide Investor Relations Activities for or on the behalf of the Company or a Subsidiary
in a one-year period.
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Article
3
OPTIONS
An Option is an option granted by the
Company to a Participant entitling such Participant to acquire a designated number of Shares from treasury at the Exercise Price, subject
to the provisions hereof. Eligible Participants may be eligible to receive Options and/or Incentive Stock Options as outlined in this
Article 3. All stock options granted under the Plan shall be Options unless the applicable Award Agreement expressly states that the stock
option is intended to be an Incentive Stock Option.
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(a)
|
The Compensation Committee shall, from time to time, in its sole discretion, (i) designate the Eligible
Participants who may receive Options under the Plan, (ii) determine the number of Options, if any, to be granted to each Eligible Participant
and the date or dates on which such Options shall be granted, (iii) determine the price per Share to be payable upon the exercise of each
such Option (the "Exercise Price"), (iv) determine the relevant vesting provisions (including Performance Criteria, if
applicable) and (v) determine the Expiry Date, the whole subject to the terms and conditions prescribed in the Plan, in any Award Agreement
and any applicable rules of the Exchange.
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(b)
|
All Options granted herein shall vest in accordance with the terms of the Award Agreement entered into
in respect of such Options.
|
The Exercise Price for Shares that are
the subject of any Option shall be fixed by the Compensation Committee when such Option is granted, but shall not be less than the Market
Value of such Shares at the time of the grant. Disinterested shareholder approval will be obtained for any reduction in the Exercise Price
if the person granted the Option is an Insider of the Company at the time of the proposed amendment.
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3.4
|
Expiry Date; Blackout Period.
|
Subject to Section 8.2, each Option
must be exercised no later than ten years after the date the Option (the "Grant Date") is granted or such shorter period
as set out in the Participant's Award Agreement, at which time such Option will expire (the "Expiry Date"). Notwithstanding
any other provision of the Plan, each Option that would expire during a Black-Out Period shall expire on the date that is ten Business
Days immediately following the expiration of the Black-Out Period. Notwithstanding the foregoing, in no event shall the Expiry Date exceed
five years from the Grant Date in the case of an Incentive Stock Option granted to an employee who on the Grant Date owns stock representing
more than 10% of the voting power of all classes of stock of the Company or an ISO Entity.
Each Option must be confirmed by an
Award Agreement. The Award Agreement shall contain such terms that the Company deems necessary and appropriate and to comply with applicable
law.
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(a)
|
Subject to the provisions of the Plan, a Participant shall be entitled to exercise an Option granted to
such Participant, subject to vesting limitations which may be imposed by the Compensation Committee at the time such Option is granted
and set out in the Award Agreement.
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(b)
|
Prior to its expiration or earlier termination in accordance with the Plan, each Option shall be exercisable
as to all or such part or parts of the optioned Shares and at such time or times and/or pursuant to the achievement of such Performance
Criteria and/or other vesting conditions as the Compensation Committee may determine in its sole discretion.
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(c)
|
No fractional Shares will be issued upon the exercise of Options granted under the Plan and, accordingly,
if a Participant would become entitled to a fractional Share upon the exercise of an Option, or from an adjustment pursuant to Section
8.1, such Participant will only have the right to acquire the next lowest whole number of Shares and will receive a cash payment equal
to the in-the-money value, if any, of such fractional Shares.
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|
3.7
|
Method of Exercise and Payment of Purchase Price.
|
|
|
(a)
|
Subject to the provisions of the Plan and the alternative exercise procedures set out herein, an Option
granted under the Plan may be exercisable (from time to time as provided in Section 3.6 hereof) by the Participant (or by the liquidator,
executor or administrator, as the case may be, of the estate of the Participant) by delivering an Exercise Notice substantially in the
form to be attached as a schedule to the Award Agreement to the Company in the form and manner determined by the Compensation Committee
from time to time, together with a bank draft, certified cheque or other form of payment acceptable to the Company in an amount equal
to the aggregate Exercise Price of the Shares to be purchased pursuant to the exercise of the Options and any applicable tax withholdings.
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(b)
|
No share certificates shall be issued and no person shall be registered in the share register of the Company
as the holder of Shares until actual receipt by the Company of an Exercise Notice, payment for the Shares to be purchased and satisfaction
of any tax withholding requirements.
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(c)
|
Subject to Section 3.7(b), upon the exercise of an Option, the Company shall, as soon as practicable after
such exercise but no later than ten (10) Business Days following such exercise, forthwith cause the transfer agent and registrar of the
Shares to deliver to the Participant (or as the Participant may otherwise direct) such number of Shares as the Participant shall have
then paid for and as are specified in such Exercise Notice.
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3.8
|
Termination of Employment or Service.
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|
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(a)
|
Termination for Reasons Other Than Cause, Death, Disability – If the Participant's employment
or service is terminated for any reason other than Cause, death or disability, the Participant may exercise the vested portion of the
Option, but only within such period of time ending on the earlier of: (i) the date 90 days following the Termination Date; or (ii) the
Expiration Date.
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(b)
|
Termination for Cause – If the Participant is terminated for Cause, the Option (whether vested
or unvested) shall immediately terminate and cease to be exercisable.
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(c)
|
Termination due to Disability – If the Participant's employment or service is terminated
as a result of the Participant's disability, the Participant may exercise the vested portion of the Option, but only within such period
of time ending on the earlier of: (i) the date 12 months following the Termination Date; or (ii) the Expiration Date.
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(d)
|
Termination due to Death – If the Participant's employment or service is terminated as a
result of the Participant's death, the vested portion of the Option may be exercised by the Participant's estate, by a person who acquired
the right to exercise the Option by bequest or inheritance or by the person designated to exercise the Option upon the Participant's death,
but only within the time period ending on the earlier of: (i) the date 12 months following the Termination Date; or (ii) the Expiration
Date.
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(e)
|
For the avoidance of doubt, subject to applicable laws, no period of notice, if any, or payment instead
of notice that is given or that ought to have been given under applicable law, whether by statute, imposed by a court or otherwise, in
respect of such termination of employment that follows or is in respect of a period after the Participant's Termination Date will be considered
as extending the Participant's period of employment for the purposes of determining his or her entitlement under the Plan.
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|
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(f)
|
The Participant shall have no entitlement to damages or other compensation arising from or related to
not receiving any awards that would have settled or vested or accrued to the Participant after the Termination Date.
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|
|
3.9
|
Incentive Stock Options
|
|
|
(a)
|
No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the shareholders
of the Company in a manner intended to comply with the shareholder approval requirements of Section 422(b)(1) of the Code; provided,
however, that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to
obtain such approval, but rather such Option shall be treated as a nonqualified stock option (for the purposes of the Code) unless and
until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to
and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock
Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option
or portion thereof shall be regarded as a nonqualified stock option (for the purposes of the Code) appropriately granted under the Plan.
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|
|
(b)
|
No Incentive Stock Option may be granted more than ten (10) years from the date the Plan is adopted, or
the date the Plan is approved by the shareholders, whichever is earlier.
|
|
|
(c)
|
Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing
immediately after the date he or she makes a disqualifying disposition of any Shares acquired pursuant to the exercise of such Incentive
Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Shares before the later
of (i) two years after the Grant Date of the Incentive Stock Option or (ii) one year after the date of exercise of the Incentive Stock
Option. The Company may, if determined by the Compensation Committee and in accordance with procedures established by the Compensation
Committee, retain possession, as agent for the applicable Participant, of any Shares acquired pursuant to the exercise of an Incentive
Stock Option until the end of the period described
in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such Shares.
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|
|
(d)
|
To the extent that a Participant has received Incentive Stock Options and that any of the more general
language in this Article 3 conflicts with the language in this Section 3.9, the language of Section 3.9 shall be controlling.
|
Article
4
STOCK APPRECIATION RIGHTS
A SAR is stock appreciate right granted
to a Participant representing the right to receive, subject to restrictions and conditions as the Compensation Committee may determine
at the time of grant, a cash payment or Shares in lieu of cash having an aggregate value equal to the product of (i) the excess of (A)
the Market Value on the exercise date of one Share divided by (B) the base price per Share specified in the Award Agreement, multiplied
by (ii) the number of Shares specified by the SAR, or the portion thereof, that is exercised. The base price per Share specified in the
Award Agreement shall not be less than the Market Value on the date of grant.
Each SAR must be confirmed by an Award
Agreement that sets forth the terms, conditions and limitations for each SAR and may include, without limitation, whether the SAR is settled
in cash or Shares, the vesting, expiry and base price per Share of the SAR and the provisions applicable in the event employment or service
terminates, and shall contain such terms that may be considered necessary in order that the SAR will comply with any provisions respecting
SARs in the income tax or other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident
or citizen or the rules of any regulatory body having jurisdiction over the Company. If, upon the exercise of a SAR, a Participant is
to receive a portion of such payment in Shares, the number of Shares shall be determined by dividing such portion by the Market Value
on the exercise date. No fractional Shares will be issued upon the exercise of a SAR granted under the Plan and, accordingly, if a Participant
would become entitled to a fractional Share upon the exercise of a SAR, or from an adjustment pursuant to Section 8.1, such Participant
will only have the right to acquire the next lowest whole number of Shares and will receive a cash payment in lieu of such fractional
Shares.
SARs shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the Compensation Committee as set out in the Participant's
Award Agreement; provided, however, that SARs granted under the Plan may not have a term in excess of ten years' duration unless required
otherwise by applicable law.
Article
5
DEFERRED SHARE
UNITS
A DSU is a unit granted to a Participant
representing the right to receive a Share or the Cash Equivalent, subject to restrictions and conditions as the Compensation Committee
may determine at the time of grant. Conditions may be based on continuing service of the Participant and/or achievement of pre-established
vesting and objectives.
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|
(a)
|
Subject to the provisions herein set forth and any shareholder or regulatory approval which may be required,
the Compensation Committee shall, from time to time, in its sole discretion, (i) designate the Eligible Participants who may receive DSUs
under the Plan, (ii) fix the number of DSUs, if any, to be granted to each Eligible Participant and the date or dates on which such
DSUs shall be granted, and (iii) determine the relevant conditions and vesting provisions (including, any applicable Performance Periods
and Performance Criteria), the whole subject to the terms and conditions prescribed in the Plan and in any Award Agreement, as applicable.
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|
|
(b)
|
Each DSU must be confirmed by an Award Agreement that sets forth the terms, conditions and limitations
for each DSU and may include, without limitation, the vesting and terms of the DSUs and the provisions applicable in the event employment
or service terminates, and shall contain such terms that may be considered necessary in order that the DSU will comply with any provisions
respecting DSUs in the income tax or other laws in force in any country or jurisdiction of which the Participant may from time to time
be a resident or citizen or the rules of any regulatory body having jurisdiction over the Company.
|
|
|
(c)
|
Any DSUs that are awarded to a Participant who is a resident of Canada or employed in Canada (each for
purposes of the Tax Act) shall be structured so as to be considered to be a plan described in section 7 of the Tax Act or to meet requirements
of paragraph 6801(d) of the Income Tax Regulations adopted under the Tax Act (or any successor to such provisions).
|
|
|
(d)
|
Subject to vesting and other conditions and provisions set forth herein and in the Award Agreement, the
Compensation Committee shall determine whether each DSU awarded to a Participant shall entitle the Participant: (i) to receive one Share
issued from treasury; (ii) to receive the Cash Equivalent of one Share; or (iii) to elect to receive either one Share from treasury,
the Cash Equivalent of one Share or a combination of cash and Shares.
|
|
|
(a)
|
Subject to Section 5.3(b), each Participant that has been awarded DSUs shall be entitled to redeem
his or her DSUs during the period commencing on the Business Day immediately following the Termination Date and ending on the date
that is not later than December 15 of the year following the Termination Date, or a shorter such redemption period set out in the
relevant Award Agreement, by providing a written notice of settlement to the Company setting out the number of DSUs to be settled
and the particulars regarding the registration of the Shares issuable upon settlement, if applicable (the "DSU Redemption
Notice"). In the event of the death of a Participant,
the DSU Redemption Notice shall be filed by the administrator or liquidator of the estate of the Participant.
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|
|
(b)
|
If a DSU Redemption Notice is not received by the Company on or before the 90th day following
the Termination Date, the Participant shall be deemed to have delivered a DSU Redemption Notice on the 90th day following the
Termination Date and the Compensation Committee shall determine the number of DSUs to be settled by way of Shares, the Cash Equivalent
or a combination of Shares and the Cash Equivalent and delivered to the Participant, administrator or liquidator of the estate of the
Participant, as applicable.
|
|
|
(c)
|
Subject to Section 9.4 and the Award Agreement, settlement of DSUs shall take place promptly following
the Company's receipt or deemed receipt of the DSU Redemption Notice through:
|
|
|
(i)
|
in the case of settlement DSUs for their Cash Equivalent, delivery of bank draft, certified cheque or
other acceptable form of payment to the Participant representing the Cash Equivalent;
|
|
|
(ii)
|
in the case of settlement of DSUs for Shares, delivery of a Share to the Participant; or
|
|
|
(iii)
|
in the case of settlement of DSUs for a combination of Shares and the Cash Equivalent, a combination of
(i) and (ii) above.
|
Article
6
SHARE UNITS
|
|
6.1
|
Nature of Share Units.
|
A Share Unit is an award that is either
a PSU or RSU entitling the recipient to acquire Shares, at such purchase price (which may be zero) as determined by the Compensation Committee,
subject to such restrictions and conditions as the Compensation Committee may determine at the time of grant. Conditions may be based
on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives.
|
|
(a)
|
Subject to the provisions herein set forth and any shareholder or regulatory approval which may be required,
the Compensation Committee shall, from time to time, in its sole discretion, (i) designate the Eligible Participants who may receive RSUs
and/or PSUs under the Plan, (ii) fix the number of RSUs and/or PSUs, if any, to be granted to each Eligible Participant and the date or
dates on which such RSUs and/or PSUs shall be granted, and (iii) determine the relevant conditions and vesting provisions (including,
in the case of PSUs, the applicable Performance Period and Performance Criteria, if any) and Performance Period of such RSUs and/or PSUs,
the whole subject to the terms and conditions prescribed in the Plan and in any Award Agreement.
|
|
|
(b)
|
Each RSU must be confirmed by an Award Agreement that sets forth the terms, conditions and limitations
for each RSU and may include, without limitation, the vesting and terms of the RSUs and the provisions applicable in the event employment
or service terminates, and shall contain such terms that may be considered necessary in order that the RSUs will comply with any provisions respecting
RSUs in the income tax or other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident
or citizen or the rules of any regulatory body having jurisdiction over the Company.
|
|
|
(c)
|
Each PSU must be confirmed by an Award Agreement that sets forth the terms, conditions and limitations
for each PSU and may include, without limitation, the applicable Performance Period and Performance Criteria, vesting and terms of the
PSUs and the provisions applicable in the event employment or service terminates, and shall contain such terms that may be considered
necessary in order that the PSUs will comply with any provisions respecting PSUs in the income tax or other laws in force in any country
or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body having jurisdiction
over the Company.
|
|
|
(d)
|
Any RSUs or PSUs that are awarded to an Eligible Participant who is a resident of Canada or employed in
Canada (each for purposes of the Tax Act) shall be structured so as to be considered to be a plan described in section 7 of the Tax Act
or in such other manner to ensure that such award is not a "salary deferral arrangement" as defined in the Tax Act (or any successor
to such provisions).
|
|
|
(e)
|
Subject to the vesting and other conditions and provisions set forth herein and in the Award Agreement,
the Compensation Committee shall determine whether each RSU and/or PSU awarded to a Participant shall entitle the Participant: (i) to
receive one Share issued from treasury; (ii) to receive the Cash Equivalent of one Share; or (iii) to elect to receive either one Share
from treasury, the Cash Equivalent of one Share or a combination of cash and Shares.
|
|
|
6.3
|
Performance Criteria and Performance Period Applicable to PSU Awards.
|
|
|
(a)
|
For each award of PSUs, the Compensation Committee shall establish the period in which any Performance
Criteria and other vesting conditions must be met in order for a Participant to be entitled to receive Shares in exchange for all or a
portion of the PSUs held by such Participant (the "Performance Period").
|
|
|
(b)
|
For each award of PSUs, the Compensation Committee shall establish any Performance Criteria and other
vesting conditions in order for a Participant to be entitled to receive Shares in exchange for his or her PSUs.
|
|
|
6.4
|
Share Unit Vesting Determination Date.
|
The vesting determination date means
the date on which the Compensation Committee determines if the Performance Criteria and/or other vesting conditions with respect to a
RSU and/or PSU have been met (the "Share Unit Vesting Determination Date"), and as a result, establishes the number of
RSUs and/or PSUs that become vested, if any.
Article
7
GENERAL CONDITIONS
|
|
7.1
|
General Conditions Applicable to Awards.
|
Each Award, as applicable, shall be
subject to the following conditions:
|
|
(a)
|
Employment or Service - The granting of an Award to a Participant shall not impose upon the Company
or a Subsidiary any obligation to retain the Participant in its employ or consultancy in any capacity. For greater certainty, the granting
of Awards to a Participant shall not impose any obligation on the Company to grant any awards in the future nor shall it entitle the Participant
to receive future grants.
|
|
|
(b)
|
Rights as a Shareholder - Neither the Participant nor such Participant's personal representatives
or legatees shall have any rights whatsoever as shareholder in respect of any Shares covered by such Participant's Awards until the date
of issuance of a share certificate to such Participant (or to the liquidator, executor or administrator, as the case may be, of the estate
of the Participant) or the entry of such person's name on the share register for the Shares. Without in any way limiting the generality
of the foregoing, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such share
certificate is issued or entry of such person's name on the share register for the Shares.
|
|
|
(c)
|
Other Forfeitures - Notwithstanding any other provision of this Plan or any Award Agreement, all
unvested Awards held by a Participant shall be forfeited and shall be of no further value whatsoever if such Participant fails to comply
with the terms of any confidentiality, non-competition, non-disclosure, non-disparagement or non-solicitation restriction relating to
the Company or its Affiliates, as the case may be, contained in any agreement entered into between such Participant and the Company and/or
any Affiliate (including, without limitation, any Award Agreement), whether or not such restriction is deemed enforceable or unenforceable.
|
|
|
(d)
|
Conformity to Plan – In the event that an Award is granted or an Award Agreement is executed
which does not conform in all particulars with the provisions of the Plan, or purports to grant Awards on terms different from those set
out in the Plan, the Award or the grant of such Award shall not be in any way void or invalidated, but the Award so granted will be adjusted
to become, in all respects, in conformity with the Plan.
|
|
|
(e)
|
Non-Transferability – Except as set forth herein, Awards are not transferable and not assignable.
Awards may be exercised only by:
|
|
|
(i)
|
the Participant to whom the Awards were granted;
|
|
|
(ii)
|
with the Compensation Committee's prior written approval and subject to such conditions as the Compensation
Committee may stipulate, such Participant's family or retirement savings trust or any registered retirement savings plans or registered
retirement income funds of which the Participant is and remains the annuitant;
|
|
|
(iii)
|
upon the Participant's death, by the legal representative of the Participant's estate; or
|
|
|
(iv)
|
upon the Participant's incapacity, the legal representative having authority to deal with the property
of the Participant;
|
provided that any such legal
representative shall first deliver evidence satisfactory to the Company of entitlement to exercise any Award. A person exercising an
Award may subscribe for Shares only in the person's own name or in the person's capacity as a legal representative. Under no
circumstances may Incentive Stock Option awards be transferred by a Participant.
|
|
7.2
|
Dividend Share Units.
|
When dividends (other than stock dividends)
are paid on Shares, Participants may, subject to the terms and conditions set out in a Participant's Award Agreement, receive additional
SARs, DSUs, RSUs and/or PSUs, as applicable ("Dividend Share Units") as of the dividend payment date. The number of Dividend
Share Units to be granted to the Participant, if any shall be determined by multiplying the aggregate number of SARs, DSUs, RSUs and/or
PSUs, as applicable, held by the Participant on the relevant record date by the amount of the dividend paid by the Company on each Share,
and dividing the result by the Market Value on the dividend payment date, which Dividend Share Units shall be in the form of SARs, DSUs,
RSUs and/or PSUs, as applicable. Dividend Share Units granted to a Participant in accordance with this Section 7.2 shall be subject to
the same vesting conditions applicable to the related SARs, DSUs, RSUs and/or PSUs in accordance with the respective Award Agreement.
If and to the extent that the Dividend Share Units are settled in Shares, such Dividend Share Units shall be counted towards the Share
Limit.
Unless otherwise determined by the Compensation
Committee, the Plan shall be unfunded. To the extent any Participant or his or her estate holds any rights by virtue of a grant of Awards
under the Plan, such rights (unless otherwise determined by the Compensation Committee) shall be no greater than the rights of an unsecured
creditor of the Company.
Article
8
ADJUSTMENTS AND AMENDMENTS
|
|
8.1
|
Adjustment to Shares Subject to Outstanding Awards.
|
In the event of any stock dividend,
stock split, combination or exchange of Shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends)
of the Company's assets to shareholders, or any other change in the Shares, the Compensation Committee will make such proportionate adjustments,
if any, as the Compensation Committee in its discretion, subject to regulatory approval, may deem appropriate to reflect such change (for
the purpose of preserving the value of the Awards), with respect to (i) the number or kind of Shares or other securities reserved for
issuance pursuant to the Plan; and (ii) the number or kind of Shares or other securities subject to unexercised Awards previously granted
and the exercise price of those Awards provided, however, that no substitution or adjustment will obligate the Company to issue or sell
fractional Shares.
The existence of any Awards does
not affect in any way the right or power of the Company or an Affiliate or any of their respective shareholders to make, authorize
or determine any adjustment, recapitalization, reorganization or any other change in the capital structure or the business of, or
any amalgamation, merger or consolidation involving, to create or issue any bonds, debentures, shares or other securities of, or to
determine the rights and conditions attaching thereto, to effect the dissolution or liquidation of or any sale or transfer of all or
any part of the assets or the business of, or to effect any other corporate act or proceeding relating to, whether of a similar
character or otherwise, the Company or such Affiliate, whether or not any such action would have an adverse effect on the Plan or
any Award granted hereunder. Awards issued in connection with the assumption of, or in substitution for, outstanding options
intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code shall be counted against
the aggregate number of shares of Shares available for Awards of Incentive Stock Options under the Plan. Any adjustment in Incentive
Stock Options under this Article 7 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not
constituting a "modification" within the meaning of Section 424(h)(3) of the Code.
|
|
8.2
|
Amendment or Discontinuance of the Plan.
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|
|
(a)
|
The Compensation Committee may, in its sole discretion, suspend or terminate the Plan at any time or from
time to time and/or amend or revise the terms of the Plan or of any Award granted under the Plan and any agreement relating thereto, provided
that such suspension, termination, amendment, or revision shall:
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|
|
(i)
|
not adversely alter or impair any Award previously granted except as permitted by the terms of the Plan
or upon the consent of the applicable Participant(s); and
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|
|
(ii)
|
be in compliance with applicable law, applicable Exchange policies and with the prior approval, if required,
of the shareholders of the Company.
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|
|
(b)
|
If the Plan is terminated, the provisions of the Plan and any administrative guidelines and other rules
and regulations adopted by the Compensation Committee and in force on the date of termination will continue in effect as long as any Award
or any rights awarded or granted under the Plan remain outstanding and, notwithstanding the termination of the Plan, the Compensation
Committee will have the ability to make such amendments to the Plan or the Awards as they would have been entitled to make if the Plan
were still in effect.
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|
|
(c)
|
The Compensation Committee may from time to time, in its discretion and without the approval of shareholders,
make changes to the Plan or any Award that do not require the approval of shareholders under Section 8.2(a) which may include, but are
not limited to:
|
|
|
(i)
|
a change to the vesting provisions of any Award granted under the Plan, provided that such Awards are
not granted to Consultants engaged in investor relations activities;
|
|
|
(ii)
|
a change to the provisions governing the effect of termination of a Participant's employment, contract
or office;
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|
|
(iii)
|
a change to accelerate the date on which any Award may be exercised under the Plan, provided that such
Awards are not granted to Consultants engaged in investor relations activities;
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|
|
(iv)
|
an amendment of the Plan or an Award as necessary to comply with applicable law or the requirements of
any exchange upon which the securities of the Company are then listed or any other regulatory body having authority over the Company,
the Plan, the Participants or the shareholders of the Company;
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|
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(v)
|
any amendment of a "housekeeping" nature, including without limitation those made to clarify
the meaning of an existing provision of the Plan or any agreement, correct or supplement any provision of the Plan that is inconsistent
with any other provision of the Plan or any agreement, correct any grammatical or typographical errors or amend the definitions in the
Plan regarding administration of the Plan; or
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|
|
(vi)
|
any amendment regarding the administration of the Plan.
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(d)
|
Notwithstanding the foregoing or any other provision of the Plan, shareholder approval is required for
the following amendments to the Plan:
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|
|
(i)
|
any increase in the maximum number of Shares that may be issuable from treasury pursuant to awards granted
under the Plan, other than an adjustment pursuant to Section 8.1;
|
|
|
(ii)
|
any reduction in the exercise price of an Award benefitting an Insider, except in the case of an adjustment
pursuant to Section 8.1;
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|
(iii)
|
any extension of the Expiry Date of an Award benefitting an Insider, except in case of an extension due
to a Black-Out Period;
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|
(iv)
|
any extension of the Expiry Date of an Award where the exercise price is lower than the market price,
except in case of an extension due to a Black-Out Period;
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|
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(v)
|
any amendment to remove or to exceed the Insider participation limit set out in Section 2.5(a); and
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(vi)
|
any amendment to Section 8.2(c) or Section 8.2(d) of the Plan, as amended by the Addendum for U.S. Participants.
|
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(a)
|
Despite any other provision of the Plan and subject to any Award Agreement, in the event of a Change of
Control, all unvested Awards then outstanding will, as applicable, be substituted by or replaced with awards of the surviving corporation
(or any Affiliate thereof) or the potential successor (or any Affiliate thereto) (the "continuing entity") on the same
terms and conditions as the original Awards, subject to appropriate adjustments that do not materially diminish the value of the original
Awards.
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|
|
(b)
|
No fractional Shares or other security will be issued upon the exercise of any Award and accordingly,
if as a result of a Change of Control, a Participant would become entitled to a fractional Share or other security, such participant will
have the right to acquire only the next lowest whole number of Shares or other security and no payment or other adjustment will be made
with respect to the fractional interest so disregarded.
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|
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(c)
|
In the event of a potential Change of Control, the vesting terms of Awards shall be subject to the Participant's
Award Agreement. Notwithstanding the foregoing, despite anything else to the contrary in the Plan, in the event of a potential Change
of Control the Compensation Committee will have the power, in its sole discretion, to modify the terms of the Plan and/or the Awards to
assist the Participants in tendering to a take-over bid or other transaction leading to a Change of Control. For greater certainty, in
the event of a take-over bid or other transaction leading to a Change of Control, the Compensation Committee has the power, in its sole
discretion, to accelerate the vesting of Awards and to permit Participants to conditionally exercise their Awards, such conditional exercise
to be conditional upon the take-up by such offeror of the Shares or other securities tendered to such take-over bid in accordance with
the terms of the take- over bid (or the effectiveness of such other transaction leading to a Change of Control). If, however, the potential
Change of Control referred to in this Section
8.3(c) is not completed within the time specified (as the same may be extended), then despite this Section 8.3(c) or the definition of
"Change of Control", (i) any conditional exercise of vested Awards will be deemed to be null, void and of no effect, and such
conditionally exercised Awards will for all purposes be deemed not to have been exercised, and (ii) Awards which vested pursuant to this
Section 8.3(c) will be returned by the Participant to the Company and reinstated as authorized but unissued Shares and the original terms
applicable to such Awards will be reinstated.
|
|
|
(d)
|
If the Compensation Committee has, pursuant to the provisions of Section 8.3(c) permitted the conditional
exercise of Awards in connection with a potential Change of Control, then the Compensation Committee will have the power, in its sole
discretion, to terminate, immediately following actual completion of such Change of Control and on such terms as it sees fit, any Awards
not exercised (including all vested and unvested Awards).
|
Article
9
MISCELLANEOUS
Unless otherwise specifically provided,
all references to dollars in the Plan are references to Canadian dollars.
|
|
9.2
|
Compliance and Award Restrictions.
|
|
|
(a)
|
The Company's obligation to issue and deliver Shares under any Award is subject to: (i) the completion
of such registration or other qualification of such Shares or obtaining approval of such regulatory authority as the Company shall determine
to be necessary or advisable in connection with the authorization, issuance or sale thereof; (ii) the admission of such Shares to listing
on any stock exchange on which such Shares may then be listed; and (iii) the receipt from the Participant of such representations, agreements
and undertakings as to future dealings in such Shares as the Company determines to be necessary or advisable in order to safeguard against
the violation of the securities laws of any jurisdiction. The Company shall take all commercially reasonable steps to obtain such approvals,
registrations and qualifications as may be necessary for the issuance of such Shares in compliance with applicable securities laws and
for the listing of such Shares on any stock exchange on which such Shares are then listed.
|
|
|
(b)
|
The Participant agrees to fully cooperate with the Company in doing all such things, including executing
and delivering all such agreements, undertakings or other documents or furnishing all such information as is reasonably necessary to facilitate
compliance by the Company with such laws, rule and requirements, including all tax withholding and remittance obligations.
|
|
|
(c)
|
No Awards will be granted where such grant is restricted pursuant to the terms of any trading policies
or other restrictions imposed by the Company.
|
|
|
(d)
|
The Company is not obliged by any provision of the Plan or the grant of any Award under the Plan to issue
or sell Shares if, in the opinion of the Compensation Committee, such action would constitute a violation by the Company or a Participant
of any laws, rules and regulations or any condition of such approvals.
|
|
|
(e)
|
If Shares cannot be issued to a Participant upon the exercise or settlement of an Award due to legal or
regulatory restrictions, the obligation of the Company to issue such Shares will terminate and, if applicable, any funds paid to the Company
in connection with the exercise of any Options will be returned to the applicable Participant as soon as practicable.
|
|
|
(f)
|
At the time a Participant ceased to hold Awards which are or may become exercisable, the Participant ceases
to be a Participant.
|
|
|
(g)
|
Nothing contained herein will prevent the Compensation Committee from adopting other or additional compensation
arrangements for the benefit of any Participant or any other Person, subject to any required regulatory, shareholder or other approval.
|
|
|
9.3
|
Use of an Administrative Agent and Trustee.
|
The Compensation Committee may in its
sole discretion appoint from time to time one or more entities to act as administrative agent to administer the Awards granted under the
Plan and to act as trustee to hold and administer the assets that may be held in respect of Awards granted under the Plan, the whole in
accordance with the terms and conditions determined by the Compensation Committee in its sole discretion. The Company and the administrative
agent will maintain records showing the number of Awards granted to each Participant under the Plan.
|
|
(a)
|
Notwithstanding any other provision of the Plan, all distributions, delivery of Shares or payments to
a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of the Participant) under the Plan shall
be made net of applicable source deductions. The grant of each Award (and the exercise of each Option granted) under this Plan is subject
to the condition that if at any time the Company determines, in its discretion, that the satisfaction of withholding tax or other withholding
liabilities is necessary or desirable in respect of such exercise, such exercise is not effective unless such withholding has been effected
to the satisfaction of the Company. If the event giving rise to the withholding obligation involves an issuance or delivery of Shares,
then, with the Compensation Committee's approval, the withholding obligation may be satisfied by (i) having the Participant elect to have
the appropriate number of such Shares sold by the Company, the Company's transfer agent and registrar or any trustee appointed by the
Company, on behalf of and as agent for the Participant as soon as permissible and practicable, with the proceeds of such sale being delivered
to the Company, which will in turn remit such amounts to the appropriate governmental authorities, or (ii) any other mechanism as may
be required or appropriate to conform with local tax and other rules. Notwithstanding any other provision of the Plan, the Company shall
not be required to issue any Shares or make payments under this Plan until arrangements satisfactory to the Company have been made for
payment of all applicable tax.
|
|
|
(b)
|
The sale of Shares by the Company, or by a Broker, under Section 9.4(a) or under any other provision of
the Plan will be made on the Exchange. The Participant consents to such sale and grants to the Company an irrevocable power of attorney
to effect the sale of such Shares on his behalf and acknowledges and agrees that (i) the number of Shares sold will be, at a minimum,
sufficient to fund the withholding obligations net of all selling costs, which costs are the responsibility of the Participant and which
the Participant hereby authorizes to be deducted from the proceeds of such sale; (ii) in effecting the sale of any such Shares, the Company
or the Broker will exercise its sole judgment as to the timing and the manner of sale and will not be obligated to seek
or obtain a minimum price; and (iii) neither the Company nor the Broker will be liable for any loss arising out of such sale of the Shares
including any loss relating to the pricing, manner or timing of the sales or any delay in transferring any Shares to a Participant or
otherwise.
|
|
|
(c)
|
The Participant further acknowledges that the sale price of the Shares will fluctuate with the market
price of the Shares and no assurance can be given that any particular price will be received upon any sale. The Company makes no representation
or warranty as to the future market value of the Shares or with respect to any income tax matters affecting the participant resulting
from the grant or exercise of an Awards and/or transactions in the Shares. Neither the Company, nor any of its directors, officers, employees,
shareholders or agents will be liable for anything done or omitted to be done by such person or any other person with respect to the price,
time, quantity or other conditions and circumstances of the issuance of Shares under the Plan, with respect to any fluctuations in the
market price of Shares or in any other manner related to the Plan.
|
|
|
(d)
|
Notwithstanding the first paragraph of this Section 9.4, the applicable tax withholdings may be waived
where the Participant directs in writing that a payment be made directly to the Participant's registered retirement savings plan in circumstances
to which regulation 100(3) of the regulations of the Tax Act apply.
|
|
|
9.5
|
Reorganization of the Company.
|
The existence of any Awards shall not
affect in any way the right or power of the Company or its shareholders to make or authorize any adjustment, recapitalization, reorganization
or other change in the Company's capital structure or its business, or any amalgamation, combination, merger or consolidation involving
the Company or to create or issue any bonds, debentures, shares or other securities of the Company or the rights and conditions attaching
thereto or to affect the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar nature or otherwise.
The Plan and all matters to which reference
is made herein shall be governed by and interpreted in accordance with the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
|
|
9.7
|
Successors and Assigns.
|
The Plan shall be binding on all successors
and assigns of the Company and a Participant, including without limitation, the personal legal representatives of a Participant, or any
receiver or trustee in bankruptcy or representative of the Company's or Participant's creditors.
The invalidity or unenforceability of
any provision of the Plan shall not affect the validity or enforceability of any other provision and any invalid or unenforceable provision
shall be severed from the Plan.
No member of the Board, Compensation
Committee or officer of the Company shall be liable for any action or determination taken or made in good faith in the administration,
interpretation, construction or application of the Plan or any Award granted hereunder.
ADDENDUM FOR U.S.
PARTICIPANTS
BRAGG GAMING GROUP
INC.
oMNIBUS EQUITY INCENTIVE PLAN
The provisions of this Addendum apply to Awards
held by a U.S. Participant. All capitalized terms used in this Addendum but not defined in Section 1 below have the meanings attributed
to them in the Plan. The Section references set forth below match the Section references in the Plan. This Addendum shall have no other
effect on any other terms and provisions of the Plan except as set forth below.
"Separation from Service" means,
with respect to a U.S. Participant, any event that may qualify as a separation from service under Treasury Regulation Section 1.409A-1(h).
A U.S. Participant shall be deemed to have separated from service if he or she dies, retires, or otherwise has a termination of employment
as defined under Treasury Regulation Section 1.409A-1(h).
"Specified Employee" has the
meaning set forth in Treasury Regulation Section 1.409A-1(i).
"Termination Date" has the meaning
in Section 1.1 of the Plan, provided that if the Termination Date triggers payment of any Award which is "deferred compensation"
under Code Section 409A, the Termination Date shall be the date of the Separation from Service.
|
|
(a)
|
Section 3.4 is deleted in its entirety and replaced with the following:
|
"Subject to Section 8.2, each Option
must be exercised no later than ten (10) years after the date the Option is granted or such shorter period as set out in the Participant's
Option Agreement, at which time such Option will expire (the "Expiry Date"). Notwithstanding any other provision of the
Plan and provided that any such extension be structured in a manner that is expected to comply with Code Section 409A (to the extent applicable),
each Option that would expire during a Black-Out Period shall expire on the date that is ten (10) Business Days immediately following
the expiration of the Black-Out Period; provided, that in all circumstances, each Incentive Stock Option must be exercised no later than
ten (10) years after the date the Option is granted."
|
|
(b)
|
Section 5.2 is amended by adding the following:
|
"With respect to any DSUs awarded
to a U.S. Participant the Compensation Committee shall endeavor to structure the DSU so as to comply with, or be exempt from, Code Section
409A."
|
|
(c)
|
Section 6.2 is amended by adding the following:
|
"With respect to any RSUs or PSUs
awarded to a U.S. Participant the Compensation Committee shall endeavor to structure the RSU and/or PSU so as to comply with, or be exempt
from, Code Section 409A."
|
|
(d)
|
Section 6.4 is deleted in its entirety and replaced with the following:
|
"The vesting determination date means
the date on which the Compensation Committee determines if the Performance Criteria and/or other vesting conditions with respect to a
RSU and/or PSU have been met (the "Share Unit Vesting Determination Date"), and as a result, establishes the number of
RSUs and/or PSUs that become vested, if any.
Notwithstanding the foregoing, if the
U.S. Participant vests in his or her Share Units pursuant to the Plan in connection with his or her Separation from Service, within 30
days following such U.S. Participant's Separation from Service and subject to Section 9.4, the Company shall (i) issue from treasury the
number of Shares that is equal to the number of vested Share Units held by the U.S. Participant as at the U.S. Participant's Separation
from Service (rounded down to the nearest whole number), as fully paid and non-assessable Shares, (ii) deliver to the U.S. Participant
an amount in cash (net of the applicable tax withholdings) equal to the number of vested Share Units held by the U.S. Participant as at
the U.S. Participant's Separation from Service multiplied by the Market Value as at such date, or (iii) a combination of (i) and (ii).
Upon settlement of such Share Units, the corresponding number of Share Units shall be cancelled and the U.S. Participant shall have no
further rights, title or interest with respect thereto."
|
|
(e)
|
Section 8.2(d) is amended by deleting clauses (b) and (c) thereof in their entirety and replacing them
with the following
|
" (b) any reduction in the exercise
price of an Award benefitting a U. S. Participant, except in the case of an adjustment pursuant to Section 8.1;
(c) any extension of the Expiry Date of
an Award benefitting a U.S. Participant, except in case of an extension due to a Black-Out Period; provided that any such extension be
structured in a manner that is expected to comply with Code Section 409A (to the extent applicable);"
With respect to any Award held by a
U.S. Participant that is subject to Code Section 409A, the acceleration of the time or schedule of any payment except as provided under
the Plan (including this addendum) is prohibited, except as provided in or permitted by regulations and administrative guidance promulgated
under Code Section 409A.
Each grant of Share Units to a U.S.
Participant is intended to be exempt from Code Section 409A. However, to the extent any Award is subject to Section 409A, then:
|
|
(a)
|
all payments to be made upon a U.S. Participant's Termination Date shall only be made upon a Separation
from Service; or
|
|
|
(b)
|
if on the date of the U.S. Participant's Separation from Service the Company's Shares (or shares of any
other Company that is required to be aggregated with the Company in accordance with the requirements of Code Section 409A) is publicly
traded on an established securities market or otherwise and the U.S. Participant is a Specified Employee, then the benefits payable to
the Participant under the Plan that are payable due to the U.S. Participant's Separation from Service shall be postponed until the earlier
of the originally scheduled date and six months following the U.S. Participant's Separation from Service.
|
The postponed amount shall be paid to
the U.S. Participant in a lump sum within 30 days after the earlier of the originally scheduled date and the date that is six months following
the U.S. Participant's Separation from Service. If the U.S. Participant dies during such six month period and prior to the payment of
the postponed amounts hereunder, the amounts delayed on account of Code Section 409A shall be paid to the U.S. Participant's estate within
60 days following the U.S. Participant's death.
If any provision of the Plan contravenes Code
Section 409A or could cause the U.S. Participant to incur any tax, interest or penalties under Code Section 409A, the Compensation Committee
may, in its sole discretion and without the U.S. Participant's consent, modify such provision to: (i) comply with, or avoid being subject
to, Code Section 409A, or to avoid incurring taxes, interest and penalties under Code Section 409A; and/or (ii) maintain, to the maximum
extent practicable, the original intent and economic benefit to the U.S. Participant of the applicable provision without materially increasing
the cost to the Company or contravening Code Section 409A. However, the Company shall have no obligation to modify the Plan or any Share
Unit and does not guarantee that Share Units will not be subject to taxes, interest and penalties under Code Section 409A.
Schedule
"B"
CORPORATE GOVERNANCE DISCLOSURE
The Corporation seeks to attain high standards
of corporate governance. The Board of Directors has carefully considered the Corporate Governance Guidelines set forth in National Policy
58-201 (the “Guidelines”). A description of the Corporation's corporate governance practices is set out below in response
to the requirements of National Instrument 58-101 “Disclosure of Corporate Governance Practices” and the diversity disclosure
requirements under section 172.1 of the CBCA.
Form 58-101F1 - Corporate Governance
Disclosure or CBCA Diversity Disclosure
|
The Corporation's Practices
|
|
Position Descriptions
|
|
|
Disclose whether or not the board has developed written position descriptions for the chair and the chair of each board committee. If the board has not developed written position descriptions for the chair and/or the chair of each board committee, briefly describe how the board delineates the role and responsibilities of each such position.
|
The Board has developed a written position description for the Chairman of the Board and the chair of each Board committee.
|
|
Disclose whether or not the board and CEO have developed a written position description for the CEO. If the board and CEO have not developed such a position description, briefly describe how the board delineates the role and responsibilities of the CEO.
|
The Board and CEO have developed a written position description for the CEO.
|
|
Orientation and Continuing Education
|
|
|
Briefly describe what measures the board takes to orient
new directors regarding
(i)
the role of the board, its committees and its directors, and
(ii)
the nature and operation of the issuer's business.
|
Prior to official appointment, new directors are provided considerable education and orientation about the Corporation and the gaming industry, as well as the Corporation's internal controls, financial reporting and accounting practices.
|
|
Briefly describe what measures, if any, the board takes to provide continuing education for its directors. If the board does not provide continuing education, describe how the board ensures that its directors maintain the skill and knowledge necessary for them to meet their obligations as directors.
|
Senior management makes regular
presentations to the Board on the main areas of the Corporation's business, and to maintain a current understanding of the Company's business,
including its operations, internal controls, financial reporting and accounting practices.
|
Form 58-101F1 - Corporate Governance
Disclosure or CBCA Diversity Disclosure
|
The Corporation's Practices
|
|
Ethical Business Conduct
|
|
|
Disclose whether or not the board
has adopted a written code for its directors, officers and employees. If the board has adopted a written code:
(i) disclose
how an interested party may obtain a copy of the written code;
(ii) describe
how the board monitors compliance with its code, or if the board does not monitor compliance, explain whether and how the board ensures
compliance with its code; and
(iii) provide
a cross-reference to any material change report(s) filed within the preceding 12 months that pertains to any conduct of a director or
executive officer that constitutes a departure from the code.
|
The Board has adopted a written
code of business conduct and ethics policy for its employees, officers and directors. An interested party may obtain a copy of the written
code by submitting a written request to the Corporation.
The Board monitors compliance
with the code by requiring all action prohibited by the code to be reported to the Audit Committee, if involving a director or officer,
and to the Chief Strategy Officer, if involving anyone else.
No material change report has
been filed that pertains to any conduct of a director or executive officer that constitutes a departure from the code.
|
|
Describe any steps the board takes to ensure directors exercise of independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.
|
In accordance with applicable law, when a conflict of interest arises, a director is required to disclose his interest and abstain from voting on the matter. Loans by the Corporation to, or guarantees by the Corporation of obligations of, any director or officer or their family members are expressly prohibited. Directors and executive officers must seek determinations and prior authorizations or approvals of potential conflicts of interest exclusively from the Audit Committee.
|
|
Describe any other steps the board takes to encourage and promote a culture of ethical business conduct.
|
The Corporation regards maintaining a culture of ethical business conduct as critically important. The Corporation calls on each director, officer and employee to act with integrity and observe the highest ethical standards of business conduct in his or her dealings with the Company's security holders, customers, suppliers, partners, service providers, competitors, employees and anyone else with whom he or she has contact in the course of performing his or her job.
|
Form 58-101F1 - Corporate Governance
Disclosure or CBCA Diversity Disclosure
|
The Corporation's Practices
|
|
Nomination of Directors
|
|
|
Describe the process by which the board identifies new candidates for board nomination.
|
The Nomination and Governance Committee determine the qualifications, qualities, skills and other expertise required to be a director of the Company; and develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director. In making recommendations, the Nomination and Governance Committee considers the competencies and skills that the Board as a whole should possess, the competencies and skills of each existing director, and whether a new nominee can devote sufficient time and resources to their duties, amongst other things.
|
|
Disclose whether or not the board has a nominating committee composed entirely of independent directors. If the board does not have a nominating committee composed entirely of independent directors, describe what steps the board takes to encourage an objective nomination process.
|
The Nomination and Governance Committee is to consist of at least three directors, the majority of whom are independent. To maintain objectivity, the committee may use outside advisors to assist with the execution of selecting new directors.
|
|
If the board has a nominating committee, describe the responsibilities, powers and operation of the nominating committee.
|
The Nomination and Governance Committee is responsible for finding and nominating qualified candidates to serve as directors of the Corporation.
|
|
Compensation
|
|
|
Describe the process by which the board determines the compensation for your company's directors and officers
|
The Compensation Committee review
compensation of directors on a periodic basis.
The Compensation Committee and approves
annually the corporate goals and objectives applicable to the compensation of the CEO; evaluate at least annually the CEO's performance
in light of those goals and objectives; and determine and approve/make recommendations to the Board with respect to the CEO's compensation
level based on this evaluation.
The Compensation Committee also makes
recommendations to the Board regarding the compensation of all other executive officers and the directors.
|
|
Disclose whether or not the board has a compensation committee composed entirely of independent directors. If the board does not have a compensation committee composed entirely of independent directors, describe what steps the board takes to ensure an objective process for determining such compensation.
|
The Compensation Committee consists of at least three directors, the majority of whom are independent. To maintain objectivity, the committee may use outside advisors to assist with the execution of evaluating and determining appropriate compensation.
|
|
If the board has a compensation committee, describe the responsibilities, powers and operation of the compensation committee.
|
In establishing levels of remuneration and in granting stock options, the Compensation Committee takes into consideration an individual’s performance, level of expertise, responsibilities, length of service to the Corporation and comparable levels of remuneration paid to executives of other companies of comparable size and development within the industry.
|
Form 58-101F1 - Corporate Governance
Disclosure or CBCA Diversity Disclosure
|
The Corporation's Practices
|
|
Other Board Committees
|
|
|
If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.
|
The Board has no other committees.
|
|
Assessments
|
|
|
Disclose whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments. If assessments are not regularly conducted, describe how the board satisfies itself that it, its committees, and individual directors are performing effectively.
|
The Nomination and Governance Committee
and the Board as a whole consider the effectiveness of the Board on an ongoing, informal, basis.
The Board, the Committees and each
director will perform an annual self-assessment on its, his or her contribution and effectiveness.
The Board also annually assesses
its policies, procedure, guidelines or standard, to ensure that they remain current and relevant.
|
|
Director Term Limits and Other Mechanisms of Board Renewal
|
|
|
Disclose whether or not the issuer has adopted term limits for the directors on the board or other mechanisms of board renewal and, if so, include a description of those director term limits or other mechanisms of board renewal. If the issuer has not adopted term limits or other mechanisms of board renewal, disclose why it has not.
|
The Corporation has not adopted term limits for the directors on the Board or other mechanisms of board renewal. The business of the Corporation is constantly changing as the gaming industry evolves. Recognizing this, and to ensure optimal governance of the Corporation by the Board, director renewal and replacement is managed in a manner to ensure that the Board can function effectively, while enabling new directors to gain a full understanding of the Corporation’s business.
|
|
Policies Regarding the Representation of Diversity Groups on the Board
|
|
|
Disclose whether the issuer has adopted a written policy relating to the identification and nomination of women, Indigenous peoples, persons with disabilities or members of visible minorities (“Diversity Groups”) for directors. If the issuer has not adopted such a policy, disclose why it has not done so.
|
The Corporation has not adopted a written policy specifically relating to the identification and nomination of members of Diversity Groups for directors. The Board and Nomination and Governance Committee do not currently believe a written policy relating solely to the identification of directors based upon gender or other membership in a Diversity Group is necessary. One of the factors that the Board and Nomination and Governance Committee consider is diversity of backgrounds, including gender diversity. The Board and management of the Corporation are dedicated to fostering the continued development of directors, officers, or employees who are part of a Diversity Group. The Board and management recognize the values of diversity in the workplace and will cooperatively work toward achieving a work environment that reflects the interests of a diverse work force.
|
|
Consideration of the Representation of Diversity Groups in the Director Identification and Selection Process
|
|
|
Disclose whether and, if so, how the board or nominating committee considers the level of representation of Diversity Groups on the board in identifying and nominating candidates for election or re-election to the board. If the issuer does not consider the level of representation of Diversity Groups on the board in identifying and nominating candidates for election or re-election to the board, disclose the issuer’s reasons for not doing so.
|
The Board and the Nominating Committee evaluate potential nominees to the Board by reviewing the qualifications of the nominee, irrespective of gender or other membership in a Diversity Group, and determines their appropriateness by taking into consideration the then current Board composition and the anticipated skills required to round out the capabilities of the Board and senior management. The Corporation .does not believe that quotas or strict requirements will necessarily result in the identification of the most suitable candidate for the Corporation or the Board. The Board and Nomination and Governance Committee values diversity, including, without limitation, diversity of experience, perspective, education, race, gender and national origin and is mindful of the benefits of diversity in its leadership positions, but when selecting candidates the Board and Nomination and Governance Committee take into account the competencies, skills, and personal qualities of each candidate.
|
Form 58-101F1 - Corporate Governance
Disclosure or CBCA Diversity Disclosure
|
The Corporation's Practices
|
|
Consideration Given to the Representation of Diversity Groups in Executive Officer or Senior Manager Appointments
|
|
|
Disclose whether and, if so, how the issuer considers the level of representation of Diversity Groups in executive officer or senior management positions when making executive officer and senior management appointments. If the issuer does not consider the level of representation of Diversity Groups in executive officer or senior management positions when making executive officer or senior management appointments, disclose the issuer’s reasons for not doing so.
|
In nominating candidates to positions
as members of the executive and senior management team, the Corporation does not take into account the representation of women or other
membership in Diversity Groups in the executive and senior management team. The Corporation’s objective is to identify the person
who best possesses the skills required for each executive or senior manager position. However, the Board considers the level of female
representation and diversity as one of several factors used in its search for talented executives and Board members.
|
|
Issuer’s Targets Regarding the Representation of Diversity Groups on the Board and in Executive Officer Positions
|
|
|
Disclose whether the issuer has adopted a target regarding each Diversity Group on the issuer’s board, executive officer or senior management positions. If the issuer has not adopted a target, disclose why it has not done so.
|
The Corporation has not adopted a target regarding each Diversity Group on its Board and in its executive and senior management. The Corporation considers candidates based on their qualifications, personal qualities, business background and experience, and does not feel that targets necessarily result in the identification or selection of the best candidates.
|
|
Number of Diversity Group members on the Board and in Executive Officer and Senior Management Positions
|
|
|
Disclose the number and proportion (in percentage terms) of directors on the issuer’s board who are members of each Diversity Group.
|
The Board currently has one female
director, representing 14.3% of the seven directors comprising the Board.
No director currently serving
on the Board has self-identified as an Indigenous person, person with a disability or member of a visible minority.
|
|
Disclose the number and proportion (in percentage terms) of executive officers or senior management of the issuer, including all major subsidiaries of the issuer, who are members of each Diversity Group.
|
As of the date of the Circular, no women held any executive officer or senior management positions within the Corporation or self-identified as an Indigenous person, person with a disability or member of a visible minority.
|
Schedule
"C"
Board Mandate
|
|
1.
|
Purpose and Goal of the Board
|
The board of directors (the "Board")
of Bragg Gaming Group Inc. (the "Company") directly, and through its committees, oversees the management of, and provides
stewardship over, the Company's affairs. The Board's primary goal is to act in the best interests of the Company to enhance long-term
shareholder value while considering the interests of the Company's various stakeholders, including shareholders, employees, customers,
suppliers and the community. The Board is obligated to act honestly and in good faith with a view to the best interests of the Company.
The Board is also committed to the principles of good corporate governance and practices set out in National Policy 58-201 – Corporate
Governance Guidelines ("NP 58-201").
The organization of the Board
and its authority are subject to any restrictions, limitations or requirements set out in the Company's constating documents, including
its articles and by-laws, as well as any restrictions and limitations or requirements set out under applicable laws, including the Canada
Business Corporations Act (the "Act"), Canadian securities laws as well as the standards, policies and guidelines
of the TSX Venture Exchange (collectively, the "Applicable Law").
The Board retains
authority over the administration of its own affairs, including:
|
|
(a)
|
selecting the Chair of the Board;
|
|
|
(b)
|
forming Board committees (each a "Committee", and collectively, the "Committees");
|
|
|
(c)
|
delegating powers to each Committee; and
|
|
|
(d)
|
developing position descriptions for the Chair of the Board and the chair of each Committee.
|
The Board will develop and maintain
the Company's corporate governance approach, including developing a set of corporate governance principles specific to the Company (the "Governance
Principles") to guide the Board, its Committees, the Company's officers, management and employees in completing their duties,
responsibilities and obligations in relation to the Company. The Governance Principles will comply with the Act and include the best practices
contained in NP 58-201 and any other practices approved by the Board.
The Board is responsible for
approving the Company's significant operating policies and procedures, including reviewing and approving material changes to existing
policies. The Board is also responsible for monitoring Company compliance, including Board compliance with these policies.
The Company's shareholders elect directors
annually to the Company's Board. Elections are conducted in accordance with the Act and the Company's constating documents,
including its articles and by-laws. The number of directors comprising the Board is determined from time to time by the Company's
shareholders or by the Board itself, if permitted, within the minimum and maximum number of directors provided in the articles.
A majority of the directors on the Board must
be "independent" in accordance with Applicable Law. Under Applicable Law, in order to be considered "independent",
directors shall have no direct or indirect material relationship with the Company. The Board shall establish and maintain procedures and
policies to ascertain director independence and address conflict of interest issues.
Every director shall serve until his successor
is appointed, unless he or she resigns, fails to meet the qualifications to serve as a director or otherwise ceases to be a director of
the Company.
In accordance with Section 4(c) and Section 4(d),
the Board will establish and delegate some of its responsibilities and powers, permitted under Applicable Law, to its Committees. At a
minimum, the Board will establish an Audit Committee, a Compensation Committee, and a Nominating Committee. The Board may form other Committees
at its discretion.
|
|
(a)
|
Every Committee must be comprised of a majority of independent directors, with the exception of the Nomination
Committee and Compensation Committee, which must be comprised entirely of independent directors.
|
|
|
(b)
|
Every Committee must create and maintain a Committee charter (the "Charter") outlining
its responsibilities, including those responsibilities set out in NP 58-201, to be approved by the Board.
|
|
|
(c)
|
Every Charter must be disclosed in accordance with NI 58-101, and made publicly available on the Company's
website.
|
The Board is responsible for the identification
of the principal risks of the Company's business and ensuring the implementation of appropriate systems to manage these risks. The Board's
responsibility to oversee risk management includes receiving reports from management on the status of risk management activities, reviewing
reports on spending in relation to approved budgets and overseeing the financial reporting process of the Company. The Board should review
the effectiveness of the Company's system of internal controls, at minimum, on an annual basis.
To ensure clear delineation of roles and responsibilities,
the Board will develop management authority guidelines to distinguish between areas of Board authority, including Committee authority,
and those delegated to the CEO and other management personnel. These guidelines must set out matters that must be presented to the Board
for review. Matters to be presented to the Board for review include any significant acquisitions and capital expenditures, major contracts
and marketing initiatives, and significant finance-related issues.
The Board will approve the Company's annual budget
and will receive reports from management in respect of the Company's actual results and a comparison of the actual results to the Company's
annual budget.
The Board has primary responsibility for the development
and adoption of the strategic direction of the Corporation. The Board is responsible for adopting the Company's strategic planning process
(the "Planning Process"). Using the Planning Process, the Board will participate with management in creating the
Company's strategic plan (the "Plan"). The Board must approve the Plan before its implementation. The Board will not
approve the Plan if the Plan does not:
|
|
(a)
|
recognize, and capitalize or mitigate (as applicable) the opportunities and risks of the Company's business;
or
|
|
|
(b)
|
does not describe how the Company will implement the Plan to achieve the Company's long-term goals.
|
The Board will seek regular status reports from
the Company's management in relation to the Company's performance, as compared to the Plan. The Board reviews with management from time
to time the strategic planning environment, the emergence of new opportunities, trends and risks and the implications of these developments
for the strategic direction of the Corporation.
|
|
7.
|
Code of Business Conduct and Ethics
|
The Board must adopt a written Code of Ethics
and Business Conduct (the "Code") as part of its efforts to promote a culture of integrity and honesty throughout the
Company. The Code will apply to the Board itself and the Company's management and employees.
Only the Board may grant any waivers to the Code.
If the Board grants a waiver to the Code, the Board will determine if disclosure of the waiver is necessary in accordance with Applicable
Law. Contents of such disclosure will be in compliance with NP 58-201 and NI 58-101.
On occasion, the Board must review and analyze
the conduct of senior management to satisfy itself that these individuals are complying with the Code and are creating a culture of integrity
throughout the Company.
The Board will oversee Company's management, including:
|
|
(a)
|
appointing and monitoring senior management;
|
|
|
(b)
|
developing the CEO's position description in accordance with Section 5;
|
|
|
(c)
|
developing or approving the corporate goals and objectives of the CEO and of other senior management;
and
|
|
|
(d)
|
in conjunction with the Compensation Committee, assessing the performance of the CEO and other senior
management, taking into consideration:
|
|
|
(i)
|
such person's position description;
|
|
|
(ii)
|
such person's goals and objectives;
|
|
|
(iii)
|
the Governance Principles, including the individual's adherence to the Governance Principles;
|
|
|
(iv)
|
the efforts made by such person to promote a culture of integrity at the Company; and
|
All management incentive plans tied to the Company's
performance must first be approved by the Board.
|
|
9.
|
Communications and Disclosure
|
The Board will oversee the development and adoption
of a disclosure policy to promote consistent disclosure practices by the Company in connection with the disclosure of material information
about the Company and the Company's communications with external parties, including shareholders, the media and members of the investment
community.
Representatives from the Board will be present
at all shareholders' meetings to respond to shareholder questions relating to the Board's activities, duties and obligations.
The Board will appoint an independent, non-executive
director to be available to shareholders with concerns should shareholder communications with the Board Chair, the CEO, or other executive
officers fail to resolve the issue or such contact is inappropriate.
The Board will ensure the Company's financial
performance is reported to shareholders, other security holders and regulators on a timely and regular basis in accordance with Applicable
Law, and that reasonable steps are taken to ensure timely reporting of events, in accordance with Applicable Law, having a significant
and material impact on the Company.
The Board will, in conjunction with the Audit
Committee, establish a whistleblower policy for the Company allowing Company employees, officers, directors and other stakeholders, including
the public, to raise, anonymously or not, questions, complaints or concerns about the Company's practices, including fraud, policy violations,
any illegal or unethical conduct, and any Company accounting, auditing or internal control matters. The Board will ensure that any questions,
complaints or concerns are adequately received, reviewed, investigated, documented and resolved.
Meetings of the Board will be called, scheduled
and held in accordance with the Company's constating documents, including its articles and by-laws, as well as under Applicable Law.
Quorum for a Board meeting will be as provided
in the by-laws of the Company. All directors are expected to attend and be prepared to participate, including reviewing all meeting materials
before every Board meeting. The chairman (the "Chair" or "Chairman") of the Board shall chair these
meetings, unless the Chairman of the Board is not an independent director, in which case the Lead Director shall chair these meetings.
The Board will provide at least seven days' notice
of a meeting, unless all members of the Board consent to another time period or waive notice.
The Chair of the Board will seek input from the
directors and Company's management, when setting each Board meeting's agenda.
Any written material to be provided to directors
for a Board meeting must be distributed in advance of the meeting to give directors time to review and understand the information. All
material provided to directors will be relevant and concise.
The CEO and any other member of senior management
may, if invited by the Chair of the Board, attend, give presentations relating to their responsibilities and otherwise participate at
Board meetings.
The Company's secretary, or if there is no Company
secretary, any Board member attendee nominated by the Chair of the Board, will be the secretary of the meeting.
The Company's secretary will circulate minutes
of all Board meetings to the Board and will ensure that all minutes of meetings, or written resolutions in lieu of a meeting, are filed
in the Company's minute book.
The independent directors will meet separately
after every regularly scheduled Board meeting without non-independent members, and members of management in attendance. The independent
directors may also hold other meetings at such times and with such frequency as the independent directors consider necessary.
|
|
12.
|
Director Education and Training
|
The Board will provide newly elected directors
with an orientation program to educate them on the Company, their roles and responsibilities on the Board or Committees, as well as the
Company's internal controls, financial reporting and accounting practices. In addition, directors will, from time to time, as required,
receive:
|
|
(a)
|
training to increase their skills and abilities, as it relates to their duties and their responsibilities
on the Board; and
|
|
|
(b)
|
continuing education about the Company to maintain a current understanding of the Company's business,
including its operations, internal controls, financial reporting and accounting practices.
|
The Board, the Committees and each director will
perform an annual self-assessment on its, his or her contribution and effectiveness. The Board and any Committee will consider this Charter,
and any director will consider his or her position description, when performing a self-assessment.
The Board will assess, on at least an annual basis,
any policy, procedure, guideline or standard, including this Charter, created by the Board to manage or fulfill its roles, duties and
responsibilities, to ensure that they remain current and relevant. The Board will ensure that each Committee shall perform the same assessment
in relation to any Committee policy, procedure, guideline or standard.
|
|
14.
|
Access to Management and Outside Advisors
|
To fulfill its roles, duties and responsibilities
effectively, the Board may contact and have discussions with the Company's external auditors and the Company's officers and employees
and request Company information and documentation from these persons.
The Board may, in its sole discretion, retain
and obtain the advice and assistance of independent outside counsel and such other advisors as it deems necessary to fulfil its duties
and responsibilities under this Charter. The Board may set the compensation and oversee the work of any outside counsel and other advisors
to be paid by the Company.
The Board is responsible for reviewing the compensation
of members of the Board to ensure that the compensation realistically reflects the responsibilities and risks involved in being an effective
director and for reviewing the compensation of members of the senior management team to ensure that they are competitive within the industry
and that the form of compensation aligns the interests of each such individual with those of the Corporation.
|
|
16.
|
Accountabilities of Individual Directors
|
The accountabilities set out below are meant to
serve as a framework to guide individual directors in their participation on the Board, with a view to enabling the Board to meet its
duties and responsibilities.
Principal accountabilities include:
|
|
(a)
|
assuming a stewardship role, overseeing the management of the business and affairs of the Corporation;
|
|
|
(b)
|
maintaining a clear understanding of the Corporation, including its strategic and financial plans and
objectives, emerging trends and issues, significant strategic initiatives and capital allocations and expenditures, risks and management
of those risks, internal systems, processes and controls, compliance with applicable laws and regulations, governance, audit and accounting
principles and practices;
|
|
|
(c)
|
preparing for each Board and Committee meeting by reviewing materials that have been provided in a timely
manner and requesting, where appropriate, information that will allow the director to properly participate in the Board's deliberations,
make informed business judgments, and exercise oversight;
|
|
|
(d)
|
absent a compelling reason, attending every meeting of the Board and each Committee of which such director
is a member, and actively participating in deliberations and decisions. When attendance is not possible a director should become familiar
with the matters to be covered at the meeting;
|
|
|
(e)
|
voting on all decisions of the Board or any Committees of which such director is a member, except when
a conflict of interest may exist;
|
|
|
(f)
|
preventing personal interests from conflicting with, or appearing to conflict with, the interests of the
Corporation and disclosing details of such conflicting interests should they arise; and
|
|
|
(g)
|
acting in the highest ethical manner and with integrity in all professional dealings.
|
This Charter is a broad policy statement and is
attended to be part of the Board's flexible governance framework. While this Charter should comply with all Applicable Law and the Company's
constating documents, including articles and by-laws, this Charter does not create any legally binding obligations on the Board, any Committee,
any director, or the Company.
The Board will annually review and reassess the
adequacy of this Board Charter.
Exhibit 4.7
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
Item 1.
|
Name and Address of Company
|
Bragg Gaming Group Inc. (the
"Corporation")
100 King Street West,
Suite 3400
Toronto, Ontario
M5X 1A4
|
|
Item 2.
|
Date of Material Change
|
January 13, 2021
A
news release with respect to the material change referred to in this report was issued by the Corporation on January 13, 2021 through
CNW Group and filed on the system for electronic document analysis and retrieval ("SEDAR") at www.sedar.com under
the Corporation's profile.
|
|
Item 4.
|
Summary of Material Change
|
On January 13, 2021, the Corporation
completed a non-brokered private placement (the "Offering"). The Corporation raised C$3,000,000 through the issuance
of 2,479,335 common shares (the "Common Shares") at a price of C$1.21 per Common Share.
Insiders of the Corporation subscribed
for 2,438,013 Common Shares under the Offering for gross proceeds of $2,950,000. The issuances of Common Shares to insiders pursuant to
the Offering are considered related party transactions within the meaning of TSX Venture Exchange Policy 5.9 and Multilateral Instrument
61- 101 Protection of Minority Security Holders in Special Transactions (“MI 61- 101”).
The Corporation relied on exemptions from
the formal valuation and minority approval requirements in sections 5.5(b) and 5.7(a) of MI 61-101 101 in respect of the insider
participation. The Corporation meets the requirements set out in section 5.5(b) of MI 61-101 because the Common Shares are only traded
on the facilities of the TSX Venture Exchange. The Corporation meets the requirements set out in section 5.7(a) of MI 61-101 as neither
the fair market value of the gross securities to be issued under the Offering nor the consideration to be paid by the insiders will exceed
25% of the Corporation's market capitalization.
In accordance with applicable Canadian
securities law, the securities issued pursuant to the Offering are subject to a four month and one day hold period expiring May 14,
2021.
|
|
Item
5.
|
Full Description of Material
Change
|
|
|
Item 5.1
|
Full Description of Material
Change
|
On January 13, 2021, the Corporation announced it had
completed the Offering raising C$3,000,000 through the issuance of 2,479,335 Common Shares.
The Common Shares issued under the Offering are subject to
a four-month hold period, which expires on May 14, 2021.
|
|
Item 5.2
|
Disclosure for Restructuring Transactions
|
N/A
|
|
Item 6.
|
Reliance on Subsection 7.1(2) of National Instrument 51-102
|
N/A
|
|
Item 7.
|
Omitted Information
|
N/A
|
|
Item 8.
|
Executive Officer
|
For
further information, please contact Yaniv Spielberg, CSO, Bragg Gaming Group Inc., Phone: 1-647-800-2282, Email: info@bragg.games.
January 15, 2021
Exhibit 4.8
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
Item 1.
|
Name
and Address of Company
|
Bragg Gaming Group Inc. (the "Corporation")
100 King Street West, Suite 3400
Toronto, Ontario
M5X 1A4
|
|
Item 2.
|
Date of Material Change
|
January 20, 2021
A news release with respect to the material
change referred to in this report was issued by the Corporation on January 20, 2021 through Globe Newswire and filed on the system for
electronic document analysis and retrieval ("SEDAR") at www.sedar.com under the Corporation's profile.
|
|
Item 4.
|
Summary of Material Change
|
On January 20, 2021, the Corporation announced
that it has satisfied its earn-out payment obligations owed to K.A.V.O. Holdings Limited, as vendor (the "KAVO"), further
to its news releases of September 30, 2020, November 7, 2020, and November 18, 2020 (the "Transaction").
Immediately prior to the completion of
the Transaction, Matevž Mazij had beneficial ownership of and exercised control or direction over 1.49 per cent of the issued and
outstanding Common Shares. Following the completion of the Transaction, Matevž Mazij became a "control person" of the Corporation,
and exercise control or direction over 27.02 per cent of the outstanding Common Shares on a non-diluted basis.
|
|
Item 5.
|
Full Description
of Material Change
|
|
|
Item 5.1
|
Full Description of Material Change
|
The full description of the material change
was set out in material change reports of the Corporation dated November 11, 2020 and November 13, 2020. The common shares of the Corporation
issued to satisfy the second earn-out payment is subject to a statutory 4-month hold period.
On January 22, 2021, Matevž Mazij
filed an early warning report under the SEDAR profile of the Company at www.sedar.com.
|
|
Item 5.2
|
Disclosure for Restructuring Transactions
|
N/A
|
|
Item 6.
|
Reliance on Subsection 7.1(2) of National Instrument 51-102
|
N/A
|
|
Item 7.
|
Omitted Information
|
N/A
|
|
Item 8.
|
Executive Officer
|
For further information, please contact
Yaniv Spielberg, CSO, Bragg Gaming Group Inc., Phone: 1-647-800-2282, Email: info@bragg.games.
January 25, 2021
Exhibit 4.9
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
Item 1.
|
Name and Address of Company
|
Bragg Gaming Group Inc. (the
"Corporation")
100 King Street West, Suite 3400
Toronto, Ontario
M5X 1A4
|
|
Item 2.
|
Date of Material Change
|
March 24, 2021
A
news release with respect to the material change referred to in this report was issued by the Corporation on March 24, 2021 through
Globe Newswire and filed on the system for electronic document analysis and retrieval ("SEDAR") at www.sedar.com
under the Corporation's profile.
|
|
Item 4.
|
Summary of Material Change
|
The Corporation's board of directors ("Board")
appointed Richard Carter as the Corporation's new Chief Executive Officer, effective May 1, 2021.
|
|
Item 5.
|
Full
Description of Material Change
|
|
|
Item 5.1
|
Full Description of Material Change
|
The Board appointed Richard Carter as
the Corporation's new Chief Executive Officer, effective May 1, 2021. Mr. Carter will succeed Adam Arviv, the Corporation's
Interim Chief Executive Officer. Mr. Arviv will continue to serve as an adviser to the new Chief Executive Officer and the Board.
|
|
Item 5.2
|
Disclosure for Restructuring Transactions
|
N/A
|
|
Item 6.
|
Reliance on Subsection 7.1(2) of National Instrument 51-102
|
N/A
|
|
Item 7.
|
Omitted Information
|
N/A
|
|
Item 8.
|
Executive Officer
|
For
further information, please contact Yaniv Spielberg, CSO, Bragg Gaming Group Inc., Phone: 1-647-800-2282, Email: info@bragg.games.
April 5, 2021
Exhibit 4.10
FORM 51-102F3
MATERIAL CHANGE REPORT
|
Item 1.
|
Name and Address of Company
|
Bragg Gaming Group Inc. (the "Corporation")
100 King Street West, Suite 3400
Toronto, Ontario
M5X 1A4
|
Item 2.
|
Date of Material Change
|
April 29, 2021
A news release with respect to the material
change referred to in this report was issued by the Corporation on April 30, 2021 through Globe Newswire and filed on the system for electronic
document analysis and retrieval ("SEDAR") at www.sedar.com under the Corporation's profile.
|
Item 4.
|
Summary of Material Change
|
On April 29, 2021 the Corporation completed
its previously announced 1-for-10 consolidation (the "Consolidation") of its common shares (the "Common Shares").
|
Item 5.
|
Full Description of Material Change
|
|
Item 5.1
|
Full Description of Material Change
|
The Corporation consolidated its outstanding
Common Shares on the basis of one post-Consolidation Common Share for every ten pre-Consolidation Common Shares (1-for-10). The Common
Shares will begin trading on a post-consolidation basis on the TSX at the open of markets on May 5, 2021 under the same trading symbol.
Letters of transmittal will be mailed
to registered shareholders on May 3, 2021 providing instructions to surrender the certificates or DRS advices evidencing their Common
Shares to the Corporation's transfer agent, Computershare Investor Services Inc. ("Computershare"). Copies of the letters
of transmittal are available by request to Computershare at 1-800-564-6253 or corporateactions@computershare.com.
|
Item 5.2
|
Disclosure for Restructuring Transactions
|
N/A
|
Item 6.
|
Reliance on Subsection 7.1(2) of National Instrument 51-102
|
N/A
|
Item 7.
|
Omitted Information
|
N/A
|
Item 8.
|
Executive Officer
|
For further information, please contact
Yaniv Spielberg, CSO, Bragg Gaming Group Inc., Phone: 1-647-800-2282, Email: info@bragg.games.
April 30, 2021
Exhibit 4.11
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
Item 1.
|
Name and Address of Company
|
Bragg Gaming Group Inc. (the “Corporation”)
100 King Street West, Suite 3400
Toronto, Ontario
M5X 1A4
|
|
Item 2.
|
Date of Material Change
|
May 11, 2021
A
news release with respect to the material change referred to in this report was issued by the Corporation on May 12, 2021 through
Globe Newswire and filed on the system for electronic document analysis and retrieval (SEDAR) at www.sedar.com under the Corporation’s
profile.
|
|
Item 4.
|
Summary of Material Change
|
The Corporation entered into a definitive
membership interest purchase agreement dated May 11, 2021 (“MIPA”) with Spin Games LLC (“Spin”),
a Reno, Nevada based B2B gaming technology and content provider to purchase 100% of the membership interests of Spin (“Transaction”).
Under the terms of the MIPA, the Corporation has agreed to pay a purchase price consisting of: (i) US$10 million in cash; and (ii) US$20
million in common shares in the capital of the Corporation (“Common Shares”), of which US$5 million worth of Common
Shares will be payable on closing and US$5 million worth of Common Shares will be payable on each of the next three anniversaries of the
closing date of the Transaction (collectively, the “Purchase Price”). The Purchase Price is subject to closing and
post-closing adjustments. The Transaction is subject to customary closing conditions, including final approval of the Toronto Stock Exchange
and required regulatory approvals.
|
|
Item 5.
|
Full
Description of Material Change
|
|
|
Item 5.1
|
Full Description
of Material Change
|
On May 12, 2021, the Corporation
announced that it had entered into the MIPA with Spin to purchase 100% of the membership interests of Spin.
Based in Reno, Nevada, with over 30
employees, Spin is a B2B gaming technology and content provider currently servicing the US market. Spin, will provide the
Corporation with immediate technical, product, regulatory and compliance know- how specific to the US market. Spin’s founder,
Kent Young, who brings over 30 years of gaming sector executive experience, will immediately join the Corporation as President
– Americas and will play a key role in the Corporation’s US growth strategy.
The Transaction offers a compelling strategic
and financial rationale and is consistent with the Corporation’s previously announced strategy to diversify its revenue from European
markets and grow its US operations to capitalize on the growing US and Canadian online casino markets. The Transaction, upon completion,
serves to immediately establish the Corporation’s US operating footprint setting the foundation for the Corporation’s growth
strategy in the region.
As a result of the Transaction, the Corporation
expects to gain access to key strategic operator relationships in the US including BetMGM / Roar Digital, Caesars, FanDuel, Golden Nugget,
Hard Rock, DraftKings, TwinSpires, Penn National Gaming, Resorts, Parx, Rush Street Interactive, Unibet and WynnBet. The Corporation intends
to leverage these key operator relationships to cross-sell its existing casino content currently live in European markets while continuing
to develop its US-centric content creation. Spin’s remote gaming server and casino content are fully licensed and distributed in
New Jersey, Pennsylvania, Michigan, and is licensed, but with deployment pending, in British Columbia. In British Columbia, Spin has entered
into an online services agreement with the British Columbia Lottery Corporation, and is fully licensed, under the supplier registration,
by the British Columbia Gaming Policy and Enforcement Branch. Deployment in British Columbia is pending technical integration, which is
in the process of being implemented with Scientific Games Corporation, the platform provider
Upon completion of the Transaction, the
combined offering of Spin and the Corporation’s wholly owned subsidiary, ORYX Gaming (“Oryx”), will position
the Corporation to deliver an enhanced full turnkey iGaming, sports betting and player engagement platform into the rapidly growing US
market. The initial planning of technical integrations between Spin and Oryx is currently underway and the combined offering will deliver
the benefits of Oryx’s advanced turnkey Player Engagement Platform with Spin’s technology, local market know-how and US operator
relationships. Additionally, the Transaction will deepen the Corporation’s global development resources with Spin’s existing
development center located in Chennai, India.
The Transaction remains subject to
certain customary closing conditions, including the approval of state gaming regulators. The Transaction is expected to be completed
in late Q4 2021.
Forward-Looking Statements
Certain information contained in
this material change report may be forward- looking statements or “forward-looking information” within the meaning of
applicable securities laws (“forward looking-statements”). Forward-looking statements are often, but not always,
identified by the use of words such as “target”, “expect”, “anticipate”, “believe”,
“foresee”, “could”, “would”, “estimate”, “goal”, “outlook”,
“intend”, “plan”, “seek”, “will”, “may”, “tracking”,
“pacing” and “should” and similar expressions or words suggesting future outcomes. This material change
report includes forward-looking statements pertaining to, among other things, the Corporation’s future growth plans. Numerous
risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs and assumptions
expressed or implied in the forward-looking statements, including, but not limited to, the following risks and uncertainties:
anticipated strategic, operational and competitive benefits may not be realized; events or series of events, including in connection
with COVID-19, may cause business interruptions; required regulatory approvals may not be obtained; the Transaction may not be able
to be completed on satisfactory terms or at all; and the Corporation may not be able to raise additional capital. Among other
things, the Corporation has assumed that its businesses will operate as anticipated, that it will be able to complete the
Transaction on reasonable terms, and that all required regulatory approvals will be obtained on satisfactory terms and within
expected time frames. In particular, there can be no assurance that we will complete the Transaction or enter into agreements with
respect to other acquisitions. The forward-looking statements contained in this material change report are made as of the date
hereof and the Corporation has no obligation to publicly update such forward-looking statements to reflect new information,
subsequent or otherwise, unless required by applicable securities laws. The reader is warned against placing undue reliance on these
forward-looking statements.
|
|
Item 5.2
|
Disclosure for Restructuring Transactions
|
N/A
|
|
Item 6.
|
Reliance on Subsection 7.1(2) of National Instrument
51-102
|
N/A
|
|
Item 7.
|
Omitted Information
|
N/A
|
|
Item 8.
|
Executive Officer
|
For
further information, please contact Yaniv Spielberg, CSO, Bragg Gaming Group Inc., Phone: 1-647-800-2282, Email: info@bragg.games.
May 20, 2021
Exhibit 4.12
FORM 51-102F3
MATERIAL CHANGE REPORT
|
|
Item 1.
|
Name and Address of Company
|
Bragg Gaming Group Inc. (the “Corporation”)
100 King Street West, Suite 3400
Toronto, Ontario
M5X 1A4
|
|
Item 2.
|
Date of Material Change
|
June 2, 2021
A news release with respect to the material
change referred to in this report was issued by the Corporation on June 2, 2021 through Globe Newswire and filed on the system for electronic
document analysis and retrieval (SEDAR) at www.sedar.com under the Corporation’s profile.
|
|
Item 4.
|
Summary of Material Change
|
The Corporation, through its wholly-owned
Delaware subsidiary, acquired Wild Streak LLC (“Wild Streak”), a Nevada-based content creation studio, pursuant to
a membership interest purchase agreement dated June 2, 2021 (“MIPA”). Pursuant to the MIPA, the Corporation purchased
100% of the membership interests of Wild Streak (the "Transaction") for an aggregate purchase price of US$30 million
(the “Purchase Price”), consisting of: (i) US$10 million in cash; and (ii) US$20 million in common shares in the capital
of the Corporation (“Common Shares”), payable on each of the next three anniversaries of the closing date of the transaction
(collectively, the “Closing Date”). The Purchase Price is subject to post-closing adjustments.
|
|
Item 5.
|
Full Description of Material Change
|
|
|
Item 5.1
|
Full Description of Material Change
|
On June 2, 2021, the Corporation announced
that it had entered into the MIPA, pursuant to which it acquired 100% of the membership interests of Wild Streak.
The Purchase Price of US$30 million consists
of:
|
|
(a)
|
US$10 million in cash paid at the Closing Date; and
|
|
|
(b)
|
US$20 million in Common Shares, payable on each of the next three anniversaries of the Closing Date as
follows:
|
|
|
(i)
|
on the first anniversary of the Closing Date: A number of Common Shares determined by dividing
US$10,000,000 by the price of the Common Shares based on the 10-day weighted trading price of the Common Shares over the 10 trading days
immediately preceding the Closing Date, being US$13.66 per Common Share (the “Stock Price”);
|
|
|
(ii)
|
on each of the second and third anniversaries of the Closing Date: A number of Common Shares determined
by dividing US$5,000,000 by the Stock Price,
|
(collectively, the “Deferred
Consideration”).
However, in the event of a change of control
of the Corporation prior to the third anniversary of the Closing Date, all Deferred Consideration payable on or after the date of such
change of control shall vest immediately and become payable to the Seller and Keith Rucker prior to such change of control event.
The Transaction closed in escrow on June
2, 2021, and the escrow condtions have been satisfied.
Based in Las Vegas, Nevada, Wild Streak
is a content creation studio with a portfolio of casino slot titles supported across online and land-based applications currently servicing
the US market. Wild Streak will provide the Corporation with a library of 39 casino content titles, including several land-based titles,
and intellectual property and know-how, including game designs, mathematic works, advanced game mechanics and features that are specifically
tailored for US markets.
Effective as of the Closing Date, Doug
Fallon, joined the Corporation as Managing Director of Group Content and will play a key role in leading the Corporation through its US
content creation strategy.
As a result of the Transaction, and upon
the completion of the Corporation's previously announced acquisition of Spin Games LLC, the Corporation’s operations will include
a turnkey iGaming, content delivery, and player engagement platform, and in-house content development with localized market expertise.
Localized market expertise will allow the Corporation to expand its proprietary content offering and better integrate into the tier one
operating segment across the US and European markets.
Forward-Looking Statements
Certain information contained in
this material change report may be forward-looking statements or “forward-looking information” within the meaning of
applicable securities laws (“forward looking-statements”). Forward-looking statements are often, but not always,
identified by the use of words such as “target”, “expect”, “anticipate”, “believe”,
“foresee”, “could”, “would”, “estimate”, “goal”, “outlook”,
“intend”, “plan”, “seek”, “will”, “may”, “tracking”,
“pacing” and “should” and similar expressions or words suggesting future outcomes. This material change
report includes forward-looking statements pertaining to, among other things, the Corporation’s future growth plans. Numerous
risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs and assumptions
expressed or implied in the forward-looking statements, including, but not limited to, the following risks and uncertainties:
anticipated strategic, operational and competitive benefits may not be realized; events or series of events, including in connection
with COVID-19, may cause business interruptions; and the Corporation may not be able to raise additional capital. Among other
things, the Corporation has assumed that its businesses will operate as anticipated. The forward-looking statements contained in
this material change report are made as of the date hereof and the Corporation has no obligation to publicly update such
forward-looking statements to reflect new information, subsequent or otherwise, unless required by applicable securities laws. The
reader is warned against placing undue reliance on these forward-looking statements.
|
|
Item 5.2
|
Disclosure for Restructuring Transactions
|
N/A
|
|
Item 6.
|
Reliance on Subsection 7.1(2) of National Instrument 51-102
|
N/A
|
|
Item 7.
|
Omitted Information
|
N/A
|
|
Item 8.
|
Executive Officer
|
For further information, please contact
Yaniv Spielberg, CSO, Bragg Gaming Group Inc., Phone: 1-647-800-2282, Email: info@bragg.games.
June 10, 2021
Exhibit 4.13
BRAGG GAMING GROUP
INC.
INTERIM UNAUDITED
CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS
Three- and six-month
periods ended June 30, 2021
and June 30, 2020
Presented in Euros
(Thousands)
TABLE OF CONTENTS
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
|
1
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
2
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
3
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
4
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1
|
BASIS OF PRESENTATION AND GOING CONCERN
|
5
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES
|
8
|
|
|
|
|
|
3
|
LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE
|
19
|
|
|
|
|
|
4
|
ACQUISITION OF WILD STREAK LLC
|
20
|
|
|
|
|
|
5
|
DISCONTINUED OPERATIONS
|
21
|
|
|
|
|
|
6
|
SHARE CAPITAL
|
22
|
|
|
|
|
|
7
|
PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020
|
23
|
|
|
|
|
|
8
|
WARRANTS
|
24
|
|
|
|
|
|
9
|
SHARE BASED COMPENSATION
|
27
|
|
|
|
|
|
10
|
DEFERRED AND CONTINGENT CONSIDERATION
|
30
|
|
|
|
|
|
11
|
INTANGIBLE ASSETS
|
31
|
|
|
|
|
|
12
|
CASH AND CASH EQUIVALENTS
|
31
|
|
|
|
|
|
13
|
TRADE AND OTHER RECEIVABLES
|
32
|
|
|
|
|
|
14
|
PREPAID EXPENSES AND OTHER ASSETS
|
33
|
|
|
|
|
|
15
|
TRADE PAYABLES AND OTHER LIABILITIES
|
33
|
|
|
|
|
|
16
|
RELATED PARTY TRANSACTIONS
|
34
|
|
|
|
|
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|
36
|
|
|
|
|
|
18
|
SUPPLEMENTARY CASHFLOW INFORMATION
|
40
|
|
|
|
|
|
19
|
SEGMENT INFORMATION
|
41
|
|
|
|
|
|
20
|
INCOME TAXES
|
42
|
|
|
|
|
|
21
|
CONTINGENT LIABILITIES
|
44
|
|
BRAGG GAMING GROUP INC.
|
|
|
|
|
|
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
Note
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
3
|
|
|
|
15,491
|
|
|
|
12,145
|
|
|
|
29,687
|
|
|
|
20,929
|
|
|
Cost of revenue
|
|
|
|
|
|
|
(8,466
|
)
|
|
|
(7,035
|
)
|
|
|
(16,013
|
)
|
|
|
(11,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
7,025
|
|
|
|
5,110
|
|
|
|
13,674
|
|
|
|
9,077
|
|
|
Selling, general and administrative expenses
|
|
|
3
|
|
|
|
(8,856
|
)
|
|
|
(4,129
|
)
|
|
|
(16,010
|
)
|
|
|
(8,208
|
)
|
|
Gain on remeasurement of consideration receivable
|
|
|
|
|
|
|
6
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
3, 10
|
|
|
|
-
|
|
|
|
(219
|
)
|
|
|
-
|
|
|
|
(5,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
|
|
|
|
(1,825
|
)
|
|
|
762
|
|
|
|
(2,324
|
)
|
|
|
(4,318
|
)
|
|
Net interest expense and other financing charges
|
|
|
3
|
|
|
|
(24
|
)
|
|
|
(884
|
)
|
|
|
(92
|
)
|
|
|
(945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
3
|
|
|
|
(1,849
|
)
|
|
|
(122
|
)
|
|
|
(2,416
|
)
|
|
|
(5,263
|
)
|
|
Income taxes
|
|
|
20
|
|
|
|
(482
|
)
|
|
|
(498
|
)
|
|
|
(989
|
)
|
|
|
(741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Continuing Operations
|
|
|
|
|
|
|
(2,331
|
)
|
|
|
(620
|
)
|
|
|
(3,405
|
)
|
|
|
(6,004
|
)
|
|
Net gain (loss) from discontinued operations after tax
|
|
|
5
|
|
|
|
-
|
|
|
|
228
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
(2,331
|
)
|
|
|
(392
|
)
|
|
|
(3,405
|
)
|
|
|
(6,092
|
)
|
|
Items to be reclassified to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment -
continuing operations
|
|
|
|
|
|
|
424
|
|
|
|
123
|
|
|
|
1,549
|
|
|
|
161
|
|
|
Cumulative
translation adjustment - discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Comprehensive Loss
|
|
|
|
|
|
|
(1,907
|
)
|
|
|
(273
|
)
|
|
|
(1,856
|
)
|
|
|
(5,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted (Loss) Gain Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
(0.12
|
)
|
|
|
(0.08
|
)
|
|
|
(0.18
|
)
|
|
|
(0.75
|
)
|
|
Discontinued operations
|
|
|
|
|
|
|
0.00
|
|
|
|
0.03
|
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.12
|
)
|
|
|
(0.05
|
)
|
|
|
(0.18
|
)
|
|
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
|
|
|
Millions
|
|
|
|
Millions
|
|
|
|
Millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares - basic and diluted
|
|
|
|
|
|
|
19.9
|
|
|
|
8.0
|
|
|
|
19.0
|
|
|
|
8.0
|
|
See accompanying notes to the interim unaudited condensed consolidated financial statements.
|
BRAGG GAMING GROUP INC.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
2
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
Note
|
|
|
2021
|
|
|
2020
|
|
|
Cash and cash equivalents
|
|
|
12
|
|
|
|
20,966
|
|
|
|
26,102
|
|
|
Trade and other receivables
|
|
|
13
|
|
|
|
8,409
|
|
|
|
10,297
|
|
|
Prepaid expenses and other assets
|
|
|
14
|
|
|
|
2,101
|
|
|
|
263
|
|
|
Consideration receivable
|
|
|
5
|
|
|
|
128
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
|
|
|
|
31,604
|
|
|
|
36,810
|
|
|
Property and equipment
|
|
|
|
|
|
|
251
|
|
|
|
272
|
|
|
Right-of-use assets
|
|
|
|
|
|
|
658
|
|
|
|
708
|
|
|
Consideration receivable
|
|
|
5
|
|
|
|
-
|
|
|
|
44
|
|
|
Intangible assets
|
|
|
11
|
|
|
|
31,391
|
|
|
|
14,279
|
|
|
Goodwill
|
|
|
4
|
|
|
|
26,189
|
|
|
|
19,938
|
|
|
Other assets
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
90,136
|
|
|
|
72,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and other liabilities
|
|
|
15
|
|
|
|
17,279
|
|
|
|
16,968
|
|
|
Deferred revenue
|
|
|
|
|
|
|
605
|
|
|
|
102
|
|
|
Income taxes payable
|
|
|
20
|
|
|
|
1,762
|
|
|
|
1,318
|
|
|
Lease obligations on right of use assets - current
|
|
|
|
|
|
|
162
|
|
|
|
133
|
|
|
Deferred and contingent consideration
|
|
|
10
|
|
|
|
63
|
|
|
|
11,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
|
|
|
|
19,871
|
|
|
|
30,042
|
|
|
Deferred income tax liability
|
|
|
20
|
|
|
|
1,261
|
|
|
|
1,415
|
|
|
Non-current lease obligations on right of use assets
|
|
|
|
|
|
|
529
|
|
|
|
593
|
|
|
Other non-current liabilities
|
|
|
|
|
|
|
172
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
21,833
|
|
|
|
32,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
6
|
|
|
|
100,268
|
|
|
|
62,304
|
|
|
Warrants
|
|
|
8
|
|
|
|
-
|
|
|
|
1,642
|
|
|
Broker warrants
|
|
|
8
|
|
|
|
38
|
|
|
|
399
|
|
|
Shares to be issued
|
|
|
6, 12
|
|
|
|
15,310
|
|
|
|
22,608
|
|
|
Contributed surplus
|
|
|
|
|
|
|
15,924
|
|
|
|
14,325
|
|
|
Deficit
|
|
|
|
|
|
|
(64,636
|
)
|
|
|
(61,231
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
1,399
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
|
68,303
|
|
|
|
39,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
|
|
|
|
|
90,136
|
|
|
|
72,094
|
|
See accompanying notes to the interim unaudited condensed consolidated financial statements.
|
Approved on behalf of the Board
|
|
|
|
|
|
|
|
|
|
Richard Carter
|
Lara Falzon
|
|
Chief Executive Officer
|
Non Executive Director
|
|
BRAGG
GAMING GROUP INC.
|
3
|
|
INTERIM
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
PRESENTED
IN EUROS (THOUSANDS, EXCEPT SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants
-
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
Share
|
|
Shares
to
|
|
|
|
|
compensation
|
|
Broker
|
|
Contributed
|
|
|
|
comprehensive
|
|
Total
|
|
|
|
|
Note
|
|
capital
|
|
be
issued
|
|
|
Warrants
|
|
options
|
|
warrants
|
|
surplus
|
|
Deficit
|
|
income
(loss)
|
|
Equity
|
|
|
Balance
as at January 1, 2020
|
|
|
|
|
|
40,204
|
|
|
-
|
|
|
|
1,565
|
|
|
660
|
|
|
-
|
|
|
11,064
|
|
|
(46,665
|
)
|
|
(212
|
)
|
|
6,616
|
|
|
Exercise
of DSUs
|
|
|
6,
9
|
|
|
219
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(219
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Share-based
compensation
|
|
|
9
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(94
|
)
|
|
-
|
|
|
-
|
|
|
(94
|
)
|
|
Net
loss for the period
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,092
|
)
|
|
-
|
|
|
(6,092
|
)
|
|
Other
comprehensive income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
146
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as at June 30, 2020
|
|
|
|
|
|
40,423
|
|
|
-
|
|
|
|
1,565
|
|
|
660
|
|
|
-
|
|
|
10,751
|
|
|
(52,757
|
)
|
|
(66
|
)
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as at January 1, 2021
|
|
|
|
|
|
62,304
|
|
|
22,608
|
|
|
|
1,642
|
|
|
-
|
|
|
399
|
|
|
14,325
|
|
|
(61,231
|
)
|
|
(150
|
)
|
|
39,897
|
|
|
Shares
issued upon completion of Oryx earn-out
|
|
|
6
|
|
|
22,000
|
|
|
(22,000
|
)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Shares
issued upon completion of private placement, net of issuance costs
|
|
|
6
|
|
|
1,918
|
|
|
(608
|
)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,310
|
|
|
Shares
to be issued as deferred consideration
|
|
|
4
|
|
|
-
|
|
|
15,310
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,310
|
|
|
Exercise
of RSUs
|
|
|
6,
9
|
|
|
267
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(267
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Exercise
of options
|
|
|
6,
9
|
|
|
966
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(341
|
)
|
|
-
|
|
|
-
|
|
|
625
|
|
|
Exercise
of warrants
|
|
|
8
|
|
|
11,916
|
|
|
-
|
|
|
|
(1,831
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,085
|
|
|
Expiry
of warrants
|
|
|
8
|
|
|
-
|
|
|
-
|
|
|
|
(7
|
)
|
|
-
|
|
|
-
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Exercise
of broker warrants
|
|
|
8
|
|
|
897
|
|
|
-
|
|
|
|
196
|
|
|
-
|
|
|
(361
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
732
|
|
|
Share-based
compensation
|
|
|
9
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,200
|
|
|
-
|
|
|
-
|
|
|
2,200
|
|
|
Net
loss for the period
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,405
|
)
|
|
-
|
|
|
(3,405
|
)
|
|
Other
comprehensive income
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,549
|
|
|
1,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as at June 30, 2021
|
|
|
|
|
|
100,268
|
|
|
15,310
|
|
|
|
-
|
|
|
-
|
|
|
38
|
|
|
15,924
|
|
|
(64,636
|
)
|
|
1,399
|
|
|
68,303
|
|
See accompanying notes to the interim unaudited condensed consolidated financial statements.
|
BRAGG GAMING GROUP INC.
|
4
|
|
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
Note
|
|
2021
|
|
2020
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
|
|
|
(3,405
|
)
|
|
(6,004
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense and other financing charges
|
|
|
|
|
|
92
|
|
|
945
|
|
|
Depreciation and amortization
|
|
|
3
|
|
|
1,887
|
|
|
1,451
|
|
|
Share based compensation
|
|
|
3, 9
|
|
|
2,200
|
|
|
(94
|
)
|
|
Gain on remeasurement of consideration receivable
|
|
|
|
|
|
(12
|
)
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
10
|
|
|
-
|
|
|
5,187
|
|
|
Deferred income tax recovery
|
|
|
20
|
|
|
(154
|
)
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608
|
|
|
1,429
|
|
|
Change in non-cash working capital
|
|
|
18
|
|
|
1,097
|
|
|
1,218
|
|
|
Change in income taxes payable
|
|
|
|
|
|
444
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
2,149
|
|
|
3,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
(51
|
)
|
|
(61
|
)
|
|
Additions of intangible assets
|
|
|
11
|
|
|
(1,426
|
)
|
|
(801
|
)
|
|
Proceeds from sale of discontinued operations
|
|
|
5
|
|
|
76
|
|
|
-
|
|
|
Consideration paid upon business combination
|
|
|
4
|
|
|
(8,206
|
)
|
|
-
|
|
|
Cash acquired from business combination
|
|
|
4
|
|
|
124
|
|
|
-
|
|
|
Deferred and contingent consideration payments
|
|
|
10
|
|
|
(11,521
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Used In Investing Activities
|
|
|
|
|
|
(21,004
|
)
|
|
(862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants and broker warrants
|
|
|
8
|
|
|
10,817
|
|
|
-
|
|
|
Proceeds from exercise of stock options
|
|
|
9
|
|
|
625
|
|
|
-
|
|
|
Proceeds from shares issued upon private placement, net of issuance costs
|
|
|
6
|
|
|
1,310
|
|
|
-
|
|
|
Repayment of lease liability
|
|
|
|
|
|
(70
|
)
|
|
(113
|
)
|
|
Interest income
|
|
|
|
|
|
38
|
|
|
8
|
|
|
Interest and financing fees
|
|
|
|
|
|
(130
|
)
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From (Used In) Financing Activities
|
|
|
|
|
|
12,590
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
1,129
|
|
|
(73
|
)
|
|
Net cash flow used in discontinued operations
|
|
|
5
|
|
|
-
|
|
|
(254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents
|
|
|
|
|
|
(5,136
|
)
|
|
1,805
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
26,102
|
|
|
682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at end of period
|
|
|
|
|
|
20,966
|
|
|
2,487
|
|
|
See accompanying notes to the interim unaudited condensed consolidated financial statements.
|
|
BRAGG
GAMING GROUP INC.
|
5
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
1
|
BASIS OF PRESENTATION AND GOING CONCERN
|
Nature of operations
Bragg Gaming Group Inc. and its subsidiaries ("Bragg",
"BGG", the "Company" or the "Group") is primarily a B2B online gaming technology platform and casino content
aggregator through its acquisition of Oryx Gaming International LLC ("Oryx" or "Oryx Gaming") in 2018.
The registered and head office of the Company
is located at 130 King Street West, Suite 1955, Toronto, Ontario, Canada M5X 1E3.
Oryx Gaming
Oryx Gaming is a B2B gaming solution provider.
Oryx offers a turnkey solution, including an omni-channel retail, online and mobile iGaming platform, as well as an advanced content aggregator,
sportsbook, lottery, marketing, and operational services. Oryx is incorporated in the State of Delaware and headquartered in Las Vegas.
Its primary operations are provided through its wholly owned subsidiaries in Malta, Cyprus, and Slovenia.
Classification of online media business unit
as held for sale and discontinued operations
During the year ended December 31, 2019, the Company
decided to discontinue its online media business unit. The associated assets and liabilities within the disposal group are presented as
held for sale and the net loss attributable as discontinued operations in the interim unaudited condensed consolidated financial statements
("interim financial statements"). The Company completed the sale of the majority of its online media business unit on May 7,
2020 (Note 5).
Statement of compliance and basis of presentation
The accompanying interim financial statements
have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting. The
interim financial statements do not include all of the information required for annual consolidated financial statements and should be
read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020.
The financial statements are prepared on a historical
cost basis except for financial instruments classified at fair value through profit or loss (“FVTPL”) which are measured at
fair value. The significant accounting policies set out below have been applied consistently in the preparation of the interim financial
statements for all periods presented.
These
interim financial statements were, at the recommendation of the audit committee, approved and authorized for issuance by the Company’s
Board of Directors on August 11, 2021.
Going concern
The interim financial statements have been prepared
on the going concern basis, which assumes that the Company will be able to continue as a going concern and realize its assets and discharge
its liabilities in the normal course of business, and do not give effect to any adjustments which would be necessary should the Company
be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the
normal course of business and at amounts different from those reflected in the interim financial statements. If the going concern assumption
is not appropriate, material adjustments to the interim financial statements could be required.
As at June 30, 2021, the Company had current assets
of EUR 31,604 (December 31, 2020: EUR 36,810) and current liabilities of EUR 19,871 (December 31, 2020: EUR 30,042). As of June 30,
2021, the Company has a cumulative deficit of EUR 64,636 (December 31, 2020: EUR 61,231). These conditions, along with the continued
generation of positive cash flows from operations indicates that the Company will be able to continue on a going concern basis.
|
BRAGG
GAMING GROUP INC.
|
6
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
1
|
BASIS OF PRESENTATION AND GOING CONCERN (CONTINUED)
|
COVID-19
In December 2019, there was a global outbreak
of COVID-19 (coronavirus), which continued to have a significant impact on businesses through the restrictions put in place by the national,
provincial and municipal governments around the world regarding travel, business operations and isolation and quarantine orders.
At this time, it is unknown the extent of the
impact the COVID-19 outbreak may have on the Company in the long term as this will depend on future developments that are highly uncertain
and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak,
including the duration of travel restrictions, business closures or disruptions, quarantine and isolation measures that are currently,
or may be put, in place by Canada and other countries to fight the virus.
However, the Company derives the majority of its
revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring
people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses
such as Netflix. Furthermore, the Company has limited exposure to sports betting revenues that have been impacted by the lack of professional
sports.
As at the time of release of these interim financial
statements, the Company’s financial performance, financial position and cash flow had not been adversely impacted by COVID-19 and
the Company has determined no impairment of its goodwill is required.
Graduation to the Toronto Stock Exchange (“TSX”)
On January 27, 2021, , the Company began trading
on TSX under the symbol “BRAG”. Concurrent with the TSX listing, the Company’s Common Shares were delisted from the
TSX Venture Exchange.
Reverse Stock Split
On April 30, 2021, the Company announced a one-for-ten
share consolidation (the “reverse stock split”). At the annual and special meeting of the Company’s shareholders held
on April 28, 2021, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement
a consolidation of the issued and outstanding Common Shares of the Company on the basis of a consolidation ratio of up to 15 pre-consolidation
Common Shares for one post-consolidation Common Share. The Board of Directors selected a share consolidation ratio of ten pre-consolidation
Common Shares for one post-consolidation Common Share. The Company’s Common Shares began trading on TSX on a post-consolidation
basis under the Company’s existing trade symbol "BRAG" on May 5, 2021. In accordance with International Financial Reporting
Standards (“IFRS”), the change has been applied retroactively.
Base Shelf Prospectus
In order to support future growth initiatives,
on May 4, 2021, the Company filed a short form base shelf prospectus (the "Base Shelf Prospectus"), with securities regulators
in each of the provinces and territories of Canada. The Base Shelf Prospectus permits the Company to offer and sell Common Shares, unsecured
debt securities, subscription receipts, warrants, other securities convertible or exchange for Common Shares or other securities of the
Company or any combination thereof in various offerings having an aggregate value of up to CAD 500 million during the 25-month period
that the Base Shelf Prospectus remains effective.
|
BRAGG
GAMING GROUP INC.
|
7
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
1
|
BASIS OF PRESENTATION AND GOING CONCERN (CONTINUED)
|
Acquisition of Spin Games LLC
On May 12, 2021, the Company announced it had
entered into an agreement to acquire Spin Games LLC (“Spin”) in a cash and stock transaction for a purchase price of approximately
USD 30 million. Under the deal the sellers of Spin will receive USD 10 million in cash and USD 20 million in Common Shares of the Company
of which USD 5 million in Common Shares will be issued on closing and the balance over the next three years. The transaction is expected
to close following final approval from state gaming regulators and satisfaction of other customary closing conditions.
Acquisition of Wild Streak LLC
On June 2, 2021, the Company announced that it
had acquired Wild Streak LLC doing business as Wild Streak Gaming ("Wild Streak"), a Las Vegas, Nevada based content creation
studio with a portfolio of 39 premium casino slot titles supported across online and land-based applications.
The Company signed a purchase agreement to acquire
all of the outstanding membership interests of Wild Streak in a cash and stock transaction for a purchase price of USD 30,000. Pursuant
to the transaction, which closed simultaneously with the signing of the purchase agreement, the sellers of Wild Streak received USD 10,000
in cash at closing and will receive USD 20,000 worth of common shares of the Company over the next three years, subject to acceleration
in the event of a change of control.
|
BRAGG
GAMING GROUP INC.
|
8
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
2
|
SIGNIFICANT ACCOUNTING POLICIES
|
The interim unaudited condensed consolidated financial
statements were prepared using the same basis of presentation, accounting policies and methods of computation as those of the audited
consolidated financial statements for the year ended December 31, 2020, which are available at www.sedar.com. They were prepared using
the same critical estimates and judgments in applying the accounting policies as those of the audited consolidated financial statements
for the year ended December 31, 2020.
Basis of consolidation
The interim unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries when the Company controls them. Control exists when the
Company is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns
through its power over the subsidiary. The Company assesses control on an ongoing basis. The Company’s interest in the voting share
capital of all its subsidiaries is 100%.
Transactions and balances between the Company
and its consolidated entities have been eliminated on consolidation.
The table below summarizes the Company’s
operating subsidiaries and the functional currency for each operating subsidiary:
|
|
|
Place of
incorporation
|
|
|
|
|
Functional
|
|
|
|
|
/ operation
|
|
Principal activity
|
|
|
currency
|
|
|
Bragg Gaming Group - Group Services Ltd.
|
|
United Kingdom
|
|
Corporate activities
|
|
|
GBP
|
|
|
Bragg Gaming Group - Parent Services Ltd.
|
|
United Kingdom
|
|
Corporate activities
|
|
|
GBP
|
|
|
Bragg Oryx Holdings Inc.
|
|
Canada
|
|
Intermediate holding company
|
|
|
CAD
|
|
|
Bragg USA, Inc.
|
|
United States
|
|
Intermediate holding company
|
|
|
USD
|
|
|
Oryx Sales Distribution Ltd.
|
|
Cyprus
|
|
Distribution
|
|
|
EUR
|
|
|
Oryx Gaming International LLC
|
|
United States
|
|
Gaming solution provider
|
|
|
EUR
|
|
|
Oryx Gaming Ltd.
|
|
Malta
|
|
Gaming solution provider
|
|
|
EUR
|
|
|
Oryx Marketing Poslovne Storitve D.o.o.
|
|
Slovenia
|
|
Marketing
|
|
|
EUR
|
|
|
Oryx Podpora D.o.o.
|
|
Slovenia
|
|
B2B support services
|
|
|
EUR
|
|
|
Oryx Razyojne-Storitve D.o.o.
|
|
Slovenia
|
|
Gaming solution developer
|
|
|
EUR
|
|
|
Poynt Inc.
|
|
Canada
|
|
Distribution
|
|
|
CAD
|
|
|
Wild Streak LLC
|
|
United States
|
|
Content creation studio
|
|
|
USD
|
|
|
Win Gaming Ltd.
|
|
Malta
|
|
Gaming licence holder
|
|
|
EUR
|
|
|
BRAGG
GAMING GROUP INC.
|
9
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Presentation currency
The presentation currency of the Company is the
Euro, whilst the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling
due to primary location of individual entities within the Group. The presentation currency of the Euro has been selected as it best represents
the majority of the Company’s economic inflows, outflows as well as its assets and liabilities.
The assets and liabilities of operations that
have a functional currency different from that of the Company’s reporting currency are translated into Euros at the foreign currency
exchange rate in effect at the reporting date. The resulting foreign currency exchange gains or losses are recognized in the foreign currency
translation adjustment as part of other comprehensive income (loss). When such foreign operations are disposed of, the related foreign
currency translation reserve is recognized in net earnings as part of the gain or loss on disposal.
Revenues and expenses of foreign operations are
translated into Euros at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are transacted.
Business combinations
Business combinations are accounted for using
the acquisition method as of the date when control is transferred to the Company. The Company measures goodwill as the excess of the sum
of the fair value of the consideration transferred over the net identifiable assets acquired and liabilities assumed, all measured as
at the acquisition date. Transaction costs that the Company incurs in connection with a business combination, other than those associated
with the issuance of debt or equity securities, are expensed as incurred.
Net earnings (loss) per share (“EPS”)
Basic EPS is calculated by dividing the net earnings
(loss) available to shareholders by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by
adjusting the net earnings available to shareholders and the weighted average number of shares outstanding for the effects of all potential
dilutive instruments.
Diluted loss per share is equal to basic loss
per share when the effect of dilutive securities is anti-dilutive.
Cash and cash equivalents
Cash equivalents consist of highly liquid
marketable investments with an original maturity date of 90 days or less from the date of acquisition and prepaid credit cards. Cash
and cash equivalents also include any cash held in trust as proceeds from future private placement.
Trade and other receivables
Trade and other receivables consist primarily
of trade receivables from customers for which Oryx Gaming provides services during the period and accrued income in relation to receivables
from customers that have yet to be invoiced, for services provided during the three and six months ended June 30, 2021, and 2020. Upon
invoicing, amounts are transferred from accrued income to trade receivables and any differences between the accrued and invoiced values
are recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
|
BRAGG
GAMING GROUP INC.
|
10
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Revenue recognition
The Company recognizes revenue when control of
the goods or services has been transferred. Revenue is measured at the amount of consideration to which the Company expects to be entitled
to, including variable consideration to the extent that it is highly probable that a significant reversal will not occur. Revenue from
continuing operations is derived from software platform licensing, maintenance of source code, bespoke development, management service
fees, marketing fees, content and hosting fees. Revenue is recognized when the service provided to the customer is complete. Specifically:
- Games and content: revenues from content
and platform licensing are linked to revenues a customer earns from utilizing the Company’s software platform and aggregated content
in that period. The Company’s revenue is therefore linked to the revenue of the underlying customer, i.e., the subsequent sale.
The Company recognizes revenue once the customer has earned the revenue from the subsequent sale/services as this is the point where the
performance obligation is satisfied.
- iGaming and turnkey projects: the
Company charges a fixed monthly management and marketing fee for its services in the month in which the services are provided, and performance
obligations are met. Charges for development projects are charged on a time and materials basis upon delivery at agreed milestones. Revenue
is recognized as it is billed unless services and performance obligations are provided in a future period. If services and performance
obligations are not provided in the reporting period, then revenue is not recognized.
Revenue from discontinued operations is derived
from programmatic advertising, branded content and social media management, sales of software maintenance agreements, software customization
services, technical support services and consulting services. Revenue from discontinued operations is recognized on a monthly basis as
it is billed.
Consideration receivable
Consideration receivable consists of cash receivables
due as a result of the sale of discontinued operations. The fair value of the consideration receivable is determined by calculating the
present value of expected future cashflows relating to the consideration receivable, applying the Company’s discount rate.
Income taxes
Current and deferred taxes are recognized in the
interim unaudited condensed consolidated statements of loss and comprehensive loss, except for current and deferred taxes related to a
business combination, or amounts charged directly to equity or other comprehensive loss, which are recognized in the interim unaudited
condensed consolidated statements of financial position.
Current tax is the expected tax payable or receivable
on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous periods.
|
BRAGG
GAMING GROUP INC.
|
11
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income taxes (continued)
Deferred tax is recognized using the asset
and liability method of accounting on temporary differences arising between the financial statement carrying values of
existing assets and liabilities and their respective income tax bases. Deferred tax is measured using enacted or substantively
enacted income tax rates expected to apply in the periods in which those temporary differences are expected to be recovered or
settled. A deferred tax asset is recognized for temporary differences as well as unused tax losses and credits to the extent that it
is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be
realized.
Deferred tax assets and liabilities are
offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied
by the same taxation authority on the same taxable entity, or on different taxable entities where the Company intends to settle
its current tax assets and liabilities on a net basis.
Deferred tax is recorded on temporary
differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is
controlled by the Company, and it is probable that the temporary difference will not reverse in the foreseeable future.
Property and equipment
Property and equipment are recognized and
subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures
that are directly attributable to the acquisition of the asset,including costs incurred to prepare the asset for its intended use
and capitalized borrowing costs. The commencement date for capitalization of costs occurs when the Company first incurs
expenditures for the qualifying assets and undertakes the required activities to prepare the assets for their intended use.
Borrowing costs directly attributable to the
acquisition, construction or production of property and equipment, that necessarily take a substantial period of time to prepare for
their intended use and a proportionate share of general borrowings, are capitalized to the cost of those assets, based on a
quarterly weighted average cost of borrowing. All other borrowing costs are expensed as incurred and recognized in net interest
expense and other financing charges.
The cost of replacing a component of
property and equipment is recognized in the carrying amount if it is probable that the future economic benefits embodied within the
component will flow to the Company and the cost can be measured reliably. The carrying amount of the replaced component is
derecognized. The cost of repairs and maintenance of property and equipment is expensed as incurred and recognized in the
interim unaudited condensed consolidated statements of loss and comprehensive loss.
Gains and losses on disposal of property and
equipment are determined by comparing the fair value of proceeds from disposal with the net book value of the assets and are
recognized on a net basis in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Property and equipment are depreciated on a
straight-line basis over their estimated useful lives of three years to their estimated residual value when the assets are available
for use. When significant parts of a property and equipment have different useful lives, they are accounted for as separate
components and depreciated separately. Depreciation methods, useful lives and residual values are reviewed annually and are
adjusted for prospectively, if appropriate.
|
BRAGG
GAMING GROUP INC.
|
12
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Leases
The Company assesses whether a contract is, or
contains, a lease. If a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration,
then the contract may contain a lease. The Company assesses whether a contract conveys the right to control the use of an asset by performing
the following tests:
|
|
-
|
assess whether the contract involves the use of an identified asset and may be specified explicitly or
implicitly. It should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier
has a significant right to substitution, then the asset is not identified;
|
|
|
-
|
assess whether the Company has the right to obtain substantially all of the economic benefits arising
from the use of the asset throughout the period of use; and
|
|
|
-
|
assess that the Company has the right to direct enjoyment of the asset. This right is identified when
the Company has the decision-making rights in how and for what purpose the asset is used. In cases where the decision on how and for what
purpose to use the asset has been predetermined, the Company has the right to direct the use of the asset if either it has the right to
operate the asset, or the Company has designed the asset in a manner that predetermines how and for what purpose the asset will be used.
|
The Company recognizes a right-of-use
asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated
using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the
end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment.
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the
present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental
borrowing rate as the discount rate.
Lease payments included in the measurement of
the lease liability comprise the following:
|
|
-
|
fixed payments, including in-substance fixed payments;
|
|
|
-
|
variable lease payments that depend on an index or a rate, initially measured using the index or rate
as at the commencement date;
|
|
|
-
|
amounts expected to be payable under a residual value guarantee; and
|
|
|
-
|
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments
in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination
of a lease unless the Company is reasonably certain not to terminate early.
|
The lease liability is measured at amortized cost
using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or
if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.
|
BRAGG
GAMING GROUP INC.
|
13
|
NOTES
TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED
IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Leases (continued)
When the lease liability is remeasured in this
way, a corresponding adjustment is made to the carrying amount of the right of-use asset or is recorded in profit or loss if the carrying
amount of the right-of-use asset has been reduced to zero.
The Company has elected not to recognize right-of-use
assets and lease liabilities for short-term leases of equipment that have a lease term of twelve months or less and leases of low-value
assets, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
Intangible assets
Intangible assets are measured at cost less any
amortization and accumulated impairment losses. These intangible assets are tested for impairment on an annual basis or more frequently
if there are indicators that intangible assets may be impaired as described in the Impairment of non-financial assets policy.
Intangible assets are amortized on a straight-line
basis over their estimated useful lives as follows:
|
Intellectual property identified upon business
combination
|
8 years / 10 years
|
|
Intellectual property acquired from third-parties
|
3
years
|
|
Customer relationships
|
10 years
|
|
Brands
|
10 years
|
|
Deferred development costs
|
3 years
|
|
Trademarks
|
3 years
|
|
Gaming licences
|
over the term of the licence
|
Trademarks and gaming licences are classified
under “Other” in the intangible assets disclosure note (Note 11).
The Company capitalizes the costs of intangible
assets if and only if:
|
|
-
|
it is probable that the expected future economic benefits attributable to the asset will flow to the entity;
and
|
|
|
-
|
the cost of the asset can be measured reliably.
|
Certain costs incurred in connection with the
development of intellectual property relating to proprietary technology are capitalized to intangible assets as development costs. Intangible
assets are recorded at cost, which consists of directly attributable costs necessary to create such intangible assets, less accumulated
amortization and accumulated impairment losses, if any. The costs mainly include the salaries paid to the software developers and consulting
fees.
These costs are recognized as development costs
assets when the following criteria are met:
|
|
-
|
it is technically feasible to complete the software product so that it will be available for use;
|
|
|
-
|
management intends to complete the software product;
|
|
|
-
|
it can be demonstrated how the software product will generate future economic benefits;
|
|
|
-
|
adequate technical, financial, and other resources to complete the development and to use or sell the
products are available; and
|
|
|
-
|
the expenditure attributable to the software product during its development can be reliably measured.
|
|
BRAGG
GAMING GROUP INC.
|
14
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Goodwill
Goodwill arising in a business combination is
recognized as an asset at the date that control is acquired. Goodwill is subsequently measured at cost less accumulated impairment losses.
Goodwill is not amortized but is tested for impairment on an annual basis or more frequently if there are indicators that goodwill may
be impaired as described in the Impairment of non-financial assets policy.
Impairment of non-financial assets
At each statement of financial position date,
the Company reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any
such indication exists, the asset is then tested for impairment by comparing its recoverable amount to its carrying value. Goodwill is
tested for impairment at least annually.
For the purpose of impairment testing, assets,
including right-of-use assets, are grouped together into the smallest group of assets that generate cash inflows from continuing use that
are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a cash generating unit ("CGU").
Corporate assets, which include head office facilities
and distribution centres, do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum grouping of
CGUs to which the corporate assets can be reasonably and consistently allocated. Goodwill arising from a business combination is tested
for impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU or CGU grouping
is the higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows from
the CGU or CGU grouping, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the CGU or CGU grouping. If the CGU or CGU grouping includes right-of-use assets in its
carrying amount, the pre-tax discount rate reflects the risks associated with the exclusion of lease payments from the estimated future
cash flows. The fair value less costs to sell is based on the best information available to reflect the amount that could be obtained
from the disposal of the CGU or CGU grouping in an arm’s length transaction between knowledgeable and willing parties, net of estimates
of the costs of disposal.
An impairment loss is recognized if the carrying
amount of a CGU or CGU grouping exceeds its recoverable amount. For asset impairments other than goodwill, the impairment loss reduces
the carrying amounts of the non-financial assets in the CGU on a pro-rata basis, up to an asset’s individual recoverable amount.
Any loss identified from goodwill impairment testing is first applied to reduce the carrying amount of goodwill allocated to the CGU grouping,
and then to reduce the carrying amounts of the other non-financial assets in the CGU or CGU grouping on a pro-rata basis.
For assets other than goodwill, an impairment
loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.
|
BRAGG GAMING GROUP INC.
|
15
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Financial instruments
Financial assets and liabilities are recognized
when the Company becomes party to the contractual provisions of the financial instrument. Upon initial recognition, financial instruments
are measured at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of financial instruments
that are not classified as fair value through profit or loss.
Financial instruments – classification
and measurement
The classification and measurement approach for
financial assets reflect the business model in which assets are managed and their cash flow characteristics. Financial assets are classified
and measured based on these categories: amortized cost, fair value through other comprehensive income ("FVOCI"), or fair value
through profit and loss ("FVTPL"). A financial asset is measured at amortized cost if it meets both of the following conditions
and is not designated as FVTPL:
|
|
-
|
the financial asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and
|
|
|
-
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
|
A financial asset is measured at FVOCI if it meets
both of the following conditions and is not designated as at FVTPL:
|
|
-
|
the financial asset is held within a business model in which assets are managed to achieve a particular
objective by both collecting contractual cash flows and selling financial assets; and
|
|
|
-
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of
principal and interest on the principal amount outstanding.
|
A financial asset shall be measured at FVTPL unless
it is measured at amortized cost or at FVOCI.
Financial assets are not reclassified subsequent
to their initial recognition unless the Company identifies changes in its business model in managing financial assets.
Financial liabilities are classified and measured
based on two categories: amortized cost or FVTPL.
Fair values are based on quoted market
prices where available from active markets, otherwise fair values are estimated using valuation methodologies, primarily discounted
cash flows taking into account external market inputs where possible.
The amortized cost of a financial asset or
liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal payments, plus
or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized
and the maturity amount, minus any reduction for impairment.
The following table summarizes the classification
and measurement of the Company’s financial assets and liabilities:
|
Asset / Liability
|
|
Classification / Measurement
|
|
Cash and cash equivalents
|
|
FVTPL
|
|
Trade and other receivables
|
|
Amortized cost
|
|
Consideration receivable
|
|
FVTPL
|
|
Other assets
|
|
Amortized cost
|
|
Trade payables and other liabilities
|
|
Amortized cost
|
|
Deferred and contingent consideration
|
|
FVTPL
|
|
Lease obligations on right of use assets
|
|
Amortized cost
|
|
BRAGG GAMING GROUP INC.
|
16
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Financial instruments – valuation
The determination of the fair value of financial
instruments is performed by the Company’s treasury and financial reporting departments on a quarterly basis. There was no change
in the valuation techniques applied to financial instruments during the current period.
The carrying amounts reported for cash and cash
equivalents, trade and other receivables, consideration receivable, trade payables and other liabilities, and deferred and contingent
consideration approximate fair value because of the immediate short-term maturity of these financial instruments. The carrying value of
lease obligations on right of use assets approximates the fair value based on rates currently available from financial institutions and
various lenders.
Gains and losses on FVTPL financial assets and
financial liabilities are recognized in net earnings in the period in which they are incurred. Settlement date accounting is used to account
for the purchase and sale of financial assets. Gains or losses between the trade date and settlement date on FVTPL financial assets are
recorded in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Financial instruments – derecognition
Financial assets are derecognized when the contractual
rights to receive cash flows and benefits from the financial asset expire, or if the Company transfers the control or substantially all
the risks and rewards of ownership of the financial asset to another party. The difference between the carrying amount of the financial
asset and the sum of the consideration received and receivable is recognized in earnings before income taxes.
Financial liabilities are derecognized when obligations
under the contract expire, are discharged, or cancelled. The difference between the carrying amount of the financial liability derecognized
and the consideration paid and payable is recognized in earnings before income taxes.
Financial instruments – impairment
The Company applies a forward-looking expected
credit loss ("ECL") model at each reporting date to financial assets measured at amortized cost or those measured at FVOCI,
except for investments in equity instruments. The ECL model outlines a three-stage approach to reflect the increase in credit risks of
a financial instrument:
|
|
-
|
Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risks
since initial recognition or that have low credit risk at the reporting date. The Company is required to recognize impairment for Stage
1 financial instruments based on the expected losses over the expected life of the instrument arising from loss events that could occur
during the 12 months following the reporting date.
|
|
|
-
|
Stage 2 is comprised of all financial instruments that have had a significant increase in credit risks
since initial recognition but that do not have objective evidence of a credit loss event. For Stage 2 financial instruments the impairment
is recognized based on the expected losses over the expected life of the instrument arising from loss events that could occur over the
expected life. The Company is required to recognize a lifetime ECL for Stage 2 financial instruments.
|
|
|
-
|
Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting
date. The Company is required to recognize impairment based on a lifetime ECL for Stage 3 financial instruments. The ECL model applied
to financial assets require judgment, assumptions, and estimations on changes in credit risks, forecasts of future economic conditions
and historical information on the credit quality of the financial asset. Consideration of how changes in economic factors affect ECLs
are determined on a probability-weighted basis.
|
|
BRAGG GAMING GROUP INC.
|
17
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Financial instruments – impairment (continued)
The carrying amount of the financial asset or
group of financial assets are reduced through the use of impairment allowance accounts. In periods subsequent to the impairment where
the impairment loss has decreased, and such decrease can be related objectively to conditions and changes in factors occurring after the
impairment was initially recognized, the previously recognized impairment loss is reversed. The impairment reversal is limited to the
lesser of the decrease in impairment or the extent that the carrying amount of the financial asset at the date the impairment is reversed
does not exceed what the amortized cost would have been had the impairment not been recognized.
Deferred and contingent consideration
Prior to January 18, 2021, the Company had deferred
and contingent consideration payable to the vendor of Oryx Gaming. Between December 20, 2018 and November 13, 2020 earnout payments were
agreed based upon a multiple of EBITDA in financial years ended December 31, 2019 and December 31, 2020 with a minimum amount payable
in each twelve-month period. In each reporting period the present value of the deferred and contingent consideration payable was measured
by discounting achieved and forecasted EBITDA by applying the Company’s weighted average cost of capital. A Black-Scholes calculation
was then applied to account for probability of payout and to determine present value of payout after counter-party risk.
Prior to the next remeasurement period an accretion
expense was recorded in the interim unaudited condensed consolidated statements of loss and comprehensive loss as the discount was unwound
towards the reporting date. Upon remeasurement, any gain or loss on remeasurement was also recorded in the interim unaudited condensed
consolidated statements of loss and comprehensive loss.
On November 13, 2020, the Company entered into
an amending agreement with the vendor of Oryx Gaming whereby the second payment of deferred and contingent consideration was agreed at
a fixed cash value and, following shareholder agreement on November 27, 2020, could be settled in fixed amount of Common Shares. As the
payment can only be settled by way of Common Shares, there is no obligation of the Company to deliver cash or cash equivalents, and the
underlying fair value of the liability and number of Common Shares is fixed, the payment qualifies as an equity instrument and was recorded
as shares to be issued in the interim unaudited condensed consolidated statements of changes in equity. On January 18, 2021, the agreed
fixed number of Common Shares was issued from treasury to the vendor and the balance recorded in shares to be issued was transferred to
the share capital account.
Short term employee benefits
Short term employee benefits include wages, salaries,
compensated absences, and bonuses. Short term employee benefit
obligations are measured on an undiscounted basis
and are recognized in operating income as the related service is provided or capitalized if the service rendered is in connection with
the creation of an intangible asset. A liability is recognized for the amount expected to be paid under short term cash bonus plans if
the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and
the obligation can be
estimated reliably.
|
BRAGG GAMING GROUP INC.
|
18
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Share based payments
The Company has stock option plans for directors,
officers, employees, and consultants. Each tranche of an award is considered a separate award with its own vesting period and grant date
fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. In addition,
the Company also has deferred share unit (“DSU”), restricted share unit (“RSU”) and performance share unit (“PSU”)
plans for directors, officers, employees, and consultants. The fair value of each unit is measured as the share price on date of grant
with nil exercise price.
Compensation expense is recognized over each tranche’s
vesting period, based on the number of awards expected to vest, with the offset credited to contributed surplus. The number of awards
expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised, the amount received
is credited to share capital and the fair value attributed to these options is transferred from contributed surplus to share capital.
In the case of DSUs, RSUs or PSUs, only the fair value attributed to these options is transferred from contributed surplus to share capital.
Equity
Shares are classified as equity. Incremental costs
directly attributable to the issuance of shares are recognized as a deduction from equity. Contributed surplus includes amounts in connection
with conversion options embedded in compound financial instruments, share based payments and the value of expired options and warrants.
Deficit includes all current and prior period income and losses.
Warrants
The Company accounts for warrants using the Black-Scholes
option pricing model at the date of issuance. If and when warrants ultimately expire, the applicable amounts are transferred to contributed
surplus.
|
BRAGG GAMING GROUP INC.
|
19
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
3
|
LOSS BEFORE INCOME TAXES CLASSIFIED BY NATURE
|
The loss before income taxes is classified as follows:
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
Note
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
|
|
|
|
15,491
|
|
|
|
12,145
|
|
|
|
29,687
|
|
|
|
20,929
|
|
|
Third-party content
|
|
|
|
|
|
|
(8,466
|
)
|
|
|
(7,035
|
)
|
|
|
(16,013
|
)
|
|
|
(11,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
7,025
|
|
|
|
5,110
|
|
|
|
13,674
|
|
|
|
9,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and subcontractors
|
|
|
|
|
|
|
(3,651
|
)
|
|
|
(2,049
|
)
|
|
|
(6,287
|
)
|
|
|
(4,165
|
)
|
|
Share based payments
|
|
|
9
|
|
|
|
(891
|
)
|
|
|
145
|
|
|
|
(2,200
|
)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee costs
|
|
|
|
|
|
|
(4,542
|
)
|
|
|
(1,904
|
)
|
|
|
(8,487
|
)
|
|
|
(4,071
|
)
|
|
Depreciation and amortization
|
|
|
|
|
|
|
(1,051
|
)
|
|
|
(667
|
)
|
|
|
(1,887
|
)
|
|
|
(1,451
|
)
|
|
IT and hosting
|
|
|
|
|
|
|
(386
|
)
|
|
|
(351
|
)
|
|
|
(773
|
)
|
|
|
(671
|
)
|
|
Professional fees
|
|
|
|
|
|
|
(1,090
|
)
|
|
|
(272
|
)
|
|
|
(1,585
|
)
|
|
|
(514
|
)
|
|
Corporate costs
|
|
|
|
|
|
|
(525
|
)
|
|
|
(110
|
)
|
|
|
(710
|
)
|
|
|
(181
|
)
|
|
Sales and marketing
|
|
|
|
|
|
|
(155
|
)
|
|
|
(16
|
)
|
|
|
(218
|
)
|
|
|
(108
|
)
|
|
Bad debt expense
|
|
|
13
|
|
|
|
(78
|
)
|
|
|
(364
|
)
|
|
|
(320
|
)
|
|
|
(453
|
)
|
|
Travel and entertainment
|
|
|
|
|
|
|
(28
|
)
|
|
|
(13
|
)
|
|
|
(28
|
)
|
|
|
(121
|
)
|
|
Transaction and acquisition costs
|
|
|
|
|
|
|
(573
|
)
|
|
|
(307
|
)
|
|
|
(1,136
|
)
|
|
|
(344
|
)
|
|
Other operational costs
|
|
|
|
|
|
|
(428
|
)
|
|
|
(125
|
)
|
|
|
(866
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
(8,856
|
)
|
|
|
(4,129
|
)
|
|
|
(16,010
|
)
|
|
|
(8,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on remeasurement of consideration receivable
|
|
|
5
|
|
|
|
6
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
10
|
|
|
|
-
|
|
|
|
(219
|
)
|
|
|
-
|
|
|
|
(5,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
|
|
|
|
(1,825
|
)
|
|
|
762
|
|
|
|
(2,324
|
)
|
|
|
(4,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
23
|
|
|
|
-
|
|
|
|
38
|
|
|
|
8
|
|
|
Accretion on liabilities
|
|
|
10
|
|
|
|
-
|
|
|
|
(864
|
)
|
|
|
-
|
|
|
|
(917
|
)
|
|
Interest and financing fees
|
|
|
|
|
|
|
(47
|
)
|
|
|
(20
|
)
|
|
|
(130
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense and Other Financing Charges
|
|
|
|
|
|
|
(24
|
)
|
|
|
(884
|
)
|
|
|
(92
|
)
|
|
|
(945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
|
|
|
|
(1,849
|
)
|
|
|
(122
|
)
|
|
|
(2,416
|
)
|
|
|
(5,263
|
)
|
|
BRAGG GAMING GROUP INC.
|
20
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
4
|
ACQUISITION OF WILD STREAK LLC
|
On June 2, 2021, the Company announced that it
had acquired Wild Streak LLC ("Wild Streak").
The Company signed a purchase agreement to acquire
all of the outstanding membership interests of Wild Streak in a cash and stock transaction for a purchase price of EUR 24,618 (USD 30,000).
Pursuant to the transaction, the sellers of Wild Streak received EUR 8,206 (USD 10,000) in cash at closing and will receive EUR 16,412
(USD 20,000) worth of common shares of the Company over the next three years, subject to acceleration in the event of a change of control.
The fair value allocations which follow are based
on preliminary purchase price allocations conducted by management. As the acquisition is within the measurement period under IFRS 3, it
continues to be refined. The Company is gathering information to finalize the fair value of intangible assets and goodwill acquired.
|
Purchase price:
|
|
|
|
|
Cash
|
|
|
8,206
|
|
|
Shares to be issued
|
|
|
15,310
|
|
|
Deferred consideration
|
|
|
62
|
|
|
Total purchase price
|
|
|
23,578
|
|
|
|
|
|
|
|
|
Fair value of assets acquired, and liabilities assumed:
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
124
|
|
|
Accounts receivable
|
|
|
295
|
|
|
Trade payables and other liabilities
|
|
|
(87
|
)
|
|
Net assets acquired and liabilities assumed
|
|
|
332
|
|
|
|
|
|
|
|
|
Fair value of intangible assets
|
|
|
|
|
|
Brands
|
|
|
314
|
|
|
Customer relationships
|
|
|
11,006
|
|
|
Intellectual property
|
|
|
5,660
|
|
|
Other
|
|
|
15
|
|
|
Fair value of goodwill
|
|
|
6,251
|
|
Pro-forma revenues and net profit (loss) for
the period
On a pro-forma basis Wild Streak generated revenue
of EUR 844 and EUR 1,262 for the three and six months ended June 30, 2021, respectively. This would have resulted in consolidated revenues
of EUR 16,082 and EUR 30,696 for three and six months ended June 30, 2021, respectively.
On a pro-forma basis Wild Streak generated net profit of EUR 412 and
EUR 660 for the three and six months ended June 30, 2021, respectively. This would have resulted in consolidated net loss of EUR 2,051
and EUR 2,876 for the three and six months ended June 30, 2021, respectively.
|
BRAGG GAMING GROUP INC.
|
21
|
NOTES TO THE INTERIM UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
|
|
5
|
DISCONTINUED OPERATIONS
|
During the year ended December 31, 2019, the Company
decided to discontinue its online media business unit.
On April 30, 2020, the Company discontinued its
GIVEMEBET operation and as of June 30, 2021, this subsidiary is considered dormant with no remaining assets and liabilities. Any associated
net loss for this subsidiary continues to be presented as discontinued operations in the interim unaudited condensed consolidated financial
statements.
On May 7, 2020, the Company completed the sale
of its GIVEMESPORT operation for cash consideration of GBP 50 (EUR 56) plus additional consideration equivalent to the net current assets
disposed plus consideration receivable of 10% of GIVEMESPORT aggregate revenues for a period of twenty-one months from date of completion.
As of June 30, 2021, consideration receivable has been recognized at a present value of EUR 128 of which EUR 128 is due within twelve
months of the reporting date. Consideration is settled in cash at three-month intervals from the date of sale. As of June 30, 2021, and
December 31, 2020, the Company has not identified any assets or liabilities as held for sale.
Consolidated statements of cash flows
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Net cash used in operating activities
|
|
|
-
|
|
|
|
(169
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(19
|
)
|
|
Net cash used in financing activities
|
|
|
-
|
|
|
|
(66
|
)
|
|
Net cash flows for the period
|
|
|
-
|
|
|
|
(254
|
)
|
Consolidated statements of income (loss) and comprehensive income
(loss)
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
-
|
|
|
|
81
|
|
|
|
-
|
|
|
|
559
|
|
|
Cost of revenue
|
|
|
-
|
|
|
|
36
|
|
|
|
-
|
|
|
|
(120
|
)
|
|
Gross Profit
|
|
|
-
|
|
|
|
117
|
|
|
|
-
|
|
|
|
439
|
|
|
Selling, general and administrative expenses
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(622
|
)
|
|
Operating Income (Loss)
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
(183
|
)
|
|
Net interest expense and other financing charges
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
(41
|
)
|
|
Gain on disposal of discontinued operations
|
|
|
-
|
|
|
|
136
|
|
|
|
-
|
|
|
|
136
|
|
|
Income (Loss) Before Income Taxes
|
|
|
-
|
|
|
|
228
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net Income (Loss)
|
|
|
-
|
|
|
|
228
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(15
|
)
|
|
Net Comprehensive Income (Loss)
|
|
|
-
|
|
|
|
224
|
|
|
|
-
|
|
|
|
(103
|
)
|
|
BRAGG GAMING GROUP INC.
|
22
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
5
|
DISCONTINUED
|
OPERATIONS (CONTINUED)
|
In the three and six months ended June 30, 2021,
remeasurement of the present value of the consideration receivable resulted in a gain on remeasurement of consideration receivable of
EUR 6 and EUR 12, respectively (three and six months ended June 30, 2020: EUR nil).
Authorized - Unlimited Common Shares, fully paid
The following is a continuity of the Company’s share capital:
|
|
|
|
|
Note
|
|
|
Number
|
|
|
Value
|
|
|
January 1, 2020
|
|
Balance
|
|
|
|
|
|
|
7,986,385
|
|
|
|
40,204
|
|
|
June 2, 2020
|
|
Issuance of share capital upon exercise of DSUs
|
|
|
9
|
|
|
|
50,000
|
|
|
|
219
|
|
|
June 30, 2020
|
|
Balance
|
|
|
|
|
|
|
8,036,385
|
|
|
|
40,423
|
|
|
January 1, 2021
|
|
Balance
|
|
|
|
|
|
|
13,111,248
|
|
|
|
62,304
|
|
January 11, 2021, to
February 22, 2021
|
|
Exercise of warrants
|
|
|
8
|
|
|
|
1,554,082
|
|
|
|
11,916
|
|
January 21, 2021, to
February 18, 2021
|
|
Exercise of broker warrants
|
|
|
8
|
|
|
|
160,548
|
|
|
|
897
|
|
|
January 13, 2021
|
|
Shares issued on completion of private placement
|
|
|
|
|
|
|
247,934
|
|
|
|
1,918
|
|
|
January 18, 2021
|
|
Shares issued upon completion of Oryx earn-out
|
|
|
|
|
|
|
4,700,000
|
|
|
|
22,000
|
|
March 12, 2021, to
March 17, 2021
|
|
Issuance of share capital upon exercise of RSUs
|
|
|
9
|
|
|
|
50,000
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 9, 2021, to
June 17, 2021
|
|
Issuance of share capital upon exercise of stock options
|
|
|
9
|
|
|
|
125,000
|
|
|
|
966
|
|
|
|
|
Rounding of fractional shares after consolidation
|
|
|
|
|
|
|
2
|
|
|
|
-
|
|
|
June 30, 2021
|
|
Balance
|
|
|
|
|
|
|
19,948,814
|
|
|
|
100,268
|
|
The Company’s Common Shares have no par value.
|
BRAGG GAMING GROUP INC.
|
23
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
6
|
SHARE
|
CAPITAL (CONTINUED)
|
Effective as of April 30, 2021, the Company underwent
a reverse stock split on the basis of one post-consolidation Common Share for every ten pre-consolidation Common Shares (1-for-10). The
share capital has been reported on a post-consolidation basis (Note 1).
Private placement
On January 13, 2021, the Company completed a non-brokered
private placement offering comprised of 247,934 Common Shares at a price of CAD 12.10 per share for aggregate gross proceeds of EUR 1,937.
This offering was exclusively taken up by Company employees and Board members and is subject to a hold period expiring May 14, 2021. No
commission or finder's fee was paid in connection with the offering.
As at June 30, 2021, EUR nil (December 31, 2020:
EUR 608) was held in trust on behalf of the Company for subscription receipts related to the private placement offering. This amount was
recorded in cash and cash equivalents.
Completion of Oryx earn-out
On January 18, 2021, the Company satisfied its
earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares of the Company. A total of 4,700,000 Common
Shares of the Company were issued to the vendor with a recorded fair-value of EUR 22,000. The Common Shares are subject to a hold period
expiring May 19, 2021.
In connection with this transaction Matevž
Mazij became a “control person” of the Company, in accordance with section 1(1) of the Ontario Securities Act, with a total
shareholding through K.A.V.O. Holdings Limited of 4,900,000 Common Shares representing over 27% of the outstanding Common Shares of the
Company as of the settlement date.
|
7
|
PUBLIC OFFERING COMPLETED NOVEMBER 18, 2020
|
On October 26, 2020, the Company announced that
it had entered into an agreement with a syndicate of underwriters pursuant to which the underwriters agreed to purchase 1,786,000 units
(the "Units") from the treasury of the Company, at a price of CAD 7.00 per Unit and offer them to the public by way of short
form prospectus for total gross proceeds of approximately CAD 12,500 (the "Offering"). On October 27, 2020, the Company agreed
to increase the size of the Offering whereby the Underwriters agreed to purchase 2,571,500 Units for aggregate gross proceeds of CAD 18,001.
The Company granted the underwriters an option
(the "Over-Allotment Option") to purchase up to an additional 15% of the Units of the Offering on the same terms exercisable
at any time up to 30 days following the closing of the Offering. The underwriters exercised the Over-Allotment Option in full and, together
with the base offering, purchased 2,957,225 Units in total for aggregate gross proceeds of EUR 13,343 (CAD 20,701). Issuance costs directly
associated with raise of funds amounted to EUR 1,216 (CAD 1,887) resulting in cash proceeds, net of issuance costs, of EUR 12,127 (CAD
18,814). Closing of the Offering occurred on November 18, 2020, with net proceeds to be used for growth initiatives, working capital and
general corporate purposes.
Each Unit consists of one Common Share and one
half of one warrant (each whole warrant, a "Public Offering Warrant") of the Company. Each Public Offering Warrant entitled
the holder thereof to purchase one Common Share at a price equal to CAD 10.00 for a period of 36 months following the closing of the Offering
(Note 8).
|
BRAGG GAMING GROUP INC.
|
24
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
7
|
PUBLIC
|
OFFERING COMPLETED NOVEMBER 18, 2020 (CONTINUED)
|
The Public Offering Warrants included an acceleration
provision, exercisable at the Company's option, if the Company's daily volume weighted average share price is greater than CAD 15.00 for
at least ten consecutive trading days. On January 21, 2021, the Company announced that it elected to exercise its right under the terms
of the warrant indenture to accelerate the expiry date of the warrants. Accordingly, the Company gave notice to all registered warrant
holders that the expiry date for the Warrants was accelerated to February 22, 2021. As of June 30, 2021, all such warrants have been exercised
or have expired.
In addition to the Units, the Company granted
177,434 broker warrants (“Broker Warrants”), each convertible to one Common Share and half of one Public Offering Warrant
at a price equal to CAD 7.00 (Note 8).
The following are continuities of the Company’s warrants:
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
warrants -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued upon
|
|
|
compensation
|
|
|
Broker
|
|
|
Number of Warrants
|
|
|
|
|
Warrants
|
|
|
Public Offering
|
|
|
options
|
|
|
warrants
|
|
January 1, 2020 and
June 30, 2020
|
|
Balance
|
|
|
|
2,705,880
|
|
|
|
-
|
|
|
|
160,178
|
|
|
|
-
|
|
|
January 1, 2021
|
|
Balance
|
|
|
|
-
|
|
|
|
1,478,512
|
|
|
|
-
|
|
|
|
177,434
|
|
January 11, 2021 to
February 22, 2021
|
|
Exercise of warrants
|
|
|
|
-
|
|
|
|
(1,554,082
|
)
|
|
|
-
|
|
|
|
-
|
|
January 21, 2021 to
February 18, 2021
|
|
Exercise of broker warrants
|
|
|
|
-
|
|
|
|
80,274
|
|
|
|
-
|
|
|
|
(160,548
|
)
|
|
February 22, 2021
|
|
Expiry of warrants
|
|
|
|
-
|
|
|
|
(4,704
|
)
|
|
|
-
|
|
|
|
-
|
|
|
June 30, 2021
|
|
Balance
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,886
|
|
|
BRAGG GAMING GROUP INC.
|
25
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Each unit consists of the following characteristics:
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
warrants -
|
|
|
|
|
|
|
|
issued
|
|
|
issued upon
|
|
|
compensation
|
|
|
Broker
|
|
|
|
|
March 14, 2019
|
|
|
Public Offering
|
|
|
options
|
|
|
warrants
|
|
|
Number of shares
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Number of Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
0.5
|
|
|
Exercise price of unit (CAD)
|
|
|
7.60
|
|
|
|
10.00
|
|
|
|
5.10
|
|
|
|
7.00
|
|
Warrants issued upon completion of Public Offering
Upon completion of the Public Offering on November
18, 2020 (Note 7) 1,478,612 Public Offering Warrants were issued resulting in an increase in the fair value of Public Offering Warrants
of EUR 1,887, before issuance costs. The assumptions used to measure the fair value of the Public Offering Warrants under the Black-Scholes
valuation model were as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.5
|
|
|
Risk-free interest rate (%)
|
|
|
0.11
|
|
|
Expected life of warrants (years)
|
|
|
1.0
|
|
|
Underlying share price (CAD)
|
|
|
8.00
|
|
The Public Offering Warrants were issued with
an exercise price of CAD 10.00 and were convertible to one Common Share per Public Offering Warrant initially expiring November 18, 2023.
The Public Offering Warrant indenture included an acceleration provision, exercisable at the Company's option, if the Company's daily
volume weighted average Common Share price is greater than CAD 15.00 for at least ten consecutive trading days. The Company had the option
to accelerate the exercise period of the Public Offering Warrants to a period ending at least 30 days from the date notice of such acceleration
is provided to the holders of the Public Offering Warrants. On January 21, 2021, the Company announced that it elected to exercise its
right under the terms of a warrant indenture to accelerate the expiry date of the warrants. Accordingly, the Company gave notice to all
registered warrant holders that the expiry date for the Warrants was accelerated to February 22, 2021.
Between January 1, 2021, and February 22, 2021,
1,554,082 Public Offering Warrants were exercised resulting in issuance of 1,554,082 shares and cash receipt of EUR 10,085. An increase
in share capital of EUR 11,916 and decrease in fair value of warrants of EUR 1,831 was recognized in the interim unaudited condensed consolidated
statements of changes in equity. On February 22, 2021, 4,704 Public Offering Warrants expired resulting in a decrease in fair value of
warrants and corresponding increase in contributed surplus of EUR 7.
|
BRAGG GAMING GROUP INC.
|
26
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Broker Warrants issued upon completion of Public
Offering
Upon completion of the Public Offering on November
18, 2020 (Note 7), 177,434 broker warrants (“Broker Warrants”) were issued resulting in an increase in the fair value of warrants
of EUR 399, a decrease in share capital of EUR 331 and decrease in fair value of warrants of EUR 68. The Broker Warrants were issued with
an exercise price of CAD 7.00 and are convertible to one Common Share plus one-half of a Public Offering Warrant per Broker Warrant expiring
November 18, 2023. The assumptions used to measure the fair value of the Broker Warrants under the Black-Scholes valuation model were
as follows:
|
Expected dividend yield (%)
|
|
|
0.0
|
|
|
Expected share price volatility (%)
|
|
|
103.5
|
|
|
Risk-free interest rate (%)
|
|
|
0.11
|
|
|
Expected life of warrants (years)
|
|
|
1.0
|
|
|
Underlying share price (CAD)
|
|
|
8.00
|
|
The underlying Public Offering Warrants were subject to the same acceleration
provision and notice of acceleration that was given on January 21, 2021. Between January 21, 2021 and February 18, 2021, 160,548 Broker
Warrants were exercised for 160,548 Common Shares and 80,274 Public Offering Warrants resulting in an increase in share capital of EUR
897, an increase in fair value of warrants of EUR 196 and decrease in fair value of Broker Warrants of EUR 361. Broker Warrants may still
be exercised for Common Shares until date of expiry.
|
BRAGG GAMING GROUP INC.
|
27
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
9
|
SHARE BASED COMPENSATION
|
The Company maintains an Omnibus Incentive Equity
Plan ("OEIP") for certain employees and consultants. The plan was approved at an annual and special meeting of shareholders
on November 27, 2020. At the annual and special meeting of shareholders of the Company held on April 28, 2021, the shareholders approved
the increase in the number of Common Shares available for issuance as awards under the plan from 3,180,000 to 3,965,000.
The following is a continuity of the Company’s equity incentive
plans:
|
|
|
DSU
|
|
|
RSU
|
|
|
FSO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Outstanding
|
|
|
|
Outstanding
|
|
|
|
Outstanding
|
|
|
|
Average
|
|
|
|
|
|
DSU Units
|
|
|
|
RSU Units
|
|
|
|
FSO Options
|
|
|
|
Exercise
|
|
|
|
|
|
(Number of
|
|
|
|
(Number of
|
|
|
|
(Number
|
|
|
|
Price / Share
|
|
|
|
|
|
of shares)
|
|
|
|
of shares)
|
|
|
|
of shares)
|
|
|
|
CAD
|
|
|
As at January 1, 2020
|
|
|
408,000
|
|
|
|
-
|
|
|
|
745,576
|
|
|
|
6.02
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
70,000
|
|
|
|
3.00
|
|
|
Exercised
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(750
|
)
|
|
|
44.86
|
|
|
Forfeited / Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(97,679
|
)
|
|
|
11.24
|
|
|
As at June 30, 2020
|
|
|
358,000
|
|
|
|
-
|
|
|
|
717,147
|
|
|
|
4.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 1, 2021
|
|
|
120,000
|
|
|
|
210,000
|
|
|
|
1,228,410
|
|
|
|
6.37
|
|
|
Granted
|
|
|
133,800
|
|
|
|
75,000
|
|
|
|
5,000
|
|
|
|
12.10
|
|
|
Exercised
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
(125,000
|
)
|
|
|
7.36
|
|
|
Forfeited / Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,139
|
)
|
|
|
2.30
|
|
|
As at June 30, 2021
|
|
|
253,800
|
|
|
|
235,000
|
|
|
|
1,105,271
|
|
|
|
6.30
|
|
The following table summarizes information about the outstanding share
options as at June 30, 2021:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Options
|
|
|
|
Remaining
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
|
Exercise
|
|
|
|
|
|
(Number
|
|
|
|
Contractual
|
|
|
|
Price / Share
|
|
|
|
(Number
|
|
|
|
Price / Share
|
|
|
Range of exercise prices (CAD)
|
|
|
of shares)
|
|
|
|
Life (Years)
|
|
|
|
CAD
|
|
|
|
of shares)
|
|
|
|
CAD
|
|
|
2.30 - 5.00
|
|
|
265,861
|
|
|
|
3
|
|
|
|
2.99
|
|
|
|
173,528
|
|
|
|
3.17
|
|
|
5.01 - 5.60
|
|
|
200,000
|
|
|
|
3
|
|
|
|
5.60
|
|
|
|
170,834
|
|
|
|
5.60
|
|
|
5.61 - 7.80
|
|
|
632,858
|
|
|
|
4
|
|
|
|
7.80
|
|
|
|
632,858
|
|
|
|
7.80
|
|
|
7.81 - 33.30
|
|
|
6,552
|
|
|
|
5
|
|
|
|
17.12
|
|
|
|
2,386
|
|
|
|
25.89
|
|
|
|
|
|
1,105,271
|
|
|
|
4
|
|
|
|
6.30
|
|
|
|
979,606
|
|
|
|
6.64
|
|
|
BRAGG GAMING GROUP INC.
|
28
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
9
|
SHARE
|
BASED COMPENSATION (CONTINUED)
|
The following table summarizes information about
the outstanding share options as at June 30, 2020:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
|
|
(Number
|
|
|
Contractual
|
|
|
Price / Share
|
|
|
(Number
|
|
|
Price / Share
|
|
|
Range of exercise prices (CAD)
|
|
of shares)
|
|
|
Life (Years)
|
|
|
CAD
|
|
|
of shares)
|
|
|
CAD
|
|
|
2.30 - 5.00
|
|
|
361,845
|
|
|
|
4
|
|
|
|
2.91
|
|
|
|
136,161
|
|
|
|
3.57
|
|
|
5.01 - 5.60
|
|
|
325,000
|
|
|
|
4
|
|
|
|
5.60
|
|
|
|
155,833
|
|
|
|
5.60
|
|
|
5.61 - 33.30
|
|
|
30,302
|
|
|
|
3
|
|
|
|
22.85
|
|
|
|
30,302
|
|
|
|
22.85
|
|
|
|
|
|
717,147
|
|
|
|
4
|
|
|
|
4.97
|
|
|
|
322,296
|
|
|
|
6.36
|
|
During the three and six months ended June 30,
2021, a share based payment charge of EUR 44 and EUR 84, respectively has been recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive loss (three months and six months ended June 30, 2020: negative EUR 145 and negative EUR 94, respectively)
in relation to the fixed stock options.
During the six months ended June 30, 2021, the
Company granted 5,000 share options (six months ended June 30, 2020: 70,000 share options) with a weighted average exercise price of CAD
12.10 per share (six months ended June 30, 2020: CAD 3.00) and a fair value of EUR 32 (six months ended June 30, 2020: EUR 75).
During the three and six months ended June 30,
2021, 125,000 Common Shares were issued upon exercise of 125,000 fixed stock options (three and six months ended June 30, 2021: nil).
Upon exercise of fixed stock options, EUR 341 was transferred from contributed surplus to share capital in the interim unaudited condensed
consolidated statement of changes in equity.
Deferred Share Units
Exercises of grants may only be settled in shares,
and only when the employee or consultant has left the Company. Under the plan, the Company may grant options of its shares at nil cost
that vest immediately.
During the three and six months ended June 30,
2021, nil and 133,800 DSUs, respectively (three and six months ended June 30, 2020: nil DSUs), were granted with a fair value of CAD 21.80
per unit (three and six months ended June 30, 2020: nil) determined as the share price on the date of grant.
During the three and six months ended June 30,
2021, a share based payment charge of EUR 413 and EUR 1,274, respectively, has been recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive loss (three and six months ended June 30, 2020: EUR nil) in relation to the deferred share units.
During the three and six months ended June 30, 2020, 50,000 Common
Shares were issued upon exercise of 50,000 DSUs. Upon exercise of DSUs, EUR 219 was transferred from contributed surplus to share capital
in the interim unaudited condensed consolidated statement of changes in equity.
|
BRAGG GAMING GROUP INC.
|
29
|
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
|
|
|
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
9
|
SHARE BASED COMPENSATION (CONTINUED)
|
Restricted Share Units
During the three and six months ended June 30,
2021, nil and 75,000 RSUs, respectively (three and six months ended June 30, 2020: nil), were granted with a fair value of CAD 21.80 per
unit (three and six months ended June 30, 2020: nil) determined as the share price on the date of grant.
During the three and six months ended June 30,
2021, a share based payment charge of EUR 434 and EUR 842, respectively, has been recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive loss (three and six months ended June 30, 2020: EUR nil) in relation to the RSUs.
During the six months ended June 30, 2021, 50,000
Common Shares were issued upon exercise of 50,000 RSUs (three months ended June 30, 2021: nil). Upon exercise of RSUs, EUR 267 was transferred
from contributed surplus to share capital in the interim unaudited condensed consolidated statement of changes in equity.
|
BRAGG GAMING GROUP INC.
|
30
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
10
|
DEFERRED AND CONTINGENT CONSIDERATION
|
The Company completed the acquisition of Oryx
Gaming International LLC together with its subsidiaries on December 20, 2018. The vendor is now part of the Company’s key management,
though was not at the time of the acquisition. Deferred and contingent consideration on December 31, 2020, related to two earnout payments
due, comprised of both cash and shares to be issued.
The Company completed the acquisition of Wild
Streak LLC effective on June 2, 2021. The Company agreed a cash payment of USD 75 (EUR 63) to the vendor in relation to working capital
provided prior to completion to be settled on or about the sixtieth day following closing of the transaction.
The following is a continuity of the Company’s deferred and contingent
consideration:
|
As at January 1, 2020
|
|
|
23,732
|
|
|
Cash paid on settlement of deferred and contingent consideration
|
|
|
(527
|
)
|
|
Accretion expense
|
|
|
1,037
|
|
|
Shares to be issued
|
|
|
(22,000
|
)
|
|
Loss on remeasurement of deferred and contingent consideration
|
|
|
9,276
|
|
|
Effect of movements in exchange rates
|
|
|
3
|
|
|
|
|
|
|
|
|
As at December 31, 2020
|
|
|
11,521
|
|
|
|
|
|
|
|
|
Cash paid on settlement of deferred and contingent consideration
|
|
|
(11,521
|
)
|
|
Deferred consideration payable upon business combination (Note 4)
|
|
|
63
|
|
|
|
|
|
|
|
|
As at June 30, 2021
|
|
|
63
|
|
In the three- and six-month period ended June
30, 2021, EUR nil (three- and six-month period ended June 30, 2020: EUR 219 and EUR 5,187, respectively) of loss on remeasurement of deferred
and contingent consideration and EUR nil (three- and six-month period ended June 30, 2020: EUR 863 and EUR 917, respectively) of accretion
expense was recognized in the interim unaudited condensed consolidated statements of loss and comprehensive loss.
Deferred and contingent consideration is disclosed
in the interim unaudited condensed consolidated statement of financial position as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Deferred and Contingent Consideration
|
|
|
63
|
|
|
|
11,521
|
|
All contingent liabilities in relation to the acquisition of Oryx were
settled in full to the Oryx vendor on January 18, 2021 following shareholder approval on November 27, 2020. On January 18, 2021, the Company
satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares (Note 6) of the Company. Cash
paid totalled EUR 11,598, of which EUR 11,521 fully settled deferred and contingent consideration payable, EUR 52 settled interest payable
and EUR 25 settled legal fees.
|
BRAGG GAMING GROUP INC.
|
31
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual
|
|
|
Development
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
Costs
|
|
|
Relationships
|
|
|
Brands
|
|
|
Other
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
|
8,801
|
|
|
|
1,222
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
128
|
|
|
|
16,411
|
|
|
Additions
|
|
|
165
|
|
|
|
2,075
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
2,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2020
|
|
|
8,966
|
|
|
|
3,297
|
|
|
|
4,903
|
|
|
|
1,357
|
|
|
|
174
|
|
|
|
18,697
|
|
|
Additions
|
|
|
77
|
|
|
|
1,349
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,426
|
|
|
Acquired through business combination (Note 4)
|
|
|
5,660
|
|
|
|
-
|
|
|
|
11,006
|
|
|
|
314
|
|
|
|
19
|
|
|
|
16,999
|
|
|
Effect of movement in exchange rates
|
|
|
145
|
|
|
|
-
|
|
|
|
279
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2021
|
|
|
14,848
|
|
|
|
4,646
|
|
|
|
16,188
|
|
|
|
1,680
|
|
|
|
192
|
|
|
|
37,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
|
1,119
|
|
|
|
76
|
|
|
|
504
|
|
|
|
140
|
|
|
|
11
|
|
|
|
1,850
|
|
|
Amortization
|
|
|
1,169
|
|
|
|
754
|
|
|
|
490
|
|
|
|
136
|
|
|
|
19
|
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2020
|
|
|
2,288
|
|
|
|
830
|
|
|
|
994
|
|
|
|
276
|
|
|
|
30
|
|
|
|
4,418
|
|
|
Amortization
|
|
|
654
|
|
|
|
662
|
|
|
|
339
|
|
|
|
70
|
|
|
|
16
|
|
|
|
1,741
|
|
|
Acquired through business combination (Note 4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2021
|
|
|
2,942
|
|
|
|
1,492
|
|
|
|
1,333
|
|
|
|
346
|
|
|
|
50
|
|
|
|
6,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2020
|
|
|
6,678
|
|
|
|
2,467
|
|
|
|
3,909
|
|
|
|
1,081
|
|
|
|
144
|
|
|
|
14,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2021
|
|
|
11,906
|
|
|
|
3,154
|
|
|
|
14,855
|
|
|
|
1,334
|
|
|
|
142
|
|
|
|
31,391
|
|
In the three- and six-month periods ended June
30, 2021, amortization expense of EUR 979 and EUR 1,741, respectively, was recognized within selling, general and administrative expenses
(three- and six-month periods ended June 30, 2020: EUR 588 and EUR 1,296, respectively).
|
|
12
|
CASH AND CASH EQUIVALENTS
|
As at June 30, 2021 and December 31, 2020, cash
and cash equivalents consisted of cash held in banks, marketable investments with an original maturity date of 90 days or less from the
date of acquisition, and prepaid credit cards.
As at June 30, 2021, EUR nil (December 31, 2020: EUR 608) was held
in trust on behalf of the Company for subscription receipts related to a non-brokered private placement offering that completed on January
13, 2021 (Note 6). This amount was recorded in cash and cash equivalents.
|
BRAGG GAMING GROUP INC.
|
32
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
13
|
TRADE AND OTHER RECEIVABLES
|
The following is an aging of the Company’s trade and other receivables:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Less than one month
|
|
|
8,290
|
|
|
|
9,563
|
|
|
Between two and three months
|
|
|
606
|
|
|
|
1,193
|
|
|
Greater than three months
|
|
|
1,645
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,541
|
|
|
|
12,052
|
|
|
Provision for expected credit losses
|
|
|
(2,132
|
)
|
|
|
(1,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Trade and Other Receivables
|
|
|
8,409
|
|
|
|
10,297
|
|
The balance of accrued income is included in receivables
aged less than one month as this balance will be converted to accounts receivable upon issuance of sales invoices.
The following is a continuity of the Company’s
provision for expected credit losses related to trade and other receivables:
|
As at December 31, 2019
|
|
|
941
|
|
|
Bad debt written-off
|
|
|
(419
|
)
|
|
Net additional provision for doubtful debts
|
|
|
1,076
|
|
|
Provision for late interest receivable
|
|
|
157
|
|
|
|
|
|
|
|
|
As at December 31, 2020
|
|
|
1,755
|
|
|
Net additional provision for doubtful debts
|
|
|
320
|
|
|
Provision for late interest receivable
|
|
|
57
|
|
|
|
|
|
|
|
|
As at June 30, 2021
|
|
|
2,132
|
|
|
BRAGG GAMING GROUP INC.
|
33
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
14
|
PREPAID EXPENSES AND OTHER ASSETS
|
Prepaid expenses and other assets comprises:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Prepayments
|
|
|
1,873
|
|
|
|
249
|
|
|
Deposits
|
|
|
71
|
|
|
|
-
|
|
|
Other assets
|
|
|
157
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Assets
|
|
|
2,101
|
|
|
|
263
|
|
|
|
15
|
TRADE PAYABLES AND OTHER LIABILITIES
|
Trade payables and other liabilities comprises:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade payables
|
|
|
3,848
|
|
|
|
6,406
|
|
|
Accrued liabilities
|
|
|
11,825
|
|
|
|
6,099
|
|
|
Sales tax payable
|
|
|
1,555
|
|
|
|
4,356
|
|
|
Other payables
|
|
|
51
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Payables and Other Liabilities
|
|
|
17,279
|
|
|
|
16,968
|
|
|
BRAGG GAMING GROUP INC.
|
34
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
16
|
RELATED PARTY TRANSACTIONS
|
The Company’s policy is to conduct all transactions
and settle all balances with related parties on market terms and conditions for those in the normal course of business. Transactions between
the Company and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
Key Management Personnel
The Company’s key management personnel are
comprised of members of the Board and the executive team which consists of the Chief Executive Officer (“CEO”), Chief Financial
Officer (“CFO”), Chief Strategy Officer (“CSO”) and Chief Technology Officer (“CTO”). Three key management
employees are also shareholders in the Company. Transactions and balances between the Company and its key management personnel are as
follows:
Interim Unaudited Condensed Consolidated Statements
of Loss and Comprehensive Loss
|
|
·
|
Revenues for the three and six months ended June 30, 2021, to a shareholder of the Company totalled EUR
28 and EUR 49 (three and six months ended June 30, 2020: EUR 5 and EUR 10), respectively.
|
|
|
·
|
Total compensation for salaries, director fees, share-based payments, and short-term employee benefits
of key management personnel of the Company for the three and six months ended June 30, 2021, totalled EUR 2,645 and EUR 4,344 (three and
six months ended June 30, 2020: EUR 536 and EUR 974), respectively.
|
|
|
·
|
Total compensation for salaries and short-term employee benefits of vendors of the sale of Wild Streak
and subsequently employees of the Company for the three and six months ended June 30, 2021, totalled EUR 37 (three and six months ended
June 30, 2020: EUR nil).
|
|
|
·
|
Loss on remeasurement of deferred and contingent consideration payable to the former Managing Director
of Oryx for the three and six months ended June 30, 2021, was nil (three and six months ended June 30, 2020: EUR 219 and EUR 5,187, respectively).
While the key management employee is no longer Managing Director of Oryx, they remain a director of the Company.
|
|
|
·
|
Interest expense on deferred and contingent consideration payable to the former Managing Director of Oryx
for the three and six months ended June 30, 2021, totalled EUR nil and EUR 52 (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, legal fees of EUR nil and EUR 25 payable to the former
Managing Director of Oryx in relation to the Oryx earn-out was recognized in the interim unaudited condensed consolidated statements of
loss and comprehensive loss (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, professional fees of EUR 64 and EUR 85, respectively
payable to a related business of a non-executive director of the Company was recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive loss (three and six months ended June 30, 2020: EUR nil).
|
|
BRAGG GAMING GROUP INC.
|
35
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
16
|
RELATED PARTY TRANSACTIONS (CONTINUED)
|
Interim Unaudited Condensed Consolidated Statements
of Financial Position
|
|
·
|
As at June 30, 2021, EUR 8 of trade and other receivables was receivable from the former Managing Director
of Oryx and other shareholders (December 31, 2020: EUR 4).
|
|
|
·
|
As at June 30, 2021, EUR 14 of prepaid expenses and other assets was receivable from a related business
of a non-executive director of the Company (December 31, 2020: EUR nil).
|
|
|
·
|
As at June 30, 2021, EUR 208 of trade payables and other liabilities was due to the Company’s key
management personnel (December 31, 2020: EUR 166).
|
|
|
·
|
As at June 30, 2021, EUR 26 of trade payables and other liabilities was due to the vendors of the sale
of Wild Streak and subsequently employees of the Company (December 31, 2020: EUR nil).
|
|
|
·
|
As at June 30, 2021, EUR nil of deferred and contingent consideration (Note 10) was payable to the former
Managing Director of Oryx (December 31, 2020: EUR 11,521).
|
|
|
·
|
As at June 30, 2021, EUR 63 of deferred and contingent consideration (Note 10) was payable to the vendors
of the sale Wild Streak and subsequently employees of the Company (December 31, 2020: EUR nil).
|
Interim Unaudited Condensed Consolidated Statements
of Changes in Equity
|
|
·
|
During the three and six months ended June 30, 2021, EUR nil and 22,000, respectively of share capital
(three and six months ended June 30, 2020: EUR nil) was issued to the former Managing Director of Oryx upon completion of the earn-out
(Note 10). A corresponding decrease in shares to be issued was recognized in the interim unaudited condensed consolidated statements of
changes in equity.
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR 15,310 of shares to be issued (three and six
months ended June 30, 2020: EUR nil) to the vendors for the sale of Wild Streak (Note 4) and subsequently employees of the Company was
recognized in the interim unaudited condensed consolidated statements of changes in equity.
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR nil and EUR 1,918, respectively of additional
share capital was recognized in the interim unaudited condensed consolidated statements of changes in equity in relation to the private
placement by key management personnel of the Company (Note 6) (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR 143 and EUR 410 additional share capital, respectively,
was recognized in the interim unaudited condensed consolidated statements of changes in equity for exercise of DSUs, RSUs and FSOs by
key management personnel of the Company (Note 9) (three and six months ended June 30, 2020: EUR 219).
|
Interim Unaudited Condensed Consolidated Statements
of Cash Flows
|
|
·
|
During the three and six months ended June 30, 2021, a total of EUR nil and EUR 11,521, respectively in
payments were made to the former Managing Director of Oryx for deferred consideration (three months and six months ended June 30, 2020:
EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, a total of EUR nil and 140, respectively in payments
were made to the former Managing Director of Oryx for interest on deferred and contingent consideration payable (three and six months
ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, a total of EUR 8,206 in cash consideration payments
were made to the vendors of the sale of Wild Streak (three months and six months ended June 30, 2020: EUR nil).
|
|
BRAGG GAMING GROUP INC.
|
36
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|
The financial instruments measured at amortized cost are summarised
below:
Financial Assets
|
|
|
Financial assets as subsequently
|
|
|
|
|
measured at amortized cost
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade and other receivables
|
|
|
8,409
|
|
|
|
10,297
|
|
Financial Liabilities
|
|
|
Financial liabilities as subsequently
|
|
|
|
|
measured at amortized cost
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade payables
|
|
|
3,848
|
|
|
|
6,406
|
|
|
Accrued liabilities
|
|
|
11,825
|
|
|
|
6,099
|
|
|
Other liabilities
|
|
|
51
|
|
|
|
107
|
|
|
Lease obligations on right of use assets
|
|
|
691
|
|
|
|
726
|
|
|
|
|
|
16,415
|
|
|
|
13,338
|
|
The carrying values of the financial instruments approximate their fair values.
|
BRAGG GAMING GROUP INC.
|
37
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Fair Value Hierarchy
The following table presents the fair values and fair value hierarchy
of the Company’s financial instruments.
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
20,966
|
|
|
|
-
|
|
|
|
20,966
|
|
|
|
26,102
|
|
|
|
-
|
|
|
|
26,102
|
|
|
Consideration receivable
|
|
|
-
|
|
|
|
128
|
|
|
|
128
|
|
|
|
-
|
|
|
|
192
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value through profit and loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred and contingent consideration
|
|
|
63
|
|
|
|
-
|
|
|
|
63
|
|
|
|
11,521
|
|
|
|
-
|
|
|
|
11,521
|
|
There were no transfers between the levels of the fair value hierarchy
during the periods.
During the three and six months ended June 30, 2021, a loss of EUR
nil (three and six months ended June 30, 2020: EUR 219 and EUR 5,187, respectively), was recognized in the interim unaudited condensed
consolidated statements of loss and comprehensive loss as loss on remeasurement of deferred and contingent consideration (Note 10) for
financial instruments designated as FVTPL.
|
BRAGG GAMING GROUP INC.
|
38
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
As a result of holding and issuing financial instruments,
the Company is exposed to certain risks. The following is a description of those risks and how the exposures are managed.
Liquidity risk
Liquidity risk is the risk that the Company is
unable to generate or obtain sufficient cash and cash equivalents in a cost-effective manner to fund its obligations as they come due.
The Company will experience liquidity risks if it fails to maintain appropriate levels of cash and cash equivalents, is unable to access
sources of funding or fails to appropriately diversify sources of funding. If any of these events were to occur, they could adversely
affect the financial performance of the Company.
The Company has a planning and budgeting process
in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates
this planning and budgeting process with its financing activities through its capital management process. The Company holds sufficient
cash and cash equivalents and working capital, maintained through stringent cash flow management, to ensure sufficient liquidity is maintained.
The Company is not subject to any externally imposed capital requirements.
The following are the undiscounted contractual
maturities of significant financial liabilities and the total contractual obligations of the Company as at June 30, 2021:
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
Trade payables and other liabilities
|
|
|
17,279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,279
|
|
|
Lease obligations on right of use assets
|
|
|
88
|
|
|
|
172
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
731
|
|
|
Deferred and contingent consideration
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
|
|
|
|
17,430
|
|
|
|
172
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
18,073
|
|
Foreign currency exchange risk
The Company’s financial statements are presented
in EUR, however a portion of the Company’s net assets and operations are denominated in other currencies, particularly the Canadian
dollar. Such net assets are translated into EUR at the foreign currency exchange rate in effect at the reporting date, and operations
at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are recognized. As a result,
the Company is exposed to foreign currency translation gains and losses, which are recorded in accumulated other comprehensive loss.
The Company is also exposed to risk on transaction
in currencies other than its functional currency resulting in realized and unrealized foreign currency gains and loss which are recorded
in other operational costs. The Company estimates that an appreciation of the EUR of 10% relative to other currencies would result in
a decrease of EUR 835 in earnings before income taxes while a depreciating EUR will have the opposite impact.
The Company has no derivative instruments in
the form of futures contracts and forward contracts to manage its current and anticipated exposure to fluctuations in EUR exchange rates.
|
BRAGG GAMING GROUP INC.
|
39
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Credit risk
The Company is exposed to credit risk resulting
from the possibility that counterparties could default on their financial obligations to the Company including cash and cash equivalents,
other assets and accounts receivable. Failure to manage credit risk could adversely affect the financial performance of the Company.
The risk related to cash and cash equivalents
is reduced by policies and guidelines that require that the Company enters into transactions only with counterparties or issuers that
have a minimum long term “BBB” credit rating from a recognized credit rating agency. The Company mitigates the risk of credit
loss relating to accounts receivable by evaluating the creditworthiness of new customers and establishes a provision for expected credit
losses. The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, Financial Instruments,
which permits the use of the lifetime expected loss provision for all accounts receivable. The expected credit loss provision is based
on the Company’s historical collections and loss experience and incorporates forward-looking factors, where appropriate.
The provision matrix below shows the expected credit loss rate for
each aging category of accounts receivable as at June 30, 2021:
|
|
|
|
|
|
Aging (months)
|
|
|
|
|
|
|
|
Note
|
|
|
<1
|
|
|
1 - 3
|
|
|
>3
|
|
|
Total
|
|
|
Gross accounts receivable
|
|
|
13
|
|
|
|
8,290
|
|
|
|
606
|
|
|
|
1,645
|
|
|
|
10,541
|
|
|
Expected loss rate
|
|
|
|
|
|
|
4.60
|
%
|
|
|
30.53
|
%
|
|
|
95.20
|
%
|
|
|
20.23
|
%
|
|
Expected Loss Provision
|
|
|
13
|
|
|
|
381
|
|
|
|
185
|
|
|
|
1,566
|
|
|
|
2,132
|
|
The provision matrix below shows the expected credit loss rate for
each aging category of accounts receivable as at December 31, 2020:
|
|
|
|
|
|
Aging (months)
|
|
|
|
|
|
|
|
Note
|
|
|
<1
|
|
|
1 - 3
|
|
|
>3
|
|
|
Total
|
|
|
Gross accounts receivable
|
|
|
13
|
|
|
|
9,563
|
|
|
|
1,193
|
|
|
|
1,296
|
|
|
|
12,052
|
|
|
Expected loss rate
|
|
|
|
|
|
|
4.51
|
%
|
|
|
14.84
|
%
|
|
|
88.50
|
%
|
|
|
14.56
|
%
|
|
Expected Loss Provision
|
|
|
13
|
|
|
|
431
|
|
|
|
177
|
|
|
|
1,147
|
|
|
|
1,755
|
|
Gross accounts receivable includes the balance
of accrued income within the aging category of less than one month.
|
BRAGG GAMING GROUP INC.
|
40
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
17
|
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
|
Concentration risk
For the three months ended June 30, 2021, one
customer (three months ended June 30, 2020: one customer) contributed more than 10% each to the Company’s revenues. Aggregate revenues
from this customer totalled EUR 2,714 (three months ended June 30, 2020: EUR 1,712).
For the six months ended June 30, 2021, one customer
(six months ended June 30, 2020: one customer) contributed more than 10% each to the Company’s revenues. Aggregate revenues from
this customer totalled EUR 5,467 (six months ended June 30, 2020: EUR 2,816).
As at June 30, 2021, one customer (December 31,
2020: one customer) constituted more than 10% each to the Company’s accounts receivable. The balance owed by this customer totalled
EUR 974 (December 31, 2020: EUR 1,247). The Company continues to expand its customer base to reduce the concentration risk.
|
18
|
SUPPLEMENTARY CASHFLOW INFORMATION
|
Cash flows arising from changes in non-cash working capital are summarized
below:
|
|
|
Six Months Ended June 30,
|
|
|
Cash flows arising from movement in:
|
|
2021
|
|
|
2020
|
|
|
Trade and other receivables
|
|
|
2,183
|
|
|
|
(2,642
|
)
|
|
Prepaid expenses and other assets
|
|
|
(1,838
|
)
|
|
|
(135
|
)
|
|
Deferred revenue
|
|
|
503
|
|
|
|
-
|
|
|
Trade payables and other liabilities
|
|
|
224
|
|
|
|
3,995
|
|
|
Other liabilities - non-current
|
|
|
25
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Non-Cash Working Capital
|
|
|
1,097
|
|
|
|
1,218
|
|
|
BRAGG GAMING GROUP INC.
|
41
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating
The Company has one reportable operating segment
in its continuing operations, B2B Online Gaming.
The accounting policies of the reportable operating
segments are the same as those described in the Company’s summary of significant accounting policies (Note 2). The Company measures
each reportable operating segment’s performance based on adjusted EBITDA. No reportable operating segment is reliant on any single
external customer.
Intersegment charges have been eliminated on consolidation.
Geography – Revenue
Revenue for continuing operations was generated from the following
jurisdictions:
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Malta
|
|
|
|
9,386
|
|
|
|
8,492
|
|
|
|
18,861
|
|
|
|
14,428
|
|
|
Curaçao
|
|
|
|
3,761
|
|
|
|
2,488
|
|
|
|
6,534
|
|
|
|
4,230
|
|
|
Croatia
|
|
|
|
713
|
|
|
|
363
|
|
|
|
1,138
|
|
|
|
649
|
|
|
Germany
|
|
|
|
404
|
|
|
|
84
|
|
|
|
830
|
|
|
|
129
|
|
|
Romania
|
|
|
|
425
|
|
|
|
50
|
|
|
|
744
|
|
|
|
200
|
|
|
Serbia
|
|
|
|
243
|
|
|
|
126
|
|
|
|
442
|
|
|
|
254
|
|
|
Other
|
|
|
|
559
|
|
|
|
542
|
|
|
|
1,138
|
|
|
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
15,491
|
|
|
|
12,145
|
|
|
|
29,687
|
|
|
|
20,929
|
|
This segmentation is not correlated to the geographical
location of the Company’s worldwide end-user base.
Geography – Non-Current Assets
Non-current assets are held in the following jurisdictions:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
United States
|
|
|
57,041
|
|
|
|
34,104
|
|
|
Other
|
|
|
1,491
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
58,532
|
|
|
|
35,284
|
|
|
BRAGG GAMING GROUP INC.
|
42
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of income taxes recognized in the interim unaudited
condensed consolidated statements of financial position are as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Income taxes payable
|
|
|
1,762
|
|
|
|
1,318
|
|
|
Deferred income tax liabilities
|
|
|
1,261
|
|
|
|
1,415
|
|
The components of income taxes recognized in the interim unaudited
condensed consolidated statements of loss and comprehensive loss are as follows:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Current period
|
|
|
452
|
|
|
|
526
|
|
|
|
1,143
|
|
|
|
797
|
|
|
Adjustment in respect of prior periods
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Income Taxes
|
|
|
452
|
|
|
|
526
|
|
|
|
1,143
|
|
|
|
797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (recovery)
|
|
|
30
|
|
|
|
(28
|
)
|
|
|
(154
|
)
|
|
|
(56
|
)
|
|
Deferred Income Tax Expense (Recovery)
|
|
|
30
|
|
|
|
(28
|
)
|
|
|
(154
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
|
482
|
|
|
|
498
|
|
|
|
989
|
|
|
|
741
|
|
There is no income tax expense recognized in other comprehensive income
(loss).
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Intangible assets
|
|
|
1,261
|
|
|
|
1,415
|
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
1,261
|
|
|
|
1,415
|
|
|
BRAGG GAMING GROUP INC.
|
43
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
20
|
INCOME TAXES (CONTINUED)
|
The effective income tax rates in the interim
unaudited condensed consolidated statements of loss and comprehensive loss were reported at rates different than the combined Canadian
federal and provincial statutory income tax rates for the following reasons:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
%
|
|
|
%
|
|
|
Canadian statutory tax rate
|
|
|
26.5
|
|
|
|
26.5
|
|
|
Effect of tax rate in foreign jurisdictions
|
|
|
7.4
|
|
|
|
2.6
|
|
|
Impact of foreign currency translation
|
|
|
-
|
|
|
|
|
|
|
Non-deductible and non-taxable items
|
|
|
(30.2
|
)
|
|
|
(12.4
|
)
|
|
Remeasurement of contingent and deferred consideration
|
|
|
-
|
|
|
|
(14.2
|
)
|
|
Accretion expense of contingent consideration
|
|
|
-
|
|
|
|
(4.5
|
)
|
|
Change in tax benefits not recognized
|
|
|
(8.6
|
)
|
|
|
(7.2
|
)
|
|
Adjustments in respect of prior periods
|
|
|
-
|
|
|
|
(2.5
|
)
|
|
Other
|
|
|
(36.1
|
)
|
|
|
(2.4
|
)
|
|
Effective Income Tax Rate Applicable to Loss Before Income Taxes
|
|
|
(41.0
|
)
|
|
|
(14.1
|
)
|
Deferred income tax liabilities recognized in
the interim unaudited condensed consolidated statements of financial position were attributable solely to acquired intangible assets (Note
11).
|
BRAGG GAMING GROUP INC.
|
44
|
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021, AND JUNE 30, 2020
PRESENTED IN EUROS (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
20
|
INCOME TAXES (CONTINUED)
|
The portion of the income tax losses related to
Canada which have a limited carry-forward period expire in the years 2026 to 2041 as follows:
|
2026
|
|
|
|
97
|
|
|
2027
|
|
|
|
182
|
|
|
2028
|
|
|
|
170
|
|
|
2029
|
|
|
|
87
|
|
|
2030
|
|
|
|
60
|
|
|
2031
|
|
|
|
60
|
|
|
2032
|
|
|
|
101
|
|
|
2033
|
|
|
|
68
|
|
|
2034
|
|
|
|
126
|
|
|
2035
|
|
|
|
126
|
|
|
2036
|
|
|
|
134
|
|
|
2037
|
|
|
|
279
|
|
|
2038
|
|
|
|
1,897
|
|
|
2039
|
|
|
|
2,001
|
|
|
2040
|
|
|
|
3,100
|
|
|
2041
|
|
|
|
3,164
|
|
|
|
|
|
|
11,652
|
|
The United Kingdom losses are carried forward
indefinitely unless subject to certain restrictions and are now classified in the current year as discontinued operations as unrecognized
deferred income tax assets. The deductible temporary differences do not expire under current income tax legislation. Deferred income tax
assets were not recognized in respect of these items because it is not probable that future taxable income will be available to the Company
to utilize the benefits.
|
|
21
|
CONTINGENT LIABILITIES
|
In the ordinary course of business, the Company
is involved in and potentially subject to, legal actions and proceedings. In addition, the Company is subject to tax audits from various
tax authorities on an ongoing basis. As a result, from time to time, tax authorities may disagree with the positions and conclusions taken
by the Company in its tax filings or legislation could be amended or interpretations of current legislation could change, any of which
events could lead to reassessments.
The Company is not aware of any legal, administrative,
or other proceedings pending, which would materially affect its financial condition.
Exhibit 4.14
Bragg Gaming Group Inc.
MANAGEMENT
DISCUSSION & ANALYSIS FOR THE THREE- AND SIX-MONTH PERIODS
ENDED
JUNE 30, 2021
Table
of contents
|
MANAGEMENT DISCUSSION & ANALYSIS FOR THE THREE- AND SIX-MONTH PERIODS
|
|
|
|
|
|
|
ENDED JUNE 30, 2021
|
|
|
|
|
|
|
1.
|
MANAGEMENT DISCUSSION & ANALYSIS
|
2
|
|
|
|
|
|
2.
|
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
|
3
|
|
|
|
|
|
3.
|
LIMITATIONS OF KEY METRICS AND OTHER DATA
|
4
|
|
|
|
|
|
4.
|
OVERVIEW OF Q2 2021
|
6
|
|
|
|
|
|
5.
|
FINANCIAL RESULTS
|
17
|
|
|
5.1
|
Basis of financial discussion
|
17
|
|
|
|
|
|
|
|
5.2
|
Selected interim information
|
18
|
|
|
|
|
|
|
|
5.3
|
Other financial information
|
19
|
|
|
|
|
|
|
|
5.4
|
Selected financial information
|
20
|
|
|
|
|
|
|
|
5.5
|
Summary of quarterly results
|
22
|
|
|
|
|
|
|
|
5.6
|
Liquidity and capital resources
|
22
|
|
|
|
|
|
|
|
5.7
|
Cash flow summary
|
24
|
|
6
|
TRANSACTIONS BETWEEN RELATED
PARTIES
|
26
|
|
|
|
|
|
7
|
DISCLOSURE OF OUTSTANDING SHARE DATA
|
28
|
|
|
|
|
|
8
|
CRITICAL ACCOUNTING ESTIMATES
|
29
|
|
|
|
|
|
9
|
CHANGES IN ACCOUNTING POLICY
|
32
|
|
|
|
|
|
10
|
RISK FACTORS AND UNCERTAINTIES
|
32
|
|
|
|
|
|
11
|
ADDITIONAL INFORMATION
|
35
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
1
|
|
|
1.
|
MANAGEMENT DISCUSSION & ANALYSIS
|
This Management Discussion and Analysis (“MD&A”)
provides a review of the results of operations, financial condition and cash flows for Bragg Gaming Group Inc on a consolidated basis,
for the three and six months ended June 30, 2021 (“Q2 2021”). References to “Bragg” or the “Corporation”
in this MD&A refer to Bragg Gaming Group Inc and its subsidiaries, unless the context requires otherwise. This document should be
read in conjunction with the information presented in the interim unaudited condensed consolidated financial statements for the three
months and six months ended June 30, 2021 (the “Interims”).
For reporting purposes, the Corporation prepared
the Interims in European Euros (“EUR”) and, unless otherwise indicated, in conformity with International Accounting Standards
(“IAS”) 34, Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). The
financial information contained in this MD&A was derived from the Interims. Unless otherwise indicated, all references to a specific
“note” refer to the notes to the Interims.
This MD&A references non-IFRS financial measures,
including those under the headings “Selected Financial Information” and “Key Metrics” below. The Corporation believes
these non-IFRS financial measures will provide investors with useful supplemental information about the financial performance of its business,
enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for
greater transparency with respect to key metrics used by management in operating its business and making decisions. Although management
believes these financial measures are important in evaluating the Corporation, they are not intended to be considered in isolation or
as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. Non-IFRS measures are not recognized
measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS financial
measures used by other companies, limiting their usefulness for comparison purposes. These non-IFRS measures and metrics are used to provide
investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may nor
otherwise be apparent when relying solely on IFRS measures.
For purposes of this MD&A, the term “gaming
license” refers collectively to all the different licenses, consents, permits, authorizations, and other regulatory approvals that
are necessary to be obtained in order for the recipient to lawfully conduct (or be associated with) gaming in a particular jurisdiction.
Unless otherwise stated, in preparing this MD&A
the Corporation has considered information available to it up to August 11, 2021, the date the Corporation’s board of directors
(the “Board”) approved this MD&A.
On April 30, 2021, the Corporation announced
a one-for-ten share consolidation. At the annual and special meeting of the Corporation’s shareholders held on April 28, 2021,
the Corporation’s shareholders granted the Board discretionary authority to implement a consolidation of the issued and outstanding
common shares of the Corporation (“Common Shares”) on the basis of a consolidation ratio of up to fifteen (15) pre-consolidation
Common Shares for one (1) post-consolidation Common Share. The Board selected a share consolidation ratio of ten (10) pre-consolidation
Common Shares for one (1) post-consolidation Common Share. The Common Shares began trading on the Toronto Stock Exchange (“TSX”)
on a post-consolidation basis under the Corporation’s existing trade symbol "BRAG" on May 5, 2021. In accordance with
IFRS accounting principles, the change has been applied retroactively and all balances of Common Shares, warrants and equity-based
compensation such as share options, deferred share units and restricted share units have been restated after applying the consolidation
ratio.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
2
|
|
|
2.
|
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
|
This MD&A may contain forward-looking information
and statements (collectively, “forward-looking statements”) within the meaning of the Canadian securities legislation and
applicable securities laws, including financial and operational expectations and projections. These statements, other than statements
of historical fact, are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions,
including market and economic conditions, business prospects or opportunities, future plans and strategies, projections, technological
developments, anticipated events and trends and regulatory changes that affect the Corporation, its subsidiaries and their respective
customers and industries. Although the Corporation and management believe the expectations reflected in such forward-looking statements
are reasonable and are based on reasonable assumptions and estimates as of the date hereof, there can be no assurance that these assumptions
or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements are inherently subject to
significant business, regulatory, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ
materially from those expressed or implied in such statements. Forward-looking statements are often, but not always, identified by the
use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”,
“expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”,
“intend”, “could”, “might”, “would”, “should”, “believe”, “objective”,
“ongoing”, “imply” or the negative of these words or other variations or synonyms of these words or comparable
terminology and similar expressions.
By their nature forward-looking statements are
subject to known and unknown risks, uncertainties, and other factors which may cause actual results, events or developments to be materially
different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include,
among other things, the Corporation’s stage of development, long-term capital requirements and future ability to fund operations,
future developments in the Corporation’s markets and the markets in which it expects to compete, risks associated with its strategic
alliances and the impact of entering new markets on the Corporation’s operations. Each factor should be considered carefully, and
readers are cautioned not to place undue reliance on such forward-looking statements. See the section, “Risk Factors and Uncertainties”,
below noting that these factors are not intended to represent a complete list of the factors that could affect the Corporation.
Shareholders and investors should not place undue
reliance on forward-looking statements as the plans, assumptions, intentions or expectations upon which they are based might not occur.
The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Unless otherwise indicated
by the Corporation, forward-looking statements in this MD&A describe the Corporation’s expectations as of August 11, 2021, and,
accordingly, are subject to change after such date. The Corporation does not undertake to update or revise any forward-looking statements,
except in accordance with applicable securities laws.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
3
|
|
|
3.
|
LIMITATIONS OF KEY METRICS AND OTHER DATA
|
The Corporation’s key metrics are calculated
using internal Corporation data. While these numbers are based on what the Corporation believes to be reasonable judgments and estimates
of customer numbers for the applicable period of measurement, there are certain challenges and limitations in measuring the usage of its
product offerings across its customer base. In addition, the Corporation’s key metrics and related estimates may differ from estimates
published by third parties or from similarly titled metrics of its competitors due to differences in methodology and access to information.
For important information on the Corporation’s
non-IFRS measures, see the information presented in “Key metrics” and “Selected financial information” below.
The Corporation continually seeks to improve its estimates of its active customer base and the level of customer activity, and such estimates
may change due to improvements or changes in the Corporation’s methodology.
Bragg Gaming: Overview and Strategy
Bragg is a growing global gaming content and technology
group and owner of well-known business-to-business ("B2B") gaming companies. Its suite of iGaming content and technology, commercial
relationships and operational licences allows it to offer a full turnkey gaming solution in regulated online gaming markets internationally.
Its premium content catalogue currently includes over 13,000 casino games, including proprietary games developed by its studios, third-party
games developed on its remote games server ("RGS") for exclusive distribution, and aggregated, licensed games from top studios
around the world.
The Corporation’s wholly owned suite of
products includes a state-of-the-art player account management ("PAM") platform, which provides the tools required to operate
an online gaming business, including player engagement and data analysis software. The Corporation's technology was developed on a greenfield
basis and is not dependent on legacy code. The Corporation’s suite of products and services offers a one-stop solution to its customers
that is adaptable to various gaming markets and legislative jurisdictions, including the UK and the emerging United States and Canadian
online gaming markets.
The Corporation was incorporated by Articles of
Incorporation pursuant to the provisions of the Canada Business Corporations Act on March 17, 2004, and on December 20, 2018, the Corporation
completed a business combination transaction to acquire Oryx Gaming International LLC (“Oryx”). The Corporation is currently
listed on the Toronto Stock Exchange under the symbol BRAG.TO and has applied to list on the Nasdaq Stock Market under the symbol BRAG.
Oryx has been in operation for over nine years as a full turnkey iGaming solutions provider to the online gaming industry, with an established
customer base in Europe and Latin America.
In May 2021, the Corporation entered into a definitive
agreement to acquire Spin Games LLC (“Spin”), a Reno, Nevada-based iGaming technology supplier and content provider licensed
and active in key regulated North American jurisdictions. The acquisition of Spin is subject to customary closing conditions, including
required regulatory approvals. In June 2021, the Corporation acquired Wild Streak LLC doing business as Wild Streak Games (“Wild
Streak”), a leading iGaming content studio based in Las Vegas, Nevada with a portfolio of proprietary titles distributed globally,
including in regulated markets in the United States and Europe.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
4
|
The Corporation continues to invest in building
a strong, experienced management team to drive its strategic initiatives. On May 1, 2021, the Corporation appointed a new Chief Executive
Officer, Richard Carter, an industry veteran and previously CEO of SBTech, which was acquired by DraftKings. During the quarter, the Corporation’s
management team was further bolstered by the addition of Doug Fallon, founder of Wild Streak, as Managing Director of Group Content and
Chris Looney, formerly Commercial Director of online casino games developer Red Tiger Gaming, as Chief Commercial Officer.
With its experienced management team, differentiated
content portfolio, software-as-a-service ("SaaS") technology and managed services, the Corporation aims to become a leading
vertically integrated gaming content and technology provider in the iGaming industry.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
5
|
Financial performance in the second quarter
of 2021
During the three months ended June 30, 2021, the
Corporation has continued to deliver against its strategic objectives and accelerated growth while remaining committed to revenue diversification
and geographic expansion.
The Corporation’s revenue1
increased from the same period in the previous year by 27.6% to EUR 15.5m (Q2 2020: EUR 12.1m) and by 9.1% from the prior quarter (Q1
2021: EUR 14.2m) keeping its quarterly growth momentum since Q1 2019. Excluding the Wild Streak revenue for the period, the Corporation’s
revenue increased by 25.5% to EUR 15.2m (Q2 2020: EUR 12.1m). The Corporation’s revenue growth compared to the same period in the
previous year (excluding Wild Streak) was derived from organic growth from its existing customer base alongside new customers onboarded
in the period.
The Corporation’s revenue growth
was mainly derived from the games and content services which accounted for 88% (Q2 2020: 90%) of total revenues as demand for the Corporation’s
unique games and content and technology proposition continues to grow. The Corporation’s growth has been underpinned by continued
investment and innovation in its technology and product offering with the main focus on the Oryx Hub, data analytics and customer engagement
platform and new in-house content, demonstrating the potential of the Corporation to further leverage its technology to accelerate growth
with the goal of achieving profitability.
The Corporation saw continued growth
in gameplay, unique player numbers and increased engagement levels throughout its network. Total wagering generated via our games and
content offered by Oryx and Wild Streak in the period was up by 15.9% from the same period in the previous year to EUR 3.8 billion (Q2
2020: EUR 3.3 billion) and the number of unique players2 using Oryx games and content increased by 21.0% to 2.3m (Q2 2020:
1.9m). These strong numbers are a result of significant improvements to our core content offering including the recent technical developments
which enhance the user-experience.
Gross profit increased compared to the
same period in the previous year by 37.5% to EUR 7.0m (Q2 2020: EUR 5.1m) with gross margins increasing by 3.3% to 45.4% (Q2 2020: 42.1%),
mainly attributed to higher proportion of revenue derived from our PAM platform and managed services compared to games and content which
have lower associated cost of sales.
1 Revenue includes
the Corporation’s share in game and content, platform fees and management and turnkey solutions.
2 Unique players
individuals who made a real money wager at least once during the period
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
6
|
Selling, general and administrative
expenses increased from the same period in the previous year by 114.5% to EUR 8.9m (Q2 2020: EUR 4.1m) amounting to 57.2% of total revenue
(Q2 2020: 34.0%). Main movements in the quarter were driven by the following:
|
|
A.
|
Salaries and subcontractors increased by 78.2% to EUR 3.7m (Q2 2020: EUR
2.0m) as the Corporation continued to invest in expanding its technology and product teams including software developers, product, analytics
professionals and executive team to source new customers, maintain growth from existing customer base, expansion into new markets, adjustments
to regulatory requirements and enhancement of its technology offering. The balance includes an exceptional cost amounting to EUR 0.6m
(Q2 2020: Nil) relating to the termination of the employment contract of the previous interim CEO in June 2021.
|
Share based payment costs increased
by EUR 1.0m to EUR 0.9m (Q2 2020: EUR Negative 0.1m) predominantly due to vesting related to the share-based incentive plan awards to
new directors and management in Q1 2021 composed of DSUs and RSUs.
Total employee costs (including
share-based payments charge) increased by 138.6% to EUR 4.5m (Q2 2020: EUR 1.9m) primarily due to increased headcount, share based payment
costs and one-off payment for the termination of an employment agreement.
|
|
B.
|
IT hosting cost increased by 10.0% to EUR 0.4m (Q2 2020: EUR 0.4m) mainly
due to increase of traffic and associated server cost, which was in line with the revenue growth.
|
|
|
C.
|
Professional fees increased by EUR 0.8m to EUR 1.1m (Q2 2020: EUR 0.3m).
This is due to an increase in audit, legal and corporate costs to comply with quarterly reviews and additional filings as well as corporate
governance requirements to support the Corporation trading on TSX, amounting to EUR 0.3m. In addition, an exceptional amount of EUR 0.6m
(Q2 2020: Nil) incurred in relation to legal and professional fees on the Nasdaq listing, base shelf prospectus and other non-recurring
regularity and legal matters.
|
|
|
D.
|
Corporate costs increased by EUR 0.4m to EUR 0.5m (Q2 2020: EUR 0.1m) as
a result of the Corporation’s increased investment in corporate marketing and investor relation activities.
|
|
|
E.
|
Bad debt expense decreased by EUR 0.3m to EUR 0.1m (Q2 2020: EUR 0.4m) as
a result of reduction in expectancy of the risk of the aging and liquidity of trade receivables due to improvement in billing processes
and collection of customer funds.
|
|
|
F.
|
Transaction and acquisition costs amounted to EUR 0.6m (Q2 2020: EUR 0.3m)
and relates to activities associated with the acquisition of the Wild Streak and Spin and the deployment of the Corporation’s M&A
strategy which includes legal, financial, tax and technical processes.
|
|
|
G.
|
Other operational costs amounted to EUR 0.4m (Q2 2020: EUR 0.1m) and relate
predominantly to an increase in the premium in relation to the Corporation’s directors’ and officers’ insurance of EUR
0.2m (Q2 2020: EUR 0.0m).
|
Total net loss from continuing
operations for the period amounted to EUR 2.3m (Q2 2020: EUR 0.6m) a movement predominantly driven by the incremental increase in
total employee costs of EUR 2.6m, and exceptional professional fees as a result of the Nasdaq listing process and shelf base
prospectus (EUR 0.6m), offset by increased gross profit of EUR 1.9m and reduction in costs in relation to deferred consideration
payable of EUR 1.1m.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
7
|
The Corporation’s performance
improved in the period, with Adjusted EBITDA increasing from the same period in the previous year by EUR 0.1m to EUR 1.9m (Q2 2020: EUR
1.8m) but with a decreased Adjusted EBITDA margin by 2.1% to 12.3% (Q2 2020: 14.4%) mainly as a result of the increased salary and subcontractors’
costs as part of the Corporation’s investment in the expansion of its software development, product and management functions. A
reconciliation between the current quarter’s reported figures and the prior year quarter’s figures to Adjusted EBITDA is shown
in Note 5.3.
Cash flow from operating activities for the three
months ended June 30, 2021, amounted to negative EUR 0.8m (Q2 2020: EUR 0.6m). The decrease was primarily due to increases in operational
costs in the period.
Cash flow used in investing amounted
to EUR 8.9m (Q2 2020: EUR 0.5m) and is mainly attributable to the consideration paid upon the acquisition of Wild Streak amounting to
EUR 8.2m (Q2 2020: EUR Nil) and the additions of intangible assets in the value of EUR 0.8m (Q2 2020: EUR 0.5m).
Cash flow from (used in) financing activities
amounted to an inflow of EUR 0.6m (Q2 2020: outflow EUR 0.1m) which is predominantly related to proceeds from exercise of stock options.
Financial performance in the first half of
2021
Revenues
The Corporation’s revenue increased
from the same period in the previous year by 41.8% to EUR 29.7m (H1 2020: EUR 20.9m). The Corporation’s revenue growth was mainly
in the games and content services as demand for the Group’s unique games and content proposition continues to grow. The Corporation’s
growth was underpinned by continued investment and innovation in its technology and product offering with the focus on the Oryx Hub, data
analytics and customer engagement platform and new in-house content, demonstrating the potential of the Corporation to further leverage
its technology to accelerate growth with the goal of achieving profitability.
Expenses
Cost of goods amounted to EUR 16.0m
(H1 2020: EUR 11.9m) an increase of 35.1% from the same period in the previous year representing 53.9% of Corporation’s revenue,
a decrease of 2.7% (H1 2019: 56.6%) mainly attributable to the shift in proportion of revenue from games and content to iGaming and turnkey
services, the latter of which have lower associated cost of sales.
Operating expenses (including the loss
on remeasurement of deferred and contingent consideration) amounted to EUR 16.0m an increase of EUR 2.6m from the same period in the previous
year (H1 2020: EUR 13.4m).
Expenses were mainly driven by EUR
2.1m increase in salaries and subcontractors to support Corporation growth in technology, product, compliance, sales and management,
an increase of EUR 2.3m in share based payment as part of the directors and management share based award in Q1 2021, an increase in
professional fees of EUR 1.1m in relation to legal and professional fees incurred on the proposed Nasdaq listing and base shelf
prospectus, an increase in transaction and acquisitions costs in the value of EUR 0.8m and a EUR 0.6m increase in other operational
costs associated with directors and officers insurance. These adverse movements have been offset by the reduction of loss on
remeasurement of deferred and contingent consideration for the period in the value of EUR 5.2m and accretion of the deferred and
contingent consideration liability totalling EUR 0.9m.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
8
|
Profitability
Adjusted EBITDA amounted to EUR 4.2m
(H1 2020: EUR 2.5m) an increase of EUR 1.7m for the period with margins increasing by 2.6% base points to 14.3% (H1 2020: 11.7%).
Operating loss amounted to EUR 2.3m
(H1 2020: EUR 4.3m) a decrease of EUR 2.0m mainly as a result of nil expenses relating to loss of remeasurement of deferred and contingent
consideration (H1 2020: EUR 5.2m) offset by increase in selling general and administrative expenses.
Investments
Cash flows used in investing activities amounted
to EUR 21.0m (H1 2020: EUR 0.9m) and is mainly attributable to deferred and contingent consideration payments of the Oryx cash earn-out
in the value of EUR 11.5m in Q1 2021, (H1 2020: Nil), consideration in connection with the acquisition of Wild Streak in the value of
EUR 8.2m (H1 2020: Nil) and additions of intangible assets in the value of EUR 1.4m (H1 2020: EUR 0.8m).
Financing
Financing activities amounted to a net cash inflow
of EUR 12.6m (H1 2020: outflow EUR 0.1m) which is predominantly related to the net proceeds from exercise of warrants and broker warrants
in the value of EUR 10.8m (H1 2020: Nil) relating to the November 2020 public offering, EUR 1.3m (H1 2020: Nil) relating to the private
placement in which members of the Board and management participated in, and which closed on January 13, 2021; and EUR 0.6m in proceeds
from exercise of stock options (H1 2020: EUR nil).
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
9
|
Financial position:
Cash and cash equivalents as of June
30, 2021, amounted to EUR 21.0m (December 31, 2020: EUR 26.1m) and decreased by EUR 9.1m in the three months to June 30, 2021, primarily
as a result of the EUR 8.2m cash investment for the acquisition of Wild Streak in June 2021.
Trade and other receivables as of June
30, 2021, totalled EUR 8.4m (December 31, 2020: EUR 10.3m) a reduction which is due to the improvements in cash collection offset by an
increase in provision against expected credit losses of EUR 0.3m.
Prepaid expenses and other assets as
of June 30, 2021, increased by EUR 1.8m to EUR 2.1m (December 31, 2020: EUR 0.3m) namely due to increase of EUR 0.8m in prepaid expenses
in relation to the Corporation’s M&A activities and EUR 0.5m in relation to directors and officers insurance.
Trade payables and other liabilities
as of June 30, 2021, increased by EUR 0.3m to EUR 17.3m (December 31, 2020: EUR 17.0m) as result of a EUR 3.2m increase in trade payables
and accrued liabilities to EUR 15.7m (December 31, 2020: EUR 12.5m) offset by a decrease in sales tax payable of EUR 2.8m to EUR 1.6m
(December 31, 2020: EUR 4.4m).
Deferred and contingent considerations
as of June 30, 2021, was EUR 0.1m (December 31, 2020: EUR 11.5m) due to the full settlement of the Oryx earn-out on January 18, 2021,
and addition of EUR 0.1m payable to vendors of Wild Streak for working capital adjustments. Upon extinguishment of the Oryx earn-out liability
the Corporation is no longer exposed, with the exception of lease commitments, to any long-term cash debts.
Other activities during Q2 2021
|
|
(1)
|
Share consolidation: At the annual and special meeting of shareholders of the Corporation
held on April 28, 2021, the shareholders approved the Corporation to implement a consolidation (reverse stock split) of the Common Shares.
The Board determined that the consolidation ratio would be on the basis of one post-consolidation Common Share for every ten pre-consolidation
Common Shares (1-for-10). The consolidation became effective as of April 30, 2021, and the Common Shares commenced trading on the Toronto
Stock Exchange on a post-consolidation basis on May 5, 2021. In accordance with IFRS accounting principles, the change has been applied
retroactively in this MD&A.
|
|
|
(2)
|
Amendment and restatement of omnibus equity incentive plan: The Corporation maintains
an Omnibus Incentive Equity Plan ("OEIP") for certain employees and consultants. At the annual and special meeting of shareholders
of the Corporation held on April 28, 2021, the shareholders approved the increase in the number of Common Shares available for issuance
as awards under the plan from 3,180,000 to 3,965,000.
|
|
|
(3)
|
Base shelf prospectus: On May 4, 2021, the Corporation filed a short form base
shelf prospectus (the "Base Shelf Prospectus"), with securities regulators in each of the provinces and territories of
Canada. The Base Shelf Prospectus permits the Corporation to offer and sell Common Shares, unsecured debt securities, subscription
receipts, warrants, other securities convertible or exchange for Common Shares or other securities of the Corporation or any
combination thereof in various offerings having an aggregate
value of up to CAD 500m during the 25-month period that the Base Shelf Prospectus remains effective.
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
10
|
|
|
(4)
|
Nasdaq listing: At the annual and special meeting of shareholders on April 28, 2021,
the Corporation announced that it had filed an application to list its Common Shares on The Nasdaq Stock Market (“Nasdaq”).
|
|
|
(5)
|
Appointment of Richard Carter to Chief Executive Officer: Effective May 1, 2021,
Mr. Carter succeeded Adam Arviv, the Corporation’s former Chief Executive Officer. Mr. Arviv's services contract was terminated
and he also stepped down as a member of the Board. In connection with Mr. Carter's appointment to Chief Executive Officer he entered into
an employment agreement with the Corporation which provides Mr. Carter's terms of employment including his entitlement to equity awards
under the OEIP through stock options and deferred stock units.
|
|
|
(6)
|
Acquisition of Spin: On May 12, 2021, the Corporation announced it had entered into
an agreement to acquire Spin in a cash and stock transaction for a purchase price of approximately USD 30 million. Under the deal the
sellers of Spin will receive USD 10 million in cash and USD 20 million in Common Shares of the Corporation of which USD 5 million in Common
Shares will be issued on closing and the balance over the next three years. The transaction is expected to close following final approval
from state gaming regulators and satisfaction of other customary closing conditions.
|
|
|
(7)
|
Acquisition of Wild Streak: On June 2, 2021, the Corporation acquired Wild Streak
in a cash and stock transaction for a purchase price of approximately USD 30 million. Under the deal the sellers of Wild Streak will receive
USD 10 million in cash at closing and USD 20 million worth of Common Shares of the Corporation over the next three years, subject to acceleration
in the event of a change of control.
|
Other:
|
|
(1)
|
Share Capital: As at June 30, 2021, the number of issued and outstanding shares
was 19,948,814 (June 30, 2020: 8,036,385), the number of outstanding awards from equity incentive plans was 1,594,071 (June 30, 2020:
1,075,147), and the number of outstanding warrants was 16,886 (June 30, 2020: 2,866,058).
|
|
|
(2)
|
Employees: Excluding discontinued operations, as at June 30, 2021, the Corporation
employed 259 employees (December 2020: 241) across Slovenia, UK, USA and Canada. Approximately 155 are part of the product technology
team, 37 are part of business development, sales and marketing, 35 are part of the platform service and turnkey solutions and 32 in corporate
head-office and support services.
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
11
|
Strategic progress
The Corporation’s vision is to
become a leading vertically integrated gaming content and technology provider in the iGaming industry, including as an iGaming turnkey
solution provider and distributor and provider of online casino games via its in-house studio and via third party content providers, existing
and new exclusive studio partnerships, and to capture an increasing proportion of the online gaming value chain. It plans to achieve this
through the following:
1. Focus on Core Business Growth:
The Corporation intends to continue growing its
core business by both adding new customers and expanding within its existing customer base alongside its customers as they increase their
player base through organic growth and entering new jurisdictions.
The Corporation aims to gain new customers and
support existing customers by continuing to innovate and allocating resources to drive superior player engagement to provide its customers
a competitive advantage. This involves developing and securing exclusive premium content coupled with a focus on developing its platform,
data analytics and player engagement tools designed to increase return on investment for Bragg’s customers.
The Corporation’s modern and proprietary
technology was developed in-house, with the goal of enhancing the player experience, quickly and seamlessly integrating with customer
operations to give immediate access to products, and collecting and responding to real time data. The Corporation’s player engagement
and data analytics tools are provided alongside its Oryx Hub distribution platform, and work across titles from any game supplier, whether
the content is proprietary, exclusive, or licensed and aggregated from third parties.
The Corporation’s player engagement tools
include tournaments with real-time leaderboards which internal studies have shown to be successful in increasing bets, number of rounds
and number of players, generating more revenues for customers which use them. During the quarter, the Corporation further expanded its
player engagement tools with the launch of its promo push in-game promotional messaging functionality, and it continued to develop additional
gamification features including a game recommendation engine, mystery jackpots and in-game missions and quests.
During the first half of 2021, the Corporation
launched a new platform customer in Croatia and invested in platform enhancements and improvements focused on the upcoming Dutch platform
customers which is expected in Q4 this year. In addition, the Corporation launched four new content customers. For the three and six months
ended June 30, 2021, customer concentration from the top 10 customers was 57.1% and 58.7%, respectively of total revenues, down from 64.4%
and 62.53%, respectively of total revenues for the same periods in the previous year. As of June 30, 2021, the Corporation’s total
customer base was 143 customers, where a customer is a company or group of companies with one or more online casino operating licenses
and one or more active online casino brands.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
12
|
2. Develop Games through Owned Studios:
The Corporation intends to develop and
produce more proprietary casino content, which the Corporation believes offers significant Adjusted EBITDA margin expansion opportunities
by capturing a greater share of revenue generated from games. The Corporation aims to capture between 90% and 100% of the revenue from
proprietary games, compared to historically capturing approximately only 35% of revenue from the distribution of exclusive and non-exclusive
third-party games.
Leveraging its many years of experience
in game development and its proprietary player engagement tools, the Corporation plans to design its games to produce an enhanced player
experience and increase the life-time-value of players. The Corporation’s player engagement tools, such as tournaments, have demonstrated
an ability to increase bets, number of rounds and number of players, which has led to more revenue from those games implementing these
tools.
The Corporation’s access to data
through in-game performance monitoring features also allows it to create and adjust products to better serve players’ continuously
shifting preferences. The Corporation is then able to rapidly distribute new and improved content to all operators on its network. The
recent acquisition of Wild Streak added 39 premium proprietary, U.S.-focused casino games to the Corporation’s portfolio, as well
as the ideas, designs and skills of Doug Fallon and his experienced studio team.
During Q2 the Corporation launched two
proprietary games developed by its new in-house Oryx studio. The games were deployed across the network, were well received by players
and have been producing solid performance metrics.
3. Focus on M&A and Other Strategic
Transactions:
The Corporation also intends to continue
to grow through non-core business initiatives including through M&A and other strategic transactions. The Corporation will continue
to explore and consider various strategic acquisitions, investments, joint ventures, partnerships, and other commercial initiatives. It
is expected that as part of the consideration for any such transactions, the Corporation may, subject to any customary approvals, issue
additional shares or other securities in the capital of the Corporation.
During Q2 2021, the Corporation announced
it had entered into an agreement to acquire Spin in a cash and stock transaction for a purchase price of approximately USD 30 million.
Pursuant to the agreement, the sellers of Spin will receive USD 10 million in cash and USD 20 million in Common Shares of the Corporation
of which USD 5 million in Common Shares will be issued on closing and the balance over the next three years. The transaction is expected
to close in Q4 2021 following final approval from state gaming regulators and satisfaction of other customary closing conditions.
In addition, on June 2, 2021, the Corporation
acquired Wild Streak in a cash and stock transaction for a purchase price of approximately USD 30 million to realize its stated strategy
of owning more of the iGaming value chain by producing more proprietary content. Wild Streak is a game studio specializing in premium
casino slot game design, with a portfolio of popular slot games proven in the U.S. and in Europe.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
13
|
4. Expand to New Markets:
The Corporation has an established presence
in many jurisdictions in the European market. As other geographies continue to adopt regulations in favour of online gaming, the Corporation
believes it is well-positioned to expand into new markets. Bragg’s geographic growth strategy is driven by regulatory approvals
and the subsequent creation of a new market. Markets where growth opportunities have been identified include the United States, Canada,
Latin America, and the UK. Within Europe, the Corporation’s goal is to further diversify across the region and increase market share
through strategic partnerships with suppliers and operators and through acquisitions.
5. Expanding offering by introducing
exclusive content:
The Corporation expects to expand its
offering of premium exclusive third-party content. Through new investments and partnerships with more studios, it intends to increase
distribution of premium and localized content. It anticipates that these exclusive deals as well as original content will allow the Corporation
to create bespoke content adjustable to the markets in which it currently operates or plans to enter. The Corporation released 22 new
exclusive games during the first half of 2021, and the Corporation is in discussions with several studios for the exclusive rights for
a further 60 to 70 slot titles per year (which would double the Corporation’s exclusive content portfolio).
6. Diversify Product Offering:
To enhance its value proposition to existing
customers as well as attract new customers, the Corporation actively seeks to diversify its suite of product offerings. This entails enhancing
its content base through continued partnerships with leading studios. Product expansion includes entering into new game types such as
instant-wins, sportsbook and lottery. As the product suite continues to evolve and expand based on demand, the Corporation intends to
continue investing in its technology stack. This includes adding features such as customizable jackpots, advanced user engagement services,
and additional capabilities that enable customers to glean player insights.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
14
|
Updates in various local markets
Germany
The Corporation has exposure to revenues derived
from customers who have predominantly German end-users. A new regulatory scheme was introduced to the German market effective July 1,
2021. The changing regulatory landscape in the German market is expected to have a negative impact on revenue mainly due to the introduction
of restrictions on game play, responsible gambling initiatives and gaming tax. The impact of the regulations is anticipated in the Corporation’s
strategy and growth expectations, and the Corporation will continue to monitor how the German market adjusts to the new regulatory framework,
is closely working with its German facing customers, and expects to continue to be a major supplier in the jurisdiction.
European regulated countries
The Dutch regulation permitting on-line gaming
is expected to become effective on October 1st, 2021, and the Corporation is seeking to onboard Dutch clients and partner with
them in the newly regulated Dutch market. In April 2021, the Corporation applied for a Greek B2B license (awarded in August 2021) and
continues to monitor EU and non-EU markets for regulatory developments (e.g., Georgia and Ukraine).
The United Kingdom
The Corporation has applied for a game supply
and hosting license from the United Kingdom Gambling Commission, which will enable it to extend its offer to the UK market and to some
international clients already on board.
Italy
The Corporation is in the process of certifying
content which will allow it to supply customers in the Italian market.
The United States
The Corporation is in the process of applying
for a supplier license in New Jersey, Pennsylvania, and Michigan.
Other
The Corporation has also applied for a Bahamian
supplier license.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
15
|
Outlook
The Corporation continues to invest in new and
proprietary content, invest in its leading technology and grow and diversify its global footprint by entering into new markets in Europe
and in North America and by winning new customers in new jurisdictions. Reflecting the continued progress being achieved with these and
other strategic initiatives, the Corporation expects to be able to grow the Total Addressable Market (“TAM”) of approximately
USD $2.8 billion it currently serves to a TAM of approximately USD $18.4 billion next year.
The Corporation also expects to increase its output
of games produced by in-house studios as in 2021 it expects to release five games in Europe from its proprietary Oryx Gaming studio, representing
11% of all exclusive games released via the Oryx remote games server this year. In 2022, Oryx Gaming expects to release 19 proprietary
games in Europe, representing 33% of exclusive games released via the Oryx remote game server in the region. In 2022 Oryx Gaming expects
to release four proprietary games in the U.S., and the Corporation’s Wild Streak studio expects to release ten proprietary games
in the U.S. for a total of 14 fully owned online slot game titles expected to go live in the region, and representing 37% of all exclusive
games expected to be launched by the Corporation in the U.S. in 2022. The increased proportion of in-house games released is expected
to benefit the Corporation’s gross profit margin profile.
The Corporation’s North American (U.S. and
Canada) market expansion is progressing according to plan and the Corporation has filed an application to list on the Nasdaq. The global
outbreak of COVID-19, has had, and continues to have, a significant impact on the global economy. The Corporation derives the majority
of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring
people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses
such as Netflix have. Management continues to monitor the effects COVID-19 on the Corporation’s performance and will amend its outlook
as, and if, it deems necessary.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
16
|
|
|
5.1
|
Basis
of financial discussion
|
The financial information presented below has
been prepared to examine the results of operations from continuing activities. During the year ended December 31, 2019, the Corporation
decided to discontinue its online media business unit. As such, the performance of the online media division has been excluded.
The presentation currency of the Corporation is
the Euro, while the functional currencies of its subsidiaries are Euro, Canadian dollar, United States dollar, and British pound sterling
due to primary location of individual entities within our corporate group. The presentation currency of the Euro has been selected as
it best represents the majority of the Corporation’s economic inflows, outflows as well as its assets and liabilities.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
17
|
|
|
5.2
|
Selected interim information
|
The following is selected financial data of the
Corporation for the three and six months ended June 30, 2021, and 2020.
The primary non-IFRS financial measure which the
Corporation uses is Adjusted EBITDA3. When internally analyzing underlying operating performance, management excludes certain
items from EBITDA (earnings before interest, tax, depreciation, and amortization).
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
15,491
|
|
|
|
12,145
|
|
|
|
29,687
|
|
|
|
20,929
|
|
|
Net Loss from continuing operations
|
|
|
(2,331
|
)
|
|
|
(620
|
)
|
|
|
(3,405
|
)
|
|
|
(6,004
|
)
|
|
EBITDA
|
|
|
(774
|
)
|
|
|
1,429
|
|
|
|
(437
|
)
|
|
|
(2,867
|
)
|
|
Adjusted EBITDA
|
|
|
1,900
|
|
|
|
1,751
|
|
|
|
4,242
|
|
|
|
2,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- continuing operations
|
|
|
(0.12
|
)
|
|
|
(0.08
|
)
|
|
|
(0.18
|
)
|
|
|
(0.75
|
)
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
90,136
|
|
|
|
72,094
|
|
|
|
|
|
|
|
|
|
|
Total non-current financial liabilities
|
|
|
529
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
nil
|
|
|
|
nil
|
|
|
|
|
|
|
|
|
|
Non-current financial liabilities consist of lease
obligations on right of use assets in relation to office leases.
With the exception of EBITDA and Adjusted EBITDA, the financial data
has been prepared to conform with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). These accounting principles have been applied consistently across for all reporting periods.
3 Adjusted EBITDA excludes
income or expenses that relate to exceptional items and non-cash share-based charges and includes deductions for lease expenses that
are recognized as part of depreciation and finance charges under IFRS 16.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
18
|
|
|
5.3
|
Other
financial information
|
To supplement its June 30, 2021 interim financial
statements presented in accordance with IAS 34, Interim Financial Reporting, the Corporation considers certain financial measures that
are not prepared in accordance with IFRS. The Corporation uses such non-IFRS financial measures in evaluating its operating results and
for financial and operational decision-making purposes. The Corporation believes that such measures help identify underlying trends in
its business that could otherwise be masked by the effect of the expenses that it excludes in such measures.
The Corporation also believes that such measures provide useful information
about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater transparency
with respect to key metrics used by management in its financial and operational decision-making. However, these measures should not be
considered in isolation from, or as a substitute for, financial information prepared in accordance with IFRS. There are a number of limitations
related to the use of such non-IFRS measures as opposed to their nearest IFRS equivalents.
A reconciliation of operating loss (income) to EBITDA and Adjusted EBITDA is as follows:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Operating loss (income)
|
|
|
(1,825
|
)
|
|
|
762
|
|
|
|
(2,324
|
)
|
|
|
(4,318
|
)
|
|
Depreciation and amortization
|
|
|
1,051
|
|
|
|
667
|
|
|
|
1,887
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
(774
|
)
|
|
|
1,429
|
|
|
|
(437
|
)
|
|
|
(2,867
|
)
|
|
Depreciation of right-of-use assets
|
|
|
(37
|
)
|
|
|
(53
|
)
|
|
|
(75
|
)
|
|
|
(105
|
)
|
|
Lease interest expense
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
Share based payments
|
|
|
891
|
|
|
|
(145
|
)
|
|
|
2,200
|
|
|
|
(94
|
)
|
|
Transaction and acquisition costs
|
|
|
573
|
|
|
|
307
|
|
|
|
1,136
|
|
|
|
344
|
|
|
Exceptional costs
|
|
|
1,252
|
|
|
|
-
|
|
|
|
1,428
|
|
|
|
-
|
|
|
Loss on remeasurement of contingent consideration
|
|
|
-
|
|
|
|
219
|
|
|
|
-
|
|
|
|
5,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
1,900
|
|
|
|
1,751
|
|
|
|
4,242
|
|
|
|
2,453
|
|
Exceptional costs in the three months to June
30, 2021, include one-time costs for the Corporation, of which EUR 0.6m (Q2 2020: Nil) is relating to the termination of the employment
contract of the previous interim CEO in June 2021 and EUR 0.6m is in relation to legal and professional fees on the Nasdaq listing, base
shelf prospectus and other non-recurring regulatory and legal matters (Q2 2020: Nil).
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
19
|
|
|
5.4
|
Selected
financial information
|
Selected financial information is as follows:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
|
15,491
|
|
|
|
12,145
|
|
|
|
29,687
|
|
|
|
20,929
|
|
|
Operating loss (income)
|
|
|
(1,825
|
)
|
|
|
762
|
|
|
|
(2,324
|
)
|
|
|
(4,318
|
)
|
|
EBITDA
|
|
|
(774
|
)
|
|
|
1,429
|
|
|
|
(437
|
)
|
|
|
(2,867
|
)
|
|
Adjusted EBITDA
|
|
|
1,900
|
|
|
|
1,751
|
|
|
|
4,242
|
|
|
|
2,453
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
90,136
|
|
|
|
72,094
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
21,833
|
|
|
|
32,197
|
|
|
|
|
|
|
|
|
|
TRADE AND OTHER RECEIVABLES
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Less than one month
|
|
|
8,290
|
|
|
|
9,563
|
|
|
Between two and three months
|
|
|
606
|
|
|
|
1,193
|
|
|
Greater than three months
|
|
|
1,645
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,541
|
|
|
|
12,052
|
|
|
Provision for expected credit losses
|
|
|
(2,132
|
)
|
|
|
(1,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Trade and Other Receivables
|
|
|
8,409
|
|
|
|
10,297
|
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
20
|
TRADE PAYABLES AND OTHER LIABILITIES
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade payables
|
|
|
3,848
|
|
|
|
6,406
|
|
|
Accrued liabilities
|
|
|
11,825
|
|
|
|
6,099
|
|
|
Sales tax payable
|
|
|
1,555
|
|
|
|
4,356
|
|
|
Other payables
|
|
|
51
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Payables and Other Liabilities
|
|
|
17,279
|
|
|
|
16,968
|
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
21
|
|
5.5
|
Summary of quarterly results
|
The following table presents the selected financial data for continuing
operations for each of the past eight quarters of the Corporation.
|
|
|
|
3Q19
|
|
|
|
4Q19
|
|
|
|
1Q20
|
|
|
|
2Q20
|
|
|
|
3Q20
|
|
|
|
4Q20
|
|
|
|
1Q21
|
|
|
|
2Q21
|
|
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2021
|
|
|
EUR 000
|
|
|
Q3
|
|
|
|
Q4
|
|
|
|
Q1
|
|
|
|
Q2
|
|
|
|
Q3
|
|
|
|
Q4
|
|
|
|
Q1
|
|
|
|
Q2
|
|
|
Revenue
|
|
|
6,740
|
|
|
|
7,841
|
|
|
|
8,784
|
|
|
|
12,145
|
|
|
|
11,714
|
|
|
|
13,778
|
|
|
|
14,196
|
|
|
|
15,491
|
|
|
Operating income (loss)
|
|
|
(77
|
)
|
|
|
(2,895
|
)
|
|
|
(5,080
|
)
|
|
|
762
|
|
|
|
(2,282
|
)
|
|
|
(5,296
|
)
|
|
|
(499
|
)
|
|
|
(1,825
|
)
|
|
EBITDA
|
|
|
456
|
|
|
|
(2,376
|
)
|
|
|
(4,296
|
)
|
|
|
1,429
|
|
|
|
(1,533
|
)
|
|
|
(4,623
|
)
|
|
|
337
|
|
|
|
(774
|
)
|
|
Adjusted EBITDA
|
|
|
204
|
|
|
|
737
|
|
|
|
702
|
|
|
|
1,751
|
|
|
|
1,834
|
|
|
|
1,259
|
|
|
|
2,342
|
|
|
|
1,900
|
|
|
Loss per share (EUR)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
|
(0.00
|
)
|
|
|
(0.70
|
)
|
|
|
(0.67
|
)
|
|
|
(0.08
|
)
|
|
|
(0.40
|
)
|
|
|
(0.52
|
)
|
|
|
(0.06
|
)
|
|
|
(0.12
|
)
|
|
5.6
|
Liquidity and capital resources
|
The Corporation’s principal sources of liquidity
are its cash generated from operations. Currently available funds consist primarily of cash on deposit with banks. The Corporation calculates
its working capital requirements from continuing operations as follows:
|
|
|
As at
|
|
|
As at
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Cash and cash equivalents
|
|
|
20,966
|
|
|
|
26,102
|
|
|
Trade and other receivables
|
|
|
8,409
|
|
|
|
10,297
|
|
|
Prepaid expenses and other assets
|
|
|
2,101
|
|
|
|
263
|
|
|
Consideration receivable
|
|
|
128
|
|
|
|
148
|
|
|
Current liabilities excluding deferred and contingent consideration
|
|
|
(19,808
|
)
|
|
|
(18,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
|
11,796
|
|
|
|
18,289
|
|
|
Deferred and contingent consideration
|
|
|
(63
|
)
|
|
|
(11,521
|
)
|
|
Net current assets from continuing operations
|
|
|
11,733
|
|
|
|
6,768
|
|
All contingent liabilities in relation to the
Oryx earn-out were settled in full to the Oryx vendor on January 18, 2021, following shareholder approval on November 27, 2020. On January
18, 2021, the Corporation satisfied its earn-out obligations to K.A.V.O. Holdings Limited via a combination of cash and Common Shares.
Cash paid totaled EUR 11.6m, of which EUR 11.5m fully settled deferred and contingent consideration payable and EUR 0.1m settled interest
payable and legal fees. As at June 30, 2021 EUR 0.1m deferred consideration is due to the vendor of Wild Streak for working capital adjustments
(December 31, 2020: Nil).
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
22
|
The undiscounted contractual maturities of significant
financial liabilities and the total contractual obligations of the Corporation as at June 30, 2021 are below:
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
Trade payables and other liabilities
|
|
|
17,279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations on right of use assets
|
|
|
88
|
|
|
|
172
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred and contingent consideration
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
|
|
|
|
17,430
|
|
|
|
172
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
|
18,073
|
|
MARKET RISK
The Corporation is exposed to market risks, including
changes to foreign currency exchange rates and interest rates.
FOREIGN CURRENCY EXCHANGE RISK
The Corporation is exposed to foreign currency
risk, which includes risks related to its revenue and operating expenses denominated in currencies other than EUR, which is both the reporting
currency and primary contracting currency of the Corporation’s customers. Accordingly, changes in exchange rates may in the future
reduce the purchasing power of the Corporation’s customers thereby potentially negatively affecting the Corporation’s revenue
and other operating results.
The Corporation has experienced and will continue
to experience fluctuations in its net income (loss) as a result of translation gains or losses related to revaluing certain current asset
and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are
recorded.
LIQUIDITY RISK
The Corporation is also exposed to liquidity risk
with respect to its contractual obligations and financial liabilities. The Corporation manages liquidity risk by continuously monitoring
its forecasted and actual cash flows, and matching maturity profiles of financial assets and liabilities.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
23
|
The cash flow from continuing operations may be summarized as follows:
|
|
|
Six Months Ended June 30,
|
|
|
EUR 000
|
|
|
2021
|
|
|
|
2020
|
|
|
Operating activities
|
|
|
2,149
|
|
|
|
3,135
|
|
|
Investing activities
|
|
|
(21,004
|
)
|
|
|
(862
|
)
|
|
Financing activities
|
|
|
12,590
|
|
|
|
(141
|
)
|
|
Effect of foreign exchange
|
|
|
1,129
|
|
|
|
(73
|
)
|
|
Net cash flow (used in) from continuing operations
|
|
|
(5,136
|
)
|
|
|
2,059
|
|
Cash flows used in investing activities is primarily
due to final settlement of the Oryx earn out on January 18, 2021, of EUR 11.5m (six months ended June 31, 2020: Nil), cash consideration
paid in relation to acquisition of Wild Streak of EUR 8.2m (six months ended June 31, 2020: Nil), and additions to intangible assets of
EUR 1.4m (six months ended June 30, 2020: EUR 0.8m):
|
|
|
Six Months Ended June 30,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Purchases of property and equipment
|
|
|
(51
|
)
|
|
|
(61
|
)
|
|
Additions in intangible assets
|
|
|
(1,426
|
)
|
|
|
(801
|
)
|
|
Proceeds from sale of discontinued operations
|
|
|
76
|
|
|
|
-
|
|
|
Consideration paid upon business combination
|
|
|
(8,206
|
)
|
|
|
-
|
|
|
Cash acquired from business combination
|
|
|
124
|
|
|
|
-
|
|
|
Deferred and contingent consideration payments
|
|
|
(11,521
|
)
|
|
|
-
|
|
|
Cash Flows Used in Investing Activities
|
|
|
(21,004
|
)
|
|
|
(862
|
)
|
Cash flows from (used in) financing activities
comprise EUR 10.8m of net proceeds from the exercise of warrants and broker warrants issued as part of the November 2020 equity raise,
EUR 1.3m of net proceeds from shares issued to directors and officers of the Corporation in connection with a private placement (six months
ended June 30, 2020: Nil) and EUR 0.6m of proceeds from exercise of stock options (six months ended June 30, 2020: Nil):
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
24
|
|
|
|
Six Months Ended June 30,
|
|
|
EUR 000
|
|
2021
|
|
|
2020
|
|
|
Proceeds from exercise of warrants and broker warrants
|
|
|
10,817
|
|
|
|
-
|
|
|
Proceeds from exercise of stock options
|
|
|
625
|
|
|
|
-
|
|
|
Proceeds from shares to be issued upon private placement, net of issuance costs
|
|
|
1,310
|
|
|
|
-
|
|
|
Repayment of lease liability
|
|
|
(70
|
)
|
|
|
(113
|
)
|
|
Interest income
|
|
|
38
|
|
|
|
8
|
|
|
Interest and financing fees
|
|
|
(130
|
)
|
|
|
(36
|
)
|
|
Cash Flows From (Used in) Financing Activities
|
|
|
12,590
|
|
|
|
(141
|
)
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
25
|
|
6
|
TRANSACTIONS BETWEEN RELATED PARTIES
|
The Corporation’s policy is to conduct all
transactions and settle all balances with related parties on market terms and conditions for those in the normal course of business. Transactions
between the Corporation and its consolidated entities have been eliminated on consolidation and are not disclosed in this note.
Key Management Personnel
The Corporation’s key management personnel
are comprised of members of the Board and the executive team which consists of the Chief Executive Officer, Chief Financial Officer, Chief
Strategy Officer and Chief Technology Officer. Three key management employees are also shareholders in the Corporation. Transactions and
balances between the Corporation and its key management personnel are as follows:
|
|
·
|
Revenues for the three and six months ended June 30, 2021, to a shareholder of the Corporation totalled
EUR 28 and EUR 49 (three and six months ended June 30, 2020: EUR 5 and EUR 10), respectively.
|
|
|
·
|
Total compensation for salaries, director fees, share-based payments, and short-term employee benefits
of key management personnel of the Corporation for the three and six months ended June 30, 2021, totalled EUR 2,645 and EUR 4,344 (three
and six months ended June 30, 2020: EUR 536 and EUR 974), respectively.
|
|
|
·
|
Total compensation for salaries and short-term employee benefits of vendors of the sale of Wild Streak
and subsequently employees of the Corporation for the three and six months ended June 30, 2021, totalled EUR 37 (three and six months
ended June 30, 2020: EUR nil).
|
|
|
·
|
Loss on remeasurement of deferred and contingent consideration payable to the former Managing Director
of Oryx for the three and six months ended June 30, 2021, was nil (three and six months ended June 30, 2020: EUR 219 and EUR 5,187, respectively).
While the key management employee is no longer Managing Director of Oryx, they remain a director of the Corporation.
|
|
|
·
|
Interest expense on deferred and contingent consideration payable to the former Managing Director of Oryx
for the three and six months ended June 30, 2021, totalled EUR nil and EUR 52 (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, legal fees of EUR nil and EUR 25 payable to the former
Managing Director of Oryx in relation to the Oryx earn-out was recognized in the interim unaudited condensed consolidated statements of
loss and comprehensive loss (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, professional fees of EUR 64 and EUR 85, respectively
payable to a related business of a non-executive director of the Corporation was recognized in the interim unaudited condensed consolidated
statements of loss and comprehensive loss (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, a total of EUR nil and EUR 11,521, respectively in
payments were made to the former Managing Director of Oryx for deferred consideration (three months and six months ended June 30, 2020:
EUR nil).
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
26
|
|
|
·
|
During the three and six months ended June 30, 2021, a total of EUR nil and 140, respectively in payments
were made to the former Managing Director of Oryx for interest on deferred and contingent consideration payable (three and six months
ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, a total of EUR 8,206 in cash consideration payments
were made to the vendors of the sale of Wild Streak (three months and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
As at June 30, 2021, EUR 8 of trade and other receivables was receivable from the former Managing Director
of Oryx and other shareholders (December 31, 2020: EUR 4).
|
|
|
·
|
As at June 30, 2021, EUR 14 of prepaid expenses and other assets was receivable from a related business
of a non-executive director of the Corporation (December 31, 2020: EUR nil).
|
|
|
·
|
As at June 30, 2021, EUR 208 of trade payables and other liabilities was due to the Corporation’s
key management personnel (December 31, 2020: EUR 166).
|
|
|
·
|
As at June 30, 2021, EUR 26 of trade payables and other liabilities was due to the vendors of the sale
of Wild Streak and subsequently employees of the Corporation (December 31, 2020: EUR nil).
|
|
|
·
|
As at June 30, 2021, EUR nil of deferred and contingent consideration was payable to the former Managing
Director of Oryx (December 31, 2020: EUR 11,521).
|
|
|
·
|
As at June 30, 2021, EUR 63 of deferred and contingent consideration was payable to the vendors of the
sale Wild Streak and subsequently employees of the Corporation (December 31, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR nil and 22,000, respectively of share capital
(three and six months ended June 30, 2020: EUR nil) was issued to the former Managing Director of Oryx upon completion of the earn-out.
A corresponding decrease in shares to be issued was recognized in the interim unaudited condensed consolidated statements of changes in
equity.
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR 15,310 of shares to be issued (three and six
months ended June 30, 2020: EUR nil) to the vendors for the sale of Wild Streak and subsequently employees of the Corporation was recognized
in the interim unaudited condensed consolidated statements of changes in equity.
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR 1,918 additional share capital was recognized
in the interim unaudited condensed consolidated statements of changes in equity in relation to the private placement by key management
personnel of the Corporation (three and six months ended June 30, 2020: EUR nil).
|
|
|
·
|
During the three and six months ended June 30, 2021, EUR 143 and EUR 410 additional share capital, respectively,
was recognized in the interim unaudited condensed consolidated statements of changes in equity for exercise of DSUs, RSUs and FSOs by
key management personnel of the Corporation (three and six months ended June 30, 2020: EUR 219).
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
27
|
|
7
|
DISCLOSURE OF OUTSTANDING SHARE DATA
|
The number of equity-based instruments granted or issued may be summarized
as follows:
|
|
|
June 30,
|
|
|
August 11,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Common Shares
|
|
|
19,948,814
|
|
|
|
19,948,814
|
|
|
Broker Warrants
|
|
|
16,886
|
|
|
|
16,886
|
|
|
Fixed Stock Options
|
|
|
1,105,271
|
|
|
|
1,105,271
|
|
|
Restricted Share Units
|
|
|
235,000
|
|
|
|
235,000
|
|
|
Deferred Share Units
|
|
|
253,800
|
|
|
|
253,800
|
|
|
|
|
|
21,559,771
|
|
|
|
21,559,771
|
|
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
28
|
|
|
8
|
CRITICAL ACCOUNTING ESTIMATES
|
The preparation of the interim unaudited condensed
consolidated financial statements requires management to make estimates and judgments in applying the Corporation’s accounting policies
that affect the reported amounts and disclosures made in the consolidated financial statements and accompanying notes.
Within the context of the interim unaudited condensed
consolidated financial statements, a judgment is a decision made by management in respect of the application of an accounting policy,
a recognized or unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that may
include estimates and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances recognized or
disclosed in the consolidated financial statements and are based on a set of underlying data that may include management’s historical
experience, knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances.
Management continually evaluates the estimates
and judgments it uses.
The following are the accounting policies subject
to judgments and key sources of estimation uncertainty that the Corporation believes could have the most significant impact on the amounts
recognized in the interim unaudited condensed consolidated financial statements.
Impairment of non-financial assets (property
and equipment, right-of-use assets, intangible assets and goodwill)
|
-
|
Judgments made in relation to accounting policies applied
|
Management is required to use judgment in determining
the grouping of assets to identify their CGUs for the purposes of testing property and equipment, intangible assets and right-of-use assets
for impairment. Judgment is further required to determine appropriate groupings of CGUs for the level at which goodwill and intangible
assets are tested for impairment.
The Corporation has determined that B2B Online
Gaming and Online Media, part of discontinued operations, are two separate CGUs for the purposes of property and equipment, intangible
assets and right-of-use asset impairment testing. For the purpose of goodwill impairment testing, CGUs are grouped at the lowest level
at which goodwill is monitored for internal management purposes. In addition, judgment is used to determine whether a triggering event
has occurred requiring an impairment test to be completed.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
29
|
|
-
|
Key sources of estimation
|
In determining the recoverable amount of a CGU
or a group of CGUs, various estimates are employed. The Corporation determines fair value less costs to sell using such estimates as market
rental rates for comparable properties, recoverable operating costs for leases with tenants, non-recoverable operating costs, discount
rates, capitalization rates and terminal capitalization rates. The Corporation determines value in use by using estimates including projected
future revenues, earnings and capital investment consistent with strategic plans presented to the Board. Discount rates are consistent
with external industry information reflecting the risk associated with the specific cash flows.
Impairment of accounts receivable
In each stage
of the expected credit loss (“ECL”) impairment model, impairment is determined based on the probability of default, loss given
default, and expected exposures at default. The application of the ECL model requires management to apply the following significant judgments,
assumptions, and estimations:
|
|
-
|
movement of impairment measurement between the three stages of the ECL
model, based on the assessment of the increase in credit risks on accounts receivables. The assessment of changes in credit risks includes
qualitative and quantitative factors of the accounts, such as historical credit loss experience and external credit scores;
|
|
|
-
|
thresholds for significant increase in credit risks based on changes
in probability of default over the expected life of the instrument relative to initial recognition; and
|
|
|
-
|
forecasts of future economic conditions.
|
Leases
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises
judgment in determining the appropriate lease term on a lease-by-lease basis. Management considers all facts and circumstances that create
an economic incentive to exercise a renewal option or to not exercise a termination option including investments in major leaseholds and
past business practice and the length of time remaining before the option is exercisable. The periods covered by renewal options are only
included in the lease term if management is reasonably certain to renew. Management considers reasonably certain to be a high threshold.
Changes in the economic environment or changes in the office rental industry may impact management’s assessment of lease term, and
any changes in management’s estimate of lease terms may have a material impact on the Corporation’s interim unaudited condensed
consolidated statements of financial position and interim unaudited condensed consolidated statements of loss and comprehensive income
(loss).
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
30
|
|
|
-
|
Key sources of estimation
|
In determining
the carrying amount of right-of-use assets and lease liabilities, the Corporation is required to estimate the incremental borrowing rate
specific to each leased asset or portfolio of leased assets if the interest rate implicit in the lease is not readily determined. Management
determines the incremental borrowing rate using a base risk-free interest rate estimated by reference to the bond yield with an adjustment
that reflects the Corporation’s credit rating, the security, lease term and value of the underlying leased asset, and the economic
environment in which the leased asset operates. The incremental borrowing rates are subject to change due to changes in the business and
macroeconomic environment.
Warrants and share options
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises
judgment in determining the model used and the inputs therein to valuate the value of share option grants and issued warrants. Management
considers all facts and circumstances for each grant issuance on an individual basis.
|
|
-
|
Key sources of estimation
|
In determining the fair value of warrants and
share options, the Corporation is required to estimate the future volatility of the market value of the Corporation’s shares by
reference to its historical volatility or comparable companies over the previous years, a risk-free interest rate estimated by reference
to the Government of Canada bond yield, and a dividend yield of nil.
Contingent consideration
|
|
-
|
Judgments made in relation to accounting policies applied
|
Management exercises judgment in determining the
appropriate fair value of contingent consideration and considers all facts and circumstances relevant to the acquisition’s future
earnings upon which the liability is calculated. Any changes in the economic environment or operational activity of the acquisition may
impact management’s assessment of the liability and may have a material impact on the Corporation’s interim unaudited condensed
consolidated statements of financial position and interim unaudited condensed consolidated statements of loss and comprehensive income
(loss).
|
|
-
|
Key sources of estimation
|
In determining the fair value of contingent consideration,
the Corporation is required to estimate the future earnings generated by the acquisition over an agreed period after the acquisition and
apply defined and fixed rules in order to calculate the expected future payment. The Corporation determines fair value by using estimates
including projected future earnings of the acquisition consistent with strategic plans presented to the Board. Discount rates are consistent
with external industry information reflecting the risk associated with the specific cash flows.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
31
|
|
|
9
|
CHANGES IN ACCOUNTING POLICY
|
There have been no changes in the Corporation’s
accounting policies in any of the reporting periods discussed in this MD&A.
|
|
10
|
RISK FACTORS AND UNCERTAINTIES
|
Certain factors, listed below, may have a material
adverse effect on the Corporation’s business, financial condition, and results of operations. Current and prospective investors
should carefully consider the risks and uncertainties and other information contained in this MD&A and the corresponding financial
statements.
The risks and uncertainties described herein and
therein are not the only ones the Corporation may face. Additional risks and uncertainties that the Corporation is unaware of, or that
the Corporation currently believes are not material, may also become important factors that could adversely affect the Corporation’s
business. If any of such risks actually occur, the Corporation’s business, financial condition, results of operations, and future
prospects could be materially and adversely affected.
Limited
operating history
The Corporation has a limited operational history.
The Corporation has never paid dividends and has no present intention to pay dividends. The Corporation is subject to the risks including
uncertainty of revenues, markets and profitability and the need to obtain additional funding. The Corporation will be committing, and
for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. The
Corporation's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies
in the early stage of development. Such risks include the evolving and unpredictable nature of the Corporation's business, the Corporation's
ability to anticipate and adapt to a developing market and the ability to identify, attract and retain qualified personnel. There can
be no assurance that the Corporation will be successful in doing what is necessary to address these risks.
Key
personnel
The success of the Corporation may be dependent
on the services of its senior management and consultants. The experience of these individuals may be a factor contributing to the Corporation's
continued success and growth. The loss of one or more of its key employees or consultants could have a material adverse effect on the
Corporation's operations and business prospects. In addition, the Corporation's future success will depend in large part on its ability
to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that the
Corporation will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect
on the Corporation's business, operating results, and financial condition.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
32
|
Additional
financing requirements
In order to accelerate the Corporation's growth
objectives, it may need to raise additional funds from lenders and equity markets in the future. There can be no assurance that the Corporation
will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability of the Corporation
to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance
of the Corporation. There can be no assurance that the Corporation will be successful in its efforts to arrange additional financing on
terms satisfactory to the Corporation. If additional financing is raised by the issuance of Common Shares from the treasury of the Corporation,
control of the Corporation may change, and shareholders may suffer additional dilution to current levels as a result of shares under option
and broker warrants.
Competition
The Corporation may not be able to compete successfully
against current and future competitors, and the competitive pressures the Corporation faces could harm its business and prospects. Broadly
speaking, the market for gambling businesses and media companies is highly competitive. The level of competition is likely to increase
as current competitors improve their product offerings and as new participants enter the market. Some of the Corporation's current and
potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater
financial, sales, marketing, technical and other resources than the Corporation. Additionally, these competitors have research and development
capabilities that may allow them to develop new or improved products that may compete with products the Corporation markets and distributes.
New technologies and the expansion of existing
technologies may also increase competitive pressures on the Corporation. Increased competition may result in reduced operating margins
as well as loss of market share.
Management
of growth
The Corporation may be subject to growth-related
risks including capacity constraints and pressure on its operating systems and systems of internal controls. The Corporation's ability
to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand,
train and manage its employee base.
The inability of the Corporation to deal with
this growth could have a material adverse impact on its business, operations, and prospects. While management believes that it will have
made the necessary investments in infrastructure to process anticipated volume increases in the short term, the Corporation may experience
growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for
the Corporation's personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage
its current operations and any future growth effectively, the Corporation will also need to continue to implement and improve its operational,
financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance
that the Corporation will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support
the Corporation's operations or that the Corporation will be able to achieve the increased levels of revenue commensurate with the increased
levels of operating expenses associated with this growth.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
33
|
Absence
of profits
The Corporation has not earned any profits to
date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant
portion of the Corporation's financial resources will continue to be directed to the development of its products and to marketing activities.
The success of the Corporation will ultimately depend on its ability to generate revenues such that the business development and marketing
activities may be financed by revenues from operations instead of external financing. There is no assurance that future revenues will
be sufficient to generate the required funds to continue such business development and marketing activities.
Conflicts
of interest
Certain proposed directors and officers of the
Corporation may become associated with other reporting issuers or other Companies which may give rise to conflicts of interest. In accordance
with the Canada Business Corporations Act, directors who have a material interest or any person who is a party to a material contract
or a proposed material contract with the Corporation are required, subject to certain exceptions, to disclose that interest and generally
abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly and in good faith
with a view to the best interests of the Corporation, as the case may be. Certain of the directors have either other employment or other
business or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs
of the Corporation.
COVID-19
At this time, it is unknown the extent of the
impact the COVID-19 outbreak may have on the Corporation as this will depend on future developments that are highly uncertain and that
cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate duration of the outbreak, including
the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be
put, in place by Canada and other countries to fight the virus.
Our main priorities in dealing with the COVID-19
situation are to minimize the risk of spreading the virus and to create a safe workplace for our employees as well as to maintain the
operation for our operators. We continue to comply with all the requirements from the authorities in the countries we operate in, and
in many instances, we have taken more far-reaching initiatives. Thanks to the measures that have been implemented in terms of social distancing,
changed working processes and routines for our employees, our operations have been able to continue without any large negative effects.
However, the Corporation derives the majority
of its revenue from online casino gaming. This sector has largely benefited from the various international “lock downs”, requiring
people to stay at home. As a result, such forms of entertainment have prevailed in a similar fashion to the various streaming businesses
such as Netflix have. Furthermore, the Corporation has limited exposure to sports betting revenues that have obviously been impacted by
the lack of professional sports.
As at the time of publishing, the Corporation’s
financial performance, financial position and cash flow has been positively impacted as a result of people staying at home. Management
will continue to monitor events and effects to the Corporation closely and will amend its forecasts as and when it deems necessary.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
34
|
|
|
11
|
ADDITIONAL INFORMATION
|
Additional information relating to the Corporation,
including the Corporation’s annual information form, quarterly and annual reports and supplementary information is available on
SEDAR at www.sedar.com.
Press releases and other information are also
available in the Investor section of the Corporation’s website at www.bragg.games.
|
|
Bragg Gaming Group Inc.
Management Discussion & Analysis
June 30, 2021
|
35
|
Exhibit
5.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this Registration
Statement on Form F-10 of Bragg Gaming Group Inc. (the “Company”) dated August 23, 2021, of our report dated March 25,
2021, on the consolidated financial statements of the Company, which comprise the consolidated statements of financial position as at
December 31, 2020 and December 21, 2019, and the consolidated statements of loss and comprehensive loss, changes in equity and
cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting
policies, incorporated by reference in the prospectus included in this Registration Statement on Form F-10, and to the references
to our firm (i) under the heading “Interests of Experts” which appears in the Company’s Annual Information Form for
the year ended December 31, 2020 included in this Registration Statement on Form F-10 and incorporated by reference in to the
prospectus included therein, and (ii) under the heading “Interest of Experts” which appears in the prospectus included
in this Registration Statement on Form F-10.
/s/ MNP LLP
Chartered Professional Accountants
Licensed Public Accountants
August 23, 2021
Toronto, Canada
Exhibit 7.1
BRAGG GAMING GROUP INC.
as Issuer
and
[ ]
as
U.S. Trustee
and
[ ]
as
Canadian Trustee
Indenture
Dated as of [ ]
TABLE OF CONTENTS
|
ARTICLE One DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
|
1
|
|
Section 1.01
|
Definitions
|
1
|
|
Section 1.02
|
Rules of Construction
|
10
|
|
Section 1.03
|
Compliance Certificates and Opinions
|
10
|
|
Section 1.04
|
Form of Documents Delivered to Trustees
|
11
|
|
Section 1.05
|
Acts of Holders
|
11
|
|
Section 1.06
|
Notices, Etc. to Trustees and Company
|
13
|
|
Section 1.07
|
Notice to Holders; Waiver
|
13
|
|
Section 1.08
|
Effect of Headings and Table of Contents
|
14
|
|
Section 1.09
|
Successors and Assigns
|
14
|
|
Section 1.10
|
Severability Clause
|
14
|
|
Section 1.11
|
Benefits of Indenture
|
14
|
|
Section 1.12
|
Governing Law
|
15
|
|
Section 1.13
|
Legal Holidays
|
15
|
|
Section 1.14
|
Agent for Service; Submission to Jurisdiction; Waiver of Immunities
|
15
|
|
Section 1.15
|
Conversion of Judgment Currency
|
16
|
|
Section 1.16
|
Currency Equivalent
|
17
|
|
Section 1.17
|
Conflict with Trust Indenture Legislation
|
17
|
|
Section 1.18
|
Incorporators, Shareholders, Officers and Directors of the Company Exempt from Individual Liability
|
17
|
|
Section 1.19
|
Waiver of Jury Trial
|
17
|
|
Section 1.20
|
Counterparts
|
17
|
|
Section 1.21
|
Force Majeure
|
18
|
|
|
|
|
|
ARTICLE Two SECURITIES FORMS
|
18
|
|
Section 2.01
|
Forms Generally
|
18
|
|
Section 2.02
|
Form of Trustee’s Certificate of Authentication
|
18
|
|
Section 2.03
|
Securities Issuable in Global Form
|
19
|
|
|
|
|
|
ARTICLE Three THE SECURITIES
|
20
|
|
Section 3.01
|
Issuable in Series
|
20
|
|
Section 3.02
|
Denominations
|
23
|
|
Section 3.03
|
Execution, Authentication, Delivery and Dating
|
23
|
|
Section 3.04
|
Temporary Securities
|
25
|
|
Section 3.05
|
Registration, Registration of Transfer and Exchange
|
27
|
|
Section 3.06
|
Mutilated, Destroyed, Lost and Stolen Securities
|
30
|
|
Section 3.07
|
Payment of Principal, Premium and Interest; Interest Rights Preserved; Optional Interest Reset
|
31
|
|
Section 3.08
|
Optional Extension of Stated Maturity
|
33
|
|
Section 3.09
|
Persons Deemed Owners
|
34
|
|
Section 3.10
|
Cancellation
|
35
|
|
Section 3.11
|
Computation of Interest
|
35
|
|
Section 3.12
|
Currency and Manner of Payments in Respect of Securities
|
35
|
|
Section 3.13
|
Appointment and Resignation of Successor Exchange Rate Agent
|
38
|
|
|
|
|
|
ARTICLE Four SATISFACTION AND DISCHARGE
|
39
|
|
Section 4.01
|
Satisfaction and Discharge of Indenture
|
39
|
|
Section 4.02
|
Application of Trust Money
|
40
|
|
|
|
|
|
ARTICLE Five REMEDIES
|
40
|
|
Section 5.01
|
Events of Default
|
40
|
|
Section 5.02
|
Acceleration of Maturity; Rescission and Annulment
|
41
|
|
Section 5.03
|
Collection of Debt and Suits for Enforcement by Trustees
|
42
|
|
Section 5.04
|
Trustees May File Proofs of Claim
|
43
|
|
Section 5.05
|
Trustees May Enforce Claims Without Possession of Securities
|
43
|
|
Section 5.06
|
Application of Money Collected
|
44
|
|
Section 5.07
|
Limitation on Suits
|
44
|
|
Section 5.08
|
Unconditional Right of Holders to Receive Principal, Premium and Interest
|
45
|
|
Section 5.09
|
Restoration of Rights and Remedies
|
45
|
|
Section 5.10
|
Rights and Remedies Cumulative
|
45
|
|
Section 5.11
|
Delay or Omission Not Waiver
|
45
|
|
Section 5.12
|
Control by Holders
|
46
|
|
Section 5.13
|
Waiver of Past Defaults
|
46
|
|
Section 5.14
|
Waiver of Stay or Extension Laws
|
46
|
|
Section 5.15
|
Undertaking for Costs
|
47
|
|
|
|
|
|
ARTICLE Six THE TRUSTEES
|
47
|
|
Section 6.01
|
Notice of Defaults
|
47
|
|
Section 6.02
|
Certain Duties and Responsibilities of Trustees
|
47
|
|
Section 6.03
|
Certain Rights of Trustees
|
48
|
|
Section 6.04
|
Trustees Not Responsible for Recitals or Issuance of Securities
|
50
|
|
Section 6.05
|
May Hold Securities
|
50
|
|
Section 6.06
|
Money Held in Trust
|
50
|
|
Section 6.07
|
Compensation and Reimbursement
|
50
|
|
Section 6.08
|
Corporate Trustees Required; Eligibility
|
51
|
|
Section 6.09
|
Resignation and Removal; Appointment of Successor
|
52
|
|
Section 6.10
|
Acceptance of Appointment by Successor
|
53
|
|
Section 6.11
|
Merger, Conversion, Consolidation or Succession to Business
|
54
|
|
Section 6.12
|
Appointment of Authenticating Agent
|
55
|
|
Section 6.13
|
Joint Trustees
|
56
|
|
Section 6.14
|
Other Rights of Trustees
|
57
|
|
|
|
|
|
ARTICLE Seven HOLDERS’ LISTS AND REPORTS
BY TRUSTEE AND COMPANY
|
58
|
|
Section 7.01
|
Company to Furnish Trustees Names and Addresses of Holders
|
58
|
|
Section 7.02
|
Preservation of List of Names and Addresses of Holders
|
58
|
|
Section 7.03
|
Disclosure of Names and Addresses of Holders
|
58
|
|
Section 7.04
|
Reports by Trustees
|
58
|
|
Section 7.05
|
Reports by the Company
|
59
|
|
|
|
|
|
ARTICLE Eight CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
|
59
|
|
Section 8.01
|
Company May Consolidate, etc., only on Certain Terms
|
59
|
|
Section 8.02
|
Successor Person Substituted
|
60
|
|
|
|
|
|
ARTICLE Nine SUPPLEMENTAL INDENTURES
|
61
|
|
Section 9.01
|
Supplemental Indentures Without Consent of Holders
|
61
|
|
Section 9.02
|
Supplemental Indentures with Consent of Holders
|
62
|
|
Section 9.03
|
Execution of Supplemental Indentures
|
63
|
|
Section 9.04
|
Effect of Supplemental Indentures
|
63
|
|
Section 9.05
|
Conformity with Trust Indenture Legislation
|
64
|
|
Section 9.06
|
Reference in Securities to Supplemental Indentures
|
64
|
|
Section 9.07
|
Notice of Supplemental Indentures
|
64
|
|
|
|
|
|
ARTICLE Ten COVENANTS
|
64
|
|
Section 10.01
|
Payment of Principal, Premium and Interest
|
64
|
|
Section 10.02
|
Maintenance of Office or Agency
|
64
|
|
Section 10.03
|
Money for Securities Payments to Be Held in Trust
|
66
|
|
Section 10.04
|
Statement as to Compliance
|
67
|
|
Section 10.05
|
Payment of Taxes and Other Claims
|
67
|
|
Section 10.06
|
Corporate Existence
|
67
|
|
Section 10.07
|
Waiver of Certain Covenants
|
67
|
|
|
|
|
|
ARTICLE Eleven REDEMPTION OF SECURITIES
|
68
|
|
Section 11.01
|
Applicability of Article
|
68
|
|
Section 11.02
|
Election to Redeem; Notice to Trustees
|
68
|
|
Section 11.03
|
Selection by Trustees of Securities to Be Redeemed
|
68
|
|
Section 11.04
|
Notice of Redemption
|
68
|
|
Section 11.05
|
Deposit of Redemption Price
|
69
|
|
Section 11.06
|
Securities Payable on Redemption Date
|
70
|
|
Section 11.07
|
Securities Redeemed in Part
|
70
|
|
|
|
|
|
ARTICLE Twelve SINKING FUNDS
|
71
|
|
Section 12.01
|
Applicability of Article
|
71
|
|
Section 12.02
|
Satisfaction of Sinking Fund Payments with Securities
|
71
|
|
Section 12.03
|
Redemption of Securities for Sinking Fund
|
71
|
|
|
|
|
|
ARTICLE Thirteen REPAYMENT AT OPTION OF
HOLDERS
|
72
|
|
Section 13.01
|
Applicability of Article
|
72
|
|
Section 13.02
|
Repayment of Securities
|
72
|
|
Section 13.03
|
Exercise of Option
|
73
|
|
Section 13.04
|
When Securities Presented for Repayment Become Due and Payable
|
73
|
|
Section 13.05
|
Securities Repaid in Part
|
74
|
|
ARTICLE Fourteen DEFEASANCE AND COVENANT
DEFEASANCE
|
74
|
|
Section 14.01
|
Company’s Option to Effect Defeasance or Covenant Defeasance
|
74
|
|
Section 14.02
|
Defeasance and Discharge
|
74
|
|
Section 14.03
|
Covenant Defeasance
|
75
|
|
Section 14.04
|
Conditions to Defeasance or Covenant Defeasance
|
75
|
|
Section 14.05
|
Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions
|
77
|
|
Section 14.06
|
Reinstatement
|
78
|
|
|
|
|
|
ARTICLE Fifteen MEETINGS OF HOLDERS OF SECURITIES
|
78
|
|
Section 15.01
|
Purposes for Which Meetings May Be Called
|
78
|
|
Section 15.02
|
Call, Notice and Place of Meetings
|
78
|
|
Section 15.03
|
Persons Entitled to Vote at Meetings
|
78
|
|
Section 15.04
|
Quorum; Action
|
79
|
|
Section 15.05
|
Determination of Voting Rights; Conduct and Adjournment of Meetings
|
80
|
|
Section 15.06
|
Counting Votes and Recording Action of Meetings
|
81
|
CROSS-REFERENCE TABLE
TIA
Section
|
Indenture
Section
|
|
310
|
(a)
|
6.08(1)
|
|
|
(b)
|
6.09
|
|
|
(c)
|
Not Applicable
|
|
311
|
(a)
|
6.05
|
|
|
(b)
|
6.05
|
|
|
(c)
|
Not Applicable
|
|
312
|
(a)
|
7.05
|
|
|
(b)
|
7.03
|
|
|
(c)
|
7.03
|
|
313
|
(a)
|
7.04
|
|
|
(b)
|
7.04
|
|
|
(c)
|
7.04
|
|
|
(d)
|
7.05
|
|
314
|
(a)
|
7.05
|
|
|
(a)(4)
|
10.04
|
|
|
(b)
|
Not Applicable
|
|
|
(c)(1)
|
1.01
|
|
|
(c)(2)
|
1.01
|
|
|
(d)
|
Not Applicable
|
|
|
(e)
|
1.01
|
|
|
(f)
|
Not Applicable
|
|
315
|
(a)
|
6.02
|
|
|
(b)
|
6.01
|
|
|
(c)
|
6.02
|
|
|
(d)
|
6.02
|
|
|
(e)
|
5.15
|
|
316
|
(a)(last sentence)
|
1.02 (“Outstanding”)
|
|
|
(a)(1)(A)
|
5.12
|
|
|
(a)(1)(B)
|
5.02, 5.13
|
|
|
(a)(2)
|
Not Applicable
|
|
|
(b)
|
5.08
|
|
|
(c)
|
1.04(e)
|
|
317
|
(a)(1)
|
5.03
|
|
|
(a)(2)
|
5.04
|
|
|
(b)
|
10.03
|
|
318
|
(a)
|
1.16
|
Note: This Cross-Reference Table shall not, for
any purpose, be deemed to be part of this Indenture.
INDENTURE, dated as of ____________________,
among BRAGG GAMING GROUP INC., a corporation duly continued and existing under the federal laws of Canada (herein called the “Company”),
having its principal office at 30 King Street West, Suite 1955, Toronto, Ontario, Canada, M5X 1E3, and ______________________, a ______________________,
organized under the laws of ______________________, as U.S. trustee (herein called the “U.S. Trustee”), and ______________________,
a ______________________, organized under the laws of ______________________, as Canadian trustee (the “Canadian Trustee”
and, together with the U.S. Trustee, the “Trustees”).
RECITALS
The Company has duly authorized
the execution and delivery of this Indenture to provide for the issuance from time to time of its debentures, notes, bonds or other evidences
of indebtedness (herein called the “Securities”), which may be convertible into or exchangeable for any securities
of any Person (including the Company), to be issued in one or more series as in this Indenture provided.
This Indenture is subject to
the provisions of Trust Indenture Legislation that are required to be part of this Indenture and shall, to the extent applicable, be governed
by such provisions.
All things necessary to make
this Indenture a valid agreement of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of series thereof, as follows:
ARTICLE One
DEFINITIONS
AND OTHER PROVISIONS OF GENERAL APPLICATION
|
|
Section 1.01
|
Definitions.
|
“Act,” when
used with respect to any Holder, has the meaning specified in Section 1.04.
“Affiliate”
of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified
Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative
to the foregoing.
“Authenticating Agent”
means any Person authorized by the applicable Trustee pursuant to Section 6.12 to act on behalf of such Trustee to authenticate Securities.
“Authorized Newspaper”
means a newspaper, in the English language or in an official language of the country of publication, customarily published on each Business
Day, and of general circulation in each place in connection with which the term is used or in the financial community of each such place.
Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or
in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day.
“Base Currency”
has the meaning specified in Section 1.14.
“Bearer Security”
means any Security except a Registered Security.
“Board of Directors”
means the board of directors of the Company or any duly authorized committee thereof.
“Board Resolution”
means a copy of a resolution certified by the Corporate Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustees.
“Business Day,”
when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means,
unless otherwise specified with respect to any Securities pursuant to Section 3.01, any day other than Saturday, Sunday or any other
day on which commercial banking institutions in that Place of Payment or other location are permitted or required by any applicable law,
regulation or executive order to close.
“calculation period”
has the meaning specified in Section 3.11.
“Canadian Trustee”
means the Person named as the “Canadian Trustee” in the first paragraph of this Indenture until a successor Canadian Trustee
shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Canadian Trustee” shall mean
or include each Person who is then a Canadian Trustee hereunder; provided, however, that if at any time there is more than one
such Person, “Canadian Trustee” as used with respect to the Securities of any series shall mean only the Canadian Trustee
with respect to Securities of that series.
“Commission”
means the U.S. Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
“Common Depository”
has the meaning specified in Section 3.04.
“Company”
means the Person named as the “Company” in the first paragraph of this Indenture until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person.
“Company Request”
or “Company Order” means a written request or order signed in the name of the Company by an Officer and delivered to
the Trustees.
“Component Currency”
has the meaning specified in Section 3.12(h).
“Conversion Date”
has the meaning specified in Section 3.12(d).
“Conversion Event”
means the cessation of use of (i) a Foreign Currency (other than the Euro or other Currency unit) both by the government of the country
which issued such Currency and by a central bank or other public institution of or within the international banking community for the
settlement of transactions, (ii) the Euro or (iii) any currency unit (or composite currency) other than the Euro for the purposes
for which it was established.
“Corporate Trust Office”
means the principal corporate trust office of the U.S. Trustee or the Canadian Trustee, as applicable, at which at any particular time
its corporate trust business may be administered, such an office on the date of execution of this Indenture of the U.S. Trustee is located
at _________________________, Attention: _______________________, and of the Canadian Trustee is located at ______________________, Attention:
____________________________, except that with respect to presentation of Securities for payment or for registration of transfer or exchange,
such term shall mean the office or agency of the U.S. Trustee or the Canadian Trustee, as applicable, designated in writing to the Company
at which, at any particular time, its corporate agency business shall be conducted.
“coupon” means
any interest coupon appertaining to a Bearer Security.
“covenant defeasance”
has the meaning specified in Section 14.03.
“Currency”
means any currency or currencies, composite currency or currency unit or currency units, including, without limitation, the Euro, issued
by the government of one or more countries or by any recognized confederation or association of such governments.
“Default”
means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Defaulted Interest”
has the meaning specified in Section 3.07.
“defeasance”
has the meaning specified in Section 14.02.
“Depositary”
means, with respect to the Securities of any series issuable or issued in the form of one or more Registered Securities, the Person designated
as Depositary by the Company pursuant to Section 3.05 until a successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter “Depositary” shall mean or include each Person who is then a Depositary hereunder,
and, if at any time there is more than one such Person, “Depositary” as used with respect to the Securities of any such series
shall mean the Depositary with respect to the Registered Securities of that series.
“Dollar” or
“$” means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time
shall be legal tender for the payment of public and private debts.
“Dollar Equivalent of
the Currency Unit” has the meaning specified in Section 3.12(g).
“Dollar Equivalent of
the Foreign Currency” has the meaning specified in Section 3.12(f).
“Election Date”
has the meaning specified in Section 3.12(h).
“Euro” means
the single currency of the participating member states from time to time of the European Union described in legislation of the European
Counsel for the operation of a single unified European currency (whether known as the Euro or otherwise).
“Event of Default”
has the meaning specified in Section 5.01.
“Exchange Act”
means the United States Securities Exchange Act of 1934, as amended.
“Exchange Date”
has the meaning specified in Section 3.04.
“Exchange Rate Agent”
means, with respect to Securities of or within any series, unless otherwise specified with respect to any Securities pursuant to Section 3.01,
a New York clearing house bank, designated pursuant to Section 3.01 or Section 3.13.
“Exchange Rate Officer’s
Certificate” means a tested telex or a certificate setting forth (i) the applicable Market Exchange Rate and (ii) the
Dollar or Foreign Currency amounts of principal, premium (if any) and interest (if any) (on an aggregate basis and on the basis of a Security
having the lowest denomination principal amount determined in accordance with Section 3.02 in the relevant Currency), payable with
respect to a Security of any series on the basis of such Market Exchange Rate, sent (in the case of a telex) or signed (in the case of
a certificate) by the Chief Executive Officer, President or Chief Financial Officer of the Company.
“Extension Notice”
has the meaning specified in Section 3.08.
“Extension Period”
has the meaning specified in Section 3.08.
“Final Maturity”
has the meaning specified in Section 3.08.
“First Currency”
has the meaning specified in Section 1.15.
“Foreign Currency”
means any Currency other than Currency of the United States.
“GAAP” means
generally accepted accounting principles in Canada in effect from time to time, unless the Person’s most recent audited or quarterly
financial statements are not prepared in accordance with generally accepted accounting principles in Canada, in which case “GAAP”
shall mean generally accepted accounting principles in the United States in effect from time to time.
“Government Obligations”
means, unless otherwise specified with respect to any series of Securities pursuant to Section 3.01, securities which are (i) direct
obligations of the government which issued the Currency in which the Securities of a particular series are payable or (ii) obligations
of a Person controlled or supervised by and acting as an agency or instrumentality of the government which issued the Currency in which
the Securities of such series are payable, the payment of which is unconditionally guaranteed by such government, which, in either case,
are full faith and credit obligations of such government payable in such Currency and are not callable or redeemable at the option of
the issuer thereof and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make
any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of
the Government Obligation or the specific payment of interest or principal of the Government Obligation evidenced by such depository receipt.
“Holder” means,
in the case of a Registered Security, the Person in whose name a Security is registered in the Security Register and, in the case of a
Bearer Security, the bearer thereof and, when used with respect to any coupon, shall mean the bearer thereof.
“Indenture”
means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of
Securities established as contemplated by Section 3.01; provided, however, that, if at any time more than one Person is
acting as Trustee under this instrument, “Indenture” shall mean, with respect to any one or more series of Securities
for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended
by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms
of the particular series of Securities for which such Person is Trustee established as contemplated by Section 3.01, exclusive,
however, of any provisions or terms which relate solely to other series of Securities for which such Person is not Trustee,
regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more
indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such
Trustee, was not a party.
“Indexed Security”
means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
“interest,”
when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable
after Maturity at the rate prescribed in such Original Issue Discount Security.
“Interest Payment Date,”
when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
“Judgment Currency”
has the meaning specified in Section 1.14.
“Lien” means
any mortgage, pledge, hypothecation, charge, assignment, deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any agreement to give or grant a Lien or any lease, conditional sale or other title retention agreement having substantially
the same economic effect as any of the foregoing).
“mandatory sinking fund
payment” has the meaning specified in Section 12.01.
“Market Exchange
Rate” means, unless otherwise specified with respect to any Securities pursuant to Section 3.01, (i) for any
conversion involving a Currency unit on the one hand and Dollars or any Foreign Currency on the other, the exchange rate between the
relevant Currency unit and Dollars or such Foreign Currency calculated by the method specified pursuant to Section 3.01 for the
Securities of the relevant series, (ii) for any conversion of Dollars into any Foreign Currency, the noon (New York City time)
buying rate for such Foreign Currency for cable transfers quoted in New York City as certified for customs purposes by the Federal
Reserve Bank of New York and (iii) for any conversion of one Foreign Currency into Dollars or another Foreign Currency, the
spot rate at noon local time in the relevant market at which, in accordance with normal banking procedures, the Dollars or Foreign
Currency into which conversion is being made could be purchased with the Foreign Currency from which conversion is being made from
major banks located in New York City, Toronto, London or any other principal market for Dollars or such purchased Foreign Currency,
in each case determined by the Exchange Rate Agent. Unless otherwise specified with respect to any Securities pursuant to
Section 3.01, in the event of the unavailability of any of the exchange rates provided for in the foregoing clauses (i),
(ii) and (iii), the Exchange Rate Agent shall use, in its sole discretion and without liability on its part, such quotation of the
Federal Reserve Bank of New York as of the most recent available date, or quotations from one or more major banks in New York City,
Toronto, London or another principal market for the Currency in question, or such other quotations as the Exchange Rate Agent shall
deem appropriate. Unless otherwise specified by the Exchange Rate Agent, if there is more than one market for dealing in any
Currency by reason of foreign exchange regulations or otherwise, the market to be used in respect of such Currency shall be that
upon which a non-resident issuer of securities designated in such Currency would purchase such Currency in order to make payments in
respect of such securities.
“Maturity,”
when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption,
notice of option to elect repayment or otherwise.
“Notice of Default”
has the meaning specified in Section 6.01.
“Officer”
means the Chair of the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Operating
Officer, any Executive Vice President, any Vice President, the Treasurer or the Corporate Secretary of the Company or, in the event that
the Company is a partnership or a limited liability company that has no such officers, a person duly authorized under applicable law by
the general partner, managers, members or a similar body to act on behalf of the Company.
“Officer’s Certificate”
means a certificate, which shall comply with this Indenture, signed by an Officer and delivered to the Trustees.
“Opinion of Counsel”
means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, who shall be acceptable
to the Trustees, which opinion may contain customary exceptions and qualifications as to the matters set forth therein.
“Optional Reset Date”
has the meaning specified in Section 3.07.
“optional sinking fund
payment” has the meaning specified in Section 12.01.
“Original Issue Discount
Security” means any Security which provides for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 5.02.
“Original Stated Maturity”
has the meaning specified in Section 3.08.
“Outstanding,”
when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
|
|
(i)
|
Securities theretofore cancelled by either Trustee or delivered to either Trustee
for cancellation;
|
|
|
(ii)
|
Securities, or portions thereof, for whose payment or redemption or repayment
at the option of the Holder, money in the necessary amount has been theretofore deposited with either Trustee or any Paying Agent (other
than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities and any coupons appertaining thereto; provided that, if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustees has been made;
|
|
|
(iii)
|
Securities, except to the extent provided in Section 14.02 and Section
14.03, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Fourteen; and
|
|
|
(iv)
|
Securities which have been paid pursuant to Section 3.06 or in exchange
for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustees proof satisfactory to them that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the Company;
|
provided, however, that in determining whether
the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations
required by TIA Section 313, (i) the principal amount of an Original Issue Discount Security that may be counted in making such
determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof
that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration
of the maturity thereof pursuant to Section 5.02, (ii) the principal amount of any Security denominated in a Foreign Currency
that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to
the Dollar equivalent, determined as of the date such Security is originally issued by the Company as set forth in an Exchange Rate Officer’s
Certificate delivered to the Trustees, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent
as of such date of original issuance of the amount determined as provided in clause (i) above) of such Security, (iii) the principal
amount of any Indexed Security that may be counted in making such determination or calculation and that shall be deemed outstanding for
such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided with
respect to such Security pursuant to Section 3.01, and (iv) Securities owned by the Company or any other obligor upon the Securities
or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustees shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustees know to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustees the pledgee’s
right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor.
“Paying Agent”
means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of, premium (if any) or
interest (if any) on any Securities on behalf of the Company. Such Person must be capable of making payment in the Currency of the issued
Security.
“Person” means
any individual, corporation, body corporate, partnership, limited partnership, limited liability partnership, joint venture, limited liability
company, unlimited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency
or political subdivision thereof.
“Place of Payment”
means, when used with respect to the Securities of or within any series, each place where the principal of, premium (if any) and interest
(if any) on such Securities are payable as specified as contemplated by Sections 3.01 and 10.02.
“Predecessor
Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under
Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a mutilated,
destroyed, lost or stolen coupon appertains shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
Security or the Security to which the mutilated, destroyed, lost or stolen coupon appertains, as the case may be.
“Privacy Laws”
has the meaning specified in Section 6.14.
“rate(s) of exchange”
has the meaning specified in Section 1.14.
“Redemption Date,”
when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
“Redemption Price,”
when used with respect to any Security to be redeemed, in whole or in part, means the price at which it is to be redeemed pursuant to
this Indenture, plus accrued and unpaid interest thereon to the Redemption Date.
“Registered Security”
means any Security registered in the Security Register.
“Regular Record Date”
for the interest payable on any Interest Payment Date on the Registered Securities of or within any series means the date specified for
that purpose as contemplated by Section 3.01.
“Repayment Date”
means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment pursuant to
this Indenture.
“Reset Notice”
has the meaning specified in Section 3.07.
“Responsible Officer,”
when used with respect to a Trustee, means any vice president, secretary, any assistant secretary, treasurer, any assistant treasurer,
any senior trust officer, any trust officer, the controller within the corporate trust administration division of a Trustee or any other
officer of a Trustee customarily performing functions similar to those performed by any of the above-designated officers, and also means,
with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
“Securities”
has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under
this Indenture; provided, however, that if at any time there is more than one Person acting as Trustee under this Indenture, “Securities”
with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture
and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any
series as to which such Person is not Trustee.
“Security Register”
and “Security Registrar” have the respective meanings specified in Section 3.05.
“Special Record Date”
for the payment of any Defaulted Interest on the Registered Securities of or within any series means a date fixed by the Trustees pursuant
to Section 3.07.
“Specified Amount”
has the meaning specified in Section 3.12(h).
“Stated Maturity,”
when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security
or a coupon representing such installment of interest as the fixed date on which the principal of such Security or such installment of
principal or interest is due and payable, as such date may be extended pursuant to the provisions of Section 3.08 (if applicable).
“Subsequent Interest
Period” has the meaning specified in Section 3.07.
“Trust Indenture Act”
or “TIA” means the United States Trust Indenture Act of 1939, as amended, as in force at the date as of which this
Indenture was executed, except as provided in Section 9.05.
“Trust Indenture Legislation”
means, at any time, the provisions of (i) any applicable statute of Canada or any province or territory thereof and the regulations thereunder
as amended or re-enacted from time to time, but only to the extent applicable, or (iii) the Trust Indenture Act and regulations thereunder,
in each case, relating to trust indentures and to the rights, duties and obligations of trustees under trust indentures and of corporations
issuing debt obligations under trust indentures, to the extent that such provisions are at such time in force and applicable to this Indenture
or the Company or the Trustees.
“Trustee”
or “Trustees” means the U.S. Trustee and the Canadian Trustee. If a Canadian Trustee is not appointed under this Indenture,
or resigns or is removed and, pursuant to Section 6.09, the Company is not required to appoint a successor Trustee to the Canadian
Trustee, “Trustee,” “Trustees” and any reference to “either Trustee,” “both of the Trustees”
or such similar references shall mean the Person named as the U.S. Trustee or any successor thereto appointed pursuant to the applicable
provisions of this Indenture. Except to the extent otherwise indicated, “Trustees” shall refer to the Canadian Trustee (if
appointed and still serving) and the U.S. Trustee, both jointly and individually.
“U.S. Federal Bankruptcy
Code” means the Bankruptcy Act of Title 11 of the United States Code, as amended from time to time.
“U.S. Trustee”
means the Person named as the “U.S. Trustee” in the first paragraph of this Indenture until a successor U.S. Trustee shall
have become such pursuant to the applicable provisions of this Indenture, and thereafter “U.S. Trustee” shall mean or include
each Person who is then a U.S. Trustee hereunder; provided, however, that if at any time there is more than one such Person, “U.S.
Trustee” as used with respect to the Securities of any series shall mean only the U.S. Trustee with respect to Securities of that
series.
“United States”
means, unless otherwise specified with respect to any Securities pursuant to Section 3.01, the United States of America (including
the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction.
“United States person”
means, unless otherwise specified with respect to any Securities pursuant to Section 3.01, an individual who is a citizen or resident
of the United States, a corporation, partnership (including any entity treated as a corporation or as a partnership for United States
federal income tax purposes) or other entity created or organized in or under the laws of the United States, any state thereof or the
District of Columbia, an estate the income of which is subject to United States federal income taxation regardless of its source, or a
trust if (A) it is subject to the primary supervision of a court within the United States and one or more United States persons have
the authority to control all substantial decisions of the trust or (B) it has a valid election in effect under applicable United
States Treasury Regulations to be treated as a United States person.
“Valuation Date”
has the meaning specified in Section 3.12(c).
“Writing”
has the meaning specified in Section 6.13.
“Yield to Maturity”
means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of
interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation
principles.
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Section 1.02
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Rules of Construction.
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For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
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(1)
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the terms defined in this Indenture have the meanings assigned to them hereinand include the plural as well
as the singular;
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(2)
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all terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein,
have the meanings assigned to them therein, and the terms “cash transaction” and “self-liquidating paper,” as
used in TIA Section 319, shall have the meanings assigned to them in the rules of the Commission adopted under the Trust Indenture
Act;
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(3)
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the words “herein,” “hereof” and “hereunder” and other words of similar
import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision;
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(4)
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“or” is not exclusive;
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(5)
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words implying any gender shall apply to all genders;
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(6)
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the words Subsection, Section and Article refer to the Subsections, Sections and Articles, respectively,
of this Indenture unless otherwise noted; and
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(7)
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“include,” “includes” or “including” means include, includes or including,
in each case, without limitation.
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Section 1.03
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Compliance Certificates and Opinions.
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Upon any application or request
by the Company to the Trustees to take any action under any provision of this Indenture, the Company shall furnish to the Trustees an
Officer’s Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance
with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion
with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to Section 10.04) shall
include:
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(1)
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a statement that each individual signing such certificate or opinion has read such covenant or condition
and the definitions herein relating thereto;
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(2)
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a brief statement as to the nature and scope of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are based;
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(3)
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a statement that, in the opinion of each such individual, he has made such examination or investigation as
is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
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(4)
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a statement as to whether, in the opinion of each such individual, such covenant or condition has been complied
with.
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Section 1.04
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Form of Documents Delivered to Trustees.
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In any case where several matters
are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and one or more other such Persons may certify or give an opinion with respect
to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of
an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, a certificate of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of
the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters
are erroneous.
Any certificate or opinion of
an officer of the Company or counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of, or representations
by, an accountant or firm of accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows, or in
the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the accounting matters
upon which such certificate or opinion may be based are erroneous. Any certificate or opinion of any independent firm of public accountants
filed with the Trustees shall contain a statement that such firm is independent.
Where any Person is required
to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this
Indenture, they may, but need not, be consolidated and form one instrument.
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Section 1.05
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Acts of Holders.
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(a) Any
request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken
by Holders of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing.
If Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders of such series may, alternatively, be embodied in and
evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions
of Article Fifteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record or both are delivered to the Trustees and, where it
is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or
instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent,
or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustees and the Company, if made in the manner provided in this Section 1.05. The record of any meeting of Holders of Securities
shall be proved in the manner provided in Section 15.06.
(b)
The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness
of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer
acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority.
The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustees deem sufficient.
(c)
The principal amount and serial numbers of Registered Securities held by any Person, and the date of holding the same, shall be
proved by the Security Register.
(d)
The principal amount and serial numbers of Bearer Securities held by any Person, and the date of holding the same, may be proved
by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary,
wherever situated, if such certificate shall be deemed by the Trustees to be satisfactory, showing that at the date therein mentioned
such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved
by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustees
to be satisfactory. The Trustees and the Company may assume that such ownership of any Bearer Security continues until (1) another
certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security
is produced to the Trustees by some other Person, or (3) such Bearer Security is surrendered in exchange for a Registered Security,
or (4) such Bearer Security is no longer Outstanding. The principal amount and serial numbers of Bearer Securities held by any Person,
and the date of holding the same, may also be proved in any other manner that the Trustees deem sufficient.
(e) If
the Company shall solicit from the Holders of Registered Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the
determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but
the Company shall have no obligation to do so. Notwithstanding Trust Indenture Legislation, including TIA Section 316(c), such
record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the
date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such
solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record
date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or
other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such
authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after the record date.
(f)
Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor
or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
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Section 1.06
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Notices, Etc. to Trustees and Company.
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Any request, demand, authorization,
direction, notice, consent, waiver or Act of Holders or other documents provided or permitted by this Indenture to be made upon, given
or furnished to, or filed with:
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(1)
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the U.S. Trustee, by the Canadian Trustee, any Holder or by the Company shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the U.S. Trustee at its Corporate Trust Office, Attention: ________________,
or
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(2)
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the Canadian Trustee, by the U.S. Trustee, any Holder or by the Company shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the Canadian Trustee at its Corporate Trust Office, Attention: ________________,
or
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(3)
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the Company by either Trustee or any Holder shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing and mailed, first-class postage prepaid, or sent by overnight courier, to the Company at 77 King
Street West, Suite 3000, PO Box 95, Toronto, Ontario, Canada, M5K 1G8, Attention: Corporate Secretary or such other address and/or officer
as the Company may designate on written notice to the Trustees.
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Section 1.07
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Notice to Holders; Waiver.
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Where this Indenture provides
for notice of any event to Holders of Registered Securities by the Company or the Trustees, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event,
at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect
to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice.
In case, by reason of the suspension
of or irregularities in regular mail service or by reason of any other cause, it shall be impractical to mail notice of any event to Holders
of Registered Securities when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustees shall be deemed to be sufficient giving of such notice for every purpose hereunder.
Except as otherwise expressly
provided herein or otherwise specified with respect to any Securities pursuant to Section 3.01, where this Indenture provides for
notice to Holders of Bearer Securities of any event, such notice shall be sufficiently given to Holders of Bearer Securities if published
in an Authorized Newspaper in The City of New York and in such other city or cities as may be specified in such Securities on a Business
Day at least twice, the first such publication to be not earlier than the earliest date, and not later than the latest date, prescribed
for the giving of such notice. Any such notice shall be deemed to have been given on the date of the first such publication.
In case, by reason of the suspension
of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause, it shall be impracticable to publish
any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be satisfactory
to the Trustees shall be deemed to be sufficient giving of such notice for every purpose hereunder. Neither the failure to give notice
by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency
of such notice with respect to other Holders of Bearer Securities or the sufficiency of any notice to Holders of Registered Securities
given as provided herein.
Any request, demand, authorization,
direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published
notice may be in an official language of the country of publication.
Where this Indenture provides
for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the
event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustees, but such
filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
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Section 1.08
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Effect of Headings and Table of Contents.
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The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
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Section 1.09
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Successors and Assigns.
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All covenants and agreements
in this Indenture by the Company and the Trustees shall bind their successors and assigns, whether so expressed or not.
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Section 1.10
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Severability Clause.
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In case any provision in this
Indenture or in any Security or coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
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Section 1.11
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Benefits of Indenture.
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Nothing in this Indenture or
in the Securities or coupons, express or implied, shall give to any Person, other than the parties hereto, any Authenticating Agent, any
Paying Agent, any Securities Registrar and their successors hereunder and the Holders of Securities or coupons, any benefit or any legal
or equitable right, remedy or claim under this Indenture. Subject to Section 1.16, at all times in relation to this Indenture and any
action to be taken hereunder, the Company and the Trustees each shall observe and comply with Trust Indenture Legislation and the Company,
the Trustees and each Holder of a Security shall be entitled to the benefits of Trust Indenture Legislation.
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Section 1.12
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Governing Law.
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This Indenture and the Securities
and coupons shall be governed by and construed in accordance with the law of the State of New York, but without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Each Trustee
and the Company agrees to comply with all provisions of Trust Indenture Legislation applicable to or binding upon it in connection with
this Indenture and any action to be taken hereunder. This Indenture is subject to the provisions of the Trust Indenture Act that are required
to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. Notwithstanding the preceding sentence,
the exercise, performance or discharge by the Canadian Trustee of any of its rights, powers, duties or responsibilities hereunder shall
be construed in accordance with the laws of the Province of [Ontario] and the federal laws of Canada applicable thereto.
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Section 1.13
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Legal Holidays.
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In any case where any Interest
Payment Date, Redemption Date, sinking fund payment date or Stated Maturity or Maturity of any Security shall not be a Business Day at
any Place of Payment or other location contemplated hereunder, then (notwithstanding any other provision of this Indenture or of any Security
or coupon other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu of
this Section 1.13), payment of principal, premium (if any) or interest (if any), need not be made at such Place of Payment or other location
contemplated hereunder on such date, but may be made on the next succeeding Business Day at such Place of Payment or other location contemplated
hereunder with the same force and effect as if made on the Interest Payment Date or Redemption Date or sinking fund payment date, or at
the Stated Maturity or Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be.
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Section 1.14
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Agent for Service; Submission to Jurisdiction; Waiver of Immunities.
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By the execution and delivery
of this Indenture, the Company (i) acknowledges that it has irrevocably designated and appointed _____________________ as its authorized
agent upon which process may be served in any suit, action or proceeding arising out of or relating to the Securities or this Indenture
that may be instituted in any United States federal or New York state court located in The Borough of Manhattan, The City of New York,
or brought by the Trustees (whether in their individual capacity or in their capacity as Trustees hereunder), (ii) irrevocably submits
to the non-exclusive jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon
_____________________ and written notice of said service to the Company (mailed or delivered to the Company at 77 King Street West, Suite
3000, PO Box 95, Toronto, Ontario, Canada, M5K 1G8, Attention: Corporate Secretary or such other address and/or officer as the Company
may designate on written notice to the Trustees), shall be deemed in every respect effective service of process upon the Company in any
such suit or proceeding. The Company further agrees to take any and all action, including the execution and filing of any and all such
documents and instruments, as may be necessary to continue such designation and appointment of _____________________ in full force and
effect so long as this Indenture shall be in full force and effect.
To the extent that the Company
has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice,
attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Company
hereby irrevocably waives such immunity in respect of its obligations under this Indenture and the Securities, to the extent permitted
by law.
The Company irrevocably and unconditionally
waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any such action,
suit or proceeding in any such court or any appellate court with respect thereto. The Company irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of any such action, suit or proceeding in any such court.
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Section 1.15
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Conversion of Judgment Currency.
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(a)
The Company covenants and agrees that the following provisions shall apply to conversion of Currency in the case of the Securities
and this Indenture, to the fullest extent permitted by applicable law:
(i)
If for the purposes of obtaining judgment in, or enforcing the judgment of, any court in any country, it becomes necessary to convert
into a Currency (the “Judgment Currency”) an amount due or contingently due in any other Currency under the Securities
of any series and this Indenture (the “Base Currency”), then the conversion shall be made at the rate of exchange prevailing
on the Business Day before the day on which the final judgment is given or the order of enforcement is made, as the case may be (unless
a court shall otherwise determine).
(ii)
If there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment referred
to in (i) above is given or an order of enforcement is made, as the case may be (or such other date as a court shall determine),
and the date of receipt of the amount due, the Company shall pay such additional (or, as the case may be, such lesser) amount, if any,
as may be necessary so that the amount paid in the Judgment Currency when converted at the rate of exchange prevailing on the date of
receipt will produce the amount in the Base Currency originally due.
(b)
In the event of the winding-up of the Company at any time while any amount or damages owing under the Securities and this Indenture,
or any judgment or order rendered in respect thereof, shall remain outstanding, the Company shall indemnify and hold the Holders and the
Trustees harmless against any deficiency arising or resulting from any variation in rates of exchange between (1) the date as of
which the equivalent of the amount in the Base Currency due or contingently due under the Securities and this Indenture (other than under
this Subsection (b)) is calculated for the purposes of such winding-up and (2) the final date for the filing of proofs of claim
in such winding-up. For the purpose of this Subsection (b) the final date for the filing of proofs of claim in the winding-up of
the Company shall be the date fixed by the liquidator or otherwise in accordance with the relevant provisions of applicable law as being
the latest practicable date as at which liabilities of the Company may be ascertained for such winding-up prior to payment by the liquidator
or otherwise in respect thereto.
(c)
The obligations contained in Subsections (a)(ii) and (b) of this Section 1.15 shall constitute separate and independent obligations
of the Company from its other obligations under the Securities and this Indenture, shall give rise to separate and independent causes
of action against the Company, shall apply irrespective of any waiver or extension granted by any Holder or the Trustees from time to
time and shall continue in full force and effect notwithstanding any judgment or order or the filing of any proof of claim in the winding
up of the Company for a liquidated sum in respect of amounts due hereunder (other than under Subsection (b) above) or under any such
judgment or order. Any such deficiency as aforesaid shall be deemed to constitute a loss suffered by the Holders or the Trustees, as the
case may be, and no proof or evidence of any actual loss shall be required by the Company or its liquidator. In the case of Subsection (b)
above, the amount of such deficiency shall not be deemed to be increased or reduced by any variation in rates of exchange occurring between
the said final date and the date of any liquidating distribution.
The term “rate(s) of
exchange” shall mean the rate of exchange quoted by a Canadian chartered bank as may be designated in writing by the Company
to the Trustees from time to time, at its central foreign exchange desk in its main office in Ontario at 12:00 noon (Ontario time) on
the relevant date for purchases of the Base Currency with the Judgment Currency and includes any premiums and costs of exchange payable.
The Trustees shall have no duty or liability with respect to monitoring or enforcing this Section 1.15.
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Section 1.16
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Currency Equivalent.
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Except as otherwise provided
in this Indenture, for purposes of the construction of the terms of this Indenture or of the Securities, in the event that any amount
is stated herein in the Currency of one nation (the “First Currency”), as of any date such amount shall also be deemed
to represent the amount in the Currency of any other relevant nation which is required to purchase such amount in the First Currency at
the Bank of Canada noon rate as reported by Telerate on screen 3194 (or such other means of reporting the Bank of Canada noon rate
as may be agreed upon by each of the parties to this Indenture) on the date of determination.
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Section 1.17
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Conflict with Trust Indenture Legislation.
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If and to the extent that any
provision of this Indenture limits, qualifies or conflicts with any mandatory requirement of Trust Indenture Legislation, such mandatory
requirement shall control. If and to the extent that any provision hereof modifies or excludes any provision of Trust Indenture Legislation
that may be so modified or excluded, the latter provision shall be deemed to apply hereof as so modified or to be excluded, as the case
may be.
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Section 1.18
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Incorporators, Shareholders, Officers and Directors of the Company Exempt from Individual Liability.
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No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, or in any Security, or because of any indebtedness evidenced thereby, shall
be had against any incorporator, as such, or against any past, present or future shareholder, officer or director, as such, of the Company
or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision
or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities by the Holders and as part of the consideration for the issue of the Securities.
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Section 1.19
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Waiver of Jury Trial.
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Each of the Company and the Trustees
hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Indenture, the Securities or the transactions contemplated hereby.
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Section 1.20
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Counterparts.
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This Indenture may be executed
in any number of counterparts (either by facsimile or by original manual signature), each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the same Indenture.
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Section 1.21
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Force Majeure.
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Except for the payment obligations
of the Company contained herein, neither the Company nor the Trustees shall be liable to each other, or held in breach of this Indenture,
if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of act of God, riots,
terrorism, acts of war, epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not
limited to, mechanical, electronic or communication interruptions, disruptions or failures). Performance times under this Indenture shall
be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section 1.21.
ARTICLE Two
SECURITIES FORMS
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Section 2.01
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Forms Generally.
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The Registered Securities, if
any, of each series and the Bearer Securities, if any, of each series and related coupons, if any, shall be in substantially the forms
as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such
appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the
rules of any securities exchange or as may, consistently herewith, be determined by the Officer executing such Securities or coupons,
as evidenced by the execution of such Securities or coupons by such Officer. If the forms of Securities or coupons of any series are established
by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Corporate Secretary
or an Assistant Secretary of the Company and delivered to the Trustees at or prior to the delivery of the Company Order contemplated by
Section 3.03 for the authentication and delivery of such Securities or coupons. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face of the Security.
Unless otherwise specified as
contemplated by Section 3.01, Bearer Securities shall have interest coupons attached.
Either Trustee’s certificate
of authentication shall be in substantially the form set forth in this Article Two.
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Section 2.02
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Form of Trustee’s Certificate of Authentication.
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Subject to Section 6.12,
either Trustee’s certificate of authentication shall be in substantially the following form:
TRUSTEE’S CERTIFICATE OF AUTHENTICATION
(Certificate of Authentication may be executed
by either Trustee)
Dated: ____________
_______________________, as U.S.
Trustee, certifies that this is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
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______________________________________________,
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as U.S. Trustee
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By:
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Authorized Officer
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Dated: ____________
____________________, as Canadian
Trustee, certifies that this is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
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______________________________________________,
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as Canadian Trustee
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By:
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Authorized Officer
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Section 2.03
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Securities Issuable in Global Form.
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If Securities of or within a
series are issuable in global form, as specified and contemplated by Section 3.01, then any such Security shall represent such of
the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of
Outstanding Securities of such series from time to time endorsed thereon and that the aggregate amount of Outstanding Securities of such
series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of a Security in global
form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by
the Trustees in such manner and upon instructions given by the Holder or its nominee as shall be specified therein or in the Company Order
to be delivered to the Trustees pursuant to Section 3.03 or 3.04. Subject to the provisions of Sections 3.03 and 3.04 (if applicable),
the Trustees shall deliver and redeliver any Security in global form in the manner and upon instructions given by the Holder or its nominee
as shall be specified therein or in the applicable Company Order. If a Company Order pursuant to Section 3.03 or Section 3.04
has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a
Security in global form shall be in writing but need not comply with Section 1.03 and need not be accompanied by an Opinion of Counsel.
Notwithstanding the provisions
of Section 3.07, unless otherwise specified as contemplated by Section 3.01, payment of principal of, premium (if any) and interest
(if any) on any Security in permanent global form shall be made to the Holder or its nominee specified therein.
Notwithstanding Section 3.09
and except as provided in the preceding paragraph, the Company, the Trustees and any agent of the Company and the Trustees shall treat
as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security (i) in the case of a
permanent global Security in registered form, the Holder of such permanent global Security in registered form, or (ii) in the case
of a permanent global Security in bearer form, the Depositary.
ARTICLE Three
THE SECURITIES
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Section 3.01
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Issuable in Series.
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The aggregate principal amount
of Securities which may be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued
in one or more series and may be denominated and payable in Dollars or any Foreign Currency. There shall be established in one or more
Board Resolutions or pursuant to authority granted by one or more Board Resolutions and set forth in, or determined in the manner provided
in, an Officer’s Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities
of any series, any or all of the following, as applicable:
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(1)
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the title of the Securities of the series (which shall distinguish the Securities of such series from the
Securities of all other series);
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(2)
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the aggregate principal amount of the Securities of the series and any limit upon the aggregate principal
amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated
and delivered upon registration of transfer (including any restriction or condition on the transferability of the Securities of such series)
of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06, 11.07 or 13.05)
and, in the event that no limit upon the aggregate principal amount of the Securities of that series is specified, the Company shall have
the right, subject to any terms, conditions or other provisions specified pursuant to this Section 3.01 with respect to the Securities
of such series, to re-open such series for the issuance of additional Securities of such series from time to time;
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(3)
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the extent and manner, if any, to which payment on or in respect of the Securities of the series will be
senior or will be subordinated to the prior payment of other liabilities and obligations of the Company, and whether the payment of principal,
premium (if any) and interest (if any) will be guaranteed by any other Person;
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(4)
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the percentage or percentages of principal amount at which the Securities of the series will be issued;
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(5)
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the date or dates, or the method by which such date or dates will be determined or extended, on which the
Securities of the series may be issued and the date or dates, or the method by which such date or dates will be determined or extended,
on which the principal of and premium (if any) on the Securities of the series is payable;
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(6)
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the rate or rates at which the Securities of the series shall bear interest, whether fixed or variable (if
any), or the method by which such rate or rates shall be determined, whether such interest shall be payable in cash or additional Securities
of the same series or shall accrue and increase the aggregate principal amountoutstanding of such series, the date or dates from which
such interest shall accrue, or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest
shall be payable and the Regular Record Date, if any, for the interest payable on any Registered Security on any Interest Payment Date,
or the method by which such date or dates shall be determined, and the basis upon which interest shall be calculated if other than on
the basis of a 360-day year of twelve 30-day months;
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(7)
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the place or places, if any, other than or in addition to the Borough of Manhattan, The City of New York,
where the principal of, premium (if any) and interest (if any) on Securities of the series shall be payable, where any Registered Securities
of the series may be surrendered for registration of transfer, where Securities of the series may be surrendered for exchange, where Securities
of the series that are convertible or exchangeable may be surrendered for conversion or exchange, as applicable and, if different than
the location specified in Section 1.06, the place or places where notices or demands to or upon the Company in respect of the Securities
of the series and this Indenture may be served;
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(8)
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the period or periods within which, the date or dates on which, the price or prices at which, the Currency
in which, and other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the
Company, if the Company is to have that option;
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(9)
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the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to
any sinking fund, amortization or analogous provisions or at the option of a Holder thereof, and the period or periods within which, the
price or prices at which, the Currency in which, and other terms and conditions upon which Securities of the series shall be redeemed,
repaid or purchased, in whole or in part, pursuant to such obligation;
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(10)
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if other than denominations of $1,000 and any integral multiple thereof, the denomination or denominations
in which any Registered Securities of the series shall be issuable and, if other than denominations of $5,000, the denomination or denominations
in which any Bearer Securities of the series shall be issuable;
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(11)
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the identity of each Security Registrar and/or Paying Agent;
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(12)
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if other than the principal amount thereof, the portion of the principal amount of Securities of the series
that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02 or the method by which such
portion shall be determined;
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(13)
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if other than Dollars, the Foreign Currency in which payment of the principal of, premium (if any) or interest
(if any) on the Securities of the series shall be payable or in which the Securities of the series shall be denominated and the particular
provisions applicable thereto in accordance with, in addition to or in lieu of any of the provisions of Section 3.12;
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(14)
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whether the amount of payments of principal of, premium (if any) or interest (if any) on the Securities of
the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without
limitation, on one or more Currencies, commodities, equity indices or other indices), and the manner in which such amounts shall be determined;
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(15)
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whether the principal of, premium (if any) or interest (if any)
on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in a Currency other than that
in which such Securities are denominated or stated to be payable, the period or periods within which (including the Election Date), and
the terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the
Currency in which such Securities are denominated or stated to be payable and the Currency in which such Securities are to be so payable,
in each case in accordance with, in addition to or in lieu of any of the provisions of Section 3.12;
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(16)
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the designation of the initial Exchange Rate Agent, if any;
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(17)
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the applicability, if any, of Sections 14.02 and/or 14.03 to the Securities of the series and any provisions
in modification of, in addition to or in lieu of any of the provisions of Article Fourteen that shall be applicable to the Securities
of the series;
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(18)
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provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence
of such events as may be specified;
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(19)
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any deletions from, modifications of or additions to the Events of Default or covenants (including any deletions
from, modifications of or additions to Section 10.09) of the Company with respect to Securities of the series, whether or not such
Events of Default or covenants are consistent with the Events of Default or covenants set forth herein;
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(20)
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whether Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or
without coupons) or both, any restrictions applicable to the offer, sale or delivery of Securities of the series, whether any Securities
of the series are to be issuable initially in temporary global form and whether any Securities of the series are to be issuable in permanent
global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global Security may exchange
such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which
any such exchanges may occur, if other than in the manner provided in Section 3.05, whether Registered Securities of the series may
be exchanged for Bearer Securities of the series (if permitted by applicable laws and regulations), whether Bearer Securities of the series
may be exchanged for Registered Securities of such series, and the circumstances under which and the place or places where any such exchanges
may be made and, if Securities of the series are to be issuable in global form, the designation of any Depositary therefor;
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(21)
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the date as of which any Bearer Securities of the series and any temporary global Security of the series
shall be dated if other than the date of original issuance of the first Security of the series to be issued;
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(22)
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the Person to whom any interest on any Registered Security of the series shall be payable, if other than
the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record
Date for such interest, the manner in which, or the Person to whom, any interest on any Bearer Security of the series shall be payable,
if otherwise than upon presentation and surrender of the coupons appertaining thereto as they severally mature, and the extent to which,
or the manner in which, any interest payable on a temporary global Security on an Interest Payment Date will be paid if other than in
the manner provided in Section 3.04;
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(23)
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if Securities of the series are to be issuable in definitive form (whether upon original issue or upon exchange
of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions,
the form and/or terms of such certificates, documents or conditions;
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(24)
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if the Securities of the series are to be issued upon the exercise of warrants or subscription receipts,
the time, manner and place for such Securities to be authenticated and delivered;
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(25)
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if the Securities of the series are to be convertible into or exchangeable for any securities or property
of any Person (including the Company), the terms and conditions upon which such Securities will be so convertible or exchangeable, and
any additions or changes to permit or facilitate such conversion or exchange;
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(26)
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provisions as to modification, amendment or variation of any rights or terms attaching to the Securities;
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(27)
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whether the Securities will be secured or unsecured and the nature and priority of any security; and
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(28)
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any other terms, conditions, rights and preferences (or limitations on such rights and preferences) relating
to the series (which terms shall not be inconsistent with the requirements of Trust Indenture Legislation or the provisions of this Indenture).
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All Securities of any one series
and the coupons appertaining to any Bearer Securities of such series shall be substantially identical except, in the case of Registered
Securities, as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution (subject to Section 3.03)
and set forth in such Officer’s Certificate or in any such indenture supplemental hereto. Not all Securities of any one series need
be issued at the same time, and, unless otherwise provided, a series may be reopened for issuances of additional Securities of such series.
If any of the terms of the series
are established by action taken pursuant to one or more Board Resolutions, such Board Resolutions shall be delivered to the Trustees at
or prior to the delivery of the Officer’s Certificate setting forth the terms of the series.
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Section 3.02
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Denominations.
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The Securities of each series
shall be issuable in such denominations as shall be specified as contemplated by Section 3.01. With respect to Securities of any
series denominated in Dollars, in the absence of any such provisions, the Registered Securities of such series, other than Registered
Securities issued in global form (which may be of any denomination), shall be issuable in denominations of $1,000 and any integral multiple
thereof and the Bearer Securities of such series, other than the Bearer Securities issued in global form (which may be of any denomination),
shall be issuable in a denomination of $5,000 and any integral multiples thereof.
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Section 3.03
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Execution, Authentication, Delivery and Dating.
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The Securities and any coupons
appertaining thereto shall be executed on behalf of the Company by an Officer. The signature of an Officer on the Securities or coupons
may be the manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced
on the Securities.
Securities or coupons bearing
the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding
that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did
not hold such offices at the date of such Securities or coupons.
At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver Securities of any series together with any coupons appertaining
thereto, executed by the Company to the applicable Trustee for authentication, together with a Company Order for the authentication and
delivery of such Securities, and the applicable Trustee in accordance with such Company Order shall authenticate and deliver such Securities;
provided, however, that, in connection with its original issuance, no Bearer Security shall be mailed or otherwise delivered to
any location in the United States; provided further that, unless otherwise specified with respect to any series of Securities pursuant
to Section 3.01, a Bearer Security may be delivered in connection with its original issuance only if the Person entitled to receive
such Bearer Security shall have furnished a certificate in the form set forth in Exhibit A-1 to this Indenture, dated no earlier
than 15 days prior to the earlier of the date on which such Bearer Security is delivered and the date on which any temporary Security
first becomes exchangeable for such Bearer Security in accordance with the terms of such temporary Security and this Indenture. If any
Security shall be represented by a permanent global Bearer Security, then, for purposes of this Section 3.03 and Section 3.04, the notation
of a beneficial owner’s interest therein upon original issuance of such Security or upon exchange of a portion of a temporary global
Security shall be deemed to be delivery in connection with its original issuance of such beneficial owner’s interest in such permanent
global Security. Except as permitted by Section 3.06, the Trustees shall not authenticate and deliver any Bearer Security unless all appurtenant
coupons for interest then matured have been detached and cancelled. If not all the Securities of any series are to be issued at one time
and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures
acceptable to the Trustees for the issuance of such Securities and determining terms of particular Securities of such series such as interest
rate, Stated Maturity, date of issuance and date from which interest shall accrue.
In authenticating such Securities,
and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustees shall be entitled to receive,
and (subject to Trust Indenture Legislation, including TIA Sections 315(a) through 315(d)) shall be fully protected in relying upon, an
Opinion of Counsel stating:
(a)
that the form or forms of such Securities and any coupons have been established in conformity with the provisions of this Indenture;
(b)
that the terms of such Securities and any coupons have been established in conformity with the provisions of this Indenture;
(c)
that such Securities, together with any coupons appertaining thereto, when completed by appropriate insertions and executed and
delivered by the Company to the applicable Trustee for authentication in accordance with this Indenture, authenticated and delivered by
the applicable Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their
terms;
(d)
the execution and delivery by the Company of such Securities, any coupons and any supplemental indenture will not contravene the
articles of incorporation or continuance, or such other constating documents then in effect, if any, or the by-laws of the Company, or
violate applicable laws; and
(e)
that the Company has the corporate power to issue such Securities and any coupons, and has duly taken all necessary corporate action
with respect to such issuance.
Notwithstanding the provisions
of Section 3.01 and of the preceding two paragraphs, if not all the Securities of any series are to be issued at one time, it shall
not be necessary to deliver the Officer’s Certificate otherwise required pursuant to Section 3.01 or the Company Order and
Opinion of Counsel otherwise required pursuant to the preceding two paragraphs prior to or at the time of issuance of each Security, but
such documents shall be delivered prior to or at the time of issuance of the first Security of such series.
The Trustees shall not be required
to authenticate and deliver any such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustees’
own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to
the Trustees.
Each Registered Security shall
be dated the date of its authentication and each Bearer Security shall be dated as of the date specified as contemplated by Section 3.01.
No Security or coupon shall entitle
a Holder to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate
of authentication substantially in the form provided for herein duly executed by the applicable Trustee by manual signature of an authorized
officer thereof, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been
duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security
shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security
to the Trustees for cancellation as provided in Section 3.10 together with a written statement (which need not comply with Section 1.03
and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all
purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never entitle
a Holder to the benefits of this Indenture.
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Section 3.04
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Temporary Securities.
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Pending the preparation of definitive
Securities of any series, the Company may execute, and upon Company Order the applicable Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they are issued, in registered form or, if authorized, in bearer form with
one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the Officer
executing such Securities may determine, as conclusively evidenced by their execution of such Securities. Such temporary Securities may
be in global form.
Except in the case of
temporary Securities in global form (which shall be exchanged in accordance with the provisions of the following paragraphs), if
temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without
unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be
exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or
agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Securities of any series (accompanied by any unmatured coupons appertaining thereto), the Company shall
execute and the applicable Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive
Securities of the same series of authorized denominations and of like tenor and evidencing the same indebtedness; provided,
however, that no definitive Bearer Security shall be delivered in exchange for a temporary Registered Security; provided
further that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with
the conditions set forth in Section 3.03. Until so exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of such series.
If temporary Securities of
any series are issued in global form, any such temporary global Security shall, unless otherwise provided therein, be delivered to the
office of the Depositary for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts
as they may direct).
Without unnecessary delay, but
in any event not later than the date specified in, or determined pursuant to the terms of, any such temporary global Security (the “Exchange
Date”), the Company shall deliver to the Trustees definitive Securities, in aggregate principal amount equal to the principal
amount of such temporary global Security and of like tenor and evidencing the same indebtedness, executed by the Company. On or after
the Exchange Date, such temporary global Security shall be surrendered by the Depositary to the Trustees, as the Company’s agent
for such purpose, to be exchanged, in whole or from time to time in part, for definitive Securities without charge and the applicable
Trustee shall authenticate and deliver, in exchange for each portion of such temporary global Security, an equal aggregate principal amount
of definitive Securities of the same series of authorized denominations and of like tenor and evidencing the same indebtedness as the
portion of such temporary global Security to be exchanged. The definitive Securities to be delivered in exchange for any such temporary
global Security shall be in bearer form, registered form, permanent global bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 3.01, and, if any combination thereof is so specified, as requested by the beneficial
owner thereof; provided, however, that, unless otherwise specified in such temporary global Security, upon such presentation by
the Depositary, such temporary global Security is accompanied by a certificate dated the Exchange Date or a subsequent date and signed
by the Depositary as to the portion of such temporary global Security held for its account then to be exchanged and a certificate dated
the Exchange Date or a subsequent date, each in the form set forth in Exhibit A-2 to this Indenture (or in such other form as may
be established pursuant to Section 3.01); provided further that definitive Bearer Securities shall be delivered in exchange
for a portion of a temporary global Security only in compliance with the requirements of Section 3.03.
Unless otherwise specified in
such temporary global Security, the interest of a beneficial owner of Securities of a series in a temporary global Security shall be exchanged
for definitive Securities of the same series and of like tenor and evidencing the same indebtedness following the Exchange Date when the
account holder instructs the Depositary to request such exchange on his behalf and delivers to the Depositary a certificate in the form
set forth in Exhibit A-1 to this Indenture (or in such other form as may be established pursuant to Section 3.01), dated no
earlier than 15 days prior to the Exchange Date, copies of which certificate shall be available from the offices of the Depositary,
the Trustees, any Authenticating Agent appointed for such series of Securities and each Paying Agent. Unless otherwise specified in such
temporary global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary global Security,
except that a Person receiving definitive Securities must bear the cost of insurance, postage, transportation and the like in the event
that such Person does not take delivery of such definitive Securities in person at the offices of the Depositary. Definitive Securities
in bearer form to be delivered in exchange for any portion of a temporary global Security shall be delivered only outside the United States
and Canada.
Until exchanged in full as hereinabove
provided, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive
Securities of the same series and of like tenor and evidencing the same indebtedness authenticated and delivered hereunder, except that,
unless otherwise specified as contemplated by Section 3.01, interest payable on a temporary global Security on an Interest Payment
Date for Securities of such series occurring prior to the applicable
Exchange Date shall be
payable to the Depositary on such Interest Payment Date upon delivery by the Depositary to the Trustees of a certificate or certificates
in the form set forth in Exhibit A-2 to this Indenture (or in such other form as may be established pursuant to Section 3.01),
for credit without further interest thereon on or after such Interest Payment Date to the respective accounts of the Persons who are
the beneficial owners of such temporary global Security on such Interest Payment Date and who have each delivered to the Depositary a
certificate dated no earlier than 15 days prior to the Interest Payment Date occurring prior to such Exchange Date in the form set
forth in Exhibit A-1 to this Indenture (or in such other form as may be established pursuant to Section 3.01). Notwithstanding
anything to the contrary herein contained, the certifications made pursuant to this paragraph shall satisfy the certification requirements
of the preceding two paragraphs of this Section 3.04 and of the third paragraph of Section 3.03 and the interests of the Persons
who are the beneficial owners of the temporary global Security with respect to which such certification was made will be exchanged for
definitive Securities of the same series and of like tenor and evidencing the same indebtedness on the Exchange Date or the date of certification
if such date occurs after the Exchange Date, without further act or deed by such beneficial owners. Except as otherwise provided in this
paragraph, no payments of principal of, premium (if any) or interest (if any) owing with respect to a beneficial interest in a temporary
global Security will be made unless and until such interest in such temporary global Security shall have been exchanged for an interest
in a definitive Security. Any interest so received by the Depositary and not paid as herein provided shall be returned to the Trustees
immediately prior to the expiration of two years after such Interest Payment Date in order to be repaid to the Company in accordance
with Section 10.03.
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Section 3.05
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Registration, Registration of Transfer and Exchange.
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So long as required by Trust
Indenture Legislation, the Company shall cause to be kept at the Corporate Trust Offices of the Trustees a register for each series of
Securities (the registers maintained in the Corporate Trust Offices of the Trustees and in any other office or agency of the Company in
a Place of Payment being herein sometimes collectively referred to as the “Security Register”) in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Holders of Registered Securities
and of transfers of Registered Securities. The Security Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times, the Security Register shall be open to inspection by the Trustees.
The Trustees are hereby initially appointed as security registrar (the “Security Registrar”) for the purpose of registering
Registered Securities and transfers of Registered Securities as herein provided. The Company shall have the right to remove and replace
from time to time the Security Registrar for any series of Securities; provided, however, that, no such removal or replacement shall be
effective until a successor Security Registrar with respect to such series of Registered Securities shall have been appointed by the Company
and shall have accepted such appointment by the Company. In the event that the Trustees shall not be or shall cease to be the Securities
Registrar with respect to a series of Securities, they shall have the right to examine the Security Register for such series at all reasonable
times. There shall be only one Securities Register for such series of Securities.
Upon surrender for registration
of transfer of any Registered Security of any series at the office or agency in a Place of Payment for that series, the Company shall
execute, and the applicable Trustee shall authenticate and deliver, in the name of the designated transferee, one or more new Registered
Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor and evidencing the same
indebtedness.
For Canadian Securities, the
Security must be duly endorsed for transfer or in a duly endorsed transferable form as applicable and must comply with the current industry
practice in accordance with the Securities Transfer Association of Canada.
At the option of the Holder,
Registered Securities of any series may be exchanged for other Registered Securities of the same series, of any authorized denomination
and of a like aggregate principal amount and tenor and evidencing the same indebtedness, upon surrender of the Registered Securities to
be exchanged at such office or agency. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute,
and the applicable Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled
to receive. Unless otherwise specified with respect to any series of Securities as contemplated by Section 3.01, Bearer Securities
may not be issued in exchange for Registered Securities.
If (but only if) expressly permitted
in or pursuant to the applicable Board Resolution and (subject to Section 3.03) set forth in the applicable Officer’s Certificate,
or in any indenture supplemental hereto, delivered as contemplated by Section 3.01, at the option of the Holder, Bearer Securities
of any series may be exchanged for Registered Securities of the same series of any authorized denomination and of a like aggregate principal
amount and tenor and evidencing the same indebtedness, upon surrender of the Bearer Securities to be exchanged at the office of the applicable
Trustee, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable
to produce any such unmatured coupon or coupons or matured coupon or coupons in default, any such permitted exchange may be effected if
the Bearer Securities are accompanied by payment in funds acceptable to the Company in an amount equal to the face amount of such missing
coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustees if there is furnished
to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of
such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such
Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 10.02,
interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located
outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or
agency in a permitted exchange for a Registered Security of the same series and like tenor after the close of business at such office
or agency on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment
Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for
payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or
proposed date for payment, as the case may be, and interest or Defaulted Interest, as the case may be, will not be payable on such Interest
Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture.
Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the applicable Trustee shall authenticate and deliver, the Securities which the
Holder making the exchange is entitled to receive.
Notwithstanding the
foregoing, except as otherwise specified as contemplated by Section 3.01, any permanent global Security shall be exchangeable
only as provided in this Section. If any beneficial owner of an interest in a permanent global Security is entitled to exchange such
interest for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as
contemplated by Section 3.01 and provided that any applicable notice provided in the permanent global Security shall have been
given to the Company, the Trustees and the Depositary, then without unnecessary delay but in any event not later than the earliest
date on which such interest may be so exchanged, the Company shall deliver to the applicable Trustee definitive Securities in
aggregate principal amount equal to the principal amount of such beneficial owner’s interest in such permanent global
Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such permanent global
Security shall be surrendered by the Depositary or such other depositary as shall be specified in the Company Order with respect
thereto to the applicable Trustee, as the Company’s agent for such purpose, to be exchanged in whole or from time to time in
part, for definitive Securities without charge, and the applicable Trustee shall authenticate and deliver, in exchange for each
portion of such permanent global Security, an equal aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such permanent global Security to be exchanged which, unless the
Securities of the series are not issuable both as Bearer Securities and as Registered Securities, as specified as contemplated by
Section 3.01, shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be
specified by the beneficial owner thereof. No Bearer Security delivered in exchange for a portion of a permanent global Security
shall be mailed or otherwise delivered to any location in the United States or Canada. If a Registered Security is issued in
exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange
occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest
Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related
proposed date for payment of Defaulted Interest, interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable
on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of
such portion of such permanent global Security is payable in accordance with the provisions of this Indenture.
Transfers of global Securities
shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. If at any time
the Depositary for Securities of a series notifies the Company that it is unwilling, unable or no longer qualifies to continue as Depositary
for Securities of such series or if at any time the Depositary for such series shall no longer be registered or in good standing under
the Exchange Act, or other applicable statute or regulation, the Company shall appoint a successor Depositary for the Securities of such
series. If a successor to the Depositary for Securities of such series is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such condition, as the case may be, the Company’s election pursuant to Section 3.01
shall no longer be effective with respect to the Securities for such series and the Company will execute, and the applicable Trustee,
upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate and deliver
Securities of such series in definitive, registered form, in authorized denominations, and in an aggregate principal amount equal to the
principal amount of the global Security or Securities representing such series and evidencing the same indebtedness in exchange for such
global Security or Securities.
The Company may at any time and
in its sole discretion determine that the Securities of any series issued in the form of one or more global Securities shall no longer
be represented by such global Security or Securities. In such event the Company will execute, and the applicable Trustee, upon receipt
of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate and deliver Securities
of such series in definitive, registered form, in authorized denominations, and in an aggregate principal amount equal to the principal
amount of the global Security or Securities representing such series and evidencing the same indebtedness in exchange for such global
Security or Securities.
Upon the exchange of a global
Security for Securities in definitive registered form, such global Security shall be cancelled by the applicable Trustee. Securities issued
in exchange for a global Security pursuant to this Section 3.05 shall be registered in such names and in such authorized denominations
as the Depositary for such global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct
the applicable Trustee in writing. The applicable Trustee shall deliver such Securities to the Persons in whose names such Securities
are so registered.
All Securities issued upon any
registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented
or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar or applicable
securities transfer industry practices) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory
to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.
Any registration of transfer
or exchange of Securities may be subject to service charges by the Securities Registrar and the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 3.04, 9.06, 11.07 or 13.05 not involving any transfer.
The Company shall not be required
(i) to issue, register the transfer of or exchange Securities of any series in definitive form during a period beginning at the opening
of business 15 days before the day of the selection for redemption of Securities of that series under Section 11.03 or 12.03
and ending at the close of business on (A) if Securities of the series are issuable only as Registered Securities, the day of the
mailing of the relevant notice of redemption and (B) if Securities of the series are issuable as Bearer Securities, the day of the
first publication of the relevant notice of redemption or, (C) if Securities of the series are also issuable as Registered Securities
and there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any
Registered Security in definitive form so selected for redemption in whole or in part, except the unredeemed portion of any Security being
redeemed in part, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged
for a Registered Security of that series and like tenor; provided that such Registered Security shall be simultaneously surrendered
for redemption, or (iv) to issue, register the transfer of or exchange any Security in definitive form which has been surrendered
for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid.
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Section 3.06
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Mutilated, Destroyed, Lost and Stolen Securities.
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If any mutilated Security or
a Security with a mutilated coupon appertaining to it is surrendered to the applicable Trustee, the Company shall execute and the applicable
Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and
evidencing the same indebtedness and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to the surrendered Security, or, in case any such mutilated Security or coupon has become or is about to become due
and payable, the Company in its discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if any,
appertaining to the surrendered Security, pay such Security or coupon. If there shall be delivered to the Company and to the Trustees
(i) evidence to their satisfaction of the destruction, loss or theft of any Security or coupon and (ii) such security (or surety
in the case of the Canadian Trustee) or indemnity as may be required by them to save each of them and any agent of either of them harmless,
then, in the absence of notice to the Company or the Trustees that such Security or coupon has been acquired by a bona fide purchaser
, the Company shall execute and upon Company Order the applicable Trustee shall authenticate and deliver, in lieu of any such destroyed,
lost or stolen Security or in exchange for the Security for which a destroyed, lost or stolen coupon appertains (with all appurtenant
coupons not destroyed, lost or stolen), a new Security of the same series and of like tenor and principal amount and evidencing the same
indebtedness and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to
such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains.
Notwithstanding the provisions
of the previous two paragraphs, in case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become
due and payable, the Company in its discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if any,
appertaining to such mutilated, destroyed, lost or stolen Security or to the Security to which such mutilated, destroyed, lost or stolen
coupon appertains, pay such Security or coupon; provided, however, that payment of principal of, premium (if any) and interest
(if any) on Bearer Securities shall, except as otherwise provided in Section 10.02, be payable only at an office or agency located
outside the United States and Canada and, unless otherwise specified as contemplated by Section 3.01, any interest on Bearer Securities
shall be payable only upon presentation and surrender of the coupons appertaining thereto.
Upon the issuance of any new
Security under this Section 3.06, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustees) connected therewith.
Every new Security of any series
with its coupons, if any, issued pursuant to this Section 3.06 in lieu of any mutilated, destroyed, lost or stolen Security or in exchange
for a Security to which a mutilated, destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual
obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security and its coupons, if any, or the mutilated,
destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and the Holders of such Security shall be entitled to all
the benefits of this Indenture equally and proportionately with the Holders of any and all other Securities of that series and their coupons,
if any, duly issued hereunder.
The provisions of this Section
3.06 as amended or supplemented pursuant to this Indenture with respect to a particular series of Securities or generally are exclusive
and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities or coupons.
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Section 3.07
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Payment of Principal, Premium and Interest; Interest Rights Preserved; Optional Interest Reset.
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(a)
Unless otherwise provided as contemplated by Section 3.01 with respect to any series of Securities, interest (if any) on any
Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid by the Paying
Agent to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.02;
provided, however, that each installment of interest (if any) on any Registered Security may at the Company’s option be paid
by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 3.09,
to the address of such Person as it appears on the Security Register or (ii) wire transfer to an account located in the United States
maintained by the Person entitled to such payment as specified in the Security Register. Unless otherwise provided as contemplated by
Section 3.01 with respect to any series of Securities, principal and premium (if any) paid in relation to any Security shall be paid to
the Holder of such Security only upon presentation and surrender of such Security at the office or agency of the Company maintained for
such purpose pursuant to Section 10.02.
Unless otherwise provided as
contemplated by Section 3.01 with respect to the Securities of any series, payment of interest (if any) may be made, in the case
of a Bearer Security, by transfer to an account located outside the United States and Canada maintained by the payee.
Unless otherwise provided as
contemplated by Section 3.01, every permanent global Security will provide that interest (if any) payable on any Interest Payment
Date will be paid to the Depositary with respect to that portion of such permanent global Security held for its account by the Depositary,
for the purpose of permitting the Depositary to credit the interest (if any) received by it in respect of such permanent global Security
to the accounts of the beneficial owners thereof.
Any interest on any Registered
Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith
cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such defaulted interest
and, if applicable, interest on such defaulted interest (to the extent lawful) at the rate specified in the Securities of such series
(such defaulted interest and, if applicable, interest thereon herein collectively called “Defaulted Interest”) must
be paid by the Company as provided for in either clause (1) or (2), at the Company’s election:
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(1)
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The Company may elect to make payment of any Defaulted Interest to the Persons
in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify
the Trustees in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of such series and the date
of the proposed payment, and at the same time the Company shall deposit with the applicable Trustee an amount of money in the Currency
in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.01 for the Securities of
such series and except, if applicable, as provided in Sections 3.12(b), 3.12(d) and 3.12(e)) equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustees for such deposit on or prior
to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustees shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustees of the notice of the proposed payment. The Trustees shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be given in the manner provided in Section 1.07, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given,
such Defaulted Interest shall be paid to the Persons in whose name the Registered Securities of such series (or their respective Predecessor
Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following
clause (2).
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(2)
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The Company may make payment of any Defaulted Interest on the Registered Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and, upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustees of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustees.
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(b)
The provisions of this Section 307(b) may be made applicable to any series of Securities pursuant to Section 3.01 (with such
modifications, additions or substitutions as may be specified pursuant to such Section 3.01). The interest rate (or the spread or
spread multiplier used to calculate such interest rate, if applicable) on any Security of such series may be reset by the Company on the
date or dates specified on the face of such Security (each an “Optional Reset Date”). The Company may exercise such
option with respect to such Security by notifying the Trustees of such exercise at least 50 but not more than 60 days prior to an
Optional Reset Date for such Security. Not later than 40 days prior to each Optional Reset Date, the Trustees shall transmit, in
the manner provided for in Section 1.07, to the Holder of any such Security a notice (the “Reset Notice”) indicating
whether the Company has elected to reset the interest rate (or the spread or spread multiplier used to calculate such interest rate, if
applicable), and if so (i) such new interest rate (or such new spread or spread multiplier, if applicable) and (ii) the provisions,
if any, for redemption during the period from such Optional Reset Date to the next Optional Reset Date or if there is no such next Optional
Reset Date, to the Stated Maturity of such Security (each such period a “Subsequent Interest Period”), including the
date or dates on which or the period or periods during which and the price or prices at which such redemption may occur during the Subsequent
Interest Period.
Notwithstanding the foregoing,
not later than 20 days prior to the Optional Reset Date, the Company may, at its option, revoke the interest rate (or the spread
or spread multiplier used to calculate such interest rate, if applicable) provided for in the Reset Notice and establish an interest rate
(or the spread or spread multiplier, if applicable) that is higher than the interest rate (or the spread or spread multiplier, if applicable)
provided for in the Reset Notice, for the Subsequent Interest Period by causing the Trustees to transmit, in the manner provided for in
Section 1.07, notice of such higher interest rate (or such higher spread or spread multiplier, if applicable) to the Holder of such
Security. Such notice shall be irrevocable. All Securities with respect to which the interest rate (or the spread or spread multiplier
used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such
Securities have not tendered such Securities for repayment (or have validly revoked any such tender) pursuant to the next succeeding paragraph,
will bear such higher interest rate (or such higher spread or spread multiplier, if applicable).
The Holder of any such Security
will have the option to elect repayment by the Company of the principal of such Security on each Optional Reset Date at a price equal
to the principal amount thereof plus interest accrued to such Optional Reset Date. In order to obtain repayment on an Optional Reset Date,
the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders except that the period
for delivery or notification to the Trustees shall be at least 25 but not more than 35 days prior to such Optional Reset Date and
except that, if the Holder has tendered any Security for repayment pursuant to the Reset Notice, the Holder may, by written notice to
the Trustees, revoke such tender or repayment until the close of business on the tenth day before such Optional Reset Date.
Subject to the foregoing provisions
of this Section 3.07 and Section 3.05, each Security delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such
other Security.
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Section 3.08
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Optional Extension of Stated Maturity.
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The provisions of this
Section 3.08 may be made applicable to any series of Securities pursuant to Section 3.01 (with such modifications,
additions or substitutions as may be specified pursuant to such Section 3.01). The Stated Maturity of any Security of such
series may be extended at the option of the Company for the period or periods specified on the face of such Security (each an
“Extension Period”) up to but not beyond the date (the “Final Maturity”) set forth on the face
of such Security. The Company may exercise such option with respect to any Security by notifying the Trustees of such exercise at
least 50 but not more than 60 days prior to the Stated Maturity of such Security in effect prior to the exercise of such option
(the “Original Stated Maturity”). If the Company exercises such option, the Trustees shall transmit, in the
manner provided for in Section 1.07, to the Holder of such Security not later than 40 days prior to the Original Stated
Maturity a notice (the “Extension Notice”) indicating (i) the election of the Company to extend the Stated
Maturity, (ii) the new Stated Maturity, (iii) the interest rate (if any) applicable to the Extension Period and
(iv) the provisions, if any, for redemption during such Extension Period. Upon the Trustees’ transmittal of the Extension
Notice, the Stated Maturity of such Security shall be extended automatically and, except as modified by the Extension Notice and as
described in the next paragraph, such Security will have the same terms as prior to the transmittal of such Extension Notice.
Notwithstanding the foregoing,
not later than 20 days before the Original Stated Maturity of such Security, the Company may, at its option, revoke the interest
rate provided for in the Extension Notice and establish a higher interest rate for the Extension Period by causing the Trustees to transmit,
in the manner provided for in Section 1.07, notice of such higher interest rate to the Holder of such Security. Such notice shall
be irrevocable. All Securities with respect to which the Stated Maturity is extended will bear such higher interest rate.
If the Company extends the Maturity
of any Security, the Holder will have the option to elect repayment of such Security by the Company on the Original Stated Maturity at
a price equal to the principal amount thereof, plus interest accrued to such date. In order to obtain repayment on the Original Stated
Maturity once the Company has extended the Maturity thereof, the Holder must follow the procedures set forth in Article Thirteen
for repayment at the option of Holders, except that the period for delivery or notification to the Trustees shall be at least 25 but not
more than 35 days prior to the Original Stated Maturity and except that, if the Holder has tendered any Security for repayment pursuant
to an Extension Notice, the Holder may by written notice to the Trustees revoke such tender for repayment until the close of business
on the tenth day before the Original Stated Maturity.
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Section 3.09
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Persons Deemed Owners.
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Prior to due presentment of a
Registered Security for registration of transfer, the Company, the Trustees and any agent of the Company or the Trustees may treat the
Person in whose name such Registered Security is registered as the owner of such Registered Security for the purpose of receiving payment
of principal of, premium (if any) and (subject to Sections 3.05 and 3.07) interest (if any) on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and none of the Company, the Trustees or any agent of the Company or the Trustees
shall be affected by notice to the contrary.
Title to any Bearer Security
and any coupons appertaining thereto shall pass by delivery. The Company, the Trustees and any agent of the Company or the Trustees may
treat the bearer of any Bearer Security and the bearer of any coupon as the absolute owner of such Security or coupon for the purpose
of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupons be overdue,
and none of the Company, the Trustees or any agent of the Company or the Trustees shall be affected by notice to the contrary.
The Depositary for
Securities may be treated by the Company, the Trustees, and any agent of the Company or the Trustees as the owner of such global
Security for all purposes whatsoever. None of the Company, the Trustees, any Paying Agent or the Security Registrar will have any
responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests
of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership
interests.
Notwithstanding the foregoing,
with respect to any global Security, nothing herein shall prevent the Company, the Trustees, or any agent of the Company or the Trustees,
from giving effect to any written certification, proxy or other authorization furnished by any Depositary, as a Holder, with respect to
such global Security or impair, as between such Depositary and owners of beneficial interests in such global Security, the operation of
customary practices governing the exercise of the rights of such Depositary (or its nominee) as Holder of such global Security.
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Section 3.10
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Cancellation.
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All Securities and coupons surrendered
for payment, redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any current
or future sinking fund payment shall, if surrendered to any Person other than a Trustee, be delivered to either Trustee. All Securities
and coupons so delivered to either Trustee shall be promptly cancelled by such Trustee. The Company may at any time deliver to a Trustee
for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever,
and may deliver to either Trustee (or to any other Person for delivery to such Trustee) for cancellation any Securities previously authenticated
hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by such Trustee. If the
Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to either Trustee for cancellation. No Securities shall be authenticated
in lieu of or in exchange for any Securities cancelled as provided in this Section 3.10, except as expressly permitted by this Indenture.
All cancelled Securities held by either Trustee shall be disposed of by such Trustee in accordance with its customary procedures and certification
of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it.
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Section 3.11
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Computation of Interest.
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Except as otherwise specified
as contemplated by Section 3.01 with respect to any Securities, interest (if any) on the Securities of each series shall be computed
on the basis of a 360-day year of twelve 30-day months. For the purposes of disclosure under the Interest Act (Canada), the yearly rate
of interest to which interest calculated under a Security for any period in any calendar year (the “calculation period”)
is equivalent, is the rate payable under a Security in respect of the calculation period multiplied by a fraction the numerator of which
is the actual number of days in such calendar year and the denominator of which is the actual number of days in the calculation period.
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Section 3.12
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Currency and Manner of Payments in Respect of Securities.
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(a)
With respect to Registered Securities of any series not permitting the election provided for in paragraph (b) below or the
Holders of which have not made the election provided for in paragraph (b) below, and with respect to Bearer Securities of any series,
except as provided in paragraph (d) below, payment of the principal of, premium (if any) and interest (if any) on such Registered
Security or Bearer Security of such series will be made in the Currency in which such Registered Security or Bearer Security, as the case
may be, is payable. The provisions of this Section 3.12 may be modified or superseded with respect to any Securities pursuant to Section 3.01.
(b)
It may be provided pursuant to Section 3.01 with respect to Registered Securities of any series that Holders shall have the
option, subject to paragraphs (d) and (e) below, to receive payments of principal of, premium (if any) or interest (if any) on such
Registered Securities in any of the Currencies which may be designated for such election by delivering to the Trustees a written election
with signature guarantees and in the applicable form established pursuant to Section 3.01, not later than the close of business on
the Election Date immediately preceding the applicable payment date. If a Holder so elects to receive such payments in any such Currency,
such election will remain in effect for such Holder or any transferee of such Holder until changed by such Holder or such transferee by
written notice to the Trustees (but any such change must be made not later than the close of business on the Election Date immediately
preceding the next payment date to be effective for the payment to be made on such payment date and no such change of election may be
made with respect to payments to be made on any Registered Security of such series with respect to which an Event of Default has occurred
or with respect to which the Company has deposited funds pursuant to Article Four or Fourteen or with respect to which a notice of
redemption has been given by the Company or a notice of option to elect repayment has been sent by such Holder or such transferee). Any
Holder of any such Registered Security who shall not have delivered any such election to the Trustees not later than the close of business
on the applicable Election Date will be paid the amount due on the applicable payment date in the relevant Currency as provided in Section 3.12(a).
The Trustees shall notify the Exchange Rate Agent as soon as practicable after the Election Date of the aggregate principal amount of
Registered Securities for which Holders have made such written election.
(c)
Unless otherwise specified pursuant to Section 3.01, if the election referred to in paragraph (b) above has been provided
for pursuant to Section 3.01, then, unless otherwise specified pursuant to Section 3.01, not later than the fourth Business
Day after the Election Date for each payment date for Registered Securities of any series, the Exchange Rate Agent will deliver to the
Company a written notice specifying, in the Currency in which Registered Securities of such series are payable, the respective aggregate
amounts of principal of, premium (if any) and interest (if any) on the Registered Securities to be paid on such payment date, specifying
the amounts in such Currency so payable in respect of the Registered Securities as to which the Holders of Registered Securities of such
series shall have elected to be paid in another Currency as provided in paragraph (b) above. If the election referred to in paragraph (b)
above has been provided for pursuant to Section 3.01 and if at least one Holder has made such election, then, unless otherwise specified
pursuant to Section 3.01, on the second Business Day preceding such payment date the Company will deliver to the Trustees for such
series of Registered Securities an Exchange Rate Officer’s Certificate in respect of the Dollar or Foreign Currency payments to
be made on such payment date. Unless otherwise specified pursuant to Section 3.01, the Dollar or Foreign Currency amount receivable
by Holders of Registered Securities who have elected payment in a Currency as provided in paragraph (b) above shall be determined
by the Company on the basis of the applicable Market Exchange Rate in effect on the third Business Day (the “Valuation Date”)
immediately preceding each payment date, and such determination shall be conclusive and binding for all purposes, absent manifest error.
(d) If
a Conversion Event occurs with respect to a Foreign Currency in which any of the Securities are denominated or payable other than
pursuant to an election provided for pursuant to paragraph (b) above, then, with respect to each date for the payment of
principal of, premium (if any) and interest (if any) on the applicable Securities denominated or payable in such Foreign Currency
occurring after the last date on which such Foreign Currency was used (the “Conversion Date”), the Dollar shall
be the Currency of payment for use on each such payment date. Unless otherwise specified pursuant to Section 3.01, the Dollar
amount to be paid by the Company to the Trustees and by the Trustees or any Paying Agent to the Holders of such Securities with
respect to such payment date shall be, in the case of a Foreign Currency other than a currency unit, the Dollar Equivalent of the
Foreign Currency or, in the case of a currency unit, the Dollar Equivalent of the Currency Unit, in each case as determined by the
Exchange Rate Agent in the manner provided in paragraph (f) or (g) below.
(e)
Unless otherwise specified pursuant to Section 3.01, if the Holder of a Registered Security denominated in any Currency shall
have elected to be paid in another Currency as provided in paragraph (b) above, and a Conversion Event occurs with respect to such
elected Currency, such Holder shall receive payment in the Currency in which payment would have been made in the absence of such election;
and if a Conversion Event occurs with respect to the Currency in which payment would have been made in the absence of such election, such
Holder shall receive payment in Dollars as provided in paragraph (d) above.
(f)
The “Dollar Equivalent of the Foreign Currency” shall be determined by the Exchange Rate Agent and shall be
obtained for each subsequent payment date by converting the specified Foreign Currency into Dollars at the Market Exchange Rate on the
Conversion Date.
(g)
The “Dollar Equivalent of the Currency Unit” shall be determined by the Exchange Rate Agent and subject to the
provisions of paragraph (h) below shall be the sum of each amount obtained by converting the Specified Amount of each Component Currency
into Dollars at the Market Exchange Rate for such Component Currency on the Valuation Date with respect to each payment.
(h)
For purposes of this Section 3.12 the following terms shall have the following meanings:
A “Component Currency”
shall mean any Currency which, on the Conversion Date, was a component currency of the relevant currency unit, including, but not limited
to, the Euro.
A “Specified Amount”
of a Component Currency shall mean the number of units of such Component Currency or fractions thereof which were represented in the relevant
currency unit, including, but not limited to, the Euro, on the Conversion Date. If after the Conversion Date the official unit of any
Component Currency is altered by way of combination or subdivision, the Specified Amount of such Component Currency shall be divided or
multiplied in the same proportion. If after the Conversion Date two or more Component Currencies are consolidated into a single currency,
the respective Specified Amounts of such Component Currencies shall be replaced by an amount in such single Currency equal to the sum
of the respective Specified Amounts of such consolidated Component Currencies expressed in such single Currency, and such amount shall
thereafter be a Specified Amount and such single Currency shall thereafter be a Component Currency. If after the Conversion Date any Component
Currency shall be divided into two or more currencies, the Specified Amount of such Component Currency shall be replaced by amounts of
such two or more currencies, having an aggregate Dollar Equivalent value at the Market Exchange Rate on the date of such replacement equal
to the Dollar Equivalent value of the Specified Amount of such former Component Currency at the Market Exchange Rate immediately before
such division and such amounts shall thereafter be Specified Amounts and such currencies shall thereafter be Component Currencies. If,
after the Conversion Date of the relevant currency unit, including, but not limited to, the Euro, a Conversion Event (other than any event
referred to above in this definition of “Specified Amount”) occurs with respect to any Component Currency of such currency
unit and is continuing on the applicable Valuation Date, the Specified Amount of such Component Currency shall, for purposes of calculating
the Dollar Equivalent of the Currency Unit, be converted into Dollars at the Market Exchange Rate in effect on the Conversion Date of
such Component Currency.
“Election Date”
shall mean the date for any series of Registered Securities as specified pursuant to clause (15) of Section 3.01 by which the
written election referred to in paragraph (b) above may be made.
All decisions and determinations
of the Exchange Rate Agent regarding the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent of the Currency Unit, the Market
Exchange Rate and changes in the Specified Amounts as specified above shall be in its sole discretion and shall, in the absence of manifest
error, be conclusive for all purposes and irrevocably binding upon the Company, the Trustees and all Holders of such Securities denominated
or payable in the relevant Currency. The Exchange Rate Agent shall promptly give written notice to the Company and the Trustees of any
such decision or determination.
In the event that the Company
determines in good faith that a Conversion Event has occurred with respect to a Foreign Currency, the Company will immediately give written
notice thereof to the Trustees and to the Exchange Rate Agent (and the Trustees will promptly thereafter give notice in the manner provided
for in Section 1.07 to the affected Holders) specifying the Conversion Date. In the event the Company so determines that a Conversion
Event has occurred with respect to the Euro or any other currency unit in which Securities are denominated or payable, the Company will
immediately give written notice thereof to the Trustees and to the Exchange Rate Agent (and the Trustees will promptly thereafter give
notice in the manner provided for in Section 1.07 to the affected Holders) specifying the Conversion Date and the Specified Amount
of each Component Currency on the Conversion Date. In the event the Company determines in good faith that any subsequent change in any
Component Currency as set forth in the definition of Specified Amount above has occurred, the Company will similarly give written notice
to the Trustees and the Exchange Rate Agent.
The Trustees shall be fully justified
and protected in relying and acting upon information received by it from the Company and the Exchange Rate Agent and shall not otherwise
have any duty or obligation to determine the accuracy or validity of such information independent of the Company or the Exchange Rate
Agent.
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Section 3.13
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Appointment and Resignation of Successor Exchange Rate Agent.
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(a)
Unless otherwise specified pursuant to Section 3.01, if and so long as the Securities of any series (i) are denominated
in a Currency other than Dollars or (ii) may be payable in a Currency other than Dollars, or so long as it is required under any
other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at
least one Exchange Rate Agent. The Company will cause the Exchange Rate Agent to make the necessary foreign exchange determinations at
the time and in the manner specified pursuant to Section 3.01 for the purpose of determining the applicable rate of exchange and,
if applicable, for the purpose of converting the issued Currency into the applicable payment Currency for the payment of principal, premium
(if any) and interest (if any) pursuant to Section 3.12.
(b)
The Company shall have the right to remove and replace from time to time the Exchange Rate Agent for any series of Securities.
No resignation of the Exchange Rate Agent and no appointment of a successor Exchange Rate Agent pursuant to this Section 3.13 shall become
effective until the acceptance of appointment by the successor Exchange Rate Agent as evidenced by a written instrument delivered to the
Company and the Trustees.
(c) If
the Exchange Rate Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the
Exchange Rate Agent for any cause with respect to the Securities of one or more series, the Company, by or pursuant to a Board
Resolution, shall promptly appoint a successor Exchange Rate Agent or Exchange Rate Agents with respect to the Securities of that or
those series (it being understood that any such successor Exchange Rate Agent may be appointed with respect to the Securities of one
or more or all of such series and that, unless otherwise specified pursuant to Section 3.01, at any time there shall only be
one Exchange Rate Agent with respect to the Securities of any particular series that are originally issued by the Company on the
same date and that are initially denominated and/or payable in the same Currency).
ARTICLE Four
SATISFACTION AND DISCHARGE
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Section 4.01
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Satisfaction and Discharge of Indenture.
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This Indenture shall upon Company
Request cease to be of further effect with respect to any series of Securities specified in such Company Request (except as to any surviving
rights of registration of transfer or exchange of Securities of such series expressly provided for herein or pursuant hereto and the rights
of Holders of such series of Securities and any related coupons to receive, solely from the trust fund described in subclause (b)
of clause (1) of this Section 4.01, payments in respect of the principal of, premium (if any) and interest (if any) on such Securities
and any related coupons when such payments are due and except as provided in the last paragraph of this Section 4.01) and the Trustees,
at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such
series when
(a) all Securities of such series theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than
(i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange,
whose surrender is not required or has been waived as provided in Section 3.05, (ii) Securities and coupons of such series which
have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06, (iii) coupons appertaining
to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender has been waived as provided in Section 11.06,
and (iv) Securities and coupons of such series for whose payment money has theretofore been deposited in trust with either Trustee
or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 10.03)
have been delivered to either Trustee for cancellation; or
(b) all Securities of such series and, in the case of (i) or (ii) below, any coupons appertaining thereto not theretofore delivered
to either Trustee for cancellation
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(i)
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have become due and payable, or
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(ii)
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will become due and payable at their Stated Maturity within one year, or
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(iii)
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if redeemable at the option of the Company, are to be called for redemption within one year under arrangements
satisfactory to the Trustees for the giving of notice of redemption by the Trustees in the name, and at the expense, of the Company,
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and the Company, in the case of (i), (ii) or (iii)
above, has irrevocably deposited or caused to be deposited with either Trustee as trust funds in trust for such purpose an amount in the
Currency in which the Securities of such series are payable, sufficient to pay and discharge the entire indebtedness on such Securities
not theretofore delivered to such Trustee for cancellation, for principal, premium (if any) and interest (if any) to the date of such
deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
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(2)
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the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
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(3)
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the Company has delivered to the Trustees an Officer’s Certificate and an Opinion of Counsel, each
stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series
have been complied with.
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Notwithstanding the satisfaction
and discharge of this Indenture, the obligations of the Company to the Trustees under Section 6.07, the obligations of the Trustees
to any Authenticating Agent under Section 6.12 and, if money shall have been deposited with the Trustees pursuant to subclause (b)
of clause (1) of this Section 4.01, the obligations of the Trustees under Section 4.02 and the last paragraph of Section 10.03
shall survive.
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Section 4.02
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Application of Trust Money.
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Subject to the provisions of
the last paragraph of Section 10.03, all money deposited with the Trustees pursuant to Section 4.01 shall be held in trust and
applied by it, in accordance with the provisions of the Securities, the coupons and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustees may determine, to the Persons entitled
thereto, of the principal, premium (if any) and interest (if any) for whose payment such money has been deposited with the Trustees; but
such money need not be segregated from other funds except to the extent required by law.
ARTICLE Five
REMEDIES
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Section 5.01
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Events of Default.
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“Event of Default,”
wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is specifically deleted
or modified in or pursuant to a supplemental indenture, Board Resolution or Officer’s Certificate establishing the terms of such
series pursuant to Section 3.01 of this Indenture:
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(1)
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default in the payment of any interest due on any Security of that series, or any related coupon, when such
interest or coupon becomes due and payable, and continuance of such default for a period of 30 days; or
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(2)
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default in the payment of the principal or premium (if any) in respect of any Security of that series at
its Maturity; or
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(3)
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default in the deposit of any sinking fund, amortization or analogous payment when due by the terms of any
Security of that series and Article Twelve; or
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(4)
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default in the performance, or breach, of any covenant or agreement of the Company in this Indenture
which affects or is applicable to the Securities of that series (other than a covenant or agreement, a default in whose performance
or whose breach is elsewhere in this Section 5.01 specifically dealt with), and continuance of such default or breach for a period
of 60 days after there has been given (and 120 days with respect to a default or breach under Section 7.05), by registered or
certified mail, to the Company by the Trustees or to the Company and the Trustees by the Holders of at least 25% in principal amount
of all Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a “Notice of Default” hereunder; or
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(5)
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the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under or subject to the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada),
the U.S. Federal Bankruptcy Code or any other federal, provincial, state or foreign bankruptcy, insolvency or analogous laws, or the issuance
of a sequestration order or the (appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or in receipt of any substantial part of the property of the Company, and any such decree, order or appointment continues
unstayed and in effect for a period of 90 consecutive days; or
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(6)
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the institution by the Company of proceedings to be adjudicated bankrupt or insolvent, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under or subject to the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act
(Canada), the U.S. Federal Bankruptcy Code or any other federal, provincial, state or foreign bankruptcy, insolvency or analogous laws
or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or of any substantial part of its property, or the making by it of a general assignment for
the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking
by it of corporate action in furtherance of any of the aforesaid purposes; or
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(7)
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any other Event of Default provided with respect to Securities of that series.
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Section 5.02
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Acceleration of Maturity; Rescission and Annulment.
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If an Event of Default described
in clause (1), (2), (3), (4) or (7) of Section 5.01 with respect to Securities of any series at the time Outstanding occurs
and is continuing, then in every such case, either Trustee or the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series, may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities
or Indexed Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Securities
of that series and all interest thereon to be due and payable immediately, by a notice in writing to the Company (and to the Trustees
if given by Holders), and upon any such declaration such principal amount (or specified portion thereof) shall become immediately due
and payable. If an Event of Default specified in clause (5) or (6) of Section 5.01 occurs and is continuing, then the principal amount
of all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the
Trustees or any Holder.
At any time after such a declaration
of acceleration with respect to Securities of any series (or of all series, as the case may be) has been made and before a judgment or
decree for payment of the money due has been obtained by either Trustee as hereinafter provided in this Article Five, the Holders of a
majority in principal amount of the Outstanding Securities of that series (or of all series, as the case may be), by written notice to
the Company and the Trustees, may rescind and annul such declaration and its consequences if:
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(1)
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the Company has paid or deposited with either Trustee a sum sufficient to pay in the Currency in which the
Securities of such series are payable (except as otherwise specified pursuant to Section 3.01 for the Securities of such series and
except, if applicable, as provided in Sections 3.12(b), 3.12(d) and 3.12(e)),
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(a)
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all overdue interest (if any) on all Outstanding Securities of that series (or of all series, as the case
may be) and any related coupons,
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(b)
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all unpaid principal of and premium (if any) on any Outstanding Securities of that series (or of all series,
as the case may be) which has become due otherwise than by such declaration of acceleration, and interest on such unpaid principal and
premium (if any) at the rate or rates prescribed therefor in such Securities,
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(c)
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to the extent that payment of such interest is legally enforceable, interest on overdue interest at the rate
or rates prescribed therefor in such Securities, and
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(d)
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all sums paid or advanced by the Trustees hereunder and the reasonable compensation, expenses, disbursements
and advances of the Trustees, their agents and counsel; and
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(2)
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all Events of Default with respect to Securities of that series (or of all series, as the case may be), other
than the non-payment of amounts of principal of, premium (if any) or interest (if any) on Securities of that series (or of all series,
as the case may be) which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13.
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No such rescission shall affect
any subsequent default or impair any right consequent thereon.
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Section 5.03
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Collection of Debt and Suits for Enforcement by Trustees.
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The Company covenants that if
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(1)
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default is made in the payment of any installment of interest on any Security and any related coupon when
such interest becomes due and payable and such default continues for a period of 30 days, or
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(2)
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default is made in the payment of the principal of or premium (if any) any Security at the Maturity thereof,
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then the Company will, upon demand of the Trustees,
pay to the applicable Trustee for the benefit of the Holders of such Securities and coupons, the whole amount then due and payable on
such Securities and coupons for principal of, premium (if any) and interest (if any) and interest on any overdue principal, overdue premium
(if any) and, to the extent lawful, overdue interest (if any), at the rate or rates prescribed therefor in such Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustees, their agents and counsel.
If the Company fails to pay
such amounts forthwith upon such demand, the Trustees, in their own names as trustees of an express trust, may institute a judicial
proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect
to Securities of any series (or of all series, as the case may be) occurs and is continuing, either Trustee may in its discretion proceed
to protect and enforce its rights and the rights of the Holders of Securities of such series (or of all series, as the case may be) by
such appropriate judicial proceedings as such Trustee shall deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
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Section 5.04
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Trustees May File Proofs of Claim.
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In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative
to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, each
Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether either Trustee shall have made any demand on the Company for the payment of overdue principal,
premium (if any) or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
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(i)
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to file and prove a claim for the whole amount of principal and premium (if any), or such portion of the
principal amount of any series of Original Issue Discount Securities or Indexed Securities as may be specified in the terms of such series,
and interest (if any) owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of such Trustee (including any claim for the reasonable compensation, expenses, disbursements and
advances of such Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
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(ii)
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to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute
the same;
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and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to such
Trustee and, in the event that such Trustee shall consent to the making of such payments directly to the Holders, to pay to such Trustee
any amount due to it for the reasonable compensation, expenses, disbursements and advances of each Trustee, its agents and counsel, and
any other amounts due to such Trustee under Section 6.07.
Nothing herein contained shall
be deemed to authorize the Trustees to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustees to vote
in respect of the claim of any Holder in any such proceeding.
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Section 5.05
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Trustees May Enforce Claims Without Possession of Securities.
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All rights of action and
claims under this Indenture, the Securities or coupons may be prosecuted and enforced by the Trustees without the possession of any
of the Securities or coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by
either Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and advances of such Trustee, its agents and counsel, be for
the ratable benefit of the Holders of the Securities and coupons in respect of which such judgment has been recovered.
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Section 5.06
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Application of Money Collected.
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Any money collected by either
Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustees and, in case
of the distribution of such money on account of principal of, premium (if any) or interest (if any) upon presentation of the Securities
or coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
First: to the payment of all
amounts due the Trustees under Section 6.07;
Second: to the payment of the
amounts then due and unpaid for principal of, premium (if any) and interest (if any), on the Securities and coupons in respect of which
or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities and coupons for principal, premium (if any) and interest (if any), respectively; and
Third: the balance, if any, to
the Person or Persons entitled thereto.
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Section 5.07
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Limitation on Suits.
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No Holder of any Security of
any series or any related coupons shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture
or the Securities, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
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(1)
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such Holder has previously given written notice to the Trustees of a continuing Event of Default with respect
to the Securities of that series;
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(2)
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the Holders of not less than 25% in principal amount of the Outstanding Securities of that series in the
case of any Event of Default described in clause (1), (2), (3), (4) or (7) of Section 5.01, or, in the case of any Event of
Default described in clause (5) or (6) of Section 5.01, the Holders of not less than 25% in principal amount of all Outstanding
Securities, shall have made written request to the Trustees to institute proceedings in respect of such Event of Default in their own
names as Trustees hereunder;
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(3)
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such Holder or Holders have offered to the Trustees reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
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(4)
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the Trustees for 60 days after their receipt of such notice, request and offer of indemnity have failed
to institute any such proceeding; and
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(5)
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no direction inconsistent with such written request has been given to the Trustees during such 60-day period
by the Holders of a majority or more in principal amount of the Outstanding Securities of that series in the case of any Event of Default
described in clause (1), (2), (3), (4) or (7) of Section 5.01, or in the case of any Event of Default described in clause (5)
or (6) of Section 5.01, by the Holders of a majority or more in principal amount of all Outstanding Securities;
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it being understood and intended that no one or more
of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect,
disturb or prejudice the rights of any other Holders of Securities of the same series, in the case of any Event of Default described in
clause (1), (2), (3), (4) or (7) of Section 5.01, or of Holders of all Securities in the case of any Event of Default described
in clause (5) or (6) of Section 5.01, or to obtain or to seek to obtain priority or preference over any other of such Holders
or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders
of Securities of the same series, in the case of any Event of Default described in clause (1), (2), (3), (4) or (7) of Section 5.01,
or of Holders of all Securities in the case of any Event of Default described in clause (5) or (6) of Section 5.01.
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Section 5.08
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Unconditional Right of Holders to Receive Principal, Premium and Interest.
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Notwithstanding any other provision
in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment, as provided
herein (including, if applicable, Article Fourteen) and in such Security, of the principal of and premium (if any) and (subject to
Section 3.07) interest (if any) on, such Security or payment of such coupon on the respective Stated Maturities expressed in such
Security or coupon (or, in the case of redemption, on the Redemption Date or, in the case of repayment at the option of the Holder as
contemplated by Article Twelve, on the Repayment Date) and subject to the limitations on a Holder’s ability to institute suit contained
Section 5.07, to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent
of such Holder.
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Section 5.09
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Restoration of Rights and Remedies.
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If either Trustee or any Holder
has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to such Trustee or to such Holder, then and in every such case, subject to any determination
in such proceeding, the Company, the Trustees and the Holders of Securities and coupons shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the Trustees and the Holders shall continue as though no such
proceeding had been instituted.
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Section 5.10
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Rights and Remedies Cumulative.
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Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph of Section 3.06,
no right or remedy herein conferred upon or reserved to the Trustees or to the Holders of Securities or coupons is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not, to the extent permitted by law, prevent the concurrent assertion or employment of
any other appropriate right or remedy.
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Section 5.11
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Delay or Omission Not Waiver.
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No delay or omission of the Trustees
or of any Holder of any Security or coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article
Five or by law to the Trustees or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustees
or by the Holders, as the case may be.
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Section 5.12
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Control
by Holders.
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With respect to the Securities
of any series, the Holders of not less than a majority in principal amount of the Outstanding Securities of such series shall have the
right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustees, or exercising any trust
or power conferred on the Trustees, relating to or arising under clause (1), (2), (3), (4) or (7) of Section 5.01, and, with
respect to all Securities, the Holders of not less than a majority in principal amount of all Outstanding Securities shall have the right
to direct the time, method and place of conducting any proceeding for any remedy available to the Trustees, or exercising any trust or
power conferred on the Trustees, not relating to or arising under clause (1), (2), (3), (4) or (7) of Section 5.01, provided
that in each case
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(1)
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such direction shall not be in conflict with any rule of law or with this Indenture,
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(2)
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the Trustees may take any other action deemed proper by the Trustees which is not inconsistent with such
direction, and
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(3)
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the Trustees need not take any action which might involve them in personal liability or be unjustly prejudicial
to the Holders of Securities of such series not consenting.
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Section 5.13
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Waiver of Past Defaults.
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Subject to Section 5.02,
the Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of
all the Securities of such series waive any past Default described in clause (1), (2), (3), (4) or (7) of Section 5.01 (or,
in the case of a Default described in clause (5) or (6) of Section 5.01, the Holders of not less than a majority in principal
amount of all Outstanding Securities may waive any such past Default), and its consequences, except a default
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(1)
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in respect of the payment of the principal of, premium (if any) or interest (if any) on any Security or any
related coupon, or
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(2)
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in respect of a covenant or provision herein which under Article Nine cannot be modified or amended
without the consent of the Holder of each outstanding Security of such series affected.
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Upon any such waiver, any such
Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon.
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Section 5.14
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Waiver of Stay or Extension Laws.
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The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustees, but
will suffer and permit the execution of every such power as though no such law had been enacted.
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Section 5.15
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Undertaking
for Costs.
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In any suit for the enforcement
of any right or remedy under this Indenture, or in any suit against either Trustee for any action taken, suffered or omitted by it as
Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs
against any such party litigant, in the manner and to the extent provided in Trust Indenture Legislation; provided, however, that
neither this Section 5.15 nor the provisions of TIA Section 315(e) shall apply to any suit instituted by either Trustee or by any
Holder or group of Holders holding more than 10% in principal amount of all Outstanding Securities or by any Holder of any Security on
any suit for the enforcement of the right to receive the principal of and interest on any such Securities.
ARTICLE Six
THE TRUSTEES
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Section 6.01
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Notice of Defaults.
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Each Trustee shall promptly give
the other Trustee notice of any Default or Event of Default known to it. Within a reasonable time, but no more than 30 days after
either Trustee has knowledge of any Default hereunder with respect to the Securities of any series, one or both of the Trustees shall
transmit in the manner and to the extent provided in Trust Indenture Legislation, including TIA Section 313(c), notice to the Holders
of such Default hereunder known to either Trustee, unless such Default shall have been cured or waived (and, in the case where such Default
shall have been cured, the Trustees shall notify the Holders in writing of such cure in writing within a reasonable time, but not exceeding
30 days, after the Trustees have become aware that the Default has been cured); provided, however, that, except in the case of
a Default in the payment of the principal of, premium (if any) or interest (if any) on any Security of such series or in the payment of
any sinking fund installment with respect to Securities of such series, the Trustees shall be protected in withholding such notice if
and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of each Trustee
in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series and any related
coupons; provided further that in the case of any Default of the character specified in clause (4) of Section 5.01 with respect
to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof.
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Section 6.02
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Certain Duties and Responsibilities of Trustees.
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(a)
The Trustees, prior to the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform with respect to the Securities of any series such duties and only such duties as are specifically set forth
in this Indenture, and no implied covenants shall be read into this Indenture against the Trustees.
(b)
In all instances, in the exercise of the powers, rights, duties and discharge of obligations prescribed or conferred by the terms
of this Indenture, each Trustee shall act honestly and in good faith with a view to the best interests of the Holders and exercise that
degree of care, diligence and skill that a reasonably prudent trustee in respect of indentures for the purpose of issuing corporate debt
obligations would exercise in comparable circumstances.
(c)
No provision of this Indenture shall be construed to relieve each Trustee from liability for its own actions or failure to act
in accordance with Subsection 6.02(b), except that:
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(i)
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prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default
that may have occurred:
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(A)
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the duties and obligations of each Trustee with respect to the Securities of any series shall be determined
solely by the express provisions of this Indenture, and the Trustees shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture
against the Trustees; and
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(B)
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in the absence of bad faith on the part of either Trustee, such Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the
Trustees and conforming to the requirements of this Indenture and Trust Indenture Legislation; but in the case of any such certificates
or opinions that by any provision hereof are specifically required to be furnished to the Trustees, the Trustees shall be under a duty
to examine the same to determine whether or not they conform to the requirements of this Indenture; provided, however, the Canadian
Trustee shall not be required to determine whether the certificates or opinions presented to it conform to the Trust Indenture Act and
the U.S. Trustee shall not be required to determine whether the certificates or opinions presented to it conform to Canadian Trust Indenture
Legislation.
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(ii)
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the Trustees shall not be liable with respect to any action taken or omitted to be taken by them in good
faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Securities of any series
at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustees,
or exercising any trust or power conferred upon the Trustees under this Indenture;
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(iii)
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none of the provisions contained in this Indenture shall require either Trustee to expend or risk their own
funds or otherwise incur personal or any financial liability in the performance of any of their duties or in the exercise of any of their
rights or powers; and
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(iv)
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whether or not therein expressly so provided, except to the extent expressly provided herein to the contrary,
every provision of this Indenture relating to the conduct or effecting the liability or affording protection to the Trustees shall be
subject to the provisions of this Section 6.02.
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(d)
Notwithstanding the provisions of this Section 6.02 or any provision in this Indenture or in the Securities, the Trustees
will not be charged with knowledge of the existence of any Event of Default or any other fact that would prohibit the making of any payment
of monies to or by the Trustees, or the taking of any other action by the Trustees, unless and until the Trustees have received written
notice thereof from the Company or any Holder.
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Section 6.03
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Certain Rights of Trustees.
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Subject to the provisions of
TIA Sections 315(a) through 315(d):
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(1)
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the Trustees may rely and shall be protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by them to be genuine and to have been signed or presented by the proper
party or parties;
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(2)
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any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request
or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
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(3)
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whenever in the administration of this Indenture the Trustees shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting any action hereunder, each Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an Officer’s Certificate;
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(4)
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the Trustees may consult with counsel and the written advice of such counsel or any opinion of Counsel shall
be full and complete authorization and protection in respect of any action taken, suffered or omitted by them hereunder in good faith
and in reliance thereon;
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(5)
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the Trustees shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture
at the request or direction of any of the Holders of Securities of any series or any related coupons pursuant to this Indenture, unless
such Holders shall have offered to the Trustees reasonable security or indemnity against the costs, expenses and liabilities which might
be incurred by them in compliance with such request or direction;
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(6)
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the Trustees shall not be bound to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Trustees, in their discretion, may make such further inquiry or investigation into
such facts or matters as they may see fit, and, if the Trustees shall determine to make such further inquiry or investigation, they shall
be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
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(7)
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in an Event of Default, the Trustees’ powers shall not be infringed upon so long as they act in accordance
with Section 6.02(b);
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(8)
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the Trustees may execute any of the trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys and the Trustees shall not be responsible for any misconduct or negligence on the part of any agent
or attorney appointed with due care by them hereunder; and
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(9)
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the Trustees shall not be liable for any action taken, suffered or omitted by them in good faith and believed
by them to be authorized or within the discretion or rights or powers conferred upon them by this Indenture, so long as they act in accordance
with this Section 6.02(b).
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Section 6.04
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Trustees Not Responsible for Recitals or Issuance of Securities.
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The recitals contained
herein and in the Securities, except for a Trustee’s certificate of authentication, and in any coupons shall be taken as the
statements of the Company, and neither Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The
Trustees make no representations as to the validity or sufficiency of this Indenture or of the Securities or coupons, except that
the Trustees represent that they are duly authorized to execute and deliver this Indenture, authenticate the Securities and perform
their obligations hereunder and that the statements made by the U.S. Trustee in a Statement of Eligibility on Form T-1 supplied
to the Company are true and accurate, subject to the qualifications set forth therein. Neither Trustee nor any Authenticating Agent
shall be accountable for the use or application by the Company of Securities or the proceeds thereof. Nothing herein contained will
impose on either Trustee any obligation to see to, or to require evidence of, the registration or filing (or renewal thereof) of
this Indenture or any supplemental indenture. The Trustees shall not be bound to give notice to any person of the execution
hereof.
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Section 6.05
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May Hold Securities.
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The Trustees, any Authenticating
Agent, any Paying Agent, any Security Registrar or any other agent of the Company or of the Trustees, in their individual or any other
capacity, may become the owner or pledgee of Securities and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal
with the Company, including, without limitation, as a creditor of the Company, with the same rights they would have if they were not Trustees,
Authenticating Agent, Paying Agent, Security Registrar or such other agent. A Trustee that has resigned or is removed shall remain subject
to TIA Section 311(a) to the extent provided therein.
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Section 6.06
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Money Held in Trust.
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Money held by the Trustees in
trust hereunder need not be segregated from other funds except to the extent required by law. The Trustees shall be under no liability
for interest on any money received by them hereunder except as otherwise agreed with the Company.
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Section 6.07
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Compensation and Reimbursement.
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The Company agrees:
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(1)
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to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder
(which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
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(2)
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except as otherwise expressly provided herein, to reimburse the Trustees upon their request for all reasonable
expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of their agents and counsel), except any such expense, disbursement or advance
as may be attributable to the U.S. Trustee’s gross negligence or bad faith or the Canadian Trustee’s gross negligence or willful
misconduct, respectively; and
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(3)
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to indemnify the Trustees for, and to hold them and their directors, officers, agents, representatives, successors,
assigns and employees harmless against, any loss, liability or expense incurred without gross negligence or bad faith on the part of the
U.S. Trustee, or gross negligence or willful misconduct on the part of the Canadian Trustee, respectively, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder, including reasonable attorneys’ fees and other reasonable
costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their
powers or duties hereunder.
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The obligations of the Company
under this Section 6.07 to compensate the Trustees, to pay or reimburse the Trustees for expenses, disbursements and advances and to indemnify
and hold harmless the Trustees shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of
this Indenture and the resignation or removal of the Trustee. As security for the performance of such obligations of the Company, the
Trustees shall have a claim prior to the Securities upon all property and funds held or collected by the Trustees as such, except funds
held in trust for the payment of principal of, premium (if any) or interest (if any) on particular Securities or any coupons.
When the Trustees incur expenses
or render services in connection with an Event of Default specified in clause (5) or (6) of Section 5.01, the expenses (including
reasonable charges and expense of its counsel) of and the compensation for such services are intended to constitute expenses of administration
under any applicable United States or Canadian federal, state or provincial bankruptcy, insolvency or other similar law.
The provisions of this Section
6.07 shall survive the termination of this Indenture.
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Section 6.08
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Corporate Trustees Required; Eligibility.
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(1)
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There shall be at all times a U.S. Trustee hereunder which shall be eligible to act as Trustee under TIA
Section 310(a)(1) and, together with its immediate parent, shall have a combined capital and surplus of at least $50,000,000. If
the U.S. Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of United States federal, state,
territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 6.08, the combined capital
and surplus of U.S. Trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the U.S. Trustee shall cease to be eligible in accordance with the provisions of this Section 6.08, it shall
resign immediately in the manner and with the effect hereinafter specified in this Article Six.
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(2)
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For so long as required by Trust Indenture Legislation, there shall be a Canadian Trustee under this Indenture.
The Canadian Trustee shall at all times be a resident or authorized to do business in the Province of [Ontario] and any other province
in Canada where Holders may be resident from time to time. The Canadian Trustee represents and warrants that no material conflict of interest
exists in the Canadian Trustee’s role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising
hereafter it will, within 30 days after ascertaining that it has such material conflict of interest, either eliminate the same or
resign its trust hereunder. If any such material conflict of interests exists or hereafter shall exist, the validity and enforceability
of this Indenture shall not be affected in any manner whatsoever by reason thereof.
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(3)
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The Trustees will not be required to give any bond or security in respect of the execution of the trusts
and powers set out in this Indenture or otherwise in respect of the premises.
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(4)
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Neither Trustee nor any Affiliate of either Trustee shall be appointed a receiver or receiver and manager
or liquidator of all or any part of the assets or undertaking of the Company.
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Section 6.09
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Resignation
and Removal; Appointment of Successor.
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(1)
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No resignation or removal of either Trustee and no appointment of a successor Trustee pursuant to this Article
Six shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements
of Section 6.10.
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(2)
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Either Trustee may resign at any time with respect to the Securities of one or more series by giving written
notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been
delivered to such Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court
of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
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(3)
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Either Trustee may be removed following 30 days notice at any time with respect to the Securities of any
series by Act of the Holders of not less than a majority in principal amount of the Outstanding Securities of such series, delivered to
such Trustee and to the Company.
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(i)
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either Trustee shall acquire any conflicting interest as defined in TIA Section 310(b) and fail to comply
with the provisions of TIA Section 310(b)(i), or
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(ii)
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either Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request
therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
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(iii)
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either Trustee shall cease to be eligible under Section 6.08 and shall fail to resign after written
request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
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(iv)
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either Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver
of such Trustee or of its property shall be appointed or any public officer shall take charge or control of such Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation,
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then, in any such case,
(i) the Company, by a Board Resolution, may remove such Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e),
any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal of such Trustee with respect to all Securities of such
series and the appointment of a successor Trustee or Trustees.
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(5)
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If either Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur
in the office of the U.S. Trustee or the Canadian Trustee for any cause, with respect to the Securities of one or more series, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or
those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or
all of such series) provided, however, that the Company shall not be required to appoint a successor Trustee to the Canadian
Trustee if the Canadian Trustee resigns or is removed
and a Canadian Trustee under this Indenture is no longer required under Trust Indenture Legislation. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor
Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If
no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security of such series for at least six
months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of
a successor Trustee with respect to the Securities of such series.
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(6)
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The Company shall give notice of each resignation and each removal of a Trustee with respect to the Securities
of any series and each appointment of a successor Trustee with respect to the Securities of any series to the Holders of Securities of
such series in the manner provided for in Section 1.07. Each notice shall include the name of the successor Trustee with respect
to the Securities of such series and the address of its Corporate Trust Office.
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(7)
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If a Canadian Trustee under this Indenture is no longer required by Trust Indenture Legislation, then the
Company by a Board Resolution may remove the Canadian Trustee.
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Section 6.10
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Acceptance of Appointment by Successor.
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(1)
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In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor
Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring
to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee hereunder.
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(2)
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In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or
more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or
more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to
all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is
not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute
such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart
from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such
successor Trustee relates. Whenever there is a successor Trustee with respect to one or more (but less than all) series of Securities
issued pursuant to this Indenture, the terms “Indenture” and “Securities” shall have the meanings specified in
the provisos to the respective definitions of those terms in Section 1.01 which contemplate such situation.
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(3)
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Upon reasonable request of any such successor Trustee, the Company shall execute any and all instruments
for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (1)
or (2) of this Section 6.10, as the case may be.
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(4)
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No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee
shall be qualified and eligible under this Article Six.
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Section 6.11
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Merger, Conversion, Consolidation or Succession to Business.
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Any corporation into which either
Trustee or its corporate trust business may be merged or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which either Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of either Trustee, shall be the successor of such Trustee hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article Six, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by a Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. In case any of the Securities
shall not have been authenticated by such predecessor Trustee, any successor Trustee may authenticate such Securities either in the name
of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and
effect which this Indenture provides for the certificate of authentication of such Trustee; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee
shall apply only to its successor or successors by merger, conversion or consolidation.
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Section 6.12
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Appointment of Authenticating Agent.
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At any time when any of the
Securities remain outstanding, the Trustees may appoint an Authenticating Agent or Agents, with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustees to authenticate Securities of such series and the Trustees
shall give written notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating
Agent will serve, in the manner provided for in Section 1.07. Securities so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if authenticated by the applicable Trustee hereunder. Any such
appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of the Trustees, and a copy of such
instrument shall be promptly furnished to the Company. Wherever reference is made in this Indenture to the authentication and
delivery of Securities by the Trustees or either Trustee’s certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustees by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustees by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and
shall at all times be a corporation organized and doing business under the laws of the United States of America, any state thereof
or the District of Columbia or the laws of Canada or any province thereof, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by United States
federal or state or Canadian federal or provincial authority. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 6.12, the
combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.12, it shall resign immediately in the manner and with the effect specified in this Section 6.12.
Any corporation into which an
Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate
trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise
eligible under this Section 6.12, without the execution or filing of any paper or any further act on the part of the Trustees or the Authenticating
Agent.
An Authenticating Agent may resign
at any time by giving written notice thereof to the Trustees and to the Company. The Trustees may at any time terminate the agency of
an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section 6.12, the Trustees may appoint a successor Authenticating Agent which shall be acceptable to the Company
and shall give written notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating
Agent will serve, in the manner provided for in Section 1.07. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section
6.12.
The Trustees agree to pay to
each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.12, and the Trustees shall be
entitled to be reimbursed for such payments, subject to the provisions of Section 6.07.
If an appointment with respect
to one or more series is made pursuant to this Section 6.12, the Securities of such series may have endorsed thereon, in addition to either
Trustee’s certificate of authentication, an alternate certificate of authentication in the following form:
(Certificate of Authentication may be executed by
either Trustee)
_____________________, as U.S.
Trustee, certifies that this is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Dated: ____________
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By:
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As Authenticating Agent
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By:
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Authorized Officer
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_____________________, as Canadian
Trustee, certifies that this is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Dated: ____________
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By:
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As Authenticating
Agent
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By:
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Authorized Officer
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Section 6.13
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Joint Trustees.
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The rights, powers, duties and
obligations conferred and imposed upon the Trustees are conferred and imposed upon and shall be exercised and performed by the U.S. Trustee
and the Canadian Trustee individually, except to the extent the Trustees are required under Trust Indenture Legislation to perform such
acts jointly, and neither Trustee shall be liable or responsible for the acts or omissions of the other Trustee. If the U.S. Trustee and
Canadian Trustee are unable to agree jointly to act or refrain from acting, the applicable Trustee shall make the decision in accordance
with its applicable legislation. Unless the context implies or requires otherwise, any written notice, request, direction, certificate,
instruction, opinion or other document (each such document, a “Writing”) delivered pursuant to any provision of this
Indenture to any of the U.S. Trustee or the Canadian Trustee shall be deemed for all purposes of this Indenture as delivery of such Writing
to the Trustee. Each such Trustee in receipt of such Writing shall notify such other Trustee of its receipt of such Writing within two
Business Days of such receipt provided, however, that any failure of such trustee in receipt of such Writing to so notify such
other Trustee shall not be deemed as a deficiency in the delivery of such Writing to the Trustee.
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Section 6.14
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Other
Rights of Trustees.
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Each Trustee shall retain the
right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, either
Trustee, in its sole judgment, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering
or anti-terrorist legislation, regulation or guideline. Further, should either Trustee, in its sole judgment, determine at any time that
its acting under this Indenture has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist
legislation, regulation or guideline, then it shall have the right to resign on 10 days written notice to all parties provided (i) that
such Trustee’s written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances
are rectified to such Trustee’s satisfaction within such 10 day period, then such resignation shall not be effective.
The parties hereto acknowledge
that Canadian federal and provincial legislation addressing the protection of individuals’ personal information (collectively, “Privacy
Laws”) applies to obligations and activities under this Indenture. Despite any other provision of this Indenture, neither party
shall take or direct any action that would contravene, or cause the other to contravene, applicable Privacy Laws. The Company, prior to
transferring, or causing to be transferred, personal information to the Canadian Trustee, shall obtain and retain required consents of
the relevant individuals to the collection, use and disclosure of their personal information, or shall have determined that such consents
either have been previously given and can be relied on or are not required under Privacy Laws. The Canadian Trustee shall use commercially
reasonable efforts to ensure that its services hereunder comply with Privacy Laws. Specifically, the Trustee agrees to (i) have designated
a chief privacy officer; (ii) maintain policies and procedures to protect personal information and to receive and respond to any
privacy complaint or inquiry; (iii) use personal information solely for the purposes of providing its services under or ancillary
to this Indenture and not to use it for any other purpose except with the consent and direction of the Company; (iv) not sell or
otherwise improperly disclose personal information to any third party; and (v) use employee administrative, physical and technological
safeguards to reasonably secure and protect personal information against loss, theft or unauthorized access, use or modification.
It is expressly acknowledged
and agreed that the Canadian Trustee may, in the course of providing services hereunder, collect or receive, use and disclose financial
and other personal information about such parties and/or their representatives, as individuals, or about other individuals related to
the subject matter hereof, and use such information for the following purposes:
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(i)
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to provide the services required under this Indenture and other services that may be requested from time
to time;
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(ii)
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to help the Canadian Trustee manage its servicing relationships with such individuals;
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(iii)
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to meet the Canadian Trustee’s legal and regulatory requirements; and
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(iv)
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if social insurance numbers are collected by the Canadian Trustee, to perform tax reporting and to assist
in verification of an individual’s identity for security purposes.
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Further, each party agrees
that it shall not provide or cause to be provided to the Canadian Trustee any personal information relating to an individual who is
not a party to this Indenture unless that party has assured itself that such individual understands and has consented to the
aforementioned uses and disclosures. Notwithstanding anything to the contrary herein, the Company and the Trustees may, without
liability, disclose information about the Holders and beneficial owners or potential Holders or potential beneficial owners of the
Securities pursuant to subpoena or other order issued by a court of competent jurisdiction or when otherwise required by applicable
law.
Each Trustee hereby accepts the
trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth and to
hold all rights, privileges and benefits conferred hereby and by law in trust for the various persons who shall from time to time be holders,
subject to all the terms and conditions herein set forth.
ARTICLE Seven
HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY
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Section 7.01
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Company to Furnish Trustees Names and Addresses of Holders.
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The Company will furnish or cause
to be furnished to the Trustees (1) not more than 15 days after each Regular Record Date, or such lesser time as required by
the Trustees, a list, in such form as the Trustees may reasonably require, of the names and addresses of Holders as of such Regular Record
Date; provided, however, that the Company shall not be obligated to furnish or cause to be furnished such list at any time that
the list shall not differ in any respect from the most recent list furnished to the Trustees by the Company or at such times as either
Trustee is acting as Security Registrar for the applicable series of Securities and (2) at such other times as the Trustees may request
in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished.
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Section 7.02
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Preservation of List of Names and Addresses of Holders.
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The Trustees shall preserve,
in as current a form as is reasonably practicable, all information as to the names and addresses of the Holders contained in the most
recent list furnished to them as provided in Section 7.01 and as to the names and addresses of Holders received by either Trustee
in its capacity as Security Registrar for the applicable series of Securities (if acting in such capacity).
The Trustees may destroy any
list furnished as provided in Section 7.01 upon receipt of a new list so furnished.
Holders may communicate as provided
in TIA Section 312(b) with other Holders with respect to their rights under this Indenture or under the Securities.
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Section 7.03
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Disclosure of Names and Addresses of Holders.
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Every Holder of Securities or
coupons, by receiving and holding the same, agrees with the Company and the Trustees that none of the Company or the Trustees or any agent
of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustees shall
not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b).
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Section 7.04
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Reports by Trustees.
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(1)
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Within 60 days after May 15 of each year commencing with the first year after the first issuance
of Securities pursuant to this Indenture, the U.S. Trustee shall transmit to the Holders of Securities, in the manner and
to the extent provided in TIA Section 313(c), a brief report dated as of such reporting date, if required by TIA Section 313(a).
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(2)
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The U.S. Trustee shall comply with TIA Sections 313(b) and 313(c).
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(3)
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A copy of such report shall, at the time of such transmission to the Holders, be filed by the U.S. Trustee
with the Company, with each securities exchange upon which any of the Securities are listed (if so listed) and also with the Commission.
The Company agrees to notify the Trustees when the Securities become listed on any securities exchange.
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Section 7.05
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Reports by the Company.
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(1)
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The Company will file with the Trustees, within 20 days after filing with or furnishing to the Commission,
copies of its annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as
the Commission may by rules and regulations prescribe) which the Company is required to file or furnish with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act or, if the Company is not required to file information, documents or reports pursuant to
either of such sections, then to file with the Trustees and the Commission, in accordance with rules and reulations prescribed by the
Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of
the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed in such rules and
regulations; provided that any such reports, information or documents filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system shall be deemed filed with the Trustees.
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(2)
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The Company will transmit to all Holders, in the manner and to the extent provided in TIA Section 313(c),
within 30 days after the filing thereof with the Trustees, such summaries of any information, documents and reports required to be
filed by the Company pursuant to paragraph (1) of this Section 7.05 as may be required by rules and regulations prescribed from time
to time by the Commission.
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(3)
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If at any time the Securities are guaranteed by a direct or indirect parent of the Company, and such parent
has furnished the reports required by this Section 7.05 with respect to parent as required by this Section 7.05 as if parent were the
Company (including any financial information required hereby), the Company shall be deemed to be in compliance with this Section 7.05.
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ARTICLE Eight
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
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Section 8.01
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Company May Consolidate, etc., only on Certain Terms.
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The Company shall not amalgamate
or consolidate with or merge into or enter into any statutory arrangement with any other Person, or, directly or indirectly, convey, transfer
or lease all or substantially all of its properties and assets to any Person, unless:
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(1)
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the Person formed by or continuing from such amalgamation or consolidation or into which the Company is merged
or with which it enters into such statutory arrangement or the Person which acquires by operation of law or by conveyance or transfer,
or which leases, all or substantially all of the properties
and assets of the Company shall be a corporation, partnership or trust organized and validly existing under the laws of Canada or any
province or territory thereof, the United States of America or any state thereof or the District of Columbia or, if such amalgamation,
consolidation, merger, statutory arrangement or other transaction would not impair the rights of Holders, any other country, and, unless
the Company is the continuing corporation, shall expressly assume, by an indenture supplemental hereto, executed and delivered to the
Trustees, in form satisfactory to the Trustees, the Company’s obligation for the due and punctual payment of the principal of, premium
(if any) and interest (if any) on all the Securities and the performance and observance of every covenant of this Indenture on the part
of the Company to be performed or observed;
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(2)
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immediately after giving effect to such transaction, no Default or Event of Default shall have happened and
be continuing; and
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(3)
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the Company or such Person shall have delivered to the Trustees an Officer’s Certificate and an Opinion
of Counsel, each stating that such amalgamation, consolidation, merger, statutory arrangement or other transaction and such supplemental
indenture comply with this Article Eight and that all conditions precedent herein provided for relating to such transaction have been
complied with.
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Notwithstanding the above,
the Company may consolidate with, amalgamate with, undergo an arrangement with, merge with or into an Affiliate of the Company solely
for the purpose of reincorporating the Company in a state of the United States or the District of Columbia or in another province or territory
of Canada.
This Section 8.01 shall only
apply to a merger, consolidation or amalgamation in which the Company is not the surviving Person and to conveyances, leases and transfers
by the Company as transferor or lessor.
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Section 8.02
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Successor Person Substituted.
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Upon any amalgamation or consolidation
by the Company with or merger by the Company into any other corporation or a statutory arrangement or any conveyance, transfer or lease
of all or substantially all of the properties and assets of the Company to any Person in accordance with Section 8.01, the successor
Person formed by such amalgamation or consolidation or into which the Company is merged or statutory arrangement, or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor Person had been named as the Company herein, and in the event of any such conveyance
or transfer, the Company (which term shall for this purpose mean the Person named as the “Company” in the first paragraph
of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 8.01), except in
the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Securities and the coupons and
may be dissolved and liquidated.
ARTICLE Nine
SUPPLEMENTAL INDENTURES
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Section 9.01
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Supplemental Indentures Without Consent of Holders.
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Notwithstanding Section 9.02,
without the consent of any Holders, the Company, when authorized by or pursuant to a Board Resolution, and the Trustees, at any time and
from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustees, for any of the following
purposes:
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(1)
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to evidence the succession of another Person to the Company and the assumption by any such successor of the
covenants of the Company contained herein and in the Securities; or
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(2)
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to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities
and any related coupons (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants
are being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
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(3)
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to add any additional Events of Default (and if such Events of Default are to be for the benefit of less
than all series of Securities, stating that such Events of Default are being included solely for the benefit of such series); or
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(4)
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to delete or modify any Events of Default with respect to all or any series of the Securities, the form and
terms of which are being established pursuant to such supplemental indenture as permitted in Section 3.01 (and if such Events of Default
are to be for the benefit of less than all series of Securities, stating that such Events of Default are being included solely for the
benefit of such series, and to specify the rights and remedies of the Trustees and the Holders of such Securities in connection therewith);
or
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(5)
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to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable
as to principal, to change or eliminate any restrictions on the payment of principal of or any premium or interest on Bearer Securities,
to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be issued in exchange for
Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form; provided
that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any
material respect; or
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(6)
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to change or eliminate any of the provisions of this Indenture; provided that any such change or elimination
shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture
which is entitled to the benefit of such provision; or
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(7)
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to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; or
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(8)
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to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to
the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by
more than one Trustee, pursuant to the requirements of Section 6.10; or
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(9)
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to close this Indenture with respect to the authentication and delivery of additional series of Securities;
or
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(10)
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to cure any ambiguity or to correct or supplement any provision contained herein or in any indenture supplemental
hereto which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture or to conform
the terms hereof, as amended and supplemented, that are applicable to the Securities of any series to the description of the terms of
such Securities in the offering memorandum, prospectus supplement or other offering document applicable to such Securities at the time
of initial sale thereof; or
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(11)
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to make any change in any series of Securities that does not adversely affect in any material respect the
rights of the Holders of such Securities; or
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(12)
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to add to or change or eliminate any provision of this Indenture as shall be necessary or desirable in accordance
with any amendments to the Trust Indenture Act; or
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(13)
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to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate
the defeasance and discharge of any series of Securities pursuant to Sections 4.01, 14.02 and 14.03; provided that any such
action shall not adversely affect the interests of the Holders of Securities of such series and any related coupons or any other series
of Securities in any material respect; or
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(14)
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to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect
the qualifications of this Indenture under any applicable law of the United States and Canada or of any province or territory thereof
to the extent they do not conflict with the applicable law of the United States heretofore or hereafter enacted.
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Section 9.02
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Supplemental Indentures with Consent of Holders.
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Except as provided in Section
9.01 and this Section 9.02, with the consent of the Holders of not less than a majority in principal amount of all Outstanding Securities
affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustees, the Company, when authorized
by or pursuant to a Board Resolution, and the Trustees may enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture which affect such series of
Securities or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security of such series,
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(1)
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change the Stated Maturity of the principal of, premium (if any) or any installment of interest (if any)
on any Security of such series, or reduce the principal amount thereof, premium (if any) or the rate of interest (if any) thereon, or
reduce the amount of the principal of an Original Issue Discount Security of such series that would be due and payable upon a declaration
of acceleration of the Maturity thereof pursuant to Section 5.02 or the amount thereof provable in bankruptcy pursuant to Section 5.04,
or adversely affect any right of repayment at the option of any Holder of any Security of such series, or change any Place of Payment
where, or the Currency in which, any Security of such series or any premium or
interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or Repayment Date, as
the case may be), or adversely affect any right to convert or exchange any Security as may be provided pursuant to Section 3.01 herein,
or
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(2)
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reduce the percentage in principal amount of the Outstanding Securities of such series required for any such
supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture
which affect such series or certain defaults applicable to such series hereunder and their consequences provided for in this Indenture,
or reduce the requirements of Section 15.04 for quorum or voting with respect to Securities of such series, or
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(3)
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modify any of the provisions of this 9.02 Section, Section 5.13 or Section 10.09, except to increase
any such percentage or to provide that certain other provisions of this Indenture which affect such series cannot be modified or waived
without the consent of the Holder of each Outstanding Security of such series.
|
A supplemental indenture which
changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one
or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
Any such supplemental indenture adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture,
or modifying in any manner the rights of the Holders of Securities of such series, shall not affect the rights under this Indenture of
the Holders of Securities of any other series.
It shall not be necessary for
any Act of Holders under this 9.02 Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient
if such Act shall approve the substance thereof.
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Section 9.03
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Execution of Supplemental Indentures.
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In executing, or accepting the
additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created
by this Indenture, the Trustees shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by this Indenture. Each Trustee may, but shall not be obligated
to, enter into any such supplemental indenture which affects such Trustee’s own rights, duties or immunities under this Indenture
or otherwise.
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Section 9.04
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Effect of Supplemental Indentures.
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Upon the execution of any supplemental
indenture under this Article Nine, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
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Section 9.05
|
Conformity
with Trust Indenture Legislation.
|
Every supplemental indenture
executed pursuant to this Article Nine shall conform to the requirements of Trust Indenture Legislation as then in effect.
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Section 9.06
|
Reference in Securities to Supplemental Indentures.
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Securities of any series authenticated
and delivered after the execution of any supplemental indenture pursuant to this Article Nine may, and shall if required by the Trustees,
bear a notation in form approved by the Trustees as to any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the opinion of the Trustees and the Company, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and delivered by the Trustees in exchange for outstanding Securities
of such series.
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Section 9.07
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Notice of Supplemental Indentures.
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Promptly after the execution
by the Company and the Trustees of any supplemental indenture pursuant to the provisions of Section 9.02, the Company shall give
notice thereof to the Holders of each outstanding Security affected, in the manner provided for in Section 1.07, setting forth in
general terms the substance of such supplemental indenture.
ARTICLE Ten
COVENANTS
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Section 10.01
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Payment of Principal, Premium and Interest.
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The Company covenants and agrees
for the benefit of the Holders of each series of Securities and any related coupons that it will duly and punctually pay the principal
of, premium (if any) and interest (if any), on the Securities of that series in accordance with the terms of the Securities, any coupons
appertaining thereto and this Indenture. Unless otherwise specified as contemplated by Section 3.01 with respect to any series of
Securities, any interest installments due on Bearer Securities on or before Maturity shall be payable only upon presentation and surrender
of the several coupons for such interest installments as are evidenced thereby as they severally mature.
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Section 10.02
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Maintenance of Office or Agency.
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(1)
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If the Securities of a series are issuable as Registered Securities, the Company will maintain in each Place
of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment,
where Securities of that series may be surrendered for registration of transfer or exchange, where Securities of that series that are
convertible or exchangeable may be surrendered for conversion or exchange, as applicable, and where notices and demands to or upon the
Company in respect of the Securities of that series and this Indenture may be served and, if the Securities of a series are also issuable
as Bearer Securities, where Bearer Securities of that series and related coupons may be presented or surrendered for payment in the circumstances
described in Subsection 10.02(3).
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(2)
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If Securities of a series are issuable
as Bearer Securities, the Company will maintain (A) subject to any laws or regulations
applicable thereto, in a Place of Payment for that series which is located outside the United
States, an office or agency where Securities of that series and related coupons may be presented
and surrendered for payment; provided, however, that, if the Securities of that series
are listed on any securities exchange located outside the United States and such securities
exchange shall so require, the Company will maintain a Paying Agent for the Securities of
that series in any required city located outside the United States so long as the Securities
of that series are listed on such exchange and (B) subject to any laws or regulations
applicable thereto, in a Place of Payment for that series located outside the United States
an office or agency where any Registered Securities of that series may be surrendered for
registration of transfer, where Securities of that series may be surrendered for exchange,
where Securities of that series that are convertible and exchangeable may be surrendered
for conversion or exchange, as applicable, and where notices and demands to or upon the Company
in respect of the Securities of that series and this Indenture may be served.
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(3)
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The Company will give prompt written notice
to the Trustees of the location, and any change in the location, of such office or agency.
If at any time the Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustees with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Offices of the Trustees, except
that Bearer Securities of any series and the related coupons may be presented and surrendered
for payment at the offices specified in the Security and the Company hereby appoints the
same as its agents to receive such respective presentations, surrenders, notices and demands.
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(4)
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Unless otherwise specified with respect to
any Securities pursuant to Section 3.01, no payment of principal, premium or interest
on Bearer Securities shall be made at any office or agency of the Company in the United States
or by check mailed to any address in the United States or by transfer to an account maintained
with a bank located in the United States; provided, however, that, if the Securities of a
series are payable in Dollars, payment of principal of, premium (if any) and interest (if
any), on any Bearer Security shall be made at the office of the Company’s Paying Agent
in The City of New York, if (but only if) payment in Dollars of the full amount of such principal,
premium or interest, as the case may be, at all offices or agencies outside the United States
maintained for such purpose by the Company in accordance with this Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions.
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(5)
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The Company may also from time to time designate
one or more other offices or agencies where the Securities of one or more series may be presented
or surrendered for any or all such purposes and may from time to time rescind any such designation;
provided, however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in accordance with the requirements
set forth above for Securities of any series for such purposes. The Company will give prompt
written notice to the Trustees of any such designation or rescission and of any change in
the location of any such other office or agency. Unless otherwise specified with respect
to any Securities as contemplated by Section 3.01 with respect to a series of Securities,
the Company hereby initially appoints the U.S. Trustee at its Corporate Trust Office as Paying
Agent in such city and as its agent to receive all such presentations, surrenders, notices
and demands.
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(6)
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Unless otherwise specified with respect to
any Securities pursuant to Section 3.01, if and so long as the Securities of any series
(i) are denominated in a Currency other than Dollars or (ii) may be payable in a Currency
other than Dollars, or so long as it is required under any other provision of the Indenture,
then the Company will maintain with respect to each such series of Securities,
or as so required, at least one Exchange Rate Agent.
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Section 10.03
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Money
for Securities Payments to Be Held in Trust.
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If the Company shall at any
time act as its own Paying Agent with respect to any series of Securities and any related coupons, it will, on or before each due date
of the principal of, premium (if any) or interest (if any) on any of the Securities of that series, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum in the Currency in which the Securities of such series are payable (except as otherwise
specified pursuant to Section 3.01 for the Securities of such series and except, if applicable, as provided in Sections 3.12(b),
3.12(d) and 3.12(e)) sufficient to pay the principal of, premium (if any) or interest (if any) on Securities of such series so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustees of
its action or failure so to act.
Whenever the Company shall have
one or more Paying Agents for any series of Securities and any related coupons, it will, prior to or on each due date of the principal
of, premium (if any) or interest (if any) on any Securities of that series, deposit with a Paying Agent a sum (in the Currency described
in the preceding paragraph) sufficient to pay the principal, premium (if any) or interest (if any) so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is a Trustee)
the Company will promptly notify the Trustees of its action or failure so to act.
The Company will cause each
Paying Agent (other than the Trustees) for any series of Securities to execute and deliver to the Trustees an instrument in which such
Paying Agent shall agree with the Trustees, subject to the provisions of this 10.03 Section, that such Paying Agent will:
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(1)
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hold all sums held by it for the payment
of the principal of, premium (if any) and interest (if any) on Securities of such series
in trust for the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
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(2)
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give the Trustees notice of any default by
the Company (or any other obligor upon the Securities of such series) in the making of any
payment of principal of, premium (if any) or interest (if any) on the Securities of such
series; and
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(3)
|
at any time during the continuance of any
such default, upon the written request of the Trustees, forthwith pay to the Trustees all
sums so held in trust by such Paying Agent.
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The Company may at any time,
for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct
any Paying Agent to pay, to the Trustees all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustees
upon the same trusts as those upon which sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent
to the Trustees, such Paying Agent shall be released from all further liability with respect to such sums.
Except as provided in the
Securities of any series, any money deposited with the Trustees or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, premium (if any) or interest (if any) on any Security of any series, or any coupon appertaining
thereto, and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to
the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such
Security or coupon shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all
liability of the Trustees or such Paying Agent with respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustees or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
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Section 10.04
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Statement
as to Compliance.
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The Company shall deliver to
the Trustees, on or before 120 days after the end of the Company’s fiscal year, an Officer’s Certificate stating that a review
of the activities of the Company during such fiscal year has been made under the supervision of the signing Officer with a view to determining
whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to such
Officer, that the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not
in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred and is continuing, describing all such Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or propose to take with respect thereto). The Company shall deliver to the Trustees upon demand evidence
in such form as the Trustees may require as to compliance by the Company with any condition or covenant of the Company set out herein
relating to any action required or permitted to be taken by the Company under this Indenture or as a result of any obligation imposed
by this Indenture. For purposes of this Section 10.04, such compliance shall be determined without regard to any period of grace or requirement
of notice under this Indenture.
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Section 10.05
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Payment
of Taxes and Other Claims.
|
The Company will pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or property of the Company, and (2) all material lawful claims
for labor, materials and supplies which, if unpaid, might by law become a Lien upon any property or assets of the Company; provided,
however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings.
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Section 10.06
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Corporate
Existence.
|
Subject to Article Eight,
the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and
the rights (charter and statutory) and franchises of the Company; provided, however, that the Company shall not be required to preserve
any such right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the
business of the Company.
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Section 10.07
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Waiver
of Certain Covenants.
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The Company may, with
respect to any series of Securities, omit in any particular instance to comply with any term, provision or condition which affects
such series set forth in Sections 10.06 and 10.07, or, as specified pursuant to Section 3.01(19) for Securities of such
series, in any covenants of the Company added to this Article Ten pursuant to Section 3.01(19) in connection with Securities of
such series, if before the time for such compliance the Holders of at least a majority in principal amount of all Outstanding
Securities of any series, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but
no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of the Trustees to Holders of Securities of such series
in respect of any such term, provision or condition shall remain in full force and effect.
ARTICLE Eleven
REDEMPTION OF SECURITIES
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Section 11.01
|
Applicability
of Article.
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Securities of any series which
are redeemable before their Stated Maturity shall be redeemable in accordance with the terms of such Securities and (except as otherwise
specified as contemplated by Section 3.01 for Securities of any series) in accordance with this Article Eleven.
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Section 11.02
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Election
to Redeem; Notice to Trustees.
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The election of the Company
to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company,
the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory
to the Trustees), notify the Trustees of such Redemption Date and of the principal amount of Securities of such series to be redeemed
and shall deliver to the Trustees such documentation and records as shall enable the Trustees to select the Securities to be redeemed
pursuant to Section 11.03. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish to the Trustees an Officer’s
Certificate evidencing compliance with such restriction.
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Section 11.03
|
Selection
by Trustees of Securities to Be Redeemed.
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If less than all the Securities
of any series are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustees, from the Outstanding Securities of such series not previously called for redemption, by such method
as the Trustees shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of
Securities of such series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security
not redeemed to less than the minimum authorized denomination for Securities of such series established pursuant to Section 3.01.
The Trustees shall promptly
notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture,
unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security
redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed.
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Section 11.04
|
Notice
of Redemption.
|
Except as otherwise
specified as contemplated by Section 3.01, notice of redemption shall be given in the manner provided for in Section 1.07
not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. Failure to
give notice in the manner provided in Section 1.07 to the Holder of any Securities designated for redemption as a whole or in
part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any
other Securities or portion thereof.
All notices of redemption shall
state:
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(2)
|
the Redemption Price and the amount of accrued
interest to the Redemption Date payable as provided in Section 11.06, if any,
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(3)
|
if less than all the Outstanding Securities
of any series are to be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
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(4)
|
in case any Security is to be redeemed in
part only, the notice which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder will receive, without charge, a new Security
or Securities of authorized denominations for the principal amount thereof remaining unredeemed,
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(5)
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that on the Redemption Date, the Redemption
Price and accrued interest (if any) to the Redemption Date payable as provided in Section 11.06
will become due and payable upon each such Security, or the portion thereof, to be redeemed
and, if applicable, that interest thereon will cease to accrue on and after said date,
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(6)
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the Place or Places of Payment where such
Securities, together in the case of Bearer Securities with all coupons appertaining thereto,
if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption
Price and accrued interest (if any),
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(7)
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that the redemption is for a sinking fund,
if such is the case,
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(8)
|
that, unless otherwise specified in such
notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied
by all coupons maturing subsequent to the Redemption Date or the amount of any such missing
coupon or coupons will be deducted from the Redemption Price unless security or indemnity
satisfactory to the Company, the Trustees and any Paying Agent is furnished, and
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(9)
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if Bearer Securities of any series are to
be redeemed and any Registered Securities of such series are not to be redeemed, and if such
Bearer Securities may be exchanged for Registered Securities not subject to redemption on
such Redemption Date pursuant to Section 3.05 or otherwise, the last date, as determined
by the Company, on which such exchanges may be made.
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Notice of redemption of Securities
to be redeemed at the election of the Company shall be given by the Company or, at the Company’s request, by the Trustees in the
name and at the expense of the Company.
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Section 11.05
|
Deposit
of Redemption Price.
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Prior to any Redemption
Date, the Company shall deposit with a Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 10.03) an amount of money in the Currency in which the Securities of such
series are payable (except as otherwise specified pursuant to Section 3.01 for the Securities of such series and except, if
applicable, as provided in Sections 3.12(b), 3.12(d) and 3.12(e)) sufficient to pay the Redemption Price of, and accrued
interest (if any) on, all the Securities which are to be redeemed on that date.
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Section 11.06
|
Securities
Payable on Redemption Date.
|
Notice of redemption having
been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.01
for the Securities of such series and except, if applicable, as provided in Sections 3.12(b), 3.12(d) and 3.12(e)) (together with
accrued interest (if any) to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest (if any)) such Securities shall, if the same were interest-bearing, cease to bear interest and
the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be
void. Upon surrender of any such Security for redemption in accordance with said notice, together with all coupons, if any, appertaining
thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with accrued
interest (if any), to the Redemption Date; provided, however, that installments of interest on Bearer Securities whose Stated Maturity
is on or prior to the Redemption Date shall be payable only at an office or agency located outside the United States (except as otherwise
provided in Section 10.02) and, unless otherwise specified as contemplated by Section 3.01, only upon presentation and surrender
of coupons for such interest; provided further that installments of interest on Registered Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant record dates according to their terms and the provisions of Section 3.07.
If any Bearer Security surrendered
for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Security may be paid after
deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing
coupon or coupons may be waived by the Company and the Trustees if there be furnished to them such security or indemnity as they may
require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustees
or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder
shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons shall be payable only at
an office or agency located outside the United States (except as otherwise provided in Section 10.02) and, unless otherwise specified
as contemplated by Section 3.01, only upon presentation and surrender of those coupons.
If any Security called for redemption
shall not be so paid upon surrender thereof for redemption, the principal and premium (if any) shall, until paid, bear interest from
the Redemption Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such
Security.
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Section 11.07
|
Securities
Redeemed in Part.
|
Any Security which is to be
redeemed only in part (pursuant to the provisions of this Article Eleven or of Article Twelve) shall be surrendered at a Place
of Payment therefor (with, if the Company or the Trustees so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustees duly executed by, the Holder thereof or such Holder’s attorney duly
authorized in writing), and the Company shall execute, and the applicable Trustee shall authenticate and deliver to the Holder of
such Security without service charge, a new Security or Securities of the same series, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security
so surrendered.
ARTICLE Twelve
SINKING FUNDS
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Section 12.01
|
Applicability
of Article.
|
Retirements of Securities of
any series pursuant to any sinking fund shall be made in accordance with the terms of such Securities and (except as otherwise specified
as contemplated by Section 3.01 for Securities of any series) in accordance with this Article Twelve.
The minimum amount of any sinking
fund payment provided for by the terms of Securities of any series is herein referred to as a “mandatory sinking fund payment,”
and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “optional
sinking fund payment”. If provided for by the terms of Securities of any series, the cash amount of any mandatory sinking fund
payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such series.
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Section 12.02
|
Satisfaction
of Sinking Fund Payments with Securities.
|
Subject to Section 12.03,
in lieu of making all or any part of any mandatory sinking fund payment with respect to any Securities of a series in cash, the Company
may at its option (1) deliver to the Trustees Outstanding Securities of a such series (other than any previously called for redemption)
theretofore purchased or otherwise acquired by the Company together in the case of any Bearer Securities of such series with all un-matured
coupons appertaining thereto, and/or (2) receive credit for the principal amount of Securities of such series which have been previously
delivered to the Trustees by the Company or redeemed either at the election of the Company pursuant to the terms of such Securities or
through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction
of all or any part of any mandatory sinking fund payment with respect to the Securities of the same series required to be made pursuant
to the terms of such Securities as provided for by the terms of such series; provided, however, that such Securities have not been previously
so credited. Such Securities shall be received and credited for such purpose by the Trustees at the Redemption Price specified in such
Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced
accordingly.
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Section 12.03
|
Redemption
of Securities for Sinking Fund.
|
Not less than 60 days prior
to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustees an Officer’s Certificate
specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof,
if any, which is to be satisfied by payment of cash in the Currency in which the Securities of such series are payable (except as otherwise
specified pursuant to Section 3.01 for the Securities of such series and except, if applicable, as provided in Sections 3.12(b),
3.12(d) and 3.12(e)) and the portion thereof, if any, which is to be satisfied by delivering or crediting Securities of that series pursuant
to Section 12.02 (which Securities will, if not previously delivered, accompany such certificate) and whether the Company intends
to exercise its right to make a permitted optional sinking fund payment with respect to such series.
Such certificate shall be
irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any,
on or before the next succeeding sinking fund payment date. In the case of the failure of the Company to deliver such certificate,
the sinking fund payment due on the next succeeding sinking fund payment date for that series shall be paid entirely in cash and
shall be sufficient to redeem the principal amount of such Securities subject to a mandatory sinking fund payment without the option
to deliver or credit Securities as provided in Section 12.02 and without the right to make any optional sinking fund payment,
if any, with respect to such series.
Not more than 60 days before
each such sinking fund payment date the Trustees shall select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 11.04. Such notice having been duly given, the redemption of such Securities shall be
made upon the terms and in the manner stated in Sections 11.06 and 11.07.
Prior to any sinking fund payment
date, the Company shall pay to the Trustees or a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 10.03) in cash a sum equal to any interest that will accrue to the date fixed for redemption of
Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this 12.03 Section.
Notwithstanding the foregoing,
with respect to a sinking fund for any series of Securities, if at any time the amount of cash to be paid into such sinking fund on the
next succeeding sinking fund payment date, together with any unused balance of any preceding sinking fund payment or payments for such
series, does not exceed in the aggregate $100,000, the Trustees, unless requested by the Company, shall not give the next succeeding
notice of the redemption of Securities of such series through the operation of the sinking fund. Any such unused balance of moneys deposited
in such sinking fund shall be added to the sinking fund payment for such series to be made in cash on the next succeeding sinking fund
payment date or, at the request of the Company, shall be applied at any time or from time to time to the purchase of Securities of such
series, by public or private purchase, in the open market or otherwise, at a purchase price for such Securities (excluding accrued interest
and brokerage commissions, for which the Trustees or any Paying Agent will be reimbursed by the Company) not in excess of the principal
amount thereof.
ARTICLE Thirteen
REPAYMENT AT OPTION OF HOLDERS
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Section 13.01
|
Applicability
of Article.
|
Repayment of Securities of any
series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities and
(except as otherwise specified as contemplated by Section 3.01 for Securities of any series) in accordance with this Article Thirteen.
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Section 13.02
|
Repayment
of Securities.
|
Securities of any series
subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such
Securities, be repaid at a price equal to the principal amount thereof, together with interest (if any) thereon accrued to the
Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that, with respect to such
Securities, on or before the Repayment Date it will deposit with a Trustee or with a Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money in the Currency in which the
Securities of such series are payable (except as otherwise specified pursuant to Section 3.01 for the Securities of such series
and except, if applicable, as provided in Sections 3.12(b), 3.12(d) and 3.12(e)) sufficient to pay the principal (or, if so
provided by the terms of the Securities of any series, a percentage of the principal) of and (except if the Repayment Date shall be
an Interest Payment Date) accrued interest (if any) on, all the Securities or portions thereof, as the case may be, to be repaid on
such date.
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Section 13.03
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Exercise
of Option.
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Securities of any series subject
to repayment at the option of the Holders thereof will contain an “Option to Elect Repayment” form on the reverse of such
Securities. To be repaid at the option of the Holder, any Security so providing for such repayment, with the “Option to Elect Repayment”
form on the reverse of such Security duly completed by the Holder (or by the Holder’s attorney duly authorized in writing), must
be received by the Company at the Place of Payment therefor specified in the terms of such Security (or at such other place or places
which the Company shall from time to time notify the Holders of such Securities) not earlier than 45 days nor later than 30 days
prior to the Repayment Date. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of
such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series,
and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount
of such Security surrendered that is not to be repaid, must be specified. The principal amount of any Security providing for repayment
at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security
would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except
as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the
repayment option by the Holder shall be irrevocable unless waived by the Company.
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Section 13.04
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When
Securities Presented for Repayment Become Due and Payable.
|
If Securities of any series
providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article Thirteen and as
provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall
become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date
(unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-
bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be repaid, except to the
extent provided below, shall be void. Upon surrender of any such Security for repayment in accordance with such provisions, together
with all coupons, if any, appertaining thereto maturing after the Repayment Date, the principal amount of such Security so to be repaid
shall be paid by the Company, together with accrued interest (if any) to the Repayment Date; provided, however, that coupons whose Stated
Maturity is on or prior to the Repayment Date shall be payable only at an office or agency located outside the United States (except
as otherwise provided in Section 10.02) and, unless otherwise specified pursuant to Section 3.01, only upon presentation and
surrender of such coupons; provided further that, in the case of Registered Securities, installments of interest (if any) whose Stated
Maturity is on or prior to the Repayment Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07.
If any Bearer Security
surrendered for repayment shall not be accompanied by all appurtenant coupons maturing after the Repayment Date, such Security may
be paid after deducting from the amount payable therefor as provided in Section 13.02 an amount equal to the face amount of all
such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustees if there be
furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter
the Holder of such Security shall surrender to the Trustees or any Paying Agent any such missing coupon in respect of which a
deduction shall have been made as provided in the preceding sentence, such Holder shall be entitled to receive the amount so
deducted; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 10.02) and, unless otherwise specified as contemplated by
Section 3.01, only upon presentation and surrender of those coupons.
If any Security surrendered
for repayment shall not be so repaid upon surrender thereof for repayment, the principal amount and premium (if any) shall, until paid,
bear interest from the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities)
set forth in such Security.
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Section 13.05
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Securities
Repaid in Part.
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Upon surrender of any Registered
Security which is to be repaid in part only, the Company shall execute and the applicable Trustee shall authenticate and deliver to the
Holder of such Security, without service charge and at the expense of the Company, a new Registered Security or Securities of the same
series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion
of the principal of such Security so surrendered which is not to be repaid.
ARTICLE Fourteen
DEFEASANCE AND COVENANT DEFEASANCE
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Section 14.01
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Company’s
Option to Effect Defeasance or Covenant Defeasance.
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Except as otherwise specified
as contemplated by Section 3.01 for Securities of any series, the provisions of this Article Fourteen shall apply to each series
of Securities, and the Company may, at its option, effect defeasance of the Securities of or within a series under Section 14.02,
or covenant defeasance of or within a series under Section 14.03 in accordance with the terms of such Securities and in accordance
with this Article Fourteen.
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Section 14.02
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Defeasance
and Discharge.
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Upon the Company’s exercise
of the above option applicable to this Section 14.02 with respect to any Securities of or within a series, the Company shall be deemed
to have been discharged from its obligations with respect to such Securities and any related coupons on the date the conditions set forth
in Section 14.04 are satisfied (hereinafter, “defeasance”). For this purpose, such defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented by such Securities and any related coupons, which shall
thereafter be deemed to be “Outstanding” only for the purposes of Section 14.05 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all of its other obligations under such Securities and any related coupons and
this Indenture insofar as such Securities and any related coupons are concerned (and the Trustees, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of such Securities and any related coupons to receive, solely from the trust fund described
in Section 14.04 and as more fully set forth in such Section, payments in respect of the principal of, premium (if any) and interest
(if any) on such Securities and any related coupons when such payments are due, (B) the Company’s obligations with respect
to such Securities under Sections 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts, duties and immunities of the
Trustees hereunder and (D) this Article Fourteen. Subject to compliance with this Article Fourteen, the Company may exercise its
option under this Section 14.02 notwithstanding the prior exercise of its option under Section 14.03 with respect to such Securities
and any related coupons.
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Section 14.03
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Covenant Defeasance.
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Upon the Company’s exercise
of the above option applicable to this Section 14.03 with respect to any Securities of or within a series, the Company shall be released
from its obligations under Sections 10.05 and 10.06, and, if specified pursuant to Section 3.01, its obligations under any
other covenant, with respect to such Securities and any related coupons on and after the date the conditions set forth in Section 14.04
are satisfied (hereinafter, “covenant defeasance”), and such Securities and any related coupons shall thereafter be deemed
not to be “Outstanding” for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences
of any thereof) in connection with such covenants, but shall continue to be deemed “Outstanding” for all other purposes hereunder.
For this purpose, such covenant defeasance means that, with respect to such Securities and any related coupons, the Company may omit
to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of reference in any such covenant to any
other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under
clauses (4) or (7) of Section 5.01 or otherwise but, except as specified above, the remainder of this Indenture and such Securities
and any related coupons shall be unaffected thereby.
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Section 14.04
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Conditions
to Defeasance or Covenant Defeasance.
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The following shall be the conditions
to application of either Section 14.02 or Section 14.03 to any Securities of or within a series and any related coupons:
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(1)
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The Company shall irrevocably have deposited
or caused to be deposited with either Trustee (or another trustee satisfying the requirements
of Section 6.08 who shall agree to comply with the provisions of this Article Fourteen
applicable to it) as trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of the Holders
of such Securities and any related coupons, (A) an amount (in such Currency in which
such Securities and any related coupons are then specified as payable at Stated Maturity),
or (B) Government Obligations applicable to such Securities (determined on the basis
of the Currency in which such Securities are then specified as payable at Stated Maturity)
which through the scheduled payment of principal and interest in respect thereof in accordance
with their terms will provide, not later than one day before the due date of any payment
of principal of and premium (if any) and interest (if any) under such Securities and any
related coupons, money in an amount, or (C) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustees, to pay and discharge, and which
shall be applied by the Trustees (or another trustee satisfying the requirements of Section
6.08 who shall agree to comply with the provisions of this Article Fourteen) to pay and discharge,
(i) the principal of, premium (if any) and interest (if any) on such Securities and
any related coupons on the Stated Maturity (or Redemption Date, if applicable) of such principal
of, premium (if any) or installment of interest (if any), (ii) any mandatory sinking
fund payments or analogous payments applicable to such Securities and any related coupons
on the day on which such payments are due and payable in accordance with the terms of this
Indenture and of such Securities and any related coupons, and (iii) all amounts due
the Trustees under Section 6.07; provided that the Trustees shall have been irrevocably
instructed to apply such money or the proceeds of such Government Obligations to said payments
with respect to such Securities and any related coupons. Before such a deposit, the Company
may give to the Trustees, in accordance with Section 11.02, a notice of its election
to redeem all or any portion of such Securities at a future date in accordance with the
terms of such Securities and Article Eleven hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given,
shall be given effect in applying the foregoing.
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(2)
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No Default or Event of Default with respect
to such Securities or any related coupons shall have occurred and be continuing on the date
of such deposit or, insofar as clauses (5) and (6) of Section 5.01 are concerned,
at any time during the period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the expiration of such
period).
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(3)
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Such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a Default or an Event of Default under,
this Indenture or any default under any material agreement or instrument to which the Company
is a party or by which it is bound.
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(4)
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In the case of an election under Section 14.02,
the Company shall have delivered to the Trustees an Opinion of Counsel in the United States
stating that (x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the date of execution of this Indenture,
there has been a change in the applicable United States federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that, the Holders of
such Securities and any related coupons will not recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance and will be subject to
United States federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred.
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(5)
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In the case of an election under Section 14.03,
the Company shall have delivered to the Trustees an Opinion of Counsel in the United States
to the effect that the Holders of such Securities will not recognize income, gain or loss
for United States federal income tax purposes as a result of such covenant defeasance and
will be subject to United States federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant defeasance had not occurred.
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(6)
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The Company shall have delivered to the Trustees
an Opinion of Counsel in Canada or a ruling from the Canada Revenue Agency to the effect
that the Holders of such Securities will not recognize income, gain or loss for Canadian
federal, provincial or territorial income tax or other tax purposes as a result of such defeasance
or covenant defeasance, as applicable, and will be subject to Canadian federal, provincial
or territorial income tax and other tax on the same amounts, in the same manner and at the
same times as would have been the case had such defeasance or covenant defeasance, as applicable,
not occurred (and for the purposes of such opinion, such Canadian counsel shall assume that
Holders of such Securities include Holders who are not resident in Canada).
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(7)
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The Company is not an “insolvent person”
within the meaning of the Bankruptcy and Insolvency Act (Canada) on the date of such deposit
or at any time during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until the expiration of
such period).
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(8)
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Notwithstanding any other provisions of this
Section 14.04, such defeasance or covenant defeasance shall be effected in compliance with
any additional or substitute terms, conditions or limitations in connection therewith pursuant
to Section 3.01.
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(9)
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The Company shall have delivered to the Trustees
an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for, relating to either the defeasance under Section 14.02 or the
covenant defeasance under Section 14.03 (as the case may be), have been complied with.
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Section 14.05
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Deposited
Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.
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Subject to the provisions of
the last paragraph of Section 10.03, all money and Government Obligations (or other property as may be provided pursuant to Section 3.01)
(including the proceeds thereof) deposited with a Trustee (or another trustee satisfying the requirements of Section 6.08 who shall agree
to comply with the provisions of this Article Fourteen) pursuant to Section 14.04 in respect of such Securities and any related
coupons shall be held in trust and applied by such Trustee, in accordance with the provisions of such Securities and any related coupons
and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent),
to the Holders of such Securities and any related coupons of all sums due and to become due thereon in respect of principal, premium
(if any) and interest (if any) on such Securities but such money need not be segregated from other funds except to the extent required
by law.
Unless otherwise specified with
respect to any Security pursuant to Section 3.01, if, after a deposit referred to in Section 14.04(1) has been made, (a) the
Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 3.12(b) or the
terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 14.04(1) has been
made in respect of such Security, or (b) a Conversion Event occurs as contemplated in Section 3.12(d) or 3.12(e) or by the
terms of any Security in respect of which the deposit pursuant to Section 14.04(1) has been made, the indebtedness represented by
such Security and any related coupons shall be deemed to have been, and will be, fully discharged and satisfied through the payment of
the principal of, premium (if any) and interest (if any) on such Security as they become due out of the proceeds yielded by converting
(from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security
into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on the applicable Market
Exchange Rate for such Currency in effect on the third Business Day prior to each payment date, except, with respect to a Conversion
Event, for such Currency in effect (as nearly as feasible) at the time of the Conversion Event.
The Company shall pay and indemnify
such Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 14.04
or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account
of the Holders of such Securities and any related coupons.
Anything in this Article Fourteen
to the contrary notwithstanding, such Trustee shall deliver or pay to the Company from time to time upon Company Request any money or
Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 14.04 which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to such Trustee,
are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance,
as applicable, in accordance with this Article Fourteen.
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Section 14.06
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Reinstatement.
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If a Trustee or any Paying Agent
is unable to apply any money in accordance with Section 14.05 by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the Company’s obligations under this Indenture and such
Securities and any related coupons shall be revived and reinstated as though no deposit had occurred pursuant to Section 14.02 or
14.03, as the case may be, until such time as such Trustee or Paying Agent is permitted to apply all such money in accordance with Section 14.05;
provided, however, that if the Company makes any payment of principal of, premium (if any) or interest (if any) on any such Security
or any related coupon following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of
such Securities and any related coupons to receive such payment from the money held by such Trustee or Paying Agent.
ARTICLE Fifteen
MEETINGS OF HOLDERS OF SECURITIES
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Section 15.01
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Purposes
for Which Meetings May Be Called.
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If Securities of a series are
issuable as Bearer Securities, a meeting of Holders of Securities of such series may be called at any time and from time to time pursuant
to this Article Fifteen to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be made, given or taken by Holders of Securities of such series.
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Section 15.02
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Call,
Notice and Place of Meetings.
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(1)
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The Trustees may at any time call a meeting
of Holders of Securities of any series for any purpose specified in Section 15.01, to
be held at such time and at such place in The City of New York, in Toronto or in London as
the Trustees shall determine. Notice of every meeting of Holders of Securities of any series,
setting forth the time and the place of such meeting and in general terms the action proposed
to be taken at such meeting, shall be given, in the manner provided for in Section 1.07,
not less than 21 nor more than 180 days prior to the date fixed for the meeting.
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(2)
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In case at any time the Company, pursuant
to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding
Securities of any series shall have requested the Trustees to call a meeting of the Holders
of Securities of such series for any purpose specified in Section 15.01, by written
request setting forth in reasonable detail the action proposed to be taken at the meeting,
and the Trustees shall not have made the first publication of the notice of such meeting
within 21 days after receipt of such request or shall not thereafter proceed to cause
the meeting to be held as provided herein, then the Company or the Holders of Securities
of such series in the amount above specified, as the case may be, may determine the time
and the place in The City of New York, in Toronto or in London for such meeting and may call
such meeting for such purposes by giving notice thereof as provided in paragraph (1)
of this Section 15.02.
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Section 15.03
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Persons
Entitled to Vote at Meetings.
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To be entitled to vote at
any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding
Securities of such series by such Holder of Holders. The only Persons who shall be entitled to be present or to speak at any meeting
of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives
of the Trustees and their counsel and any representatives of the Company and its counsel.
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Section 15.04
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Quorum;
Action.
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The Persons entitled to vote
a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities
of such series; provided, however, that, if any action is to be taken at such meeting with respect to a consent or waiver which this
Indenture expressly provides may be given by the Holders of not less than a specified percentage in principal amount of the Outstanding
Securities of a series, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such
series shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting
shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned
for a period of not less than 10 days as determined by the chair of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chair of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned
meeting shall be given as provided in Section 15.02(a), except that such notice need be given only once not less than five days
prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any adjourned meeting shall state
expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute
a quorum.
Subject to the foregoing, at
the reconvening of any meeting adjourned for lack of a quorum the Persons entitled to vote 25% in principal amount of the Outstanding
Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting.
Except as limited by the proviso
to Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid
may be adopted by the affirmative vote of the Holders of not less than a majority in principal amount of the Outstanding Securities of
such series who have casted their votes; provided, however, that, except as limited by the proviso to Section 9.02, any resolution
with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly
provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of
the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present
as aforesaid by the affirmative vote of the Holders of not less than such specified percentage in principal amount of the Outstanding
Securities of such series.
Any resolution passed or decision
taken at any meeting of Holders of Securities of any series duly held in accordance with this Section 15.04 shall be binding on all the
Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting.
Notwithstanding the foregoing
provisions of this Section 15.04, if any action is to be taken at a meeting of Holders of Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other action that this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage in principal amount of all Outstanding Securities affected thereby, or of the
Holders of such series and one or more additional series:
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(i)
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there shall
be no minimum quorum requirement for such meeting; and
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(ii)
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the principal
amount of the Outstanding Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under this Indenture.
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Section 15.05
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Determination
of Voting Rights; Conduct and Adjournment of Meetings.
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(1)
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Notwithstanding any provisions of this Indenture,
the Trustees may make such reasonable regulations as they may deem advisable for any meeting
of Holders of Securities of a series in regard to proof of the holding of Securities of such
series and of the appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other evidence of the
right to vote, and such other matters concerning the conduct of the meeting as they shall
deem appropriate. Except as otherwise permitted or required by any such regulations, the
holding of Securities shall be proved in the manner specified in Section 1.05 and the
appointment of any proxy shall be proved in the manner specified in Section 1.05 or
by having the signature of the person executing the proxy witnessed or guaranteed by any
trust company, bank or banker authorized by Section 1.05 to certify to the holding of
Bearer Securities. Such regulations may provide that written instruments appointing proxies,
regular on their face, may be presumed valid and genuine without the proof specified in Section 1.05
or other proof.
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(2)
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The Trustees shall, by an instrument in writing
appoint a temporary chair of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 15.02(b), in which case the
Company or the Holders of Securities of the series calling the meeting, as the case may be,
shall in like manner appoint a temporary chair. A permanent chair and a permanent secretary
of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal
amount of the Outstanding Securities of such series represented at the meeting.
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(3)
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At any meeting each Holder of a Security
of such series or proxy shall be entitled to one vote for each $1,000 principal amount of
Outstanding Securities of such series held or represented by him (determined as specified
in the definition of “Outstanding” in Section 1.01); provided, however,
that no vote shall be cast or counted at any meeting in respect of any Security challenged
as not Outstanding and ruled by the chair of the meeting to be not Outstanding. The chair
of the meeting shall have no right to vote, except as a Holder of a Security of such series
or a proxy.
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(4)
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Any meeting of Holders of Securities of any
series duly called pursuant to Section 15.02 at which a quorum is present may be adjourned
from time to time by Persons entitled to vote a majority in principal amount of the Outstanding
Securities of such series represented at the meeting; and the meeting may be held as so adjourned
without further notice.
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Section 15.06
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Counting
Votes and Recording Action of Meetings.
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The vote upon any
resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed
the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial
numbers, if any, of the Outstanding Securities of such series held or represented by them. The permanent chair of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and
file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at
least in duplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken
thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 15.02 and, if applicable, Section 15.04. Each copy shall be
signed and verified by the affidavits of the permanent chair and secretary of the meeting and one such copy shall be delivered to
the Company, and another to the Trustees to be preserved by the Trustees, the latter to have attached thereto the ballots voted at
the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.
IN WITNESS WHEREOF, the parties
hereto have caused this Indenture to be duly executed, all as of the day and year first above written.
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By:
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Name:
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Title:
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Authorized Signing Officer
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By:
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Name:
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Title:
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Authorized Signing Officer
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EXHIBIT A-1
FORM OF CERTIFICATE TO BE GIVEN BY
PERSON ENTITLED TO RECEIVE BEARER SECURITY
OR TO OBTAIN INTEREST PAYABLE PRIOR
TO THE EXCHANGE DATE
CERTIFICATE
BRAGG GAMING GROUP INC.
_____% Notes due _________________
This is to certify that as of
the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by any
person(s) that is not a citizen or resident of the United States; a corporation or partnership (including any entity treated as a corporation
or partnership for United States federal income tax purposes) created or organized in or under the laws of the United States, any state
thereof or the District of Columbia unless, in the case of a partnership, United States Treasury Regulations provide otherwise; any estate
whose income is subject to United States federal income tax regardless of its source; or a trust if (A) a United States court can
exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all
substantial decisions of the trust or (B) it was in existence on August 20, 1996 and has a valid election in effect under applicable
United States Treasury Regulations to be treated as a United States person (“United States persons(s)”), (ii) are owned
by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined
in United States. United States Treasury Regulation Section 1.165-12(c)(1)(iv) are herein referred to as “financial institutions”)
purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches
of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof
(and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent,
that you may advise Bragg Gaming Group Inc. or its agent that such financial institution will comply with the requirements of Section 165(j)(3)(A),
(B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by
United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury
Regulation Section 1.163-5(c)(2)(i)(D)(7)), and, in addition, if the owner is a United States or foreign financial institution described
in clause (iii) above (whether or not also described in clause (i) or (ii)), this is to further certify that such financial
institution has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
As used herein, “United
States” means the United States of America (including the states and the District of Columbia); and its “possessions”
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.
We undertake to advise you promptly
in writing on or prior to the date on which you intend to submit your certification relating to the above-captioned Securities held by
you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and
in the absence of any such notification it may be assumed that this certification applies as of such date.
This certificate excepts
and does not relate to U.S. $__________ of such interest in the above-captioned Securities in respect of which we are not able to
certify and as to which we understand an exchange for an interest in a permanent global security or an exchange for and delivery of
definitive Securities (or, if relevant, collection of any interest) cannot be made until we do so certify.
We understand that this certificate
may be required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced
or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate
or a copy thereof to any interested party in such proceedings.
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[To be dated no earlier than the 15th day prior to (i) the Exchange Date or (ii) the relevant Interest Payment Date occurring
prior to the Exchange Date, as applicable]
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[Name of Person Making Certification]
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EXHIBIT A-2
FORM OF CERTIFICATE TO BE GIVEN BY THE DEPOSITARY
IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A
TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST
PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
BRAGG GAMING GROUP INC.
_____% Notes due _________________
This is to certify that based
solely on written certifications that we have received in writing or by electronic transmission from each of the persons appearing in
our records as persons entitled to a portion of the principal amount set forth below (our “Member Organizations”) substantially
in the form attached hereto, as of the date hereof, U.S. $__________ principal amount of the above-captioned Securities (i) is owned
by any person(s) that is not a citizen or resident of the United States; a corporation or partnership (including any entity treated as
a corporation or partnership for United States federal income tax purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia unless, in the case of a partnership, United States Treasury Regulations provide otherwise;
any estate whose income is subject to United States federal income tax regardless of its source; or a trust if (A) a United States
court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to
control all substantial decisions of the trust or (B) it was in existence on August 20, 1996 and has a valid election in effect
under applicable United States Treasury Regulations to be treated as a United States person (“United States person(s)”),
(ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions,
as defined in United States Treasury Regulation Section 1.165-12(c)(1)(iv) are herein referred to as “financial institutions”)
purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches
of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof
(and in either case (a) or (b), each such financial institution has agreed, on its own behalf or through its agent, that we may
advise Bragg Gaming Group Inc. or its agent that such financial institution will comply with the requirements of Section 165(j)(3)(A),
(B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States
or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulation
Section 1.163-5(c)(2)(i)(D)(7)) and, to the further effect, that financial institutions described in clause (iii) above (whether
or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly
or indirectly to a United States person or to a person within the United States or its possessions.
As used herein, “United
States” means the United States of America (including the states and the District of Columbia); and its “possessions”
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.
We further certify that (i) we
are not making available herewith for exchange (or, if relevant, collection of any interest) any portion of the temporary global Security
representing the above-captioned Securities excepted in the above-referenced certificates of Member Organizations and (ii) as of
the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by
such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, collection of any
interest) are no longer true and cannot be relied upon as of the date hereof.
We understand that this certification
is required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or
threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate
or a copy thereof to any interested party in such proceedings.
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[To be dated as of (i) the Exchange Date or (ii) the relevant Interest Payment Date occurring prior to the Exchange Date, as
applicable]
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[INSERT NAME OF DEPOSITARY]
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