As filed with the Securities and Exchange Commission on February
12, 2019
Registration No. 333-229144
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT
NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUPER LEAGUE GAMING, INC.
(Exact name of registrant as specified in its
charter)
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Delaware
(State
or other jurisdiction of
incorporation or organization)
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7374
(Primary
Standard Industrial
Classification
Code Number)
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47-1990734
(I.R.S.
Employer
Identification
Number)
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2906 Colorado Ave.
Santa Monica, California 90404
(855) 248-7079
(Address, including zip code, and telephone number,
including
area code, of registrant's principal executive
offices)
Ann Hand
President and Chief Executive Officer
Super League Gaming, Inc.
2906 Colorado Ave.
Santa Monica, California 90404
(802) 294-2754
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
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Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
Disclosure Law Group,
A Professional Corporation
655 West Broadway, Suite 870
San Diego, California 92101
(619) 272-7050
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Jonathan R. Zimmerman, Esq.
Ben A. Stacke, Esq.
Ryan R. Woessner, Esq.
Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
(612) 766-7000
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of this
registration statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended, check
the following
box. ☐
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same
offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration number of
the earlier effective registration statement for the same
offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☒
Emerging
growth company ☒
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If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the
Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
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Amount
to be
Registered
(1)
(2)
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Proposed
Maximum Offering Price Per Share
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Proposed
Maximum
Aggregate
Offering
Price
(1)(2)
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Amount of
Registration
Fee (3)
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Common Stock, par
value $0.001 per share
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2,613,636
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$ 12.00
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$ 31,363,632
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$ 3,801.28
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(1)
Estimated solely
for the purpose of calculating the registration fee in accordance
with Rule 457(a) under the Securities Act of 1933, as
amended.
(2)
Includes an
additional 340,909 shares that the underwriters have the option to
purchase to cover over- allotments, if any.
(3)
The
registrant previously paid $3,030.00 of this amount in connection
with a prior filing of this Registration
Statement.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment that
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may
determine.
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The information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED FEBRUARY 12,
2019
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PRELIMINARY PROSPECTUS
2,272,727
Shares
SUPER LEAGUE GAMING,
INC.
We are offering 2,272,727 shares of our common stock.
This is our initial public offering and no public market currently
exists for our common stock. The initial public
offering price of our common stock is expected to be between
$10.00 and $12.00 per share. We have
applied to list our common stock on the Nasdaq Capital Market under
the symbol “SLGG.”
We are an “emerging growth company” as the term is used
in the Jumpstart Our Business Startups Act of 2012 and, as such,
have elected to comply with certain reduced public company
reporting requirements for this prospectus and future filings. See
“Prospectus
Summary – Implications of Being an Emerging Growth
Company.”
Investing in our common stock involves
risks. See “Risk
Factors” beginning on
page 9 of this prospectus for a discussion of the risks that you
should consider in connection with an investment in our
securities.
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Initial public
offering price
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$
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$
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Underwriting
discounts and commissions(1)
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$
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$
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Proceeds, before
expenses, to us
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$
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$
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(1)
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In
addition, we have agreed to issue a warrant to purchase up
to 68,182 shares of our common stock to the
underwriters, which equates to 3.0% of the number of
shares of our common stock to be issued and sold in this offering,
and to reimburse the underwriters for certain expenses. See
“Underwriting”
for additional information regarding this warrant and underwriting
compensation generally.
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We
have granted the underwriters an option to buy up to an additional
340,909 shares of our common stock to cover
over-allotments, if any. The underwriters may exercise this option
at any time during the 30-day period from the date of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Delivery of the shares will be made on or about
,
2019, subject to customary closing conditions.
Joint Book-Running Managers
Northland
Capital Markets
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Lake
Street
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Co-Manager
National
Securities Corporation
The date of this prospectus is
,
2019
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F-1
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You should rely only on the information contained in this
prospectus or in any free writing prospectus we or the underwriters
may authorize to be delivered or made available to you. Neither we
or the underwriters have authorized anyone to provide you with
different information. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information in this prospectus is
accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of shares of our
common stock. Our business, financial condition, operating results
and prospects may have changed since that date.
For investors outside of the United States: No action is being
taken in any jurisdiction outside of the United States that would
permit a public offering of the shares of our common stock or
possession or distribution of this prospectus in any such
jurisdiction. Persons outside of the United States who come into
possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the shares of
common stock and the distribution of this prospectus outside of the
United States.
In this prospectus, unless the context indicates otherwise,
references to “Super
League,”
“SLG,” “we,” the “Company,” “our” and “us” refer to Super League Gaming, Inc., a
Delaware corporation, and references to the
“Board” or the “Board of
Directors” means the
Board of Directors of the Company.
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This summary highlights information contained elsewhere in this
prospectus and does not contain all of the information you should
consider before investing in our common stock. You should read this
entire prospectus carefully, including the section entitled
“Risk Factors” and our financial statements and the
related notes thereto included elsewhere in this prospectus, before
making an investment decision.
We are
a leading amateur esports community and content platform offering a
personalized experience to the large and underserved global
audience of 2.3 billion gamers, as estimated by NewZoo. According to the Electronic Software
Association, the avid gamer, identified as individuals who are
considered the most frequent gamers, sees gameplay as central to
their social life with 55% playing video games to connect with
friends and 46% to spend time with family members. Through our
proprietary, cloud-based technology platform, we connect our
network of gamers, venues and brand partners to enable
local, social and competitive esports that can be uniquely
broadcast through our platform. We offer daily and season-focused
offerings for which amateur competitive gamers establish meaningful
connections with each other while improving their
skills.
As a
first-mover in defining the amateur esports category in 2015, we
believe we are one of the most recognizable brands for amateur
gamers. We have multi-year strategic partnerships with leading game
publishers such as Microsoft Corporation (“Microsoft”) and Riot Games, Inc.
(“Riot Games”)
with titles including Minecraft and League of Legends,
respectively, as well as relationships with Supercell and Epic
Games with respect to Clash Royale and Fortnite, respectively, to
drive use among our member base and
further penetrate our target market. We deliver enhanced gaming
experiences to our members with these titles through our platform,
and we provide our venue and brand partners access to our member
network and platform technology. We believe our members and
the organizations that use our platform are only beginning to
leverage the power of the consumer experience, commercial benefits,
and data analytics our technology enables. Targeting Generation Z
and Millennials, members join through accessible, free-to-play
experiences, allowing us to reach the expansive amateur gaming
market. We intend to convert members into subscribers by offering
two tiers of competitive gameplay engagement: (i) our monthly
subscription for the more casual competitive player, offering
access to exclusive online tournaments and member benefits; and
(ii) our semi-annual season pass for the more competitive player
offering access to our city leagues and advanced amateur esports
offers along with membership rewards.
Our Platform
Our
proprietary cloud-based platform provides amateur gamers a
modernized way to connect, play and view games in real-time. We
believe our platform will become central to the esports ecosystem and allow us to capture a
significant portion of our members’ gameplay hours and
share-of-wallet for greater lifetime value. Our platform
aggregates a diverse audience of gamers across multiple game titles
and provides our members with access to online, in-person and
hybrid competitive experiences and
broadcasts that are accessible to a broad range of ages and
demographics. Through our platform, we have three core components
that enable differentiated and immersive gameplay at scale: (i) our
matchmaking system allows members to create their public-facing
gamer persona and applies distinct criteria and filters around team
size, skill level and geography to intelligently match our members
for competitive gameplay and facilitate rich online and in-person
social connections; (ii) our tournament system supports all major components of tournament
operations and automation including, for example, ticketing, user
management, event management, event operations, Application Program
Interface (“API”) integrations that power direct
connectivity between our platform and the servers of each game
publisher, data services, leaderboards and prize fulfillment; and
(iii) our proprietary, cloud-based visualization and broadcast
system is capable of capturing and live streaming gameplay across
all digital distribution platforms and delivering separate streams
simultaneously to multiple locations and
channels.
The end broadcast result is our customizable Heads-up-Display
(“HUD”), which complements gameplay through
dynamic visualization of player and team statistics, competitive
status updates and contextual content that can also be uniquely
displayed on a hyper-local level with content specific to the
target markets, associated communities and players participating
across multiple venues. In addition, our proprietary SuperLeagueTV
digital network is the first esports media property principally
dedicated to amateur players and teams. Currently, live stream
gameplay and video-on-demand (“VOD”) content is broadcast through
SuperLeagueTV on Twitch and YouTube. We believe
SuperLeagueTV’s digital broadcast distribution is an
essential way to drive viewership and membership interest, along
with new game title expansion and additional online and
in-person experiences through our distributed venue partner
network.
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Our Vision and History
Our
vision is to make Super League Gaming the preeminent brand and
platform for amateur esports. We do this by providing a
proprietary, end-to-end platform that allows our members to
compete, socialize and spectate premium amateur esports
gameplay and enables a wide ecosystem
of partners to bring Super League experiences at scale to gamers
around the world.
After
securing strategic partnerships with the publishers of top-tier
game titles beginning in 2016, we became the first consumer of our
platform technology through the establishment of our city league
consisting of 16 teams based in various U.S. cities built around
Minecraft, League of Legends and, most recently, Clash Royale. In 2017, we further
differentiated our offering by migrating to a cloud-based
technology platform for scale while continuing to build and
establish the Super League Gaming brand. We also developed
intelligent technology that facilitates personalized experiences
and matchmaking for gamers, and audience-targeted gameplay
broadcasting content at scale. We are now positioned to unlock the
platform more extensively to new game titles and a distributed
network of venue operators and gameplay organizers in order to
further develop a self-organizing marketplace for online and
in-person gaming experiences.
Industry Overview - The Esports Ecosystem
The
consumer appetite for esports continues to grow at a rapid pace
with passionate fans across the globe. According to NewZoo, the
overall value of the global gaming
market could reach approximately $137.9 billion by the end of 2018,
representing an estimated year over year increase of 13.3%, or
$16.2 billion from 2017. The consumer appetite for esports
continues to grow at a rapid pace with passionate fans across the
globe. Key trends fueling this growth include the rise of live
streaming, real-time social networking within games, and
multi-generational and lifestyle gaming that integrates several
aspects of an individual gamer’s life with the core game,
including online play, downloadable content, achievements and item
collection.
In particular, the professional esports industry is growing
quickly, evidenced through new leagues, teams and broadcast
distribution channels, and this growth is attracting high-profile
esports investments from brands, media organizations and
traditional sports rights holders. As professional esports player
salaries and the value of broadcast media rights have risen
substantially, there is large unmet demand at the amateur level for
competitions and viewing content, which, for esports fans, is
predominantly consumed through live streaming and over-the-top
(“OTT”) channels. The following data points
illustrate the vast growth opportunity for global
esports:
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Recent reports show
a “$15 billion blue sky revenue opportunity” for
professional esports due to the highly engaged and untapped fanbase
(Merrill Lynch Interactive Report, 2018).
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In
2018, approximatley
560 billion minutes of esports were viewed on
Twitch, an increase of 58%
year-over-year, and by 2022, esports is on track to
reach an
estimated 276 million global viewers
(up from approximately 167 million global viewers currently),
similar to the current audience size of the National Football
League (“NFL”)
(TwitchTracker.com; Goldman Sachs Esports Equity
Research, 2018).
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Gaming video
content is estimated to be a $4.6 billion market with more viewers
than HBO, Netflix, ESPN and Hulu combined (SuperData Research,
2017).
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Just a few top-tier
game titles currently deliver hundreds of millions of gamers;
estimated monthly active users (“MAU”) for Fortnite, League of
Legends and Minecraft is 125 million, 100 million and 74 million,
respectively (Statista and Microsoft, 2018).
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The average U.S.
gaming household has 1.7 gamers with 70% of parents believing
gaming “has a positive influence on their children’s
lives” (Electronic Software Association, 2018).
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Esports enthusiasts
on average have higher college graduation rates and average
household incomes, with 43% earning greater than $75,000 per year,
relative to traditional sports fans (Mindshare, Esports Fans: What
Marketers Should Know, 2016).
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An average esports
viewer spends up to nine hours per week watching esports-related
content in addition to over eight hours of gameplay per week
(Nielsen Esports Playbook, 2017).
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Our Opportunity
We believe our esports community platform will transform the way
amateur gamers connect, interact, socialize and compete. Our
premium, competitive gameplay experiences and elite amateur
broadcasts, coupled with the expansion of our game title portfolio,
our retail venue partner network and our strategic brand
sponsorships, introduce new gamers into our customer funnel to
drive membership growth and subscription conversion. Esports is
still in its early stages and entering a new phase of growth.
Despite the significant growth potential outlined above, there are
several key challenges facing stakeholders in the esports landscape
for which we can offer solutions:
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Stakeholder
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Challenge
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Super
League’s Solution
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Amateur
Gamers
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As a
highly fragmented, often anonymous community, gamers have limited
ways to find gamers of similar skill-level for heightened
competitive play and new social connections.
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Through
our end-to-end platform, we connect players online and locally for
deeper competition and socialization along with providing a unique
lens on amateur gameplay.
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Game
Publishers
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With
significant capital investment in developing game titles and
increased competition, publishers need to grow and retain their
gamer base to extend the lifecycle and franchise value of their
intellectual property.
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Through
our offers and variety of alternative, premium experiences, we
introduce titles to new audiences while deepening engagement among
existing gamers for greater long-term retention.
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Venue
Operators (including restaurants and retailers)
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To
improve asset utilization and optimize weaker day-parts, venue
operators need to draw new foot-traffic to establishments, improve
overall customer satisfaction and retention.
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Through
our licensable technology, we provide access to our platform and
enable esports experiences that attract a new customer base of both
players and spectators to grow same-store sales.
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Sponsors and
Advertisers
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In a
world of increasing fragmentation of content distribution and
ad-blocking technology, sponsors need to identify channels to reach
gamers, particularly Generation Z and Millennials, with high
quality and non-invasive advertising.
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Through
a range of high-touch experiences and customizable content, we
deliver a highly targeted marketing channel that offers a relevant
path for brands to build affinity with the target
demographic.
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Professional
Esports Teams and Owners
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With
significant investments in esports teams, owners need to rapidly
develop a fanbase to achieve franchise values similar to
traditional sports teams as well as identify the next generation of
professionals.
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Through
amateur youth and young adult leagues, we cultivate the future
professional esports fanbase and provide a feeder system to the
professional level.
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Our Strengths
We
differentiate ourselves from potential competition through the
power of a pure horizontal platform and established partnerships
that enable experiences, community, content and commerce. Our core
strengths include the following:
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Game Publisher Agreements provide access
to existing user bases via strategic partnerships with
some of the largest game publishers. These partnerships draw
subscription interest and provide a line of defense against our
competitors. Our ability to interact with this highly attractive,
engaged user base draws brands and sponsors to us to reach this
otherwise hard-to-reach demographic.
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Proprietary and Curated Content provides
us with a unique perspective to amateur competitive gameplay
currently absent from the esports ecosystem and is highly
complementary and valuable to the needs of large video streaming
providers.
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Patent-Pending Technology
allows
for unique, intelligent content capture enabling us to display the
most relevant gameplay activity in real time and broad
visualization of active gameplay to facilitate maximum scale of
interactive, in-person gaming, broadcast experience, and content
monetization.
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Over Three Years of Brand and Technology
Development provides us a strong, distinctive lead on
followers with no obvious competitors in the holistic community,
league operations and media platform category.
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A Diverse Set of Enterprise and Commercial
Revenue Streams enabled by a pure platform play that
protects us from the risk of online-only offers subject to
commoditization and advertising revenue dependency.
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A Growing Member Base coupled with
highly customized gaming and viewing experiences allows us to
capture a global, highly engaged, yet somewhat elusive community
that we believe will provide many new ways to monetize over
time.
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Creation of Intangible Brand Value in
the quality of our offer, game titles, brand partners, and investor
base that validates our trusted, premium brand and distinctive
positioning to drive value in the fragmented, burgeoning esports
landscape.
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Our Growth Strategy
Our
core strategy is to pursue initiatives that promote the viral
growth of our member base, and in doing so drive subscription,
sponsorships and other new revenue streams utilizing the following
levers:
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Member Growth and Network Effect is
driven
organically through direct marketing, partner and influencer
promotion, and search engine optimization. We believe the most
efficient member acquisition, however, will come through organic
word of mouth and other customer-based
referrals.
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Mutually Beneficial Relationships with Game
Publishers, along with our game-agnostic platform interface,
allow us to access large, built-in customer bases from game titles
amassing access to hundreds of millions of MAU and offering enhanced competitive
gameplay experiences to deepen their connection to the game
titles.
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Strategic Retail Venue Partnerships
allow us to reach domestic and international scale by leveraging
the infrastructure, operations and marketing efforts of our retail
venue partners to create daily, weekly and monthly in-person
experiences with amateur gamers to drive more membership and
competitive gameplay through our platform.
●
Brand and Media Partnerships,
which
often include commitments to promote our brand, events and content
across their social channels outside of our events and platform,
have the potential to extend the utilization of
our platform by leveraging the reach of our
partners’ existing broadcast, social and customer
loyalty programs which, in turn, can extend our audience
reach and potentially drive more gamers and viewers to
our amateur esports gaming content and technology
platform.
●
International Expansion, as we continue
to prove the model domestically, will enable us to access the massive global scale of
gamers worldwide and unlock greater brand partnership and media
rights revenue opportunities through global audience
development.
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Selected Risks Related to our Business
Our
business is subject to numerous risks, including risks that may
prevent us from achieving our business objectives or may adversely
affect our business, financial condition, results of operations,
cash flows and prospects, that you should consider before making an
investment decision. Some of the more significant risks and
uncertainties relating to an investment in our company are listed
below. These risks are more fully described in the
“Risk Factors”
section of this prospectus immediately following this prospectus
summary:
●
overall strength
and stability of general economic conditions, and of the esports
industry, both in the United States and globally;
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changes in consumer
demand for, and acceptance of, the game titles that we license for
our tournaments and activities, as well as online multiplayer
competitive amateur gaming in general;
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changes in the
competitive environment, including new entrants in the market for
online amateur competitive gaming, tournaments and competitions
that compete with our own;
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competition
from new entrants in the amateur esports space, and if we are
unable to compete effectively, we may not be able to achieve or
maintain significant market penetration or improve our results of
operations;
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our ability to
generate consistent revenue;
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our ability to
effectively execute our business plan;
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changes in the
licensing fees charged by the publishers of the most popular online
video games;
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changes in laws or
regulations governing our business and operations;
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our ability to
maintain adequate liquidity and financing sources and an
appropriate level of debt on terms favorable to us;
●
our ability to
effectively market our amateur city leagues, tournaments and
competitions;
●
our ability to
obtain and protect our existing intellectual property protections,
including patents, trademarks and copyrights;
●
our ability to
obtain and enter into new licensing agreements with game publishers
and owners;
●
our ability to list
our shares on the Nasdaq Capital Market or any other national
exchange and maintain such listing; and
●
other risks
described from time to time in periodic and current reports that we
file with the Securities and Exchange Commission (the
“SEC”).
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations. You should be able to bear a complete loss of your
investment.
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Implications of Being an Emerging Growth Company
As a
company with less than $1.07 billion in revenue during our last
fiscal year, we qualify as an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). An
emerging growth company may take advantage of specified reduced
reporting and other burdens that are otherwise applicable generally
to public companies. These provisions include:
●
A requirement to
have only two years of audited financial statements and only two
years of related Management’s Discussion and Analysis of
Financial Condition and Results of Operations;
●
An exemption from
the auditor attestation requirement on the effectiveness of our
internal control over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley
Act”);
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An extended
transition period for complying with new or revised accounting
standards;
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Reduced disclosure
about our executive compensation arrangements; and
●
No non-binding
advisory votes on executive compensation or golden parachute
arrangements.
We may take
advantage of these provisions from the JOBS Act until the end of
the fiscal year in which the fifth anniversary of this offering
occurs, or such earlier time when we no longer qualify as an
emerging growth company. We would cease to be an emerging growth
company on the earlier of (i) the last day of the fiscal year (a)
in which we have more than $1.07 billion in annual revenue or (b)
in which we have more than $700 million in market value of our
capital stock held by non-affiliates, or (ii) the date on which we
issue more than $1.0 billion of non-convertible debt over a
three-year period. We may choose to take advantage of some but not
all of these reduced burdens under the JOBS Act. We have
irrevocably taken advantage of other reduced reporting requirements
in this prospectus, and we may choose to do so in future filings.
To the extent we do, the information that we provide stockholders
may be different than you might get from other public companies in
which you hold equity interests.
Corporate Information
Super
League Gaming, Inc. was incorporated under the laws of the State of
Delaware on October 1, 2014 as Nth Games, Inc. On July 13, 2015, we
changed our corporate name from Nth Games, Inc. to Super League
Gaming, Inc. Our principal executive offices are located at 2906
Colorado Avenue, Santa Monica, California 90404, and our telephone
number is (855) 248-7079. Our corporate website address is
www.superleague.com. Information
contained in, or accessible through, our website is not a part of
this prospectus, and the inclusion of our website address in this
prospectus is an inactive textual reference
only.
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The Offering
The following summary is provided solely for your convenience and
is not intended to be complete. You should read the full text and
more specific details contained elsewhere in this
prospectus.
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Issuer
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Super
League Gaming, Inc.
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Common
stock offered by us
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2,272,727
shares.
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Over-allotment
option
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The
underwriters have an option for a period of 30 days from the date
of this prospectus to purchase up to 340,909
additional shares of our common stock to cover over-allotments, if
any
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Common
stock to be outstanding after this offering
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8,338,020
shares, or 8,678,929
shares if the underwriters exercise their option to purchase
additional shares in full.
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Use of
proceeds
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We
estimate that the net proceeds from this offering, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us, will be approximately $22.4
million, or approximately $25.8 million if the
underwriters exercise their option to purchase additional shares
from us in full, assuming an initial public offering price of
$11.00 per share, which is the midpoint of the price
range set forth on the cover page of this prospectus. We intend to
use the net proceeds of this offering for working capital and
general corporate purposes, including sales and marketing
activities, product development and capital expenditures. See
“Use of
Proceeds” for a more complete description of the
intended use of proceeds from this offering.
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Risk
factors
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You
should read the “Risk
Factors” section of this prospectus and the other
information in this prospectus for a discussion of factors to
consider carefully before deciding to invest in shares of our
common stock.
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Proposed
listing
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We
have applied to have our common stock listed on the Nasdaq Capital
Market in connection with this offering. No assurance can be given
that such listing will be approved.
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Proposed Nasdaq
Capital Market symbol
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“SLGG”
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The number of shares of our common stock to be outstanding after
this offering is based on 4,610,109
shares of our common stock outstanding
as of February
11, 2019, and excludes:
●
2,390,968 shares of common stock issuable upon exercise of
warrants to purchase our common stock, of which
1,208,936 warrants (subject to adjustment as described
below) are callable at the election of the Company, at any time
following the completion of this offering;
●
1,524,468 shares of common stock issuable upon exercise of
options held and 274,698 shares of common stock
reserved for issuance pursuant to our 2014 Plan (as defined
herein); and
●
68,182 shares of common
stock issuable upon the exercise of the warrant to be issued to the underwriters, which
equates to 3.0% of the number of shares of our common
stock to be issued and sold in this
offering.
Except as otherwise indicated, all information in this prospectus
assumes the following:
●
automatic
conversion of our outstanding 9.00% secured convertible promissory
notes issued between May 2018 and August 2018 into
1,455,184
shares of our common stock;
●
a
one-for-three reverse stock split of our common stock
which was effected on February 8, 2019 (all share and per
share amounts in this prospectus have been presented on a
retrospective basis to reflect the reverse stock split);
and
●
no
exercise by the underwriters of their option to purchase up
to 340,909 additional shares of common stock from
us in this offering to cover over-allotments, if any.
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SUMMARY FINANCIAL DATA
The following tables set forth a summary of our
historical financial data as of, and for the periods ended on, the
dates indicated. We have derived the statements of operations data
for the years ended December 31, 2018 and 2017 from our
audited financial statements included elsewhere in this prospectus.
You should read this data together with our financial statements
and related notes included elsewhere in this prospectus and the
sections in this prospectus entitled “Selected Financial
Data” and
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.” Our
historical results for any prior period are not indicative of our
future results.
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Statements
of Operations Data:
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Sales
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$ 1,046,359
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201,182
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Cost of goods
sold
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684,105
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1,487,905
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Gross profit
(loss)
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362,254
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(1,286,723)
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Operating
expenses:
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Selling, marketing
and advertising
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1,525,525
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1,155,506
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Research and
development
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17,197
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61,543
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General and
administrative
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14,979,732
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12,451,636
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Total operating
expenses
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16,522,454
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13,668,685
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Loss from
operations
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(16,160,200)
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(14,955,408)
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Other income
(expense), net
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(4,466,616)
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-
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Net
loss
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$ (20,626,816)
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$ (14,955,408)
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Net loss per share
attributable to common stockholders (1)
(2)
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Basic
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$ (4.48)
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$ (3.52)
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Diluted
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$ (4.48)
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$ (3.52)
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Weighted average
shares outstanding used in computing net income (loss) per share
attributable to common stockholders (1)
(2)
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Basic
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4,606,951
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4,246,626
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Diluted
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4,606,951
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4,246,626
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(1)
See Note 1 to our
audited financial statements included elsewhere in this prospectus
for an explanation of the methods used to calculate the historical
net income (loss) per share, basic and diluted, and the number of
shares used in the computation of the per share amounts.
(2)
All share and per
share data has been retrospectively adjusted to reflect the
one-for-three reverse stock split of our common stock, which was
effected on February 8, 2019.
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$2,774,421
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$ 25,128,369
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(8,032,686)
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25,243,863
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4,987,157
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27,341,105
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9.00% Convertible
notes payable
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10,922,601
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-
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Additional paid-in
capital
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48,325,146
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89,825,509
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(55,133,473)
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(63,361,015
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Total
stockholders’ deficit
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(6,794,496)
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26,482,053
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(1)
Pro forma as
adjusted balance sheet data reflects the pro forma items described
immediately above plus our sale
of 2,272,727 shares of common stock in this
offering at an assumed initial public offering price of
$11.00 per share, the midpoint of the price range set
forth on the cover page of this prospectus, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us. Pro forma as adjusted balance sheet data is
illustrative only and will change based on the actual initial
public offering price and other terms of this offering determined
at pricing. Each $1.00 increase or decrease in the assumed initial
public offering price of $11.00 per share, the
midpoint of the price range set forth on the cover page of this
prospectus, would increase or decrease pro forma as adjusted cash,
total assets and total stockholders' deficit by approximately
$2.1 million, assuming that the number of shares
offered by us, as set forth on the cover page of this prospectus,
remains the same, and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. We may
also increase or decrease the number of shares we are offering. A
1,000,000 share increase or decrease in the number of shares
offered by us would increase or decrease pro forma as adjusted
cash, total assets and total stockholders' deficit by approximately
$10.2 million, assuming that the assumed initial price
to public remains the same, and after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us. These unaudited pro forma adjustments are based upon
available information and certain assumptions we believe are
reasonable under the circumstances.
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Investing in our common stock involves a high degree of risk. You
should carefully consider the risks described below, as well as the
other information in this prospectus, including our financial
statements and the related notes thereto and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” before deciding whether
to invest in our common stock. The occurrence of any of the events
or developments described below could harm our business, financial
condition, operating results, and growth prospects. In such an
event, the market price of our common stock could decline, and you
may lose all or part of your investment. Additional risks and
uncertainties not presently known to us or that we currently deem
immaterial also may impair our business operations.
Risks Related to Our Business and Industry
We have incurred significant losses since our inception and we may
continue to experience losses in the future.
We incurred net losses of $20.6 million and $14.9 million during
the years ended December 31, 2018 and 2017, respectively.
Noncash expenses (excluding depreciation and amortization of fixed
and intangible assets) totaled $8,850,074 and $5,000,243 for the
years ended December 31, 2018 and 2017, respectively. As of
December 31, 2018, we had an accumulated deficit of $55.1 million.
The report of our independent registered public accounting firm to
the financial statements for our fiscal year ended December 31,
2018, included elsewhere in the prospectus, contains an explanatory
paragraph stating that our recurring losses from operations,
accumulated deficit and cash used in operating activities raise
substantial doubt about our ability to continue as a going concern.
We cannot predict if we will achieve profitability soon or at all.
We expect to continue to expend substantial financial and other
resources on, among other things:
●
investments
to expand and enhance our esports technology platform and
technology infrastructure, make improvements to the scalability,
availability and security of our platform, and develop new
offerings;
●
sales
and marketing, including expanding our customer acquisition and
sales organization and marketing programs, and expanding our
programs directed at increasing our brand awareness among current
and new customers;
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investments
in bandwidth to support our video streaming
functionality;
●
contract
labor costs and other expenses to host our leagues and
tournaments;
●
costs
to retain and attract gamers and license first tier game titles,
grow our online gamer community and generally expand our business
operations;
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hiring
additional employees;
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expansion
of our operations and infrastructure, both domestically and
internationally; and
●
general
administration, including legal, accounting and other expenses
related to being a public company.
We may not generate sufficient revenue to offset such costs to
achieve or sustain profitability in the future. We expect to
continue to invest heavily in our operations, our online and in
person experiences, business development related to game
publishers, advertisers, sponsors and gamer acquisition, to
accelerate as well as maintain our current market position, support
anticipated future growth and to meet our expanded reporting and
compliance obligations as a public company.
We expect operating losses to continue in the near term in order to
carry out our strategic objectives. We consider historical
operating results, capital resources and financial position, in
combination with current projections and estimates, as part of our
plan to fund operations over a reasonable period of
time.
Commencing in February through August 2018, we issued 9.00% secured
convertible promissory notes in the aggregate principal amount of
approximately $13,000,000. The notes (i) accrue simple interest at
the rate of 9.00% per annum, (ii) mature on the earlier of the
closing of an initial public offering (“IPO”) of our common stock on a national
securities exchange or April 30, 2019, and (iii) all outstanding
principal and accrued interest is automatically convertible into
shares of common stock upon the closing of an IPO, as described
elsewhere herein.
We intend to use the proceeds from the issuance of the notes for
business expansion, merger and/or acquisitions, game licensing, and
working capital. No assurance can be given that any future
financing will be available or, if available, that it will be on
terms that are deemed satisfactory.
We believe our current cash, net proceeds from debt issuances and
the amount available from future issuances of common stock,
including shares to be issued as a part of this offering, will be
sufficient to fund our working capital requirements beyond the next
12 months. This belief assumes, among other things, that we will be
able to raise additional equity financing, will continue to be
successful in implementing our business strategy and that there
will be no material adverse developments in the business, liquidity
or capital requirements. If one or more of these factors do not
occur as expected, it could have a material adverse impact on our
activities, including (i) reduction or delay of our business
activities, (ii) forced sales of material assets, (iii) defaults on
our obligations, or (iv) insolvency. Our planned investments may
not result in increased revenue or growth of our business. We
cannot assure you that we will be able to generate revenue
sufficient to offset our expected cost increases and planned
investments in our business and platform. As a result, we may incur
significant losses for the foreseeable future, and may not be able
to achieve and/or sustain profitability. If we fail to achieve and
sustain profitability, then we may not be able to achieve our
business plan, fund our business or continue as a going concern.
The financial statements included in this prospectus do not contain
any adjustments which might be necessary if we were unable to
continue as a going concern.
We are a relatively young company, and we may not be able to
sustain our rapid growth, effectively manage our anticipated future
growth or implement our business strategies.
We have a limited operating history. Although we have experienced
significant growth since our gaming platform for amateur online and
in person gaming experiences was launched, and we established our
amateur city leagues, tournaments and competitions, our historical
growth rate may not be indicative of our future performance due to
our limited operating history and the rapid evolution of our
business model, including a focus on subscription-based gaming. We
may not be able to achieve similar results or accelerate growth at
the same rate as we have historically. As our amateur city leagues,
tournaments and competitions continue to develop, we may adjust our
strategy and business model to adapt. These adjustments may not
achieve expected results and may have a material and adverse impact
on our financial condition and results of operations.
In addition, our rapid growth and expansion have placed, and continue to
place, significant strain on our management and resources. This
level of significant growth may not be sustainable or achievable at
all in the future. We believe that our continued growth will depend
on many factors, including our ability to develop new sources of
revenues, diversify monetization methods including our subscription
offerings, attract and retain competitive gamers, increase
engagement, continue developing innovative technologies,
tournaments and competitions in response to shifting demand in
esports and online gaming, increase brand awareness, and expand
into new markets. We cannot assure you that we will achieve any of
the above, and our failure to do so may materially and adversely
affect our business and results of operations.
We are subject to risks associated with operating in a rapidly
developing industry and a relatively new market.
Many elements of our business are unique, evolving and relatively
unproven. Our business and prospects depend on the continuing
development of live streaming of competitive esports gaming. The
market for esports and amateur online gaming competition is
relatively new and rapidly developing and are subject to
significant challenges. Our business relies upon our ability to
cultivate and grow an active gamer community, and our ability to
successfully monetize such community through tournament fees,
subscriptions for our esports gaming services, and advertising and
sponsorship opportunities. In addition, our continued growth
depends, in part, on our ability to respond to constant changes in
the esports gaming industry, including rapid technological
evolution, continued shifts in gamer trends and demands, frequent
introductions of new games and titles and the constant emergence of
new industry standards and practices. Developing and integrating
new games, titles, content, products, services or infrastructure
could be expensive and time-consuming, and these efforts may not
yield the benefits we expect to achieve at all. We cannot assure
you that we will succeed in any of these aspects or that the
esports gaming industry will continue to grow as rapidly as it has
in the past.
We generate a portion of our revenues from advertising and
sponsorship. If we fail to attract more advertisers and sponsors to
our gaming platform or tournaments or competitions, or if
advertisers or sponsors are less willing to advertise with or
sponsor us, our revenues may be adversely affected.
We generate a growing portion of our revenues from advertising and
sponsorship, which we expect to further develop and expand in the
near future as online viewership of our esports gaming offerings
expand. Our revenues from advertising and sponsorship partly depend
on the continual development of the online advertising industry and
advertisers’ willingness to allocate budgets to online
advertising in the esports gaming industry. In addition, companies
that decide to advertise or promote online may utilize more
established methods or channels, such as more established internet
portals or search engines, over advertising on our gaming platform.
If the online advertising and sponsorship market does not continue
to grow, or if we are unable to capture and retain a sufficient
share of that market, our ability to increase our current level of
advertising and sponsorship revenue and our profitability and
prospects may be materially and adversely affected.
Furthermore, our core and long-term priority of optimizing the
gamer experience and satisfaction may limit our gaming
platform’s ability to generate revenues from advertising and
sponsorship. For example, in order to provide our gamers with an
uninterrupted competitive gaming experience, we do not place
significant amounts of advertising on our streaming interface or
insert pop-up advertisements during streaming. While this
decision could adversely affect our operating results in the
short-term, we believe it enables us to provide a superior gamer
experience on our gaming platform, which will help us expand and
maintain our current base of gamers and enhance our monetization
potential in the long-term. However, this philosophy of putting our
gamers first may also negatively impact our relationships with
advertisers, sponsors or other third parties, and may not result in
the long-term benefits that we expect, in which case the success of
our business and operating results could be harmed.
Our revenue model may not remain effective and we cannot guarantee
that our future monetization strategies will be successfully
implemented or generate sustainable revenues and
profit.
We generate revenues from advertising and sponsorship of our league
tournaments, and through the operation of our live streaming gaming
platform using a revenue model whereby gamers can get free access
to certain live streaming of amateur tournaments, and gamers pay
fees to compete in league competition. We have generated, and
expect to continue to generate, a substantial portion of revenues
using this revenue model in the near term. We are, however,
particularly focused on implementing a subscription model for our
expanding gamer base. Although our business has experienced
significant growth in recent years, there is no guarantee that our
subscription packages will gain significant traction to maximize
our growth rate in the future, as the demand for our offerings may
change, decrease substantially or dissipate, or we may fail to
anticipate and serve gamer demands effectively.
The
loss of or a substantial reduction in activity by one or more of
our largest customers and/or vendors could materially and adversely
affect our business, financial condition and results of
operations.
During the years ended December 31, 2018 and 2017, (i) four
customers accounted for 82% and three customers accounted for 47%
of our revenue, respectively, (ii) three and four customers
accounted for 96% of accounts receivable, respectively, and (iii)
three vendors accounted for 43% and two vendors accounted for 32%
of accounts payable, respectively. The loss of or a substantial
reduction in activity by one or more of our largest customers could
materially and adversely affect our business, financial condition
and results of operations.
Our marketing and advertising efforts may fail to resonate with
amateur gamers.
Our
amateur city league tournaments and competitions are marketed
through a diverse spectrum of advertising and promotional programs
such as online and mobile advertising, marketing through websites,
event sponsorship and direct communications with our gaming
community including via email, blogs and other electronic means. An
increasing portion of our marketing activity is taking place on
social media platforms that are either outside, or not totally
within, our direct control. Changes to gamer preferences,
marketing regulations, privacy and data protection laws, technology
changes or service disruptions may negatively impact our ability to
reach target gamers. Our ability to market our amateur city league
tournaments and competitions is dependent in part upon the success
of these programs. If the marketing for our amateur city league
tournaments and competitions fails to resonate and expand with the
gamer community, or if advertising rates or other media placement
costs increase, our business and operating results could be
harmed.
We have a unique community culture that is vital to our success.
Our operations may be materially and adversely affected if we fail
to maintain this community culture as we expand in our addressable
gamer communities.
We have cultivated an interactive and vibrant online social gamer
community centered around amateur online and in person gaming. We
ensure a superior gamer experience by continuously improving the
user interface and features of our gaming platform along with
offering a multitude of competitive and recreational gaming
experiences with first tier esports games. We believe that
maintaining and promoting a vibrant community culture is critical
to retaining and expanding our gamer community. We have taken
multiple initiatives to preserve our community culture and values.
Despite our efforts, we may be unable to maintain our community
culture and cease to be the preferred platform for our target
gamers as we expand our gamer footprint, which would be detrimental
to our business operations.
The amateur esports gaming industry is intensely competitive.
Gamers may prefer our competitors’ amateur leagues,
competitions or tournaments over our own.
Competition
in the amateur esports gaming industry generally is intense. Our
competitors range from established leagues and championships owned
directly, as well as leagues franchised by, well known and
capitalized game publishers and developers, interactive
entertainment companies and diversified media companies to emerging
start-ups, and we expect new competitors to continue to emerge
throughout the amateur esports gaming ecosystem. If our competitors
develop and launch competing amateur city leagues, tournaments or
competitions, or develop a more successful amateur online gaming
platform, our revenue, margins, and profitability will
decline.
The amateur esports gaming industry is very “hit”
driven. We may not have access to “hit” games or
titles.
Select
game titles dominate competitive amateur esports and online gaming,
including League of Legends, Minecraft, Fortnite and Overwatch, and
many new games titles are regularly introduced in each major
industry segment (console, mobile and PC free-to-download). Despite
the number of new entrants, only a very few “hit”
titles account for a significant portion of total revenue in each
segment.
The size and engagement level of our online and in person
gamers are critical to our success and are closely linked to the
quality and popularity of the esports game publishers with which we
have licenses. Esports game publishers on our gaming platform,
including those who have entered into license agreements with us,
may leave us for other gaming platforms or amateur leagues which
may offer better competition, and terms and conditions than we do.
Furthermore, we may lose esports game publishers if we fail to
generate the number of gamers to our amateur tournaments and
competitions expected by such publishers. In addition, if popular
esports game publishers cease to license their games to us, or our
live streams fail to attract gamers, we may experience a decline in
gamer traffic, subscriptions and engagement, which may have a
material and adverse impact on our results of operations and
financial conditions.
Although we have entered into multi-year agreements with the
publishers of League of Legends and Minecraft, if we fail to
license multiple additional “hit” games or any of our
existing licensed esports game
publishers with which we currently have a license decide to breach
the license agreement or choose not to continue with us once the
term of the license agreement expires, the popularity of our
amateur city leagues, tournaments and competitions may decline and
the number of our gamers may decrease, which could materially and
adversely affect our results of operations and financial
condition.
In addition to the esports games we have licensed, we must continue
to attract and retain the most popular esports gaming titles in
order to maintain and increase the popularity of our amateur city
leagues, tournaments and competitions, and ensure the sustainable
growth of our gamer community. We must continue to identify and
enter into license agreements with esports gaming publishers
developing “hit’ games that resonate with our community
on an ongoing basis. We cannot assure you that we can continue to
attract and retain the same level of first-tier esports game
publishers and our ability to do so is critical to our future
success.
We have not entered into definitive license agreements with certain
game publishers that we currently have relationships with, and we
may never do so.
Although
we have relationships with Supercell and Epic Games for experiences
involving Clash Royale and Fortnite, respectively, we currently do
not have definitive license agreements in place with respect to
these relationships. We currently anticipate that we will enter
into license agreements with both parties in the future, however no
assurances can be given as to when we will be able to come to terms
agreeable to both parties, if ever. In the event that we are not
able to come to mutually agreeable terms and enter into definitive
license agreements with each of Supercell and Epic Games, they may
unilaterally choose to discontinue their relationship with the
Company, thereby preventing us from offering experiences on our
platform using Clash Royale or Fortnite, as the case may be. Should
either Supercell or Epic Games choose not to allow us to offer
experiences involving Clash Royale and Fortnite to our users,
the popularity of our amateur city
leagues, tournaments and competitions may decline and the number of
our gamers may decrease, which could materially and adversely
affect our results of operations and financial
condition.
If we fail to keep our existing gamers highly engaged, to acquire
new gamers, to successfully implement a subscription model for our
gaming community, our business, profitability and prospects may be
adversely affected.
Our success depends on our ability to maintain and grow the number
of amateur gamers attending and participating in our in-person and
online tournaments and competitions, and using our gaming platform,
and keeping our gamers highly engaged. Of particular importance is
the successful deployment and expansion of our subscription model
to our gaming community for purposes of creating predictable
recurring revenues.
In order to attract, retain and engage amateur gamers and remain
competitive, we must continue to develop and expand our city
leagues, including internationally, produce engaging tournaments
and competitions, successfully license the newest “hit”
esports games and titles, implement new technologies and
strategies, improve features of our gaming platform and stimulate
interactions in our gamer community.
A decline in the number of our amateur gamers in our ecosystem may
adversely affect the engagement level of our gamers, the vibrancy
of our gamer community, or the popularity of our amateur league
play, which may in turn reduce our monetization opportunities, and
have a material and adverse effect on our business, financial
condition and results of operations. If we are unable to attract
and retain, or convert gamers into subscription-based paying
gamers, our revenues may decline and our results of operations and
financial condition may suffer.
We cannot assure you that our online and in person
gaming platform will remain sufficiently popular with amateur
gamers to offset the costs incurred to operate and expand it. It is
vital to our operations that we remain sensitive and responsive to
evolving gamer preferences and offer first-tier esports game
content that attracts our amateur gamers. We must also keep
providing amateur gamers with new features and functions to enable
superior content viewing, and social interaction. Further, we will
need to continue to develop and improve our gaming platform and to
enhance our brand awareness, which may require us to incur
substantial costs and expenses. If such increased costs and
expenses do not effectively translate into an improved gamer
experience and subscription-based, long-term engagement, our
results of operations may be materially and adversely
affected.
The ability to grow our business is dependent in part on the
success and availability of mass media channels developed by third
parties, as well as our ability to develop commercially successful
content, and amateur tournaments and competitions.
The
success of our business is driven in part by the commercial success
and adequate supply of third-party mass media channels for which we
may distribute our content, amateur league tournaments and
competitions, including Twitch, YouTube and ESL.tv. Our success
also depends on our ability to accurately predict which channels
and platforms will be successful with the esports gaming community,
our ability to develop commercially successful content and
distribute via SuperLeagueTV, which is presently available on
Twitch, amateur tournaments and competition for these channels and
gaming platforms and our ability to effectively manage the
transition of our gamers from one generation or demographic to the
next. Additionally, we may enter into certain exclusive licensing
arrangements that affect our ability to deliver or market our
amateur gaming tournaments and competitions on certain channels and
platforms. A channel or platform may not succeed as expected or new
channels or platforms may take market share and gamers away from
platforms for which we have devoted significant resources. If
demand for the channels or platforms for which we are developing
amateur tournaments or competitions is lower than our expectations,
we may be unable to fully recover the investments we have made, and
our financial performance may be harmed. Alternatively, a channel
or platform for which we have not devoted significant resources
could be more successful than we initially anticipated, causing us
to not be able to take advantage of meaningful revenue
opportunities.
Our business is subject to risks generally associated with the
entertainment industry.
Our
business is subject to risks that are generally associated with the
entertainment industry, many of which are beyond our control. These
risks could negatively impact our operating results and include the
popularity, price to play, and timing of release of our esports
licensed games, economic conditions that adversely affect
discretionary consumer spending, changes in gamer demographics, the
availability and popularity of other forms of entertainment, and
critical reviews and public tastes and preferences, which may
change rapidly and cannot necessarily be predicted.
If we fail to maintain and enhance our brand or if we incur
excessive expenses in this effort, our business, results of
operations and prospects may be materially and adversely
affected.
We believe that maintaining and enhancing our brand is of
significant importance to the success of our business. A
well-recognized brand is important to increasing the number of
esports gamers and the level of engagement of our overall gaming
community which is critical in enhancing our attractiveness to
advertisers and sponsors. Since we operate in a highly competitive
market, brand maintenance and enhancement directly affect our
ability to maintain and enhance our market position.
Although we have developed our brand and amateur tournaments and
competitions through word of mouth referrals, key strategic
partners and our esports game publisher licensors, as we expand, we
may conduct various marketing and brand promotion activities using
various methods to continue promoting our brand. We cannot assure
you, however, that these activities will be successful or that we
will be able to achieve the brand promotion effect we
expect.
In addition, any negative publicity in relation to our league
tournaments or competitions, or operations, regardless of its
veracity, could harm our brands and reputation. Negative publicity
or public complaints from gamers may harm our reputation, and if
complaints against us are not addressed to their satisfaction, our
reputation and our market position could be significantly harmed,
which may materially and adversely affect our business, results of
operations and prospects.
Negative gamer perceptions about our brand, gaming platform,
amateur city leagues, tournaments or competitions and/or business
practices may damage our business and increase the costs incurred
in addressing gamer concerns.
Esports
gamer expectations regarding the quality, performance and integrity
of our amateur city league tournaments and competitions are high.
Esports gamers may be critical of our brand, gaming platform,
amateur city leagues, tournaments or competitions and/or business
practices for a wide variety of reasons. These negative gamer
reactions may not be foreseeable or within our control to manage
effectively, including perceptions about gameplay fairness,
negative gamer reactions to game content via social media or other
outlets, components and services, or objections to certain of our
business practices. Negative gamer sentiment about our business
practices also can lead to investigations from regulatory agencies
and consumer groups, as well as litigation, which, regardless of
their outcome, may be costly, damaging to our reputation and harm
our business.
Technology changes rapidly in our
business and if we fail to anticipate or successfully implement new technologies or
adopt new business strategies, technologies or methods, the
quality, timeliness and competitiveness of our amateur city
leagues, tournaments or competition may suffer.
Rapid
technology changes in the esports gaming market require us to
anticipate, sometimes years in advance, which technologies we must
develop, implement and take advantage of in order to be and remain
competitive in the esports gaming market. We have invested, and in
the future may invest, in new business strategies including a
subscription model, technologies, products, or games or first-tier
game titles to continue to persistently engage the amateur gamer
and deliver the best online and in person
gaming experience. Such endeavors may involve significant risks and
uncertainties, and no assurance can be given that the technology we
choose to adopt and the features that we pursue will be successful.
If we do not successfully implement these new technologies, our
reputation may be materially adversely affected and our financial
condition and operating results may be impacted. We also may miss
opportunities to adopt technology, or develop amateur city leagues,
tournaments or competitions that become popular with gamers, which
could adversely affect our financial results. It may take
significant time and resources to shift our focus to such
technologies, putting us at a competitive
disadvantage.
Our
development process usually starts with particular gamer
experiences in mind, and a range of technical development and
feature goals that we hope to be able to achieve. We may not be
able to achieve these goals, or our competitors may be able to
achieve them more quickly and effectively than we can based on
having greater operating capital and personnel resources. If we
cannot achieve our technology goals within the original development
schedule, then we may delay their release until these goals can be
achieved, which may delay or reduce revenue and increase our
development expenses. Alternatively, we may be required to
significantly increase the resources employed in research and
development in an attempt to accelerate our development of new
technologies, either to preserve our launch schedule or to keep up
with our competitors, which would increase our development
expenses.
We may experience security breaches and cyber threats.
We
continually face cyber risks and threats that seek to damage,
disrupt or gain access to our networks and our gaming platform,
supporting infrastructure, intellectual property and other assets.
In addition, we rely on technological infrastructure, including
third party cloud hosting and broadband, provided by third party
business partners to support the in person
and online functionality of our gaming platform. These business
partners are also subject to cyber risks and threats. Such
cyber risks and threats may be difficult to detect. Both our
partners and we have implemented certain systems and processes to
guard against cyber risks and to help protect our data and systems.
However, the techniques that may be used to obtain unauthorized
access or disable, degrade, exploit or sabotage our networks and
gaming platform change frequently and often are not detected. Our
systems and processes, and the systems and processes of our
third-party business partners, may not be adequate. Any failure to
prevent or mitigate security breaches or cyber risks, or respond
adequately to a security breach or cyber risk, could result in
interruptions to our gaming platform, degrade the gamer experience,
cause gamers to lose confidence in our gaming platform and cease
utilizing it, as well as significant legal and financial
exposure. This could harm our business and reputation, disrupt
our relationships with partners and diminish our competitive
position.
Successful
exploitation of our networks and gaming platform can have other
negative effects upon the gamer experience we offer. In particular,
the virtual economies that exist in certain of our licensed game
publishers’ games are subject to abuse, exploitation and
other forms of fraudulent activity that can negatively impact our
business. Virtual economies involve the use of virtual
currency and/or virtual assets that can be used or redeemed by a
player within a particular online game or service.
Our business could be adversely affected if our data privacy and
security practices are not adequate, or perceived as being
inadequate, to prevent data breaches, or by the application of data
privacy and security laws generally.
In the
course of our business, we may collect, process, store and use
gamer and other information, including personally identifiable
information, passwords and credit card information, the latter of
which is subject to PCI-DSS compliance. Although we take measures
to protect this information from unauthorized access, acquisition,
disclosure and misuse, our security controls, policies and
practices may not be able to prevent the improper or unauthorized
access, acquisition or disclosure of such information. The
unauthorized access, acquisition or disclosure of this information,
or a perception that we do not adequately secure this information
could result in legal liability, costly remedial measures,
governmental and regulatory investigations, harm our profitability
and reputation and cause our financial results to be materially
affected. In addition, third party vendors and business partners
receive access to information that we collect. These vendors and
business partners may not prevent data security breaches with
respect to the information we provide them or fully enforce our
policies, contractual obligations and disclosures regarding the
collection, use, storage, transfer and retention of personal data.
A data security breach of one of our vendors or business partners
could cause reputational harm to them and/or negatively impact our
ability to maintain the credibility of our gamer
community.
Data
privacy, data protection, localization, security and
consumer-protection laws are evolving, and the interpretation and
application of these laws in the United States, Europe (including
compliance with the General Data Protection Regulation), and
elsewhere often are uncertain, contradictory and changing. It is
possible that these laws may be interpreted or applied in a manner
that is averse to us or otherwise inconsistent with our practices,
which could result in litigation, regulatory investigations and
potential legal liability or require us to change our practices in
a manner adverse to our business. As a result, our reputation and
brand may be harmed, we could incur substantial costs, and we could
lose both gamers and revenue.
We depend on servers to operate our games with online features and
our proprietary online gaming service. If we were to lose server
functionality for any reason, our business may be negatively
impacted.
Our business relies on the continuous operation of servers, some of
which are owned and operated by third parties. Although we strive
to maintain more than sufficient server capacity, and provide for
active redundancy in the event of limited hardware failure, any
broad-based catastrophic server malfunction, a significant
service-disrupting attack or intrusion by hackers that circumvents
security measures, a failure of disaster recovery service or the
failure of a company on which we are relying for server capacity to
provide that capacity for whatever reason could degrade or
interrupt the functionality of our platform, and could prevent the
operation of our platform for both in-person and online gaming
experiences.
We also rely on networks operated by third parties to support
content on our platform, including networks owned and operated by
game publishers. An extended interruption to any of these services
could adversely affect the use of our platform, which would have a
negative impact on our business.
Further, insufficient server capacity could also negatively impact
our business. Conversely, if we overestimate the amount of server
capacity required by our business, we may incur additional
operating costs.
Our online gaming platform and games offered through our gaming
platform may contain defects.
Our
online gaming platform and the games offered through our gaming
platform are extremely complex, and are difficult to develop and
distribute. We have quality controls in place to detect defects in
our gaming platform before they are released. Nonetheless, these
quality controls are subject to human error, overriding, and
reasonable resource or technical constraints. Further, we have not
undertaken independent third-party testing, verification or
analysis of our gaming platform and associated systems and
controls. Therefore, our gaming platform and quality controls and
preventative measures we have implemented may not be effective in
detecting all defects in our gaming platform. In the event a
significant defect in our gaming platform and associated systems
and controls is realized, we could be required to offer refunds,
suspend the availability of our city league competitions and other
gameplay, or expend significant resources to cure the defect, each
of which could significantly harm our business and operating
results.
We may experience system failures, outages and/or disruptions of
the functionality of our platform. Such failures, delays and other
problems could harm our reputation and business, cause us to lose
customers and expose us to customer liability.
We may
experience system failures, outages and/or disruptions of our
infrastructure, including information technology system failures
and network disruptions, cloud hosting and broadband availability
at in person and online
experiences. Our operations could be interrupted or degraded by any
damage to or failure of:
●
our computer
software or hardware, or our customers’ or suppliers’
computer software or hardware;
●
our network, our
customers’ networks or our suppliers’ networks;
or
●
our connections and
outsourced service arrangements with third parties.
Our
systems and operations are also vulnerable to damage or
interruption from:
●
power loss,
transmission cable cuts and other telecommunications and utility
failures;
●
hurricanes, fires,
earthquakes, floods and other natural disasters;
●
a terrorist attack
in the U.S. or in another country in which we operate;
●
interruption of
service arising from facility migrations, resulting from changes in
business operations including acquisitions and planned data center
migrations;
●
computer viruses or
software defects;
●
loss or misuse of
proprietary information or customer data that compromises security,
confidentiality or integrity; or
●
errors by our
employees or third-party service providers.
From
time to time in the ordinary course of our business, our network
nodes and other systems experience temporary outages. As a means of
ensuring continuity in the services we provide to our members, we
have invested in system redundancies via partnerships with
industry leading cloud service providers, proactive alarm
monitoring and other back-up infrastructure, though we cannot
assure you that we will be able to re-route our services over our
back-up facilities and provide continuous service to customers in
all circumstances without material degradation. Because many of our
services play a critical role for our members, any damage to or
failure of the infrastructure we rely on could disrupt or degrade
the operation of our network, our platform and the provision of our
services and result in the loss of current and potential members
and harm our ability to conduct normal business
operations.
We use third-party services and technologies in connection with our
business, and any disruption to the provision of these services and
technologies to us could result in negative publicity and a
slowdown in the growth of our users, which could materially and
adversely affect our business, financial condition and results of
operations.
Our business partially depends on services provided by, and
relationships with, various third parties, including cloud hosting
and broadband providers, among others. To this end, when our cloud
hosting and broadband vendors experience outages, our esports
gaming services will be negatively impacted and alternative
resources will not be immediately available. In addition, certain
third-party software we use in our operations is currently publicly
available free of charge. If the owner of any such software decides
to charge users or no longer makes the software publicly available,
we may need to incur significant costs to obtain licensing, find
replacement software or develop it on our own. If we are unable to
obtain licensing, find or develop replacement software at a
reasonable cost, or at all, our business and operations may be
adversely affected.
We exercise no control over the third-party vendors that we rely
upon for cloud hosting, broadband and software service. If such
third parties increase their prices, fail to provide their services
effectively, terminate their service or agreements or discontinue
their relationships with us, we could suffer service interruptions,
reduced revenues or increased costs, any of which may have a
material adverse effect on our business, financial condition and
results of operations.
Growth and engagement of our gamer community depends upon effective
interoperability with mobile operating systems, networks, mobile
devices and standards that we do not control.
We make our services available across a variety of mobile operating
systems and devices. We are dependent on the interoperability of
our services with popular mobile devices and mobile operating
systems that we do not control, such as Android and iOS. Any
changes in such mobile operating systems or devices that degrade
the functionality of our services or give preferential treatment to
competitive services could adversely affect usage of our services.
In order to deliver high quality services, it is important that our
services work well across a range of mobile operating systems,
networks, mobile devices and standards that we do not control. We
may not be successful in developing relationships with key
participants in the mobile industry or in developing services that
operate effectively with these operating systems, networks, devices
and standards. In the event that it is difficult for our users to
access and use our services, particularly on their mobile devices,
our user growth and user engagement could be harmed, and our
business and operating results could be adversely
affected.
Our business depends substantially on the continuing efforts of our
executive officers, key employees and qualified personnel, and our
business operations may be severely disrupted if we lose their
services.
Our future success depends substantially on the continued efforts
of our executive officers and key employees. If one or more of our
executive officers or key employees were unable or unwilling to
continue their services with us, we might not be able to replace
them easily, in a timely manner, or at all. Since the esports
gaming industry is characterized by high demand and intense
competition for talents, we cannot assure you that we will be able
to attract or retain qualified staff or other highly skilled
employees. In addition, as the Company is relatively young, our
ability to train and integrate new employees into our operations
may not meet the growing demands of our business which may
materially and adversely affect our ability to grow our business
and hence our results of operations.
If any of our executive officers and key employees terminates their
services with us, our business may be severely disrupted, our
financial condition and results of operations may be materially and
adversely affected and we may incur additional expenses to recruit,
train and retain qualified personnel. If any of our executive
officers or key employees joins a competitor or forms a competing
company, we may lose gamers, know-how and key
professionals and staff members. Certain of our executive officers
and key employees have entered into a non-solicitation and
non-competition agreements with us. However, certain provisions
under the non-solicitation and non-competition agreement may
be deemed legally invalid or unenforceable. If any dispute arises
between our executive officers and us, we cannot assure you that we
would be able to enforce
these non-compete agreements.
Our business is subject to regulation, and changes in applicable
regulations may negatively impact our business.
We are
subject to a number of foreign and domestic laws and regulations
that affect companies conducting business on the Internet. In
addition, laws and regulations relating to user privacy, data
collection, retention, electronic commerce, virtual items and
currency, consumer protection, content, advertising, localization,
and information security have been adopted or are being considered
for adoption by many jurisdictions and countries throughout the
world. These laws could harm our business by limiting the products
and services we can offer consumers or the manner in which we offer
them. The costs of compliance with these laws may increase in the
future as a result of changes in interpretation. Furthermore, any
failure on our part to comply with these laws or the application of
these laws in an unanticipated manner may harm our business and
result in penalties or significant legal liability.
In
addition, we include modes in our gaming platform that allow
players to compete against each other. Although we structure and
operate these skill-based competitions with applicable laws in
mind, our skill-based competitions in the future could become
subject to evolving rules and regulations and expose us to
significant liability, penalties and reputational
harm.
Our online activities are subject to various laws and regulations
relating to privacy and child protection, which, if violated, could
subject us to an increased risk of litigation and regulatory
actions.
In addition to our gaming platform, we use third-party
applications, websites, and social media platforms to promote our
amateur tournaments and competitions and engage gamers, as well as
monitor and collect certain information about gamers in our online
forums. A variety of laws and regulations have been adopted in
recent years aimed at protecting children using the internet such
as the Children’s Online Privacy and Protection Act of 1998
(“COPPA”). COPPA sets forth, among other things, a
number of restrictions on what website operators can present to
children under the age of 13 and what information can be collected
from them. COPPA is of particular concern to us, and in an effort
to minimize our risk of potential exposure, we retained a COPPA
expert as a consultant and have posted a compliant privacy policy,
terms of use and various other policies on our website. We
undertake significant effort to implement certain precautions to
ensure that access to our gaming platform for competitive gameplay
is COPPA compliant. Despite our efforts, no assurances can be given
that such measures will be sufficient to completely avoid exposure
and COPPA violations, any of which could expose us to significant
liability, penalties, reputational harm and loss of revenue, among
other things.
The laws
and regulations concerning data privacy are continually evolving.
Failure to comply with these laws and regulations could harm our
business.
Consumers are able to play our licensed game titles online, using
our platform. We collect and store information about our consumers
both personally identifying and non-personally identifying
information. Numerous federal, state and international laws address
privacy, data protection and the collection, storing, sharing, use,
disclosure and protection of personally identifiable information
and other user data. Numerous states already have, and are looking
to expand, data protection legislation requiring companies like
ours to consider solutions to meet differing needs and expectations
of creators and attendees. Outside the United States, personally
identifiable information and other user data is increasingly
subject to legislation and regulations in numerous jurisdictions
around the world, the intent of which is to protect the privacy of
information that is collected, processed and transmitted in or from
the governing jurisdiction. Foreign data protection, privacy,
information security, user protection and other laws and
regulations are often more restrictive than those in the United
States. In particular, the European Union and its member states
traditionally have taken broader views as to types of data that are
subject to privacy and data protection laws and regulations, and
have imposed greater legal obligations on companies in this regard.
For example, in April 2016, European legislative bodies adopted the
General Data Protection Regulation (“GDPR”), which became effective on May 25,
2018. The GDPR applies to any company established in the
European Union as well as to those outside of the European Union if
they collect and use personal data in connection with the offering
of goods or services to individuals in the European Union or the
monitoring of their behavior. The GDPR enhances data
protection obligations for processors and controllers of personal
data, including, for example, expanded disclosures about how
personal information is to be used, limitations on retention of
information, mandatory data breach notification requirements and
onerous new obligations on service
providers. Non-compliance with the GDPR may
result in monetary penalties of up to €20 million or 4%
of annual worldwide revenue, whichever is higher. In addition, some
countries are considering or have passed legislation implementing
data protection requirements or requiring local storage and
processing of data or similar requirements that could increase the
cost and complexity of delivering our services.
The GDPR and other changes in laws or regulations
associated with the enhanced protection of certain types of
personal data could greatly increase our cost of providing our
products and services or even prevent us from offering certain
services in jurisdictions in which we operate. The European
Commission is also currently negotiating a new ePrivacy Regulation
that would address various matters, including provisions
specifically aimed at the use of cookies to identify an
individual’s online behavior, and any such ePrivacy
Regulation may provide for new compliance obligations and
significant penalties. Any of these changes to European Union data
protection law or its interpretation could disrupt and/or harm our
business.
Further, following a referendum in June 2016 in which voters in the
United Kingdom approved an exit from the European Union, the United
Kingdom government has initiated a process to leave the European
Union, which has created uncertainty with regard to the regulation
of data protection in the United Kingdom. In particular, although a
Data Protection Bill designed to be consistent with
the GDPR is pending in the United Kingdom’s
legislative process, it is unclear whether the United Kingdom will
enact data protection laws or regulations designed to be consistent
with the GDPR and how data transfers to and from the
United Kingdom will be regulated. The interpretation and
application of many privacy and data protection laws are, and will
likely remain, uncertain, and it is possible that these laws may be
interpreted and applied in a manner that is inconsistent with our
existing data management practices or product features. Although
player interaction on our platform is subject to our privacy
policies, end user license agreements (“EULAs”), and terms of service, if we fail to
comply with our posted privacy policies, EULAs, or terms of
service, or if we fail to comply with existing privacy-related or
data protection laws and regulations, it could result in
proceedings or litigation against us by governmental authorities or
others, which could result in fines or judgments against us, damage
our reputation, impact our financial condition and/or harm our
business.
In addition to government regulation, privacy advocacy and industry
groups may propose new and different self-regulatory standards that
either legally or contractually apply to us. Any inability to
adequately address privacy, data protection and data security
concerns or comply with applicable privacy, data protection or data
security laws, regulations, policies and other obligations could
result in additional cost and liability to us, damage our
reputation, inhibit sales and harm our business. Further, our
failure, and/or the failure by the various third-party service
providers and partners with which we do business, to comply with
applicable privacy policies or federal, state or similar
international laws and regulations or any other obligations
relating to privacy, data protection or information security, or
any compromise of security that results in the unauthorized release
of personally identifiable information or other user data, or the
perception that any such failure or compromise has occurred, could
damage our reputation, result in a loss of creators or attendees,
discourage potential creators and attendees from trying our
platform and/or result in fines and/or proceedings by governmental
agencies and/or users, any of which could have an adverse effect on
our business, results of operations and financial condition. In
addition, given the breadth and depth of changes in data protection
obligations, ongoing compliance with evolving interpretation of
the GDPR and other regulatory requirements requires time
and resources and a review of the technology and systems currently
in use against the requirements of GDPR and other
regulations.
The preparation of our financial statements involves the use of
good faith estimates, judgments and assumptions, and our financial
statements may be materially affected if such good faith estimates,
judgments or good faith assumptions prove to be
inaccurate.
Financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”)
typically require the use of good faith estimates, judgments and
assumptions that affect the reported amounts. Often, different
estimates, judgments and assumptions could reasonably be used that
would have a material effect on such financial statements, and
changes in these estimates, judgments and assumptions may occur
from period to period over time. Significant areas of accounting
requiring the application of management’s judgment include,
but are not limited to, determining the fair value of assets,
share-based compensation and the timing and amount of cash flows
from assets. These estimates, judgments and assumptions are
inherently uncertain and, if our estimates were to prove to be
wrong, we would face the risk that charges to income or other
financial statement changes or adjustments would be required. Any
such charges or changes would require a restatement of our
financial statements and could harm our business, including our
financial condition and results of operations and the price of our
securities. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for a
discussion of the accounting estimates, judgments and assumptions
that we believe are the most critical to an understanding of our
financial statements and our business.
We may be held liable for information or content displayed on,
retrieved from or linked to our gaming platform, or distributed to
our users.
Our interactive live streaming platform enables gamers to exchange
information and engage in various other online activities. Although
we require our gamers to register their real name, we do not
require user identifications used and displayed during gameplay to
contain any real-name information, and hence we are unable to
verify the sources of all the information posted by our gamers. In
addition, because a majority of the communications on our online
and in person
gaming platform is conducted in real time, we are unable to examine
the content generated by gamers before they are posted or streamed.
Therefore, it is possible that gamers may engage in illegal,
obscene or incendiary conversations or activities, including
publishing of inappropriate or illegal content that may be deemed
unlawful. If any content on our platform is deemed illegal, obscene
or incendiary, or if appropriate licenses and third-party consents
have not been obtained, claims may be brought against us for
defamation, libel, negligence, copyright, patent or trademark
infringement, other unlawful activities or other theories and
claims based on the nature and content of the information delivered
on or otherwise accessed through our platform. Moreover, the costs
of compliance may continue to increase when more content is made
available on our platform as a result of our growing base of
gamers, which may adversely affect our results of
operations.
Intensified government regulation of the Internet industry could
restrict our ability to maintain or increase the level of traffic
to our gaming platform as well as our ability to capture other
market opportunities.
The Internet industry is increasingly subject to strict scrutiny.
New laws and regulations may be adopted from time to time to
address new issues that come to the authorities’ attention.
We may not timely obtain or maintain all the required licenses or
approvals or make all the necessary filings in the future. We also
cannot assure you that we will be able to obtain the required
licenses or approvals if we plan to expand into other Internet
businesses. If we fail to obtain or maintain any of the required
licenses or approvals or make the necessary filings, we may be
subject to various penalties, which may disrupt our business
operations or derail our business strategy, and materially and
adversely affect our business, financial condition and results of
operations.
From time to time we may become involved in legal
proceedings.
From
time to time we may become subject to legal proceedings, claims,
litigation and government investigations or inquiries, which could
be expensive, lengthy, disruptive to normal business operations and
occupy a significant amount of our employees’ time and
attention. In addition, the outcome of any legal proceedings,
claims, litigation, investigations or inquiries may be difficult to
predict and could have a material adverse effect on our business,
operating results, or financial condition.
Our amended and restated bylaws designate a state or federal court
located within the State of Delaware as the exclusive forum for
certain litigation that may be initiated by our stockholders, which
could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us.
Pursuant
to our amended and restated bylaws, unless we consent in writing to
the selection of an alternative forum, the sole and exclusive forum
for (i) any derivative action or proceeding brought on our
behalf, (ii) any action asserting a claim of breach of a
fiduciary duty owed by any of our directors, officers or other
employees to us or our stockholders, (iii) any action
asserting a claim against us arising pursuant to any provision of
the Delaware General Corporation Law, or (iv) any action
asserting a claim against us that is governed by the internal
affairs doctrine shall be a state or federal court located within
the State of Delaware, in all cases subject to the court’s
having personal jurisdiction over indispensable parties named as
defendants. Any person or entity purchasing or otherwise acquiring
any interest in shares of our capital stock shall be deemed to have
notice of and consented to this provision. The forum
selection clause in our amended and restated bylaws may have
the effect of discouraging lawsuits against us or our directors and
officers and may limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us.
Risks Related to Intellectual Property
We may be subject to claims of infringement of third-party
intellectual property rights.
From
time to time, third parties may claim that we have infringed their
intellectual property rights. For example, patent holding companies
may assert patent claims against us in which they seek to monetize
patents they have purchased or otherwise obtained. Although we take
steps to avoid knowingly violating the intellectual property rights
of others, it is possible that third parties still may claim
infringement.
Existing
or future infringement claims against us, whether valid or not, may
be expensive to defend and divert the attention of our employees
from business operations. Such claims or litigation could require
us to pay damages, royalties, legal fees and other costs. We also
could be required to stop offering, distributing or supporting
esports games, our gaming platform or other features or services
which incorporate the affected intellectual property rights,
redesign products, features or services to avoid infringement, or
obtain a license, all of which could be costly and harm our
business.
In
addition, many patents have been issued that may apply to potential
new modes of delivering, playing or monetizing interactive
entertainment software products and services, such as those offered
on our gaming platform or that we would like to offer in the
future. We may discover that future opportunities to provide new
and innovative modes of game play and game delivery to gamers may
be precluded by existing patents that we are unable to license on
reasonable terms.
Our technology, content and brands are subject to the threat of
piracy, unauthorized copying and other forms of intellectual
property infringement.
We
regard our technology, content and brands as proprietary and take
measures to protect our technology, content and brands and other
confidential information from infringement. Piracy and other forms
of unauthorized copying and use of our technology, content and
brands are persistent, and policing is difficult. Further, the laws
of some countries in which our products are or may be distributed
either do not protect our intellectual property rights to the same
extent as the laws of the United States, or are poorly enforced.
Legal protection of our rights may be ineffective in such
countries. In addition, although we take steps to enforce and
police our rights, factors such as the proliferation of technology
designed to circumvent the protection measures used by our business
partners or by us, the availability of broadband access to the
Internet, the refusal of Internet service providers or platform
holders to remove infringing content in certain instances, and the
proliferation of online channels through which infringing product
is distributed all have contributed to an expansion in unauthorized
copying of our technology, content and brands.
Third parties may register trademarks or domain names or purchase
internet search engine keywords that are similar to our registered
trademark or pending trademarks, brands or websites, or
misappropriate our data and copy our gaming platform, all of which
could cause confusion, divert gamers away from our gaming platform
and league tournaments, or harm our reputation.
Competitors and other third parties may purchase
(i) trademarks that are similar to our trademarks and
(ii) keywords that are confusingly similar to our brands or
websites in Internet search engine advertising programs and in the
header and text of the resulting sponsored links or advertisements
in order to divert gamers from us to their websites. Preventing
such unauthorized use is inherently difficult. If we are unable to
prevent such unauthorized use, competitors and other third parties
may continue to drive potential gamers away from our gaming
platform to competing, irrelevant or potentially offensive
platforms, which could harm our reputation and cause us to lose
revenue.
We may not be able to prevent others from unauthorized use of our
intellectual property, which could harm our business and
competitive position.
We regard our registered trademark and pending trademarks, service
marks, pending patents, domain names, trade secrets, proprietary
technologies and similar intellectual property as critical to our
success. We rely on trademark and patent law, trade secret
protection and confidentiality and license agreements with our
employees and others to protect our proprietary
rights.
We have invested significant resources to develop our own
intellectual property and acquire licenses to use and distribute
the intellectual property of others on our gaming platform. Failure
to maintain or protect these rights could harm our business. In
addition, any unauthorized use of our intellectual property by
third parties may adversely affect our current and future revenues
and our reputation.
Policing unauthorized use of proprietary technology is difficult
and expensive. We rely on a combination of patent, copyright,
trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. Further, we require every
employee and consultant to execute proprietary information and
invention agreements prior to commencing work. Despite our efforts
to protect our proprietary rights, third parties may attempt to
copy or otherwise obtain and use our intellectual property or seek
court declarations that they do not infringe upon our intellectual
property rights. Monitoring unauthorized use of our intellectual
property is difficult and costly, and we cannot assure you that the
steps we have taken will prevent misappropriation of our
intellectual property. From time to time, we may have to resort to
litigation to enforce our intellectual property rights, which could
result in substantial costs and diversion of our
resources.
Our patent and trademark applications may not be granted and our
patent and trademark rights, once patents are issued and trademarks
are registered, may be contested, circumvented, invalidated or
limited in scope, and our patent and trademark rights may not
protect us effectively once issued and registered, respectively. In
particular, we may not be able to prevent others from developing or
exploiting competing technologies and trademarks, which could have
a material and adverse effect on our business operations, financial
condition and results of operations.
Currently, we have three patent applications pending, one
registered trademark and eighteen pending trademark applications,
along with licenses from game publishers to utilize their
proprietary games. For our pending patent applications and we
cannot assure you that we will be granted patents pursuant to our
pending applications as well as future patent applications we
intend to file. Even if our patent applications succeed, it is
still uncertain whether these patents will be contested,
circumvented or invalidated in the future. In addition, the rights
granted under any issued patents may not provide us with sufficient
protection or competitive advantages. The claims under any patents
that issue from our patent applications may not be broad enough to
prevent others from developing technologies that are similar or
that achieve results similar to ours. It is also possible that the
intellectual property rights of others will bar us from licensing
and from exploiting any patents that issue from our pending
applications. Numerous U.S. and foreign issued patents and pending
patent applications owned by others exist in the fields in which we
have developed and are developing our technology. These patents and
patent applications might have priority over our patent
applications and could subject our patent applications to
invalidation. Finally, in addition to those who may claim priority,
any of our pending patent and trademark applications may also be
challenged by others on the basis that they are otherwise invalid
or unenforceable.
We may be held liable for information or content displayed on,
retrieved from or linked to our gaming platform, or distributed to
our users.
Our interactive live streaming platform enables gamers to exchange
information and engage in various other online activities. Although
we require our gamers to register their real name, we do not
require user identifications used and displayed during gameplay to
contain any real-name information, and hence we are unable to
verify the sources of all the information posted by our gamers. In
addition, because a majority of the communications on our online
and in person
gaming platform is conducted in real time, we are unable to examine
the content generated by gamers before they are posted or streamed.
Therefore, it is possible that gamers may engage in illegal,
obscene or incendiary conversations or activities, including
publishing of inappropriate or illegal content that may be deemed
unlawful. If any content on our platform is deemed illegal, obscene
or incendiary, or if appropriate licenses and third-party consents
have not been obtained, claims may be brought against us for
defamation, libel, negligence, copyright, patent or trademark
infringement, other unlawful activities or other theories and
claims based on the nature and content of the information delivered
on or otherwise accessed through our platform. Moreover, the costs
of compliance may continue to increase when more content is made
available on our platform as a result of our growing base of
gamers, which may adversely affect our results of
operations.
Intensified government regulation of the Internet industry could
restrict our ability to maintain or increase the level of traffic
to our gaming platform as well as our ability to capture other
market opportunities.
The Internet industry is increasingly subject to strict scrutiny.
New laws and regulations may be adopted from time to time to
address new issues that come to the authorities’ attention.
We may not timely obtain or maintain all the required licenses or
approvals or make all the necessary filings in the future. We also
cannot assure you that we will be able to obtain the required
licenses or approvals if we plan to expand into other Internet
businesses. If we fail to obtain or maintain any of the required
licenses or approvals or make the necessary filings, we may be
subject to various penalties, which may disrupt our business
operations or derail our business strategy, and materially and
adversely affect our business, financial condition and results of
operations.
From time to time we may become involved in legal
proceedings.
From
time to time we may become subject to legal proceedings, claims,
litigation and government investigations or inquiries, which could
be expensive, lengthy, disruptive to normal business operations and
occupy a significant amount of our employees’ time and
attention. In addition, the outcome of any legal proceedings,
claims, litigation, investigations or inquiries may be difficult to
predict and could have a material adverse effect on our business,
operating results, or financial condition.
Risks Related to our Common Stock and this Offering
There is currently no trading market for our common stock and we
cannot ensure that one will ever develop or be
sustained.
There
is no current market for any of our shares of common stock and a
market may not develop. We have applied to list our common stock on
the Nasdaq Capital Market and intend to list our common stock on
the Nasdaq Capital Market if we raise sufficient capital in this
offering, but there is no guarantee that we will be able to do so.
If we are not successful in listing our shares of common stock on
the Nasdaq Capital Market, our common stock may be traded on an
over-the-counter market to the extent any demand exists. Even if
listed on the Nasdaq Capital Market, a liquid trading market may
not develop. Investors should assume that they may not be able to
liquidate their investment for some time or be able to pledge their
shares as collateral.
If we successfully list on
Nasdaq Capital Market, our shares are likely to
be thinly traded for some time and an active market may never
develop.
If we
successfully list on the Nasdaq Capital Market, it is likely that
initially there will be a very limited trading market for our
common stock and we cannot ensure that a robust trading market will
ever develop or be sustained. Our shares of common stock may be
thinly traded, and the price, if traded, may not reflect our actual
or perceived value. There can be no assurance that there will be an
active market for our shares of common stock in the future. The
market liquidity will be dependent on the perception of our
operating business, competitive forces, state of the esports gaming
industry, growth rate and becoming cash flow profitable on a
sustainable basis, among other things. We may, in the future, take
certain steps, including utilizing investor awareness campaigns,
press releases, road shows, and conferences to increase awareness
of our business and any steps that we might take to bring us to the
awareness of investors may require we compensate financial public
relations firms with cash and/or stock. There can be no assurance
that there will be any awareness generated or the results of any
efforts will result in any impact on our trading volume.
Consequently, investors may not be able to liquidate their
investment or liquidate it at a price that reflects the value of
the business and trading may be at an inflated price relative to
the performance of our company due to, among other things,
availability of sellers of our shares. If a market should develop,
the price may be highly volatile. Because there may be a low price
for our shares of common stock, many brokerage firms or clearing
firms may not be willing to effect transactions in the securities
or accept our shares for deposit in an account. Even if an investor
finds a broker willing to effect a transaction in the shares of our
common stock, the combination of brokerage commissions, transfer
fees, taxes, if any, and any other selling costs may exceed the
selling price. Further, many lending institutions will not permit
the use of low-priced shares of common stock as collateral for any
loans.
Our stock price may be volatile, and you could lose all or part of
your investment.
The
trading price of our common stock following this offering may
fluctuate substantially and may be higher or lower than the initial
public offering price. This may be especially true for companies
with a small public float. The trading price of our common stock
following this offering will depend on several factors, including
those described in this “Risk Factors” section, many of
which are beyond our control and may not be related to our
operating performance. These fluctuations could cause you to lose
all or part of your investment in our common stock since you might
be unable to sell your shares at or above the price you paid in
this offering. Factors that could cause fluctuations in the trading
price of our common stock include:
●
changes to our
industry, including demand and regulations;
●
we may not be able
to compete successfully against current and future
competitors;
●
competitive pricing
pressures;
●
our ability to
obtain working capital financing as required;
●
additions or
departures of key personnel;
●
sales of our common
stock;
●
our ability to
execute our business plan;
●
operating results
that fall below expectations;
●
loss of any
strategic relationship, sponsor or licensor;
●
any major change in
our management;
●
changes in
accounting standards, procedures, guidelines, interpretations or
principals; and
●
economic,
geo-political and other external factors.
In
addition, the stock market in general, and the market for
technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies.
Broad market and industry factors, as well as general economic,
political and market conditions such as recessions or interest rate
changes, may seriously affect the market price of our common stock,
regardless of our actual operating performance. These fluctuations
may be even more pronounced in the trading market for our stock
shortly following this offering. If the market price of our common
stock after this offering does not exceed the initial public
offering price, you may not realize any return on your investment
in us and may lose some or all of your investment.
In
addition, in the past, following periods of volatility in the
overall market and the market prices of particular companies’
securities, securities class action litigations have often been
instituted against these companies. Litigation of this type, if
instituted against us, could result in substantial costs and a
diversion of our management’s attention and resources. Any
adverse determination in any such litigation or any amounts paid to
settle any such actual or threatened litigation could require that
we make significant payments.
If securities industry analysts do not publish research reports on
us, or publish unfavorable reports on us, then the market price and
market trading volume of our common stock could be negatively
affected.
Any
trading market for our common stock will be influenced in part by
any research reports that securities industry analysts publish
about us. We may not obtain any future research coverage by
securities industry analysts. In the event we are covered by
research analysts, and one or more of such analysts downgrade our
securities, or otherwise reports on us unfavorably, or discontinues
coverage of us, the market price and market trading volume of our
common stock could be negatively affected.
You will experience dilution as a result of future equity
offerings.
We may
in the future offer additional shares of our common stock or other
securities convertible into or exchangeable for our common stock.
Although no assurances can be given that we will consummate a
future financing, in the event we do, or in the event we sell
shares of common stock or other securities convertible into shares
of our common stock in the future, additional and potentially
substantial dilution will occur. In addition, investors purchasing
shares or other securities in the future could have rights superior
to investors in this offering.
We have not paid cash dividends in the past and do not expect to
pay dividends in the future. Any return on investment will likely
be limited to the value of our common stock.
We have
never paid cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other
business and economic factors affecting us at such time as our
board of directors may consider relevant. If we do not pay
dividends, our common stock may be less valuable because a return
on your investment will only occur if our stock price
appreciates.
Since we do not anticipate paying any cash dividends on our capital
stock in the foreseeable future, stock price appreciation, if any,
will be your sole source of gain.
We currently intend to retain all of our future earnings, if any,
to finance the growth and development of our business. In addition,
the terms of any future debt agreements may preclude us from paying
dividends. As a result, appreciation, if any, in the market price
of our common stock will be your sole source of gain for the
foreseeable future.
Future issuances of debt securities, which would rank senior to our
common stock upon our bankruptcy or liquidation, and future
issuances of preferred stock, which would rank senior to our common
stock for the purposes of dividends and liquidating distributions,
may adversely affect the level of return you may be able to achieve
from an investment in our common stock.
In the
future, we may attempt to increase our capital resources by
offering debt securities. In the event of a bankruptcy or
liquidation, holders of our debt securities, and lenders with
respect to other borrowings we may make, would receive
distributions of our available assets prior to any distributions
being made to holders of our common stock. Moreover, if we issue
preferred stock in the future, the holders of such preferred stock
could be entitled to preferences over holders of common stock in
respect of the payment of dividends and the payment of liquidating
distributions. Because our decision to issue debt or preferred
securities in any future offering, or borrow money from lenders,
will depend in part on market conditions and other factors beyond
our control, we cannot predict or estimate the amount, timing or
nature of any such future offerings or borrowings. Holders of our
common stock must bear the risk that any such future offerings we
conduct or borrowings we make may adversely affect the level of
return they may be able to achieve from an investment in our common
stock.
We may need to implement additional
finance and accounting systems, procedures and controls as we grow
our business and organization and to satisfy new reporting
requirements.
Upon
becoming subject to reporting requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), we will be
required to comply with a variety of extensive reporting,
accounting, and other rules and regulations. Compliance with each
of these requirements is expensive, time consuming and intricate.
Further requirements may increase our costs and require additional
management time and resources. We may need to implement additional
finance and accounting systems, procedures and controls to satisfy
our reporting requirements. If our internal controls over financial
reporting are determined to be ineffective, such failure could
cause investors to lose confidence in our reported financial
information, negatively affect the market price of our common
stock, subject us to regulatory investigations and penalties, cause
us to have to restate our financial statements, and adversely
impact our business and financial condition.
We are an emerging growth company, and any decision on our
part to comply only with certain reduced reporting and disclosure
requirements applicable to emerging growth companies could make our
common stock less attractive to investors.
We are an emerging growth company, and, for as long as we
continue to be an emerging growth company, we may choose to
take advantage of exemptions from various reporting requirements
applicable to other public companies that are not “emerging
growth companies,” including:
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●
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not
being required to have our independent registered public accounting
firm audit our internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act;
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●
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reduced
disclosure obligations regarding executive compensation in our
periodic reports and annual report on
Form 10-K; and
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●
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exemptions
from the requirements of holding a non-binding advisory
vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved.
|
We could be an emerging growth company for up to five
years following the completion of this offering. Our status as
an emerging growth company will end as soon as any of the
following takes place:
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●
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the
last day of the fiscal year in which we have more than
$1.07 billion in annual revenue;
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●
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the
date we qualify as a “large accelerated filer,” with at
least $700 million of equity securities held
by non-affiliates;
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●
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the
date on which we have issued, in any three-year period, more than
$1.0 billion in non-convertible debt securities;
or
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●
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the
last day of the fiscal year ending after the fifth anniversary of
the completion of this offering.
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We cannot predict if investors will find our common stock less
attractive if we choose to rely on the exemptions afforded emerging
growth companies. If some investors find our common stock less
attractive because we rely on any of these exemptions, there may be
a less active trading market for our common stock and the market
price of our common stock may be more volatile.
Under the JOBS Act, emerging growth companies can also delay
adopting new or revised accounting standards until such time as
those standards apply to private companies. We have elected to use
this extended transition period for complying with new or revised
accounting standards that have different effective dates for public
and private companies until the earlier of the date we (i) are no
longer an emerging growth company or
(ii) affirmatively and irrevocably opt out of the extended
transition period provided in the JOBS Act. As a result, our
financial statements may not be comparable to companies that comply
with new or revised accounting pronouncements as of public company
effective dates.
We will incur increased costs as a result of being a public
company, particularly after we cease to qualify as an
“emerging growth company.”
Upon completion of this offering, we will become a
public company and expect to incur significant legal, accounting
and other expenses that we did not incur as a private company.
The Sarbanes-Oxley Act, as well
as rules subsequently implemented by the SEC and Nasdaq, impose
various requirements on the corporate governance practices of
public companies. We expect these rules and regulations to increase
our legal and financial compliance costs and to make some corporate
activities more time-consuming and costly. We expect to incur
significant expenses and devote substantial management effort
toward ensuring compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act and the other rules and regulations of the SEC.
For example, as a result of becoming a public company, we will need
to adopt policies regarding internal controls and disclosure
controls and procedures. We also expect that operating as a public
company will make it more difficult and more expensive for us to
obtain director and officer liability insurance, and we may be
required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage.
In addition, we will incur additional costs associated with our
public company reporting requirements. It may also be more
difficult for us to find qualified persons to serve on our board of
directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these rules and
regulations, and we cannot predict or estimate with any degree of
certainty the amount of additional costs we may incur or the timing
of such costs.
In the past, stockholders of a public company often brought
securities class action suits against the company following periods
of instability in the market price of that company’s
securities. If we were involved in a class action suit, it could
divert a significant amount of our management’s attention and
other resources from our business and operations, which could harm
our results of operations and require us to incur significant
expenses to defend the suit. Any such class action suit, whether or
not successful, could harm our reputation and restrict our ability
to raise capital in the future. In addition, if a claim is
successfully made against us, we may be required to pay significant
damages, which could have a material adverse effect on our
financial condition and results of operations.
Because of our status as an emerging growth company, you will not
be able to depend on any attestation from our independent
registered public accounting firm as to our internal control over
financial reporting for the foreseeable future.
Our independent registered public
accounting firm will not be required to attest to the effectiveness
of our internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act until the later of the year
following our first annual report required to be filed with the SEC
or the date we are no longer an “emerging growth
company” as defined in the JOBS Act. Accordingly, you will
not be able to depend on any attestation concerning our internal
control over financial reporting from our independent registered
public accounting firm for the foreseeable future.
Subsequent to the
time frame above, our independent registered public accounting firm
will not be required to attest to the effectiveness of our internal
control over financial reporting pursuant to the
Sarbanes-Oxley Act
until such time that
the Company becomes an “accelerated filer,” as defined
by the SEC.
If our shares become subject to the penny stock rules, it would
become more difficult to trade our shares.
The SEC
has adopted rules that regulate broker-dealer practices in
connection with transactions in penny stocks. Penny stocks are
generally equity securities with a price of less than $5.00, other
than securities registered on certain national securities exchanges
or authorized for quotation on certain automated quotation systems,
provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or
system. If we do not obtain or retain a listing on the Nasdaq
Capital Market or if the price of our common stock falls below
$5.00, our common stock will be deemed a penny stock. The penny
stock rules require a broker-dealer, before a transaction in a
penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document containing specified
information. In addition, the penny stock rules require that before
effecting any transaction in a penny stock not otherwise exempt
from those rules, a broker-dealer must make a special written
determination that the penny stock is a suitable investment for the
purchaser and receive (i) the purchaser’s written
acknowledgment of the receipt of a risk disclosure statement; (ii)
a written agreement to transactions involving penny stocks; and
(iii) a signed and dated copy of a written suitability statement.
These disclosure requirements would likely have the effect of
reducing the trading activity in the secondary market for our
common stock, and therefore stockholders may have difficulty
selling their shares.
FINRA sales practice requirements may limit a stockholder’s
ability to buy and sell our stock.
In
addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority, Inc.
(“FINRA”), has
adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior
to recommending speculative, low-priced securities to their
non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
The FINRA requirements may make it more difficult for
broker-dealers to recommend that their customers buy our common
stock, which may have the effect of reducing the level of trading
activity in our common stock. As a result, fewer broker-dealers may
be willing to make a market in our common stock, reducing a
stockholder’s ability to resell shares, as well as overall
liquidity, of our common stock.
We will incur increased costs as a result of operating as a listed
public company and our management will be required to devote
substantial time to new compliance initiatives and corporate
governance practices.
If at some point in the future we are no longer an “emerging
growth company,” we will incur significant legal, accounting
and other expenses that we have not incurred in the past. The
Sarbanes-Oxley Act, the JOBS Act, the listing requirements of the
Nasdaq Capital Market and other applicable securities rules and
regulations impose various requirements on public companies beyond
what management has experienced in operating a privately held
company. Our management and other personnel will need to devote a
substantial amount of time to comply with these requirements.
Moreover, these rules and regulations will increase our legal and
financial compliance costs and will make some activities more
time-consuming and costly. For example, we expect that these rules
and regulations may make it more difficult and more expensive for
us to obtain directors’ and officers’ liability
insurance, which could make it more difficult for us to attract and
retain qualified members of our board of directors. We cannot
predict or estimate the amount of additional costs we will incur as
a listed public company, or the timing of such costs, but such
costs will be significant.
We are evaluating these rules and regulations and cannot predict or
estimate the amount of additional costs we may incur or the timing
of such costs. These rules and regulations are often subject to
varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and
governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance
practices.
We may be considered a smaller reporting company and will be exempt
from certain disclosure requirements, which could make our common
stock less attractive to potential investors.
Rule
12b-2 of the Exchange Act, defines a “smaller reporting
company” as an issuer that is not an investment company, an
asset-backed issuer, or a majority-owned subsidiary of a parent
that is not a smaller reporting company and that:
●
had a public float
of less than $75.0 million as of the last business day of its most
recently completed second fiscal quarter, computed by multiplying
the aggregate worldwide number of shares of its voting and
non-voting common equity held by non-affiliates by the price at
which the common equity was last sold, or the average of the bid
and asked prices of common equity, in the principal market for the
common equity; or
●
in the case of an
initial registration statement under the Securities Act of 1933, as
amended (“Securities
Act”), or the Exchange Act for shares of its common
equity, had a public float of less than $75.0 million as of a date
within 30 days of the date of the filing of the registration
statement, computed by multiplying the aggregate worldwide number
of such shares held by non-affiliates before the registration plus,
in the case of a Securities Act registration statement, the number
of such shares included in the registration statement by the
estimated public offering price of the shares; or
●
in the case of an
issuer whose public float was zero, had annual revenues of less
than $50.0 million during the most recently completed fiscal year
for which audited financial statements are available.
As a
smaller reporting company, we would not be required and may not
include a Compensation Discussion and Analysis section in our proxy
statements; we would provide only two years of financial
statements; and we would not need to provide the table of selected
financial data. We also would have other “scaled”
disclosure requirements that are less comprehensive than issuers
that are not smaller reporting companies which could make our
common stock less attractive to potential investors, and also could
make it more difficult for our stockholders to sell their
shares.
Changes in tax laws or regulations that are applied adversely to us
or our customers may have a material adverse effect on our
business, cash flow, financial condition or results of
operations.
New income, sales, use or other tax laws, statutes, rules,
regulations or ordinances could be enacted at any time, which could
affect the tax treatment of our earnings and adversely affect our
operations, and our business and financial performance. Further,
existing tax laws, statutes, rules, regulations or ordinances could
be interpreted, changed,
modified or applied adversely to us. For example, on
December 22, 2017, President Trump signed tax legislation into
law, commonly referred to as the Tax Cuts and Jobs Act of 2017,
that contains many significant changes to the U.S. tax laws.
The new legislation reduced the corporate income tax rate from 34%
to 21% effective January 1, 2018, causing all of our deferred
income tax assets and liabilities, including NOLs, to be measured
using the new rate and which value is reflected in the valuation of
these assets as of December 31, 2017. As a result, the value of our
deferred tax assets decreased by approximately $4.3 million and the
related valuation allowance has been reduced by the same amount.
Our analysis and interpretation of this legislation is ongoing.
Given the full valuation allowance provided for net deferred tax
assets for the periods presented herein, the change in tax law did
not have a material impact on our financial statements provided
herein. There may, however, be additional tax impacts identified in
subsequent fiscal periods in accordance with subsequent
interpretive guidance issued by the SEC or the Internal Revenue
Service. Further, there may be other material adverse effects
resulting from the legislation that we have not yet identified. No
estimated tax provision has been recorded in the financial
statements included herein for tax attributes that are incomplete
or subject to change.
The foregoing items could have a
material adverse effect on our business, cash flow, financial
condition or results of operations. In addition, it is
unclear how these U.S. federal income tax changes will affect state
and local taxation, which often uses federal taxable income as a
starting point for computing state and local tax liabilities.
The impact of this tax legislation on
holders of our common stock is also uncertain and could be adverse.
We urge our stockholders and investors to consult with our legal
and tax advisors with respect to this legislation and the potential
tax consequences of investing in or holding our common
stock.
Our management has broad discretion as to the use of certain of the
net proceeds from this offering and may not use them
effectively.
We
currently intend to use the net proceeds of the offering for
working capital and general corporate purposes, including sales and
marketing activities, game licensing, product development, and
capital expenditures. Our management will have considerable
discretion in the application of the net proceeds from this
offering, and investors will be relying on the judgment of our
management regarding the application of those proceeds. Our
management may spend the proceeds in ways that do not improve our
operating results or enhance the value of our common stock, and you
will not have the opportunity to influence management’s
decisions on how to use the proceeds from this offering. The
failure by our management to apply these funds effectively could
harm our business. Pending their use, we may also invest the net
proceeds of this offering in a manner that does not produce income
or that loses value. See “Use of Proceeds” below for more
information.
If we fail to maintain an effective system of internal controls
over financial reporting, we may be unable to accurately report our
results of operations, meet our reporting obligations or prevent
fraud, and investor confidence and the market price of our common
stock may be materially and adversely affected.
Prior to this offering, we were a private company with limited
accounting personnel and other resources with which to address our
internal controls and procedures. Although management has reviewed
our current internal controls over financial reporting and
concluded that our internal controls are effective, our independent
registered public accounting firm has not conducted an audit of our
internal control over financial reporting. In addition, after we
become a public company, our reporting obligations may place a
significant strain on our management, operational and financial
resources and systems for the foreseeable future and we may be
unable to timely complete our evaluation testing and any required
remediation.
During the course of documenting and testing our internal control
procedures, we may identify weaknesses and deficiencies in our
internal control over financial reporting. In addition, if we fail
to maintain the adequacy of our internal control over financial
reporting, as these standards are modified supplemented or amended
from time to time, we may not be able to conclude on an ongoing
basis that we have effective internal control over financial
reporting. Generally, if we fail to achieve and maintain an
effective internal control environment, we could suffer material
misstatements in our financial statements and fail to meet our
reporting obligations, which would likely cause investors to lose
confidence in our reported financial information. This could in
turn limit our access to capital markets, harm our results of
operations, and lead to a decline in the trading price of our
common stock. Additionally, ineffective internal control over
financial reporting could expose us to increased risk of fraud or
misuse of corporate assets and subject us to potential delisting
from the stock exchange on which we list, regulatory investigations
and civil or criminal sanctions.
We may need additional capital, and we may be unable to obtain such
capital in a timely manner or on acceptable terms, or at all.
Furthermore, our future capital needs may require us to sell
additional equity or debt securities that may dilute our
stockholders or introduce covenants that may restrict our
operations or our ability to pay dividends.
To grow our business and remain competitive, we may require
additional capital from time to time for our daily operation. Our
ability to obtain additional capital is subject to a variety of
uncertainties, including:
●
our
market position and competitiveness in the esports and online
amateur gaming market;
●
our
future profitability, overall financial condition, results of
operations and cash flows; and
●
economic,
political and other conditions in the U.S. and
internationally.
We may be unable to obtain additional capital in a timely manner or
on acceptable terms or at all. In addition, our future capital
needs and other business reasons could require us to sell
additional equity or debt securities or obtain a credit facility.
The sale of additional equity or equity-linked securities could
dilute our stockholders. The incurrence of indebtedness would
result in increased debt service obligations and could result in
operating and financing covenants that would restrict our
operations or our ability to pay dividends to our
stockholders.
Our existing stockholders have substantial influence over our
company and their interests may not be aligned with the interests
of our other stockholders, which may discourage, delay or prevent a
change in control of our company, which could deprive our
stockholders of an opportunity to receive a premium for their
securities.
As of the date of this prospectus, certain stockholders control
approximately 44.5% of the voting power in us, including
management. As a result, these stockholders have substantial
influence over our business, including decisions regarding mergers,
consolidations and the sale of all or substantially all of our
assets, election of directors and other significant corporate
actions. This concentration of ownership may discourage, delay or
prevent a change in control of our company, which could deprive our
stockholders of an opportunity to receive a premium for their
shares as part of any contemplated sale of our company and may
reduce the price of our common stock.
Because our offering price is substantially higher than our net
tangible book value per share, you will experience immediate and
substantial dilution.
If you purchase common stock in this offering, you will pay more
for your common stock than the amount paid by our existing
stockholders for their common stock on a per share basis. As a
result, you will experience immediate and substantial dilution of
$7.91 per share, representing the difference between
the assumed initial public offering price of $11.00
per share, which is the midpoint of the price range set forth on
the cover page of this prospectus, and our net tangible book value
per share as of December 31, 2018, after giving effect to the net
proceeds to us from this offering. In addition, you may experience
further dilution to the extent that our shares are issued upon the
exercise of any share options. See “Dilution” for a more complete description of how the
value of your investment in our common stock will be diluted upon
completion of this offering.
Because we do not expect to pay dividends in the foreseeable future
after this offering, you must rely on price appreciation of our
common stock for return on your investment.
We currently intend to retain most, if not all, of our available
funds and any future earnings after this offering to fund the
development and growth of our business. As a result, we do not
expect to pay any cash dividends in the foreseeable future.
Therefore, you should not rely on an investment in our common stock
as a source for any future dividend income.
Our board of directors has complete discretion as to whether to
distribute dividends, subject to certain requirements of Delaware
General Corporation Law. Even if our board of directors decides to
declare and pay dividends, the timing, amount and form of future
dividends, if any, will depend on, among other things, our future
results of operations and cash flow, our capital requirements and
surplus, the amount of distributions, if any, received by us from
our subsidiaries, our financial condition, contractual restrictions
and other factors deemed relevant by our board of directors.
Accordingly, the return on your investment in our common stock will
likely depend entirely upon any future price appreciation of our
common stock. There is no guarantee that our common stock will
appreciate in value after this offering or even maintain the price
at which you purchased the common stock. You may not realize a
return on your investment in our common stock and you may even lose
your entire investment in our common stock.
Substantial future sales or perceived potential sales of our common
stock in the public market could cause the price of our common
stock to decline.
Sales of our common stock in the public market after this offering,
or the perception that these sales could occur, could cause the
market price of our common stock to decline. Immediately after the
completion of this offering, we will have 8.3 million
shares of common stock outstanding, assuming the underwriters do
not exercise their option to purchase additional shares of common
stock from us. All common stock sold in this offering will be
freely transferable without restriction or additional registration
under the Securities Act. The remaining shares outstanding after
this offering will be available for sale, upon the expiration of
the 180-day lock-up period beginning from the date of
this prospectus, subject to volume and other restrictions as
applicable under Rules 144 and 701 under the Securities Act. Any or
all of these shares may be released prior to the expiration of
the lock-up period at the discretion of Northland
Securities, Inc. and Lake Street Capital Markets, LLC. To the
extent shares are released before the expiration of
the lock-up period and sold into the market, the market
price of our common stock could decline.
We have granted, and may continue to grant, share incentive awards,
which may result in increased share-based compensation
expenses.
We
adopted our Amended and Restated 2014 Stock Option and Incentive
Plan (the “2014
Plan”) in October 2014, for purposes of granting
share-based compensation awards to employees, directors and
consultants to incentivize their performance and align their
interests with ours. We account for compensation costs for all
share-based awards issued under the 2014 Plan using a fair-value
based method and recognize expenses in our statements of
comprehensive loss in accordance with GAAP. Under the 2014 Plan, we
are authorized to grant options to purchase shares of common stock
of our Company, restricted share units to receive shares of common
stock and restricted shares of common stock. Following the approval
of an amendment to the 2014 Plan to increase the number shares
which may be issued pursuant to all awards under the 2014 Plan by
our Board of Directors and holders of a majority of our outstanding
voting securities, the number of shares of common stock available
for issuance under the 2014 Plan is now 1,833,334. As of the
date of this prospectus, options to purchase 1,524,468 shares of
common stock have been granted and are outstanding, 23,334
shares of our common stock have been issued pursuant to the
exercise of options, and 10,834 restricted share units have been
granted, of which 834 restricted share units have vested. For the
years ended December 31, 2018 and 2017, we recorded share-based
compensation expense of $2.5 million and $1.9 million,
respectively, primarily related to issuances under the 2014
Plan.
We
believe the granting of share incentive awards is important to our
ability to attract and retain employees, and we will continue to
grant share incentive awards to employees in the future. As a
result, our expenses associated with share-based compensation may
increase, which may have an adverse effect on our results of
operations.
State securities laws may limit secondary trading of our common
stock if our common stock is not listed on a national securities
exchange, which may restrict the states in which and conditions
under which you can sell shares purchased in this
offering.
Secondary
trading of the shares sold in this offering will not be possible in
any state until the shares are qualified for sale
under the applicable securities laws of the state, or there is
confirmation that an exemption, such as resulting from the
potential listing of our common stock on the Nasdaq Capital Market
or another national securities exchange or listing in certain
recognized securities manuals, is available for secondary trading
in the state. If we fail to list our common stock on a national
securities exchange and otherwise fail to register, qualify, obtain
or verify an exemption for the secondary trading of our common
stock in any particular state, any shares purchased in this
offering may not be offered, sold to, or be purchased by a resident
of such state. In the event that a significant number of states
refuse to permit secondary trading in our common stock, the
liquidity for our common stock could be significantly impacted,
thus causing you to suffer a loss on your investment. While we
intend to seek to facilitate secondary trading in our common stock
in the event our common stock is not listed on a national
securities exchange, there can be no assurances that we will be
successful in qualifying or finding an exemption in each state or
other jurisdictions.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve
substantial risks and uncertainties. The forward-looking statements
are contained principally in the sections of this prospectus
entitled “Prospectus
Summary,” “Risk
Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and
“Business,” but
are also contained elsewhere in this prospectus. In some cases, you
can identify forward-looking statements by the words
“anticipate,” “believe,”
“continue,” “could,”
“estimate,” “expect,” “intend,”
“may,” “might,” “objective,”
“ongoing,” “plan,” “predict,”
“project,” “potential,”
“should,” “will,” or “would,”
or the negative of these terms, or other comparable terminology
intended to identify statements about the future. These statements
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance
or achievements to be materially different from the information
expressed or implied by these forward-looking statements. Although
we believe that we have a reasonable basis for each forward-looking
statement contained in this prospectus, we caution you that these
statements are based on a combination of facts and factors
currently known by us and our expectations of the future, about
which we cannot be certain. Forward-looking statements include
statements about:
●
overall strength
and stability of general economic conditions and of the electronic
video game sports (“esports”) industry in the United
States and globally;
●
changes in consumer
demand for, and acceptance of, our services and the games that we
license for our tournaments and other experiences, as well as
online gaming in general;
●
changes in the
competitive environment, including adoption of technologies,
services and products that compete with our own;
●
our ability to
generate consistent revenue;
●
our ability to
effectively execute our business plan;
●
changes in the
price of streaming services, licensing fees, and network
infrastructure, hosting and maintenance;
●
changes in laws or
regulations governing our business and operations;
●
our ability to
maintain adequate liquidity and financing sources and an
appropriate level of debt on terms favorable to us;
●
our ability to
effectively market our services;
●
costs and risks
associated with litigation;
●
our ability to
obtain and protect our existing intellectual property protections,
including patents, trademarks and copyrights;
●
our ability to
obtain and enter into new licensing agreements with game publishers
and owners;
●
changes in
accounting principles, or their application or interpretation, and
our ability to make estimates and the assumptions underlying the
estimates, which could have an effect on earnings;
●
interest rates and
the credit markets;
●
our ability to list
our shares on the Nasdaq Capital Market or any other exchange and
maintain such listing; and
●
other risks
described from time to time in periodic and current reports that we
file with the SEC.
This
list of factors that may affect future performance and the accuracy
of forward-looking statements is illustrative, but not exhaustive.
New risk factors and uncertainties not described here or elsewhere
in this prospectus, including in the sections entitled
“Risk Factors,”
may emerge from time to time. Moreover, because we operate in a
competitive and rapidly changing environment, it is not possible
for our management to predict all risk factors and uncertainties,
nor can we assess the impact of all factors on our business or the
extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements we may make. The forward-looking
statements are also subject to the risks and uncertainties specific
to our Company, including but not limited to the fact that we have
no operating history as a public company. In light of these risks,
uncertainties and assumptions, the future events and trends
discussed in this prospectus may not occur, and actual results
could differ materially and adversely from those anticipated or
implied in the forward-looking statements.
You
should not rely upon forward-looking statements as predictions of
future events. Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee
that the future results, levels of activity, performance and events
and circumstances reflected in the forward-looking statements will
be achieved or occur. Moreover, neither we nor any other person
assume responsibility for the accuracy and completeness of the
forward-looking statements. Except as
required by applicable law, including the securities laws of the
United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
You
should read this prospectus, the documents referenced herein and
those documents filed as exhibits to the registration statement, of
which this prospectus is a part, with the understanding that our
actual future results, levels of activity, performance and
achievements may be materially different from what we
expect.
In addition to the industry, market and competitive position data
referenced in this prospectus from our own internal estimates and
research, some market data and other statistical information
included in this prospectus are based in part upon information
obtained from third-party industry publications, research, surveys
and studies, none of which we commissioned. Third-party industry
publications, research, surveys and studies generally indicate that
their information has been obtained from sources believed to be
reliable, although they do not guarantee the accuracy or
completeness of such information.
We are responsible for all of the disclosure in this prospectus and
while we believe that each of the publications, research, surveys
and studies included in this prospectus are prepared by reputable
sources, neither we, nor the underwriters have independently
verified market and industry data from third-party sources. In
addition, while we believe our internal company research and
estimates are reliable, such research and estimates have not been
verified by independent sources. Assumptions and estimates of our
and our industry’s future performance are necessarily subject
to a high degree of uncertainty and risk due to a variety of
factors, including those described in “Risk
Factors.” These and other
factors could cause our future performance to differ materially
from our assumptions and estimates. See “Special Note Regarding
Forward-Looking Statements.”
We estimate that the net proceeds to us from the sale of shares of
our common stock in this offering will be approximately
$22.4 million (or approximately $25.8
million if the underwriters exercise their option to purchase
additional shares of common stock from us in full), based on an
assumed initial public offering price of
$11.00 per share, which is the midpoint of the
price range set forth on the cover page of this prospectus, after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the assumed initial public
offering price of $11.00 per share would increase
(decrease) the net proceeds to us from this offering by
approximately $2.1 million, assuming the number of
shares offered by us, as set forth on the cover page of this
prospectus, remains the same, and after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us. We may also increase or decrease the number of shares we are
offering. Each increase (decrease) of 1,000,000 shares in the
number of shares offered by us would increase (decrease) the net
proceeds to us from this offering by approximately
$10.2
million, assuming the assumed initial public offering price stays
the same, and after deducting underwriting discounts and
commissions and estimated offering expenses payable by
us.
The principal purposes of this offering are to obtain additional
capital to support our operations, to create a public market for
our common stock and to facilitate our future access to the public
equity markets. We currently intend to use the net proceeds we
receive from this offering for working capital and general
corporate purposes, including sales and marketing activities,
product development and capital expenditures. We may also use a
portion of the net proceeds for the acquisition of, or investment
in, technologies, solutions or businesses. However, we have no
present commitments or agreements to enter into any acquisitions or
investments. Pending these uses, we may invest the net proceeds
from this offering in short-term, investment-grade interest-bearing
securities such as money market accounts, certificates of deposit,
commercial paper and guaranteed obligations of the U.S.
government.
The amounts and timing of our actual expenditure, including
expenditure related to sales and marketing and product development
will depend on numerous factors, including the status of our
product development efforts, our sales and marketing activities,
expansion internationally, the amount of cash generated or used by
our operations, competitive pressures and other factors described
under “Risk
Factors” in this prospectus. We therefore cannot
estimate the amount of net proceeds to be used for the purposes
described above. As a result, we may find it necessary or advisable
to use the net proceeds for other purposes. Our management will
have broad discretion in the application of the net proceeds, and
investors will be relying on our judgment regarding the application
of the net proceeds from this offering. Investors will not have an
opportunity to evaluate the economic, financial or other
information on which we base our decisions regarding the use of
these proceeds.
We have never declared or paid any dividends on our capital stock.
We currently intend to retain all available funds and any future
earnings for the operation and expansion of our business and,
therefore, we do not anticipate declaring or paying cash dividends
in the foreseeable future. The payment of dividends will be at the
discretion of our Board of Directors and will depend on our results
of operations, capital requirements, financial condition,
prospects, contractual arrangements, any limitations on payment of
dividends present in our current and future debt agreements, and
other factors that our board of directors may deem
relevant.
The following table sets forth our cash and capitalization as
of December 31, 2018:
●
on a pro forma basis, giving effect to the
automatic conversion of all outstanding
principal and accrued but unpaid interest on our outstanding 9.00%
secured convertible promissory notes, totaling $13.6 million at
December 31, 2018, into an aggregate of 1,455,184
shares of our common stock immediately prior to the closing of this
offering (assuming an initial public offering price of
$11.00, the midpoint of the price range set forth on
the cover page of this prospectus, and a conversion price of
$9.35);
and
●
on
a pro forma as adjusted basis to reflect the sale by us of
2,272,727 shares of common stock in this offering at
an assumed initial public offering price of $11.00 per
share, the midpoint of the price range set forth on the cover page
of this prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses payable by
us.
The pro forma and pro forma as adjusted information below is
illustrative only, and our capitalization following the closing of
this offering will be adjusted based on the actual initial public
offering price and other terms of this offering determined at
pricing as well as our actual expenses. You should read this table
together with “Selected Financial
Data” and
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our
financial statements and the related notes thereto appearing
elsewhere in this prospectus.
|
|
|
|
|
Pro Forma
As
Adjusted (1)
|
|
|
|
|
Cash
|
$ 2,774,421
|
$ 2,774,421
|
$ 25,128,369
|
|
|
|
|
Convertible notes
payable
|
10,922,601
|
-
|
-
|
Common stock, par
value $0.001 per share, 100,000,000 shares authorized, 4,610,109
shares issued and outstanding, actual; 6,065,293 shares issued
and outstanding, pro forma; 8,338,020 shares issued and
outstanding, pro forma as adjusted
|
13,831
|
15,286
|
17,559
|
Additional paid-in
capital
|
48,325,146
|
67,473,834
|
89,825,509
|
Accumulated
deficit
|
(55,133,473)
|
(63,361,015)
|
(63,361,015)
|
Total
stockholders’ deficit
|
(6,794,496)
|
4,128,105
|
26,482,053
|
Total
capitalization
|
$ 4,128,105
|
$ 4,128,105
|
$26,482,053
|
_______________
(1)
Each $1.00 increase
(decrease) in the assumed initial public offering price of
$11.00 per share, which is the midpoint of the price
range set forth on the cover page of this prospectus, would
increase (decrease) each of cash, total stockholders’
(deficit) equity and total capitalization by approximately
$2.1 million, assuming that the number of shares
offered by us, as set forth on the cover page of this prospectus,
remains the same, and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
Similarly, each increase (decrease) of 1,000,000 shares in the
number of shares offered by us would increase (decrease) each
of cash, total stockholders’ (deficit) equity and total
capitalization by approximately $10.2 million,
assuming
that the assumed initial public offering price remains the same,
and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. The pro forma as adjusted information discussed
above is illustrative only and will adjust based on the actual
initial public offering price and other terms of this offering
determined at pricing.
The number of shares of common stock that will be outstanding after
this offering is based on 4,610,109 shares of common
stock outstanding as of December 31, 2018, and excludes as of such
date:
●
2,390,968 shares
of common stock issuable upon exercise of warrants to purchase our
common stock, including an estimated 1,208,936
warrants (subject to adjustment as
described below) that are callable, at the election of the Company,
at any time following the completion of this
offering;
●
1,524,468 shares of common stock
issuable upon exercise of options held
and 274,698 shares of common stock reserved for issuance
pursuant to our 2014 Plan; and
●
68,182
shares of common stock issuable upon the exercise of the
warrant to be issued to the
underwriters, which equates to 3.0% of the number of
shares of our common stock to be issued and sold in this
offering.
If you invest in our common stock in this offering, your interest
will be diluted to the extent of the difference between the assumed
initial public offering price per share of our common stock and the
pro forma as adjusted net tangible book value per share of our
common stock immediately after the completion of this
offering. Net tangible book value per share of our common
stock is determined at any date by subtracting our total
liabilities from the amount of our total tangible assets (total
assets, less intangible assets) and dividing the difference by the
number of shares of our common stock deemed to be outstanding at
that date.
Our
historical net tangible book value (deficit) as of December 31,
2018 was $(7.5) million, or
$(1.63) per share of common stock. Our historical net
tangible book value per share represents our total tangible assets
less our total liabilities, divided by the number of shares of
common stock outstanding as of December 31,
2018.
Our pro forma net tangible book value as of
December 31, 2018 was $3.4 million, or $0.56 per share of common stock. Pro forma net tangible
book value per share represents our total tangible assets less our
total liabilities, divided by the number of shares of common stock
outstanding as of December 31, 2018, after giving effect to the
automatic conversion of all principal and accrued but unpaid
interest on our outstanding 9.00% convertible promissory notes,
totaling $13.6 million at December 31, 2018, into an aggregate
of 1,455,184 shares of our common stock immediately
prior to the closing of this
offering.
After further giving effect to (i) the pro forma adjustment
described above, and (ii) our receipt of approximately
$22.4
million of estimated net proceeds, after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us, from our sale of common stock in this offering at an assumed
initial public offering price of $11.00 per
share, the midpoint of the price range set forth on the cover page
of this prospectus, our pro forma as adjusted net tangible book
value as of December 31, 2018, would have been approximately
$25.8
million, or $3.09 per share. This amount represents an
immediate increase in net tangible book value of
$2.53 per share of our common stock to existing
stockholders and an immediate dilution in net tangible book value
of $7.91 per share of our common stock to new
investors purchasing shares of common stock in this
offering.
The following table illustrates this dilution on a per share
basis to new investors:
|
|
|
|
|
|
|
|
Assumed initial
public offering price per share
|
|
|
|
|
$
|
11.00
|
|
Historical net
tangible book value (deficit) per share as of December 31, 2018
|
|
$
|
(1.63
|
)
|
|
|
|
Pro forma increase in
net tangible book value per share attributable to the
transactions described above
|
|
$
|
2.19
|
|
|
|
|
Pro forma net
tangible book value per share as of December 31, 2018
|
|
$
|
0.56
|
|
|
|
|
Increase in pro
forma net tangible book value per share attributed to new investors
purchasing shares from us in this offering
|
|
$
|
2.53
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as
adjusted net tangible book value per share after giving effect to
this offering
|
|
|
|
|
$
|
3.09
|
|
|
|
|
|
|
|
|
|
Dilution in pro
forma as adjusted net tangible book value per share to new
investors in this offering
|
|
|
|
|
$
|
7.91
|
|
The dilution information discussed above is illustrative only and
will change based on the actual initial public offering price and
other terms of this offering to be determined at pricing. Each
$1.00 increase (decrease) in the assumed initial public offering
price of $11.00 per share, the midpoint of the price
range set forth on the cover page of this prospectus, would
increase (decrease) the pro forma as adjusted net tangible book
value by approximately $2.1 million, or by
approximately $0.30 per share, assuming the number of
shares of common stock offered by us, as set forth on the cover
page of this prospectus, remains the same, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us. Similarly, each increase (decrease) of
1,000,000 shares in the number of shares of common stock offered by
us would increase (decrease) the pro forma as adjusted net tangible
book value per share by approximately $10.2 million,
or approximately $0.76 per share, assuming the assumed
initial public offering price remains the same, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
If the underwriters exercise their option to purchase additional
shares in full in this offering, the pro forma as adjusted net
tangible book value after this offering would be approximately
$29.3 million, or approximately $3.37 per
share, the increase in pro forma net tangible book value to
existing stockholders would be $0.28 per share, and
the dilution per share to new investors would be $7.63
per share, in each case based on an assumed initial public offering
price of $11.00 per share, the midpoint of the
price range set forth on the cover page of this
prospectus.
The
following table summarizes as of December 31, 2018, on the
pro forma as adjusted basis described above, the number of shares
of our common stock, the total consideration and the average price
per share (i) paid to us by our existing stockholders and
(ii) to be paid by investors purchasing our common stock in
this offering at an assumed initial public offering price of
$11.00 per share, the midpoint of the price range set
forth on the cover page of this prospectus, before deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
|
|
|
|
|
|
|
|
|
|
Existing
Stockholders
|
6,065,293
|
73%
|
$ 43,054,978
|
63%
|
$ 7.10
|
New
Investors
|
2,272,727
|
27%
|
$ 25,000,000
|
37%
|
$ 11.00
|
Total
|
8,338,020
|
100%
|
$ 68,054,978
|
100%
|
|
The number of shares of common stock that will be outstanding after
this offering is based on 4,610,109 shares of common
stock outstanding as of December 31, 2018, and excludes as of
such date:
●
2,390,968 shares of common stock
issuable upon exercise of warrants to purchase our common stock,
including an estimated 1,208,936 warrants (subject to
adjustment as described below) that are callable, at the election
of the Company, at any time following the completion of this
offering;
●
1,524,468 shares of common stock issuable upon
exercise of options held and 274,698 shares of common
stock reserved for issuance pursuant to our 2014 Plan; and
●
68,182 shares of
common stock issuable upon the exercise of the warrant to be issued to the underwriters, which
equates to 3.0% of the number of shares of our common
stock to be issued and sold in this
offering.
If the underwriters exercise their option to purchase additional
shares in full, the percentage of shares of common stock held by
existing stockholders will decrease to approximately
70% of the total number of shares of our common stock
outstanding after this offering, and the number of shares held by
new investors will increase to 2,613,636,
or approximately 30% of the total number of
shares of common stock outstanding after the offering.
To the extent that options or warrants are exercised, new options
or other securities are issued under our equity incentive plans, or
we issue additional shares of common stock in the future, there
will be further dilution to investors participating in this
offering. In addition, we may choose to raise additional capital
because of market conditions or strategic considerations, even if
we believe that we have sufficient funds for our current or future
operating plans. If we raise additional capital through the sale of
equity or convertible debt securities, the issuance of these
securities could result in further dilution to our
stockholders.
The following selected financial data should be
read together with our financial statements and related notes
thereto, as well as the information found under the sections titled
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” included
elsewhere in this prospectus. We derived the selected financial
data as of and for the years ended December 31, 2018 and 2017 from
our audited financial statements included elsewhere in this
prospectus. Our historical results are not necessarily
indicative of the results to be expected in future
periods.
|
|
|
|
|
|
|
|
Sales
|
$1,046,359
|
$201,182
|
Cost of sales
|
684,105
|
1,487,905
|
Gross profit
(loss)
|
362,254
|
(1,286,723)
|
|
|
|
Operating
expense:
|
|
|
Sales,
marketing and advertising
|
1,525,525
|
1,155,506
|
Research and
development
|
17,197
|
61,543
|
General and
administrative
|
14,979,732
|
12,451,636
|
Total
operating expense
|
16,522,454
|
13,668,685
|
Loss from
operations
|
(16,160,200)
|
(14,955,408)
|
|
|
|
Other Income
(expense), net:
|
|
|
Interest expense,
net
|
(4,468,692)
|
-
|
Other
|
2,076
|
-
|
Other income
(expense), net
|
(4,466,616)
|
-
|
Net loss
|
$(20,626,816)
|
$(14,955,408)
|
|
|
|
Net loss per share:
|
|
|
Basic and diluted
|
$ (4.48)
|
$ (3.52)
|
Weighted
average common shares used to compute net loss per
share:
|
|
|
Basic and diluted
|
4,606,951
|
4,246,626
|
Pro forma net loss
per share (unaudited):
|
|
|
Basic and diluted
(1)
(2)
|
$ (4.76)
|
$ (3.52)
|
Pro forma weighted
average common shares outstanding (unaudited):
|
|
|
Basic and diluted
(1)
(2)
|
$ 6,062,135
|
$ 4,246,626
|
_______________
(1)
See Note 1 to our
audited financial statements included elsewhere in this prospectus
for an explanation of the method used to calculate the historical
and pro forma net loss per share, basic and diluted, and the number
of shares used in the computation of the per share amounts.
Pro forma
basic and diluted net loss per common share and pro forma weighted
average shares outstanding have been calculated assuming, as of the
beginning of the applicable period: (a) the automatic conversion of
all outstanding principal and accrued but unpaid interest on our
outstanding 9.00% secured convertible promissory notes, totaling
$13.6 million at December 31, 2018, into an aggregate of 1,455,184
shares of our common stock immediately prior to the closing of this
offering (assuming an initial public offering price of $11.00, the
midpoint of the price range set forth on the cover page of this
prospectus, and a conversion price of $9.35); and (b) the immediate
amortization as interest expense, the beneficial conversion feature
(“BCF”) associated with the 2018 Notes, which is
exercisable upon the consummation of an initial public offering, as
described at Note 6 to the audited financial statements included
herein. The intrinsic value of the BCF at December 31, 2018, which
was limited to the net proceeds allocated to the debt on a relative
fair value basis, was approximately
$8,227,542.
(2)
All share and per
share data has been retrospectively adjusted to reflect the
one-for-three reverse stock split of our common stock, which was
effected on February 8,
2019.
|
|
|
|
|
Balance
Sheet Data:
|
|
|
Cash
|
$ 2,774,421
|
$ 1,709,473
|
Accounts
receivable
|
487,398
|
113,702
|
Prepaid expenses
and other current assets
|
487,148
|
780,111
|
Property and
equipment, net
|
531,369
|
1,137,817
|
Intangible and
other assets, net
|
706,821
|
340,998
|
Accounts payable,
accrued expenses and other
|
859,052
|
383,814
|
Convertible debt,
net
|
10,922,601
|
-
|
Total
stockholders’ equity (deficit)
|
(6,794,496)
|
3,698,287
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of our operations together with our
financial statements and the notes thereto appearing elsewhere in
this prospectus. This discussion contains forward-looking
statements reflecting our current expectations, whose actual
outcomes involve risks and uncertainties. Actual results and the
timing of events may differ materially from those stated in or
implied by these forward-looking statements due to a number of
factors, including those discussed in the sections entitled
“Risk Factors,” “Cautionary Statement Regarding
Forward-Looking Statements” and elsewhere in this
prospectus.
Overview
We are
a leading amateur esports community and content platform offering a
personalized experience to the large and underserved global
audience of 2.3 billion gamers, as estimated by NewZoo. Through our proprietary, cloud-based technology
platform, we connect our network of gamers, venues and brand
partners to enable local, social and competitive esports that can
be uniquely broadcast through our platform. We offer daily and
season-focused offerings for which amateur competitive gamers
establish meaningful connections with each other while improving
their skills.
As a
first-mover in defining the amateur esports category in 2015, we
believe we are one of the most recognizable brands for amateur
gamers. We have multi-year strategic partnerships with leading game
publishers such as Microsoft and Riot Games with titles including
Minecraft and League of Legends, respectively, as well as
relationships with Supercell and Epic Games with respect to Clash
Royale and Fortnite, respectively, to drive use among our member base and further
penetrate our target market. We deliver enhanced gaming experiences
to our members with these titles through our platform, and we
provide our venue and brand partners access to our member network
and platform technology. We believe that our members and the
organizations that use our platform are only beginning to leverage
the power of the consumer experience, commercial benefits, and data
analytics our technology enables. Primarily targeting Generation Z
and Millennials, members join through accessible, free-to-play
experiences allowing us to reach the expansive amateur gaming
market. We intend to convert members into subscribers through
offering two tiers of competitive gameplay engagement: (i) our
monthly subscription for the more casual competitive player,
offering access to exclusive online tournaments and member
benefits; and (ii) our semi-annual season pass for the more
competitive player, offering access to our city leagues and
advanced amateur esports offers along with membership
rewards.
Components of Results of Operations
Revenue
We
generate revenues and related cash flows from (i) the sale of
subscriptions to gamers for participation in our in-person and
online multiplayer gaming experiences, and (ii) brand and media
partnerships.
Subscription Revenue. To date, subscription revenues have
consisted of the sale of season passes to gamers for participation
in our in-person and or online multiplayer gaming experiences. For
the periods presented herein, season passes for gaming experiences
were primarily comprised of multi-week packages and also include
one-time, single experience admissions. The majority of the gaming
experiences we have offered to date have occurred in movie
theatres.
We intend to convert members into subscribers by offering our
members two tiers of competitive gameplay engagement: (i) a monthly
subscription for the more casual competitive player, offering
access to exclusive online tournaments and member benefits; and
(ii) a semi-annual season pass for the more competitive player,
offering access to our city leagues and advanced amateur esports
offers along with membership rewards.
Brand and Media
Partnerships. We generate brand and media
partnership revenues primarily from sales of various forms of
sponsorships and promotional campaigns for our online platforms and
from sponsorship at our in-person esports experiences. We also
generate brand and media partnership revenues from the development
of content tailored specifically for our partners’
distribution channels. We actively pursue the sale of
sponsorships through our brand and media partnerships, including
arrangements that may include: exclusive or non-exclusive title
sponsorships, marketing benefits, official product status
exclusivity, product visibly and additional infrastructure
placement, social media rights (including rights to create and post
social content and clips), rights to on-screen activations and
promotions, display material rights, media rights, hospitality and
tickets and merchandising rights.
We
expect our brand and media partnerships revenues to
increase in the foreseeable future as we introduce new brand and
media partnership solutions and attract more sponsorship partners,
particularly as we license additional game titles, grow our
subscriber base, and generate a large volume of amateur gaming
content.
Cost of Sales
Cost of
sales includes direct costs incurred for the production of our
in-person and online gaming experiences, including venue rental,
licenses and contract services.
Venue rental. Venue rental costs consists of net revenue
share payments primarily to our contracted theatre groups,
including Cinemark, National Amusements, Studio Movie Grill and
others, for hosting our in-person experiences.
Licenses Fees. License agreements with game developers
generally include the grant to us of a license, during the
applicable term, to (i) reproduce, publicly display and publicly
perform the applicable game and approved game content to authorized
users of the game as part of our leagues, and (ii) display approved
advertising content in connection with game developer-approved
advertising, marketing and promotion of our leagues. License
agreements may also include a license to create derivative works
using game content and/or game publisher marks in connection with
the creation of merchandise. In consideration for the licenses
granted, we are typically obligated to pay a royalty to the
game-publisher. We are currently
parties to license agreements with Riot Games and Microsoft for the
use of League of Legends and Minecraft, respectively. Although we
have relationships with Supercell and Epic Games for experiences
involving Clash Royale and Fortnite, respectively, we currently do
not have definitive license agreements in place with respect to
these relationships.
License
fees for the year ended December 31, 2017 also include amortized
noncash license fee expense related to a June 2016 gaming license
agreement whereby we issued restricted stock units to a third-party
upon the achievement of certain game related service conditions. As
we continue to become a more widely recognized brand in the esports
space, we expect we will be in a position to secure more favorable
terms in future license agreements with game
publishers.
Contract Services. Contract
services includes agency and contract labor costs incurred in
connection with the execution of our in-person experiences held in
theatres and other venues, including onsite staff to manage
logistics and technical support, assist participants and ensure and
promote the quality of the brand and overall gaming
experience.
Materials / Giveaways and Prizing. Materials, giveaways and
prizing costs include the costs of apparel and other paraphernalia,
as well as the cost of scholarships, cash prizes and other awards
provided in connection with our amateur esports league
seasons.
Selling, Marketing and Advertising.
Selling,
marketing and advertising expenses include the cost of creating and
implementing marketing strategies, conducting market research,
building relationships with our target audience, and increasing the
overall exposure of our amateur esports brand to gamers. In-person
gaming experience and Super League brand related advertising costs
include the cost of producing advertisements, social media, print
media, marketing, promotions, and merchandising. We expense
advertising costs as incurred.
Research and Development
Research
and development costs represent costs incurred in connection
with the testing of game-play on our technology
platform, comprised of third-party consultant and
contractor costs. Research and development costs are expensed
as incurred.
General and Administrative
General and administrative expenses consist primarily of
personnel-related costs, including salaries and benefits, non-cash
stock compensation expenses, office and facilities costs, legal,
accounting and other professional fees, public relations costs and
other corporate and administrative costs.
Results of Operations
Comparison of the Results of Operations for the Years Ended
December 31, 2018 and 2017
The
following table sets forth a summary of our statements of
operations for the years ended December 31, 2018 and
2017:
|
|
|
|
|
SALES
|
$1,046,359
|
$201,182
|
COST OF SALES
|
684,105
|
1,487,905
|
GROSS PROFIT (LOSS)
|
362,254
|
(1,286,723)
|
|
|
|
OPERATING EXPENSES
|
|
|
Selling,
marketing and advertising
|
1,525,525
|
1,155,506
|
Research
and development
|
17,197
|
61,543
|
General
and administrative
|
14,979,732
|
12,451,636
|
Total
operating expenses
|
16,522,454
|
13,668,685
|
|
|
|
NET LOSS FROM OPERATIONS
|
(16,160,200)
|
(14,955,408)
|
|
|
|
OTHER INCOME (EXPENSE), NET
|
(4,466,616)
|
-
|
|
|
|
NET LOSS
|
$(20,626,816)
|
$(14,955,408)
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Subscription
|
$ 135,260
|
$ 87,480
|
$ 47,780
|
55%
|
Brand
& Media Partnerships
|
911,099
|
113,702
|
797,397
|
+300%
|
|
$ 1,046,359
|
$ 201,182
|
$ 845,177
|
+300%
|
Revenue for the year ended December
31, 2018 (“Fiscal 2018”) increased $845,177,
or over 300%, compared to the year ended December 31, 2017
(“Fiscal
2017”). Revenues for the periods presented were
comprised of the following:
Subscription.
Subscription
revenue for Fiscal 2018 increased $47,780, or 55%, compared to the
prior year period. The increase was primarily due to the expansion
of our City Champs amateur esports competitions into 16 cities in
Fiscal 2018, as compared to 12 cities in Fiscal 2017, and running
two complete League of Legends City Champs seasons in Fiscal 2018,
as compared to one League of Legends City Champs season in Fiscal
2017. In addition, the third and fourth quarters of Fiscal
2018 included revenues recognized in connection with our
Minecraft related database asset acquisition in June
2018.
Brand and Media
Partnerships. Brand and media partnerships revenue for
Fiscal 2018 increased $797,397, or over 300%, compared to the prior
year period. This year over year increase was primarily
attributable to the growing visibility of our brand and
platform, and an increase in marketing and sales resources and
related activities focusing on increasing the number of new brand
and media partnerships and strengthening existing brand and media
partnerships. Brand and media partnerships revenue for Fiscal 2018
included amounts from Logitech, Inc. (“Logitech”), Red Bull North
America, Inc., Sony Pictures Entertainment (“Sony”),
Viacom Media Networks (“Nickelodeon”),
Tribeca Film Festival and Samsung. Brand and media partnerships
revenues Fiscal 2017 was primarily comprised of revenues from
partnerships with Advanced Micro Devices, Inc., Nickelodeon,
Mattel, Inc. and DMG Entertainment.
Cost of Sales
|
|
|
|
|
|
|
|
Cost
of sales
|
$684,105
|
$ 1,487,905
|
$ (803,800)
|
(54%)
|
Cost of
sales for Fiscal 2018 decreased $803,800, or (54%), compared to
Fiscal 2017. The change in cost of sales was primarily due to the
following:
●
|
License Fees. License fees for
Fiscal 2018 decreased $1,040,058, or 98%, compared to the same
period in 2017. In June 2016, we entered into a gaming license
agreement whereby we issued 183,334
restricted stock units (“License
RSUs”) upon the
achievement of certain game related service conditions. Noncash
license fee expense included in cost of sales for Fiscal 2017 was
$1,054,167, all of which related to License RSUs and was recognized
over the contractual license term of 18-months beginning June 2016
and ending December 31, 2017. As of December 31, 2017, the License
RSUs were fully expensed and no further expense related to the
License RSUs will be recorded in the statement of operations in
periods subsequent to December 31, 2017.
|
●
|
Contract Services.
Contract services
costs for Fiscal 2018 increased $84,817, or 39%, compared to the
same period in 2017, which amount
was relatively consistent with the related increase in
subscriptions revenue for the same period. The increase was
primarily due to the expansion of our City Champs amateur esports
competitions into 16 cities in Fiscal 2018, as compared to 12
cities in Fiscal 2017, and running two complete League of Legends
City Champs seasons in Fiscal 2018, as compared to one League of
Legends City Champs season in Fiscal 2017. In addition, in the
fourth quarter of Fiscal 2018 we incurred additional contract
services costs for influencers utilized in connection with our
dedicated Minecraft build and monthly online gaming competitions in
partnership with Sony, in connection with its cinematic release of
“Spider Man into the Spider-Verse.”
|
Operating Expenses
Selling, Marketing and Advertising
|
|
|
|
|
|
|
|
Selling,
Marketing and Advertising
|
$ 1,525,525
|
$ 1,155,506
|
$ 370,019
|
32%
|
Selling, marketing and advertising expenses for Fiscal 2018
increased $370,019, or 32%, compared to the same period in Fiscal
2017, primarily due to the amortization of noncash in-kind
advertising costs which were initially capitalized pursuant to a
June 2017 third-party investment agreement. The investment
agreement included in-kind advertising for use in future periods,
valued at $1.0 million, as a component of the consideration paid to
us in exchange for equity in the Company. This prepaid advertising
cost was amortized over an 18-month period ending as of December
31, 2018. In addition, selling, marketing and advertising costs for
Fiscal 2018 included approximately $86,000 of costs incurred in
connection with the development of a pilot program and related
activities for use in the launch of SuperLeagueTV in April
2018.
Research and Development
|
|
|
|
|
|
|
|
Research
and development
|
$ 17,197
|
$ 61,543
|
$ (44,346)
|
(72%)
|
Research and development expense for Fiscal 2018 decreased $44,346
or 72%, compared to the same period in Fiscal 2017, primarily due
to a slight reduction in new game integration testing
costs paid to third-party contractors and consultants. Third
party research and development related game testing expenses
vary period to period based on the timing of the acquisition and
installation of new game properties and modifications to the
functionalities and features of existing game properties
on the platform.
General and Administrative
General
and administrative expense for the periods presented was comprised
of the following:
|
|
|
|
|
|
|
|
|
Personnel
costs
|
$ 6,912,955
|
$ 5,184,986
|
1,727,969
|
33%
|
Office
and facilities
|
365,562
|
267,290
|
98,272
|
37%
|
Professional
fees
|
666,416
|
469,965
|
196,451
|
42%
|
Stock-based
compensation
|
3,943,128
|
3,612,743
|
330,385
|
9%
|
Depreciation
and amortization
|
1,105,989
|
1,237,609
|
(131,620)
|
(11%)
|
Other
|
1,985,682
|
1,679,043
|
306,639
|
18%
|
Total
general and administrative expense
|
$ 14,979,732
|
$ 12,451,636
|
$ 2,528,096
|
20%
|
General
and administrative expenses for Fiscal 2018
increased $2,528,096,
or 20%, compared to Fiscal 2017. A
summary of the main drivers of the change in general and
administrative expenses is as follows:
●
|
Increase in personnel costs totaling $1,727,969, due primarily to
an increase in headcount since the end of Fiscal 2017 in connection
with the continued expansion of our technology platform, product
offerings and marketing activities, requiring additional
internal resources across our technology
platform engineering and development, product,
operations, and commercial departments. During each of Fiscal 2018
and Fiscal 2017, we had average full-time equivalent employees of
44 and 33, respectively. As of December 31, 2018 and 2017, we had
46 and 38 full-time equivalent employees,
respectively.
|
●
|
Increase in office and facilities expense totaling $98,271,
primarily due to the increase in leased office space in June 2018
in connection with the expansion of our operations.
|
●
|
Increase in professional fees totaling $196,451, primarily due to
an increase in technical consulting expenses related to the launch
of SuperLeagueTV, the development of our subscription and game
related offerings and our content series, an increase in audit fees
incurred in connection with the completion of audits
of our financial statements for the years ended December 31, 2017
and 2016 incurred during Fiscal 2018, and an increase in
placement fees incurred in connection with technology team contract
positions that were converted to full-time employee positions
during the period.
|
●
|
Increase in
noncash stock compensation totaling $330,385, primarily due to
noncash stock compensation expense for employee stock options
granted during Fiscal 2018 in connection with the increase in
headcount described above, partially offset by a decrease in
noncash common stock purchase warrant expense related to warrants
issued
to members of our Board of Directors and consultants that
vested immediately upon grant and, as a result, were fully expensed
in the prior year period.
|
●
|
Increase in other general and administrative expenses totaling
$306,639
primarily due to an increase in insurance, travel, broad-band,
software and subscription costs in connection with the expansion of
operations.
|
Other Income (expense)
Other
income (expense), net, was primarily comprised of interest expense,
as follows:
|
Year Ended
December 31, 2018
|
Accretion
of discount on convertible notes
|
$ 3,508,176
|
Accrued
interest expense on convertible notes
|
605,972
|
Accretion
of convertible note issuance costs
|
354,544
|
|
$ 4,468,692
|
Interest Expense
Interest expense for Fiscal 2018 totaled $4,468,692, relating to the issuance of
9.00% secured convertible promissory notes, with an aggregate
principal amount of approximately $13,000,000, during Fiscal, 2018,
as described below under Liquidity
and Capital Resources.
Liquidity and Capital Resources
General
Cash totaled $2,774,421 at December 31, 2018, compared to
$1,709,473 at December 31, 2017.
We have experienced net losses and negative cash flows from
operations since our inception. As of December 31, 2018, we had
negative working capital of approximately $8,032,688, and sustained
cumulative losses attributable to common stockholders of
approximately $55,133,473. Total noncash charges included in
accumulated deficit since inception, primarily related to noncash
stock compensation, License RSUs, amortization of the discount on
the 2018 Notes (defined below) and in-kind advertising expense,
totaled $17,673,778. During Fiscal 2018, the Company issued 9.00%
secured convertible promissory notes, as described below, in an
aggregate principal amount of approximately $13,000,000.
Approximately 1.2 million of the warrants issued
in conjunction with the 2018 Notes are callable at the election of
the Company at any time following the completion of this
offering.
We
believe that our cash on hand, including the approximately $22.4
million in net proceeds received from this offering (or
approximately $25.8 million if the underwriters exercise their
option to purchase additional shares from us in full) will sustain
operations at least until February, 2020. We are dependent on
obtaining, and are continuing to pursue, the necessary funding from
outside sources, including obtaining additional funding from the
sale of securities in order to continue our operations. Without
adequate funding, we may not be able to meet our obligations. We
believe these conditions raise substantial doubt about our ability
to continue as a going concern.
To date, our principal sources of capital used to fund our
operations have been the net proceeds we received from private
sales of equity securities and proceeds received from the issuance
of convertible debt, as described below.
We expect to continue to incur substantial expenditures in the
foreseeable future at rates consistent with expenditures incurred
during Fiscal 2018 and Fiscal 2017, for the continued development
and expansion of our esports brand, community and technology
platform. We will require additional financing to further develop
and market our esports technology platform, fund operations, and
otherwise implement our business strategy at amounts relatively
consistent with Fiscal 2018 expenditure levels disclosed above. Our
current financial condition raises substantial doubt about our
ability to continue as a going concern. Our failure to raise
capital as and when needed would have a material adverse impact on
our financial condition, our ability to meet our obligations, and
our ability to pursue our business strategies. We will seek funds
through additional equity or debt financings, collaborative or
other arrangements with corporate sources, or through other sources
of financing.
We are focused on expanding our service offering through internal
development, collaborations, and through strategic acquisitions. We
are continually evaluating potential asset acquisitions and
business combinations. To finance such acquisitions, we might raise
additional equity capital, incur additional debt, or
both.
Cash Flows for the Years Ended December 31, 2018 and
2017
The following table summarizes changes in cash for Fiscal
2018 and Fiscal 2017:
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
$ (10,680,375)
|
$ (8,968,886)
|
Net
cash used in investing activities
|
(865,365)
|
(437,069)
|
Net
cash provided by financing activities
|
12,610,688
|
8,244,882
|
Increase
(decrease) in cash
|
1,064,948
|
(1,161,073)
|
Cash
at beginning of period
|
1,709,473
|
2,870,546
|
Cash
at end of period
|
$ 2,774,421
|
$ 1,709,473
|
Cash Flows from Operating Activities. Net cash used in operating activities during
Fiscal 2018 was $10,680,375,
which primarily reflected our net loss of $20,626,816,
net of adjustments to reconcile net loss to net cash used in
operating activities of $9,946,441,
which included $3,943,128 of noncash stock compensation charges,
noncash accrued interest and amortization of discount on the 2018
Notes issued by us during Fiscal 2018 totaling $4,468,692,
as described below, noncash amortization of prepaid in-kind
advertising totaling $666,667 and $1,105,989 of noncash
depreciation and amortization charges. Changes in working capital
primarily reflected the impact of increases in receivables and the
settlement of payables in the ordinary course. Net cash used in
operating activities during Fiscal 2017 was $8,968,886, which
primarily reflected our net loss of $14,955,408, net of adjustments
to reconcile net loss to net cash used in operating activities of
$5,986,522, which included $4,666,910 of non-cash stock
compensation and game royalty charges, noncash amortization of
prepaid in-kind advertising totaling $333,333 and $1,237,608 of
non-cash depreciation and amortization charges. Changes in working
capital primarily reflected increases in receivables and the
settlement of payables in the ordinary course of business during
the periods.
Cash Flows from
Investing Activities. Cash
flows from investing activities were comprised of the following for
Fiscal 2018 and Fiscal 2017:
|
|
|
|
|
|
|
Purchase of property and equipment
|
$ (254,766)
|
$ (327,351)
|
Capitalization of software development costs
|
(518,630)
|
(109,718)
|
Acquisition of other intangible and other assets
|
(91,969)
|
–
|
Net cash used in investing activities
|
$ (865,365)
|
$ (437,069)
|
Cash Flows from
Financing Activities. Cash
flows from financing activities were comprised of the following for
Fiscal 2018 and Fiscal
2017:
|
|
|
|
|
|
|
Proceeds
from issuance of common stock, net of issuance costs
|
$ -
|
$ 8,244,882
|
Proceeds
from convertible notes payable, net of issuance cost
|
12,610,688
|
-
|
Net cash provided by financing activities
|
$ 12,610,688
|
$ 8,244,882
|
During
Fiscal 2017, the Company issued 788,280 shares of
common stock at a price of $10.80 per share, raising
aggregate net proceeds of approximately $8.2 million.
In
February through April 2018, we issued 9.00% secured convertible
promissory notes with a collective face value of $3,000,000 (the
“Initial 2018
Notes”). The Initial 2018 Notes (i) accrued simple
interest at the rate of 9.00% per annum, (ii) matured on the
earlier of December 31, 2018 or the close of a $15,000,000 equity
financing (“Qualifying
Equity Financing”) by us, and (iii) all outstanding
principal and accrued interest was automatically convertible into
equity or equity-linked securities sold in a Qualifying Equity
Financing based upon a conversion rate equal to (x) a 10% discount
to the price per share of a Qualifying Equity Financing, with (y) a
floor of $10.80 per share. In addition, the holders of
the Initial 2018 Notes were collectively issued warrants to
purchase approximately 55,559 shares of common stock,
at an exercise price of $10.80 per share and a term of
five years (the “Initial
2018 Warrants”).
In May
through August 2018, we issued additional 9.00% secured convertible
promissory notes with a collective face value of $10,000,000 (the
“Additional 2018
Notes”). In May 2018, all of the Initial 2018 Notes
and related accrued interest, totaling $3,056,182, were converted
into the Additional 2018 Notes, resulting in an aggregate principal
amount of $13,056,182 (hereinafter collectively, the
“2018 Notes”).
The holders of the converted Initial 2018 Notes retained their
respective Initial 2018 Warrants.
The
2018 Notes (i) accrue simple interest at the rate of 9.00% per
annum, (ii) mature on the earlier of the closing of an initial
public offering (“IPO”) of our common stock on a
national securities exchange or April 30, 2019, and (iii) all
outstanding principal and accrued interest is automatically
convertible into shares of common stock upon the closing of an IPO
at the lesser of (x) $10.80 per share or (y) a 15%
discount to the price per share of the IPO. In addition, the holders of the 2018 Notes were
collectively issued 1,208,936 warrants to
purchase common stock equal to 100% of the aggregate principal
amount of the 2018 Notes divided by $10.80 per share
(the “2018
Warrants”). The number of 2018 Warrants ultimately
issued is subject to adjustment upon the closing of an IPO and will
be determined by dividing 100% of the face value of the 2018 Notes
by the lesser of (x) $10.80 per share or (y) a 15%
discount to the price per share of the IPO. The 2018 Warrants are
exercisable for a term of five years, commencing on the close of an
IPO, at an exercise price equal to the lesser of (x)
$10.80 per share or (y) a 15% discount to the IPO
price per share and are callable at our election at any time
following the closing of an IPO.
Contractual Obligations
As of December 31, 2018, we had no significant commitments for
capital expenditures, nor do we have any committed lines of credit,
noncancelable operating leases obligations, other committed funding
or long-term debt, and no guarantees.
The
operating lease for our corporate headquarters expired on May 31,
2017 and was subsequently amended to operate on a month-to-month
basis.
Rent
expense for Fiscal 2018 and Fiscal 2017
totaled approximately $317,000 and $238,000, respectively. Rent
expense is included in general and administrative expense in the
accompanying statements of operations included elsewhere in this
prospectus. Rental payments are expensed in the statements of
operations in the period to which they relate. Scheduled rent
increases, if any, are amortized on a straight-line basis over the
lease term.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any off-balance sheet financial
guarantees or other off-balance sheet commitments to
guarantee the payment obligations of any third parties. We have not
entered into any derivative contracts that are indexed to our
shares and classified as stockholder’s equity or that are not
reflected in our financial statements included elsewhere in this
prospectus. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity.
We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support
to us or engages in leasing, hedging or product development
services with us.
Quantitative and Qualitative Disclosures about Market
Risk
In the
ordinary course of our business, we are not currently exposed to
market risk of the sort that may arise from changes in interest
rates or foreign currency exchange rates, or that may otherwise
arise from transactions in derivatives.
The
preparation of financial statements in conformity with GAAP
requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The Company’s significant estimates and
assumptions include the fair value of the Company’s common
stock, stock-based compensation, the recoverability and useful
lives of long-lived assets, and the valuation allowance relating to
the Company’s deferred tax assets.
Recent Accounting Pronouncements
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standard
Update ("ASU") No.
2014-09, Revenue from Contracts with Customers (Topic
606) (“ASU
2014-09”), which
amends the existing accounting standards for revenue recognition.
ASU 2014-09 is based on principles that govern the recognition of
revenue at an amount an entity expects to be entitled when products
are transferred to customers. Subsequently, the FASB issued
additional ASUs to clarify the guidance in ASU 2014-09. ASU 2014-09
and its related ASUs are collectively referred to herein as the
“new revenue standard.” The new revenue standard may be
applied retrospectively to each prior period presented or
retrospectively with the cumulative effect recognized as of the
date of adoption.
The new
revenue
standard is effective for emerging growth companies for
annual periods beginning after December 15, 2018, with early
adoption permitted. We are in the process of evaluating the impact,
if any, of the update on our financial position, results of
operations and financial statement disclosures.
In February 2016,
the FASB issued an ASU that
requires lessees to present right-of-use assets and lease
liabilities on the balance sheet. The new guidance is to be applied
using a modified retrospective approach at the beginning of the
earliest comparative periods in the financial statements and is
effective for fiscal years beginning after December 15, 2019 and
early adoption is permitted. The Company is evaluating the impact
that this guidance will have on its financial position, results of
operations and financial statement disclosures.
In June 2016, the
FASB issued guidance on the measurement and recognition of credit
losses on most financial assets. For trade receivables, loans, and
held-to-maturity debt securities, the current probable loss
recognition methodology is being replaced by an expected credit
loss model. For available-for-sale debt securities, the recognition
model on credit losses is generally unchanged, except the losses
will be presented as an adjustable allowance. The guidance will be
applied retrospectively with the cumulative effect recognized as of
the date of adoption. The guidance will become effective at the
beginning of our first quarter of fiscal year ending
December 31, 2021 but can be adopted as early as the
beginning of our first quarter of fiscal year ending
December 31, 2020. Management is currently assessing the
impact that adopting this new accounting guidance will have on our
financial statements and footnote disclosures.
Contingencies
Certain
conditions may exist as of the date the financial statements are
issued, which may result in a loss to the Company, but which will
only be resolved when one or more future events occur or fail to
occur. The Company’s management, in consultation with its
legal counsel as appropriate, assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are
pending against the Company or unasserted claims that may result in
such proceedings, the Company, in consultation with legal counsel,
evaluates the perceived merits of any legal proceedings or
unasserted claims, as well as the perceived merits of the amount of
relief sought or expected to be sought therein. If the assessment
of a contingency indicates it is probable that a material loss has
been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the
Company’s financial statements. If the assessment indicates a
potentially material loss contingency is not probable, but is
reasonably possible, or is probable, but cannot be estimated, then
the nature of the contingent liability, together with an estimate
of the range of possible loss, if determinable and material, would
be disclosed. Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the
guarantees would be disclosed.
Relaxed Ongoing Reporting Requirements
Upon
the completion of this offering, we expect to become a public
reporting company under the Exchange Act, and will be required to
publicly report on an ongoing basis. We expect to elect to report
as an “emerging growth company” (as defined in the JOBS
Act) under the reporting rules set forth under the Exchange Act.
For so long as we remain an “emerging growth company,”
we may take advantage of certain exemptions from various reporting
requirements that are applicable to other Exchange Act reporting
companies that are not “emerging growth companies,”
including but not limited to:
●
not being required
to comply with the auditor attestation requirements of Section 404
of the
Sarbanes-Oxley Act;
●
taking advantage of
extensions of time to comply with certain new or revised financial
accounting standards;
●
being permitted to
comply with reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements;
and
●
being exempt from
the requirement to hold a non-binding advisory vote on executive
compensation and stockholder approval of any golden parachute
payments not previously approved.
We will
be subject to ongoing public reporting requirements that are less
rigorous than Exchange Act rules for companies that are not
“emerging growth companies,” and our stockholders could
receive less information than they might expect to receive from
more mature public companies.
We
expect to take advantage of these reporting exemptions until we are
no longer an emerging growth company. We would remain an
“emerging growth company” for up to five years,
although if the market value of our Common Stock that is held by
non-affiliates exceeds $700 million as of any June 30 before that
time, we would cease to be an “emerging growth company”
as of the following December 31.
Overview
We are
a leading amateur esports community and content platform offering a
personalized experience to the large and underserved global
audience of 2.3 billion gamers, as estimated by NewZoo. According
to the Electronic Software Association, the avid gamer,
identified as individuals who are
considered the most frequent gamers, sees gameplay as
central to their social life with 55% playing video games to
connect with friends and 46% to spend time with family members.
Through our proprietary, cloud-based technology platform, we
connect our network of gamers, venues and brand partners to enable
local, social and competitive esports that can be uniquely
broadcast through our platform. We offer daily and season-focused
offerings for which amateur competitive gamers establish meaningful
connections with each other while improving their
skills.
As a first-mover in defining the amateur esports category in 2015,
we believe we are one of the most recognizable brands for amateur
gamers. We have multi-year strategic partnerships with leading game
publishers such as Microsoft and Riot Games with titles including
Minecraft and League of Legends, respectively, as well as
relationships with Supercell and Epic Games with respect to Clash
Royale and Fortnite, respectively, to drive use among our member
base and further penetrate our target market. We deliver enhanced
gaming experiences to our members with these titles through our
platform, and we provide our venue and brand partners access to our
member network and platform technology. We believe our members and
the organizations that use our platform are only beginning to
leverage the power of the consumer experience, commercial benefits,
and data analytics our technology enables. Targeting Generation Z
and Millennials, members join through accessible, free-to-play
experiences allowing us to reach the expansive amateur gaming
market. We intend to convert members into subscribers by offering
two tiers of competitive gameplay engagement: (i) our monthly
subscription for the more casual competitive player, offering
access to exclusive online tournaments and member benefits; and
(ii) our semi-annual season pass for the more competitive player
offering access to our city leagues and advanced amateur esports
offers along with membership rewards.
The
Esports Player Pyramid
______________________
* Based on the average esports viewer, Nielsen
Esports Playbook, 2017.
Our Vision
Our
vision is to make Super League Gaming the preeminent brand and
platform for amateur esports. We do this by providing a
proprietary, end-to-end platform that allows our members to
compete, socialize and spectate premium amateur esports gameplay
and enabling a wide ecosystem of partners to bring Super League
experiences at scale to gamers around the world.
After
securing strategic partnerships with the publishers of top-tier
game titles beginning in 2016, we became the first consumer of our
platform technology through the establishment of our city leagues,
consisting of 16 teams based in various U.S. cities built around
Minecraft, League of Legends and, most recently, Clash Royale. In
2017, we further differentiated our offering by migrating to a
cloud-based technology platform for scale while continuing to build
and establish the Super League Gaming brand. We also developed
intelligent technology that facilitates personalized experiences
and matchmaking for gamers, and audience-targeted gameplay
broadcasting content at scale.
Strategy and Milestones
|
2015 to 2017
|
2018
|
Theme
|
Technology and
Brand Foundation
|
Community and
Network Foundation
|
Core
Objectives
|
● Establish the
brand
● Build technology
platform
● Establish amateur
leagues
|
● Cultivate audience
and user base
● Enhance technology
platform for scale
● Establish nodes of
distributed network
|
Technology and
Web
|
● Develop automated
tournament operations, including ticketing, team formation and
leaderboards
● Create local
visualization from local hardware devices
|
● Develop cloud-based
streaming infrastructure for scale of local, custom
gameplay
● Complete automation
of API integration on our platform
● Enhance
standardized ticketing and gameplay launcher to streamline
operation of Super League experiences
● Create robust game
statistics management
● Provide
“always-on” offers, allowing members to play
anytime
|
Brand
|
● Super League Gaming
(Master Brand)
● 12 City
Clubs
● National tournament
(City Champs)
|
● SuperLeagueTV
● Establish four
additional City Clubs
● Introduction of
additional gameplay offers
|
Game
Titles
|
Execute
Microsoft and Riot licensing agreements
|
Addition of two
new, top-tier game titles to our platform
|
Network
|
● Theatres
● Action Squad, our
local, city-by-city contract workforce
|
● Retailers:
Expanding array of venue types (e.g. LAN centers retail and
restaurants (food and
beverage)), now viable gameplay locations as a result of
centralized, cloud-based infrastructure and IP delivery, along with
ever-decreasing local hardware and bandwidth
requirements
● Pro Teams, local
organizers and ambassadors
● Brands: national
and local sponsors
|
Since
the launch of the Super League brand in 2015, we have continually
strengthened our brand and platform by:
●
developing our
proprietary, highly automated community, tournament and broadcast
system;
●
executing
multi-year agreements with top tier game titles;
●
creating a product
library of 10 unique game modes related to our licensed game titles
that are exclusive to Super League and utilized during our gaming
experiences;
●
launching our City
Club League consisting of 16 city-based teams across the U.S.
supported by a fleet of installed gaming auditoriums;
●
establishing a
flexible event-specific contract labor workforce, consisting of
over 150 trained and engaged individuals;
●
executing
multi-year, global brand sponsorship deals, such as Logitech and
Nickelodeon;
●
securing 38
protected logos and wordmarks domestically, collectively, and two
logos and wordmarks in China for our master brand and 16 of our
City Clubs; and
●
establishing three
patent families in the U.S. around multi-player gameplay and
visualization.
We are
now positioned to expand the utility of our platform for new game
titles and a distributed network of venue operators and gameplay
organizers to further develop a self-organizing marketplace for
online and in-person gaming experiences. This expansion of game
titles, across multiple hardware platforms, venue partners and
offerings will bring new audiences to Super League to increase the
breadth of our audience and depth of engagement through our
“always on” gameplay experiences.
Our Platform
Our
proprietary cloud-based platform provides amateur gamers a
modernized way to connect, play and view games in real-time. We
believe our platform will become central to the esports ecosystem
and allow us to capture a significant portion of our members’
gameplay hours and share-of-wallet for greater lifetime value. Our
platform aggregates a diverse audience of gamers across multiple
game titles and provides our members with access to online,
in-person and hybrid competitive experiences and broadcasts that
are accessible to a broad range of ages and demographics. Through
our platform, we have three core components that enable
differentiated and immersive gameplay at scale for both online and
in-person experiences:
(i)
Match-Making
allows members to create their
public-facing gamer persona and applies distinct criteria and
filters around team size, skill level and geography to
intelligently match our members for competitive gameplay and
facilitate rich online and in-person social
connections.
(ii)
Tournament Operations
supports all major components of
tournament operations and automation including, for example,
ticketing, user management, event management, event operations, API
integrations, data services, leaderboards and prize
fulfillment.
(iii)
Our Proprietary Visualization
and Broadcast System is capable
of capturing and live streaming gameplay across all digital
distribution platforms and delivering separate streams
simultaneously to multiple locations and channels, including
through our Player and Spectator Third-Person Experience and the
SuperLeagueTV digital network, as further described
below.
Our Player Interface, illustrated below, is the entry point of use for our
members that offers a user-friendly and engaging interaction from
profile creation to tournament operations, and provides our members
with real-time reporting of personal statistics, national
leaderboards and other individualized gaming
content.
Super League’s User Portal
Our
Player and Spectator Third-Person Experience, as illustrated below,
provides players and spectators with pre-gameplay content and a
unique “birds-eye” view during gameplay that is
captured by our platform and overlaid with additional interactive
content allowing us to introduce a new screen to the gameplay
experience beyond the traditional first-person and spectating
views. The end broadcast result is our customizable
Heads-up-Display (“HUD”), which complements gameplay
through dynamic visualization of player and team statistics,
competitive status updates and contextual content that can also be
uniquely displayed on a hyper-local level across venues. Before
gameplay begins, players entering our experiences are greeted with
a welcome screen that contains key information, including
experience start-time, team assignments, log-in status of
individual teams and players and other entertaining
content.
Super League’s HUD Pre-Gameplay View
Once
gameplay is launched, players and spectators enjoy a unique
third-person perspective of gameplay along with dynamic
leaderboards, statistics and other tournament-specific content
including brand sponsor integration, local team and player
statistics, instructional tips and other pertinent content, as
illustrated below. Dynamic leaderboards update in real-time during
gameplay and provide recaps of team and individual scoring
highlights at intermission and at the conclusion of
competition.
Super League’s HUD Gameplay
View
In
addition, our proprietary SuperLeagueTV digital network is the
first esports media property principally dedicated to amateur
players and teams. Currently, live stream gameplay and
video-on-demand (“VOD”) content is broadcast
through SuperLeagueTV on Twitch and YouTube. We believe that
SuperLeagueTV’s digital broadcast distribution is an
essential way to drive viewership and membership interest, along
with new game title expansion and additional online and in-person
experiences through our distributed venue partner
network.
Industry Overview
The
consumer appetite for esports continues to grow at a rapid pace
with passionate fans across the globe. According to NewZoo, the
overall value of the global gaming
market could reach approximately $137.9 billion by the end of 2018,
representing an estimated year over year increase of 13.3%, or
$16.2 billion from 2017. Key trends fueling this growth
include the rise of live streaming, real-time social networking
within games, and multi-generational and lifestyle gaming
that integrates several aspects of an
individual gamer’s life with the core game, including online
play, downloadable content, achievements and item
collection.
In
particular, the professional esports industry is growing quickly,
evidenced through new leagues, teams and broadcast distribution
channels, and this growth is attracting high-profile esports
investments from brands, media organizations and traditional sports
rights holders. As professional esports player salaries and the
value of broadcast media rights have risen substantially, there is
large unmet demand at the amateur level for competitions and
viewing content, which, for esports fans, is predominantly consumed
through live streaming and over-the-top (“OTT”) channels. The following
data points illustrate the vast growth opportunity for global
esports:
The esports audience is already comparable to leading entertainment
platforms, with gamers and viewer numbers in the hundreds of
millions.
Esports, a term
generally used to refer to competitive video game play by
professional and amateur players, have been around for as long as
the video game industry itself. However, recent growth in the
gaming audience and player engagement has elevated esports into
mainstream culture with a massive global following that, in some
instances, exceeds the monthly audience of large professional
sports leagues. For example:
●
The average global
monthly esports audience is estimated to reach 167 million people
in 2018, which is larger than estimates for the monthly average
audience of Major League Baseball (“MLB ”) and the National Hockey
League (“NHL”)
(Goldman Sachs Esports Equity Research, 2018).
●
The esports audience is on track to reach
approximately an estimated
276 million people by 2022, which is similar
to the 2017 monthly average audience size of the National Football
League (“NFL ”)
(Goldman Sachs Esports Equity Research,
2018).
The following chart
reflects the monthly average audience size in 2017 for the four
largest professional sports leagues, as compared to the global
monthly esports audience in 2017:
Source: Goldman
Sachs: The World of Games- esports- From Wild West to Mainstream,
June 26, 2018. Figures reflect global monthly average audience
sizes in 2017.
The esports
audience is also young, digital and global. Is it estimated that
more than half of esports viewers are in Asia and 79% of viewers
are under the age of 35 (Goldman Sachs Esports Equity Research,
2018). In addition, online video sites like YouTube Gaming and
Twitch have larger audiences than HBO, Netflix and ESPN combined,
as shown below:
Source: Goldman
Sachs: The World of Games- esports- From Wild West to Mainstream,
June 26, 2018. Amounts reported for each platform represent annual
audience figures data as of the end of 2016.
Moreover, there is
still vast opportunity for audience growth in esports with the
introduction of new game titles and increasing popularity of online
gaming content.
●
A portfolio
of just
a few top tier game titles can bring access to hundreds of millions
of gamers, as the estimated monthly active users
(“MAU ”) for
Fortnite, League of Legends and Minecraft is 125 million, 100
million and 74 million, respectively (Statista and Microsoft,
2018).
●
In
2018, approximately
560 billion minutes of esports
were viewed on Twitch, an increase of 58%
year-over-year (TwitchTracker.com).
Demographics centered on the
highly sought after, younger segments.
Video games have a positive social impact.
●
70% of parents
believing gaming “has a positive influence on their
children’s lives” (Electronic Software Association,
2018).
●
Esports
enthusiasts, on average, have higher college graduation rates and
average household incomes, with 43% earning greater than $75,000
per year, relative to traditional sports fans (Mindshare, Esports
Fans: What Marketers Should Now, 2016).
Revenue potential is valued at billions of dollars and broad
based.
●
Recent reports show
a “$15 billion blue sky revenue opportunity” for
professional esports due to the highly engaged and untapped fanbase
(Merrill Lynch Interactive Report, 2018).
●
Gaming video
content is estimated to be a $4.6 billion market with more viewers
than HBO, Netflix, ESPN and Hulu combined (SuperData Research,
2017).
●
Currently, an
estimated 40% of professional esports revenues come from brand and
media sponsorships (endemic and non-endemic) and 19% from media
rights, with the latter expected to grow to 40% by 2022 (BofA
Merrill Lynch Global Research, 2018).
Revenue potential is not only very large, but also growing
rapidly.
Source:
Goldman Sachs: The World of Games- esports- From Wild West to
Mainstream, June 26, 2018. Reflects an estimated 35% five-year
compound annual growth rate through 2022.
Our Opportunity
We
believe our esports community platform will transform the way
amateur gamers connect, interact, socialize and compete. Our
premium, competitive gameplay experiences and elite amateur
broadcasts, coupled with the expansion of our game title portfolio,
our retail venue partner network and our strategic brand
sponsorships introduce new gamers into our customer funnel to drive
membership growth and subscription conversion. Esports is still in
its early stages and entering a new phase of growth, but top game
titles attract large, global audiences and just a few titles
provide us access to hundreds of millions of players. Examples
include:
Game Title Sample Set
TITLE
|
PUBLISHER
|
GENRE
|
TARGET
DEMOGRAPHIC
(AGE)
|
ESTIMATED
MAU/PLAYERS
|
League
of Legends
|
Riot
Games
|
Multiplayer Online
Battle Arena (“MOBA”)
|
14
–
34
|
100MM1
|
Minecraft
|
Microsoft
(Mojang)
|
Sandbox
|
6
–
14
|
74MM2
|
Clash
Royale
|
Supercell
|
Collectible Card
Game (“CCG”);
Tower Defense; Real Time Strategy (“RTS”); “MOBA”
|
14
– 50
|
100MM3
|
Fortnite
|
Epic
Games
|
Battle
Royale
|
8
– 34
|
125MM1
|
______________________
(1)
statista.com.
(2) popsugar.com,
“Minecraft Boss Helen Chiang on Her New Role, Breaking
Records, and What's in Store For 2018,” May 8,
2018.
(3) 100MM MAU
across all four of Supercell’s games announced via
twitter.com, March 7, 2016.
With each game title we are able to offer on our platform, we
benefit from an established audience of MAUs or other players who
may be interested in different opportunities to play the game they
are already familiar with. We believe access to these audiences
provides us with opportunities to increase our revenue by bringing
new members to the platform, increasing enrollment for our
experiences, expanding viewership of our online content and
promoting additional merchandise sales. However, we are
currently unable to accurately calculate the estimated increase in
revenue associated with increasing our MAUs and/or the addition of
players of new game titles.
Despite
the significant growth potential outlined above, there are several
key challenges facing stakeholders in the esports
landscape:
●
Amateur Gamers are a highly fragmented,
often anonymous community with limited ways to find gamers of
similar skill-level and gaming interest online and locally. In
addition, the lack of amateur esports infrastructure results in few
experiences with no clear path to the professional esports level
for players who wish to develop and test their skills while forging
social connections.
●
Game Publishers must find alternative
methods to attract new gamer audiences to their game titles and
offer premium experiences that drive greater gamer retention. The
lack of diversity in gaming, along with increased competition
amongst titles, requires marketing partnerships to extend the
lifecycle and franchise value of their intellectual
property.
●
Venue Operators, including restaurants
and retailers, must grow same-store sales in order to capture new
sources of foot-traffic and deeper customer loyalty. Millennials
and Generation Z generally value experiences, but tend to purchase
more content and products online, making them an attractive
demographic to widen a venue’s customer base and improve
asset utilization.
●
Sponsors and Advertisers are limited in
their channels to reach the “cord cutting” Generation Z
and Millennials due to the increasing fragmentation of content
distribution and use of advertising-blocking technology. Given
these demographic groups consume most content online, brands are
challenged to target these audiences in an authentic way and
achieve efficient marketing spend.
●
Professional Esports Teams and Owners
have made significant investments in their teams and must rapidly
develop a fanbase to achieve franchise values similar to
traditional sports teams. However, there is no formal structure to
identify the next generation of esports professionals to build
their long-term rosters to support long-term fan
loyalty.
Super League’s Solution for Esports Ecosystem
Stakeholders
Our
platform offers the following solutions for these key
stakeholders:
●
For Amateur Gamers,
our platform enables online and
in-person player connections and a league-based structure that
provides participants and spectators with a unique lens on elite
and local amateur gameplay. Over time, we expect to have a volume
of broadcast content that allows us to build our own premium OTT
channel network on SuperLeagueTV and, ultimately, attract broadcast
rights revenue.
●
For Game Publishers,
our platform introduces their game
titles to new audiences and drives retention by providing an
immersive, premium way to play games, leading to deeper player
engagement. Through our data analytics, we believe we will become a
central component to new game development and launches, and will
have the ability to drive cross-game behavior across a wide
portfolio of game titles.
●
For Venue
Operators, we provide licenses to access our platform in
order to operate esports experiences that enable these enterprises
to attract new foot traffic, improve day-part utilization and drive
same store sales. In addition, we expect to provide venue operators
with predictive customer activity information for more targeted
offers to existing customers and our members.
●
For Sponsors and
Advertisers, our platform
provides a highly targeted marketing channel that offers a relevant
path for brands to build affinity with the hard to reach, yet
highly sought after, Generation Z and Millennial demographics.
Based on our member data, we will have the ability to target
audiences based on our members’ profile information for more
efficient marketing spend.
●
For Professional Esports Teams
and Owners, we cultivate the
future professional esports fanbase through amateur competitive
youth leagues, while providing an amateur feeder system as a path
to the professional leagues. Looking forward, we will have a
comprehensive set of data and tools to provide player analytics and
progress skill levels.
Our Amateur Esports Capabilities
Super
League is an “always-on” operation with scalable
technology and deep experiential capabilities to deliver premium
player experiences in the amateur esports space. Our value
propositions for all competitive amateur gamers, irrespective of
our game titles, are:
●
Public-facing gamer persona that connect our
members to their local community: Members can create a gamer
profile that provides key gamer information, such as their unique
game title identification, enabling us to manage player
matchmaking, tournament gameplay and statistics tracking. Member
results are dynamically updated on individual profile pages, along
with national and local leaderboards.
●
High-quality, immersive gameplay experiences
online and in-person: Members can initially join our
platform through accessible, free-to-play, online experiences and
then convert to our monthly subscription offers for a deeper
engagement through exclusive online competitions across all game
titles. More competitive members can subscribe to our semi-annual
season pass, which includes access to our city league for more
heightened, immersive gameplay. In addition, our distributed
network of retail venues, will augment our subscription offers and
allow for event-specific, in-person experiences to drive more
members and gameplay hours to our platform.
●
Broadcasts of elite amateur gameplay
competitions from a unique perspective: Our cloud-based
platform allows anyone, anywhere to view gameplay with a birds-eye
perspective that is interactive and contextualized. Spectators can
view live gameplay and original story-driven content either
in-venue or through live stream and VOD on a wide network of
digital distribution channels such as Twitch and
YouTube.
●
Exclusive member benefits and player status
program: Members earn rewards through gameplay participation
to enhance their individual gamer profile and gain exposure on
national and local leaderboards on an annual and lifetime basis. In
the future, members will be rewarded for the quality and length of
gameplay through our platform and have access to additional member
benefits in the form of exclusive experiences, content and offers
available from our top consumer brand and retail
partners.
●
New way to make social gaming
connections: Members enjoy an easier way to meet new friends
and experience the games they are passionate about through their
engagement with a new social community. In addition to socializing
in our competitions, our members can communicate through our media
channels, including Facebook, Discord and SuperLeagueTV, as part of
a positive, inclusive community.
Subscriptions
Core to
our business is moving to a subscription-based model that allows
gamers of varying levels of gameplay across multiple titles to
engage in premium competition on our platform. Members join through
accessible, free-to-play experiences that act as an introduction to
our platform, and over time, convert into two tiers of consumer
subscriptions. We also offer specialized commercial subscriptions
for venue operators to drive new membership. Each of these
offerings are further described below:
(i)
Monthly Subscriptions target the more
casual competitive gamer and is set at an affordable price-point
with a free trial and a discounted price, if purchased annually.
The monthly pass provides competitive amateur gamers with access to
exclusive online tournaments across all active game titles and
member benefits. At the end of the trial period, members are
enrolled as paying subscribers and billed monthly thereafter.
Current pricing is estimated to be set at $4.99 per month with the
option to purchase an annual subscription at the discounted price
of $49.90, in effect offering two months free, not inclusive of
purchases of one-off experience passes and merchandise from our
website, superleague.com.
(ii)
Semi-Annual Season Passes target the
more dedicated amateur gamer who has a greater share of gameplay
hours and share-of-wallet to commit to intensive competition. The
season pass provides access to our city leagues for a heightened
level of hybrid competition, both online and in-person, over an
extended number of weeks. Taking place each spring and fall, our
City Club League is a national tournament lasting between six to 12
weeks and can include pre-season qualifications and post-season
“All-Star” components. Current pricing for semi-annual
passes range from $40.00 to $60.00 per season, translating to
$80.00 to $120.00 of annual revenue for our recurring players, not
inclusive of one-off experience passes and merchandise from our
website, superleague.com.
(iii)
Commercial Subscriptions enable retail
venue partners to license our platform to host curated Super League
experiences for a monthly fee to introduce a wider reach of amateur
gamers to Super League experiences and drive more membership and
gameplay hours through our platform. This allows retail and
restaurant operators to attract new foot traffic and enhance
capacity utilization by creating interactive gaming experiences in
their locations, and we, in turn, benefit from their wide national
geographic reach and the leverage provided by their infrastructure,
marketing and operations, ultimately bringing Super League to a
wider community of amateur competitive gamers. We are exploring
monthly license subscription fees with our inaugural commercial
partners, with the understanding that the pilot period will provide
more data on increased foot traffic and same-store sales that could
lead to additional revenue sharing opportunities on food and
beverage, door entry fees, and merchandise.
A Sample of Super League Experiences on
superleague.com
City Club League
Our
City Club League is an integral part of our effort to connect
amateur gamers with one another. City Clubs not only enable our
seasonal competitions, but also allow us to aggregate our community
around our owned and operated clubs serving an unmet desire for
amateur players to connect on a local level and exhibit civic pride
for esports. Our City Clubs serve as a unifying umbrella across
game titles, age groups and skill levels in 16 major metropolitan
centers across
the U.S., including Chicago, Los Angeles and New York City, with an
intention to expand both domestically and internationally in the
foreseeable future.
Super League’s City Clubs
SuperLeagueTV
SuperLeagueTV
content is a core component of our offer, as well as a binding
element connecting players within our local communities. Whether
promoting upcoming Super League experiences, engaging players
during an event, live streaming the competitive action, producing
original video series or recapping the results of a tournament,
SuperLeagueTV is dedicated to creating and showcasing novel and
intriguing stories that emerge during and in between the
approximately
175,000 hours of gameplay enjoyed by Super Leaguers this
year. As a primary distribution channel, SuperLeagueTV launched on
Twitch in April 2018, broadcasting from the Super League Gaming
esports desk. Following several months of additional testing and
development of creative concepts and production techniques enabled
by the Super League platform, SuperLeagueTV now features an average
of 50 hours of gameplay and entertainment programming across
multiple game titles per month and will grow programming during
2019. Additionally, over 1.4 million minutes of content was
viewed in December alone, and over 150,000 unique viewers tuned in
to our League of Legends City Champs Finals.
Live Stream Remote Shout-Casting and Gameplay on
SuperLeagueTV
Brand and Media Partnerships
The
highly sought after Millennial and Generation Z audience is
increasingly difficult for brands to reach due to the proliferation
of new content distribution channels, ad-blocking technology and a
sentiment against overt marketing and promotion. This difficulty is
compounded by the limited ways to directly reach gamers, given game
publishers control of in-game content. Our ability to uniquely
aggregate a diverse membership base across age ranges, skill levels
and game titles can direct authentic brand integrations to our
players in a targeted way. We believe that our brand is at the
forefront in the mainstreaming of esports, and we stand for
inclusive, positive gameplay by providing a positive access point
for both endemic and non-endemic brands to enter the
category.
Currently,
our largest revenue stream comes by way of brand sponsorships and
includes multi-year strategic partnerships with several companies,
including Logitech and Nickelodeon. Additionally, in February
2019, we entered into a partnership with Topgolf to bring amateur
competitive video gaming events to Topgolf locations throughout the
United States. Over time, we expect to extract additional
revenue through the monetization of our large volume of distributed
content through advertising income. Our brand sponsorship
opportunities include:
●
Master brand
sponsorships covering all appropriate game titles and subscription
types, providing our brand partners with promotion opportunities
through our online and in-person offerings for targeted, deep
engagement along with member benefits specific to the
sponsors’ products and offers including discounts, free
trials, and exclusive content and experiences.
●
Tournament and game
specific sponsorships, allowing brands to more narrowly target
specific age ranges, game genres and other demographic
objectives.
●
City Club
sponsorships, allowing regional and local brands to participate in
geo-targeted promotion to cultivate unique gamer lifestyle brands
within our City Club metropolitan areas.
●
SuperLeagueTV
sponsorships enable brands to achieve wider reach through our
broadcast distribution channels, including Twitch, Facebook,
YouTube and in-venue channels, for both amateur esports players and
spectators.
●
Tailored
experience-specific sponsorships, providing brands with an
opportunity to design unique experiences and content for deeper
integration and wider media distribution.
It is
our intention to have brand and media partnerships across various
vertical categories, in order to attract both brands that are
already deeply committed to esports and brands just entering the
esports space and seeking a mainstream, safe brand partner and
entry point. For example, in February 2019, we announced a
partnership with Top Golf for amateur competitive video gaming
events at venues around the United States.
Marketing and Member Acquisition
Prospective
members and subscribers are introduced to Super League through
seven primary channels that feed our customer funnel, consisting
of:
(i)
top-tier games
titles that provide access to communities in the hundreds of
millions;
(ii)
continued press and
public relations that drives brand awareness;
(iii)
generation of
interest and audience development through
SuperLeagueTV;
(iv)
retail venue
partners that provide geographic coverage and access to built-in
customer bases;
(v)
brand sponsors who
amplify our sales and marketing through their own customer and
social reach;
(vi)
brand ambassadors
that drive local, organic word-of-mouth advertising for deeper
engagement and loyalty; and
(vii)
member referral
programs that round out the integral feedback loop for a network
effect.
Our Customer Funnel
In
addition to these channels, we also market our community and
platform through in-game promotion, search engine optimization,
online advertising, social influencers and e-mail
marketing.
Members typically begin their relationship with Super League by
viewing content on SuperLeagueTV, registering an email address,
and/or by participating in our free-to-play experiences. Members
become more engaged by creating a profile to join our network of
amateur gamers where they can find and connect with other players
by gaming interest, geographic location and other attributes.
Membership is free, but we do monetize members as activity grows
with one-off paid experiences, merchandise sales, and brand and
media sponsorship revenues.
We intend to drive deeper member engagement by offering a free
trial to join our monthly subscription program, which offers
frequent gaming experiences, leaderboards, and prizing across all
of our game titles along with benefits and discounts from our brand
partners. We estimate that our monthly subscribers can generate
between $50.00 and $60.00 in annual revenue per subscriber, and
content from these experiences is broadcast daily on SuperLeagueTV,
which drives deeper engagement among this player group and serves
as a channel to attract new members.
For our
most engaged players, we offer a semi-annual season pass
subscription for each game title. The format varies among game
titles, but our semi-annual season passes offer a combination of
online and in-person premium experiences organized around our City
Clubs. Due to the more formal team structure and length of season,
players often spend more time practicing and communicating with
each other, in addition to participating in our organized gaming
experiences. Our semi-annual season pass holders generate between
$80.00 and $120.00 per year per holder and produce our highest tier
of premium amateur gaming content which is featured on
SuperLeagueTV as well as brand partner channels. This content
attracts the largest viewership among our existing Super League
community and provides the greatest exposure to new audiences. In
addition, professional esports teams can gain visibility to this
pool of experienced amateur players for recruiting
purposes.
The key
performance indicators (“KPI”) driving our business model
are related to “always on,” scalable offers,
conversion, and engagement. The significant growth
we achieved in 2018 was a function of the advancement
of our technology platform, expansion of our in-person and online
offer catalogue, and select customer acquisition accelerating our
ability to reach and serve a larger target audience with greater
frequency.
Our Customer Key Performance
Indicators (“KPI”)
|
|
2015
|
2016
|
2017
|
2018
|
Always
On
|
Venues
|
0
|
4
|
20
|
50
|
|
Experiences
|
330
|
1,000
|
250
|
900
|
Conversion
|
Registered
Accounts
|
13,000
|
30,000
|
43,000
|
300,000
|
Engagement
|
Participations
|
9,000
|
21,000
|
20,000
|
150,000
|
Gameplay
Hours
|
19,000
|
43,000
|
61,000
|
175,000
|
Our Strengths
We
differentiate ourselves from potential competition through the
power of a pure horizontal platform and established partnerships
that enable experiences, community, content and commerce. Our core
strengths include the following:
●
Game Publisher Agreements provide access
to existing user bases via strategic partnerships with
some of the largest game publishers. These partnerships draw
subscription interest and provide a line of defense against our
competitors. Our ability to interact with this highly attractive,
engaged user base draws brands and sponsors to us to reach this
otherwise hard-to-reach demographic.
●
Proprietary and Curated Content provides
us with a unique perspective to amateur competitive gameplay
currently absent from the esports ecosystem and is highly
complementary and valuable to the needs of large video streaming
providers.
●
Patent-Pending Technology allows for unique,
intelligent content capture enabling us to display the most
relevant gameplay activity in real time and broad visualization of
active gameplay to facilitate maximum scale of interactive,
in-person gaming, broadcast experience, and content
monetization.
●
Over Three Years of Brand and Technology
Development provides us a strong, distinctive lead on
followers with no obvious competitors in the holistic community,
league operations and media platform category.
●
A Diverse Set of Enterprise and Commercial
Revenue Streams enabled by a pure platform play that
protects us from the risk of online-only offers subject to
commoditization and advertising revenue dependency.
●
A Growing Member Base coupled with
highly customized gaming and viewing experiences allows us to
capture a global, highly engaged, yet somewhat elusive community
that will provide many new ways to monetize over time.
●
Creation of Intangible Brand Value in
the quality of our offer, game titles, brand partners and investor
base that validates our trusted, premium brand and distinctive
positioning to drive value in the fragmented, burgeoning esports
landscape.
Our Growth Strategy
Our
core strategy is to pursue initiatives that promote the viral
growth of our member base, and in doing so drive subscription,
sponsorships and other new revenue streams. Our customer
acquisition and retention funnel provide the primary lens for
community growth, engagement and long-term brand
equity.
●
Member Growth and Network Effect
is
driven organically through direct marketing, partner and influencer
promotion, and search engine optimization. We believe the most
efficient member acquisition, however, will come through organic
word of mouth and other customer-based
referrals.
●
Mutually Beneficial Relationships with Game
Publishers, along with our game-agnostic platform interface,
allow us to access large, built-in customer bases from game titles
amassing access to hundreds of millions of MAU and offering
enhanced competitive gameplay experiences to deepen their
connection to the game titles.
●
Strategic Retail Venue Partnerships
allow us to reach domestic and international scale by leveraging
the infrastructure, operations and marketing efforts of our retail
venue partners to create daily, weekly and monthly in-person
experiences with amateur gamers to drive more membership and
competitive gameplay through our platform.
●
Brand and Media Partnerships,
which
often include commitments to promote our brand events and content
across their social channels outside of our events and platform,
have the potential to extend the utilization of
our platform by leveraging the reach of our
partners’ existing broadcast, social and customer
loyalty programs which, in turn, can extend our audience
reach and potentially drive more gamers and viewers to
our amateur esports gaming content and technology
platform.
●
International Expansion, as we continue
to prove the model domestically, will enable us to access the massive global scale of
gamers worldwide and unlock greater brand partnership and media
rights revenue opportunities through global audience
development.
●
Key Stakeholder Tools including a game
publisher software development kit (“SDK”) and customer
marketplace portals for players, tournament organizers and venue
operators will scale and distribute Super League experiences in a
highly automated way with low marketing and operating
costs.
●
Opportunistic Acquisitions allow us to
add complementary users, revenues, and/or technology components to
accelerate our amateur esports member adoption and further enhance
our competitive gameplay experiences.
Technology Infrastructure
Early
in our inception, we utilized a local hardware solution to create
interactive physical spaces, allowing amateur competitive gamers a
new way to interact with their games, fellow players and our
distinctive and proprietary HUD for a unique entertainment and
spectating experience. We have since moved our platform to the
cloud for scale, and now offer a wide use of our platform to
operate Super League experiences, both online and in-person, by
leveraging the infrastructure, operations and marketing of an
established retail venue network. The following illustrates the
evolution of our platform and current cloud-based
state:
Our
technology platform represents an important intellectual property
asset for our Company. It consists of various custom
developed components that come together in uniquely configured ways
to deliver scalable competitions, experiences and content
opportunities.
The
components of our platform include, among other things, user
management, event management, event operations, data services,
streaming, ecommerce, and user statistics and leaderboards.
These components share several data sources and enables us to offer
a wide variety of gameplay experiences across multiple
environments, often simultaneously, with a vast array of resulting
content publishing opportunities. Our platform also provides
tools to distribute and leverage content, as well as tools around
platform administration. The following illustrates our
comprehensive cloud-based tournament and broadcast
toolset:
Our proprietary visualization and broadcast system, which provides
compelling live stream content delivery, automates and scales
various gameplay processes and functions that would otherwise need
to be accomplished manually. These processes and functions
primarily include ways to ensure that visualizations of gameplay
and other value-added data and graphics are both captured and
delivered efficiently and timely. For example, our
proprietary software is used during our experiences ensures that we
are showing the most interesting aspects of gameplay, as well as
switching to matches that are most relevant to the
competition. Further, we use computer vision to glean key
events, graphics or data from the game screen, especially when the
game publisher might not make such information available via an
application programming interface (“API”). We intend to
continue to invest in and improve upon our use of computer vision
in our technology platform, so that we can mitigate our dependency
on game publishers providing certain APIs and toolsets, and
continue to provide differentiated gameplay and spectating
experiences.
As we
evolve our technology, we will launch simultaneous gameplay that
will allow players and spectators to watch multiple live streams at
once, as illustrated below:
Intellectual Property and Patents
Similar
to other interactive entertainment and esports companies, our
business depends heavily on the creation, acquisition, licensing,
use and protection of intellectual property. We have developed and
own various intellectual properties, including pending and issued
trademarks, patents, and copyrights. For example, each of our
City Clubs have pending trademarks related to naming and logo. We
also have obtained licenses to valuable intellectual property with
game publishers. We leverage these licenses and service
agreements to operate online and location-based competitions, and
in parallel, use them to generate a wide array of
content.
To
protect our intellectual property, we rely on a combination of
patent applications, copyrights, pending and issued trademarks,
confidentiality provisions and procedures, other contractual
provisions, trade secret laws, and restrictions on disclosure. We
intend to vigorously protect our technology and proprietary rights;
however, no assurances can be given that our efforts will be
successful. Even if our efforts are successful, we may incur
significant costs in defending our rights. From time to time, third
parties may initiate litigation against us, alleging infringement
of their proprietary rights or claiming they have not infringed our
intellectual property rights. See the section entitled
“Risk Factors”
for additional information regarding the risks we face with respect
to litigation related to intellectual property claims. As of
the date hereof, we have filed three nonprovisional patent
applications, all of which are currently pending, and various
trademark applications, some granted and most of which are
currently pending, covering our technologies and brands, as more
specifically set forth below. We intend to file additional
applications for the grant of patents and registration of our
trademarks in the United States and foreign jurisdictions as our
business expands.
Our
patent applications relate to creating unique, place-based visual
experiences. These experiences manifest via display by web
streams of gameplay in combination with related textual, graphical,
and video content targeted for consumption by players and
spectators alike. In order to achieve visualization of
certain games (e.g., Minecraft or Clash Royale), we have developed
technology that places a “managed” character into these
games for the purpose of capturing and sharing the first-person
perspective that is created. We also filed a patent
application for certain bleeding edge virtualization technologies
that allow us to generate visualizations from the cloud. Instead of
requiring complex and expensive local installation of hardware to
enable the place-based experience, we use this technology to create
web streams of all gameplay and supplementary content. The
effect of this capability is to dramatically reduce the barrier to
entry for venues of all types to participate in Super League
experiences.
Operations
With
over 2,000 experiences completed since 2015, we have a broad
understanding of the requirements to deliver online and in-person
competitions from an operations, technology and customer support
perspective. With our national venue fleet and contractor
network, we established training and protocols for new brand
ambassadors and venue operators for scale. Our operations
network includes the following:
●
Action Squad serves
as an extension of Super League’s experience team and is
responsible for managing logistics at local venues and facilitating
an engaging and fair player experience. The team, comprised of
approximately 150 contract-based members, has been interviewed and
trained by Super League. In addition, we manage staffing and
ongoing communication with Microsoft’s StaffHub, and have
developed a proprietary mobile app to manage logistics (including
player check-in) and communication to our Network Operations Center
(“NOC”) during
in-person experiences.
●
Our Customer Service
Team uses Zendesk to manage customer inquiries that come
from various channels including email, web forms, and Facebook. We
run a 24-hour email and ticketing escalation system and support
live chat during normal business hours and experiences. Our
customer service team includes on-site staff and remote contractors
that can scale based on the number of simultaneous gameplay
experiences.
●
The NOC is equipped
with tools to streamline issue resolution while accommodating a
large volume of simultaneous gameplay experiences. All locations
are set up with remote monitoring of the LAN and player device
performance alerting for real-time customer service and technical
escalations. The technicians are scaled on demand depending on the
number of experiences run simultaneously using remote, real-time
network and tournament monitoring.
Our Values and Company Culture
Super
League is a player-first company, a credo embraced by every
employee. We are committed to enhancing and celebrating the player
experience by providing gameplay formats, competitive frameworks,
technical stability, content, information and customer support that
exceed player expectations.
Having
produced more than 2,000 experiences over more than three years in
locations ranging from movie theatres to restaurants, and retail
stores to LAN centers to esports arenas, Super League specializes
in delivering positive experiences to a wide range of demographic
audiences that bring players and their families and friends a sense
of genuine belonging to a peer group that understands them and
shares their passions.
Employees and Labor Relations
As of
December 31, 2018, we had 46 full-time and full-time equivalent
employees. Additionally, we occasionally enter into agreements with
contractors, on an as-needed basis, to perform certain services. As
of December 31, 2018, four of our full-time employees were subject
to fixed-term employment agreements with us, and all other
employees served at-will pursuant to the terms set forth in their
offer letters.
We
believe that we maintain a good working relationship with our
employees, and we have not experienced any labor disputes. None of
our employees are represented by labor unions.
Governmental Regulation
Our
online gaming platforms, which target individuals ranging from
elementary school age children to adults, are subject to laws and
regulations relating to privacy and child protection. Through our
website, online platforms and in person gaming activities we may
monitor and collect certain information about child users of these
forums. A variety of laws and regulations have been adopted in
recent years aimed at protecting children using the internet, such
as COPPA. COPPA sets forth, among other things, a number of
restrictions related to what information may be collected with
respect to children under the age of 13, as the kinds of content
that website operators may present to children under such age.
There are also a variety of laws and regulations governing
individual privacy and the protection and use of information
collected from individuals, particularly in relation to an
individual’s personally identifiable information (e.g.,
credit card numbers). We employ a kick-out procedure during member
registration whereby anyone identifying themselves as being under
the age of 13 during the process is not allowed to register for a
player account on our website or participate in any of our online
experiences or tournaments without linking their account to that of
a parent or guardian.
In
addition, as a part of our experiences, we offer prizes and/or gifts as incentives to play. The
federal Deceptive Mail Prevention and Enforcement Act and
certain state prize, gift or sweepstakes statutes may apply to
certain experiences we run from time to time, and other federal and
state consumer protection laws applicable to online collection, use
and dissemination of data, and the presentation of website or other
electronic content, may require us to comply with certain standards
for notice, choice, security and access. We believe that we are in
compliance with any applicable law or regulation when we run these
experiences.
Cost of Compliance with Environmental Laws
We have
not incurred any costs associated with compliance with
environmental regulations, nor do we anticipate any future costs
associated with environmental compliance; however, no assurances
can be given that we will not incur such costs in the
future.
Facilities
Our executive offices are located in approximately 4,965 square
feet of office space at 2906 Colorado Avenue, Santa Monica,
California 90404, which we occupy under a month-to-month lease
agreement at $19,734 per month. In addition, we have recently
leased an additional 1,650 square feet on a month-to-month basis in
the same complex to serve as a content studio at $5,197 per
month.
We
anticipate no difficulty in extending the leases of our facilities
or obtaining comparable facilities in suitable locations, as
needed, and we consider our facilities to be adequate for our
current needs.
Legal Proceedings
As of
the date hereof, we are not a party to any material legal or
administrative proceedings. There are no proceedings in which any
of our directors, executive officers or affiliates, or any
registered or beneficial stockholder, is an adverse party or has a
material interest adverse to our interest. We may from time to time
be subject to various legal or administrative claims and
proceedings arising in the ordinary course of business. Litigation
or any other legal or administrative proceeding, regardless of the
outcome, is likely to result in substantial cost and diversion of
our resources, including our management’s time and
attention.
Executive Officers and Directors
The following table sets forth the names, ages, and positions of
our executive officers, directors and significant employees as of
the date of this prospectus.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Ann
Hand
|
|
49
|
|
Chief
Executive Officer, President, Chair of the Board
|
|
David
Steigelfest
|
|
51
|
|
Chief
Product and Technology Officer, Director
|
|
Clayton
Haynes
|
|
49
|
|
Chief
Financial Officer
|
|
Matt
Edelman
|
|
48
|
|
Chief
Commercial Officer
|
|
John
Miller (1)
|
|
39
|
|
Director
|
|
Jeff
Gehl
|
|
50
|
|
Director
|
|
Robert Stewart
|
|
51
|
|
Director
|
|
Peter Levin
|
|
48
|
|
Director
|
|
Kristin Patrick
|
|
48
|
|
Director
|
|
Michael Keller
|
|
48
|
|
Director
|
|
|
|
|
|
|
|
Significant Employees:
|
|
|
|
|
|
|
|
|
|
|
|
Andy
Babb
|
|
49
|
|
Executive
Vice President of Game Partnerships
|
|
Anne
Gailliot
|
|
41
|
|
Chief
of Staff, Vice President of Special Projects
|
|
(1)
Mr. Miller intends
to resign from our Board contingent upon and effective immediately
prior to the effectiveness of the registration statement to which
this prospectus forms a part.
There are no arrangements or understandings between our Company and
any other person pursuant to which he or she was or is to be
selected as a director, executive officer or nominee. Ms. Hand, our
President and Chief Executive Officer, is a first cousin of Mr.
Gehl, a member of our Board. There are no other family
relationships among any of our directors or executive officers. To
the best of our knowledge, none of our directors or executive
officers have, during the past ten years, been involved in any
legal proceedings described in Item 401(f) of Regulation
S-K.
Executive Officers
Ann Hand
Chief Executive Officer, President, Chair of the Board
Ms.
Hand has served as our Chief Executive Officer, President and Chair
of our Board since June 2015. Over the past 20 years, Ms. Hand has
served as a market-facing executive with a track record in brand
creation and turn- around with notable delivery at the intersection
of social impact with consumer trends and technology to create bold
offers, drive consumer preference and deliver bottom line results.
Prior to joining the Company, from 2009 to 2015, Ms. Hand served as
Chief Executive Officer and as a director of Project Frog, a
venture-backed firm with a mission to democratize healthy, inspired
buildings that are better, faster, greener, and more affordable
than traditional construction. From 1998 through 2008, Ms. Hand
served in various senior executive positions with BP plc, including
Senior Vice President, Global Brand Marketing & Innovation from
2005 to 2008, during which time she led many award-winning
integrated marketing campaigns and oversaw the entire brand
portfolio of B2C and B2B brands, including BP, Castrol, Arco, am/pm
and Aral. Additionally, she served as Chief Executive, Global
Liquefied Gas Business Unit with full P&L accountability across
15 countries and 3,000 staff, covering operations, logistics, sales
and marketing with over $3 billion in annual revenue. Ms. Hand was
recognized by Goldman Sachs - “100 Most Intriguing
Entrepreneurs” in 2014, by Fortune - “Top 10 Most
Powerful Women Entrepreneurs” in 2013, and Fast Company
– “100 Most Creative People” in 2011. Ms. Hand
earned a Bachelor of Arts in Economics from DePauw University, an
MBA from Northwestern’s Kellogg School of Management, and
completed executive education at Cambridge, Harvard and Stanford
Universities.
David Steigelfest
Chief Product and Technology Officer, Director
Mr.
Steigelfest co-founded the Company in 2014 and has served as a
director on our Board since that time. In addition, Mr. Steigelfest
served has our Chief Product and Technology Officer since May 2018.
An attorney by education, David has served as an executive and
entrepreneur in the digital and technology space for more than 20
years. Prior to co-founding the Company in 2014, Mr. Steigelfest
founded rbidr LLC, a media and technology startup and a pioneer in
yield management and price optimization software, where he served
as Chief Executive Officer from 2008 to 2013. From 2013 to 2014,
Mr. Steigelfest worked for Cosi Consulting, where he provided
management consulting services ranging from complex project
management, PMO, software design, 3rd party software
integration and migration, enterprise content management, data
management and system-based regulatory compliance to various
Fortune 500 companies. From 2001 to 2008, Mr. Steigelfest worked on
Wall Street at Deutsche Bank, where he oversaw various
multi-million-dollar change management projects. In addition, Mr.
Steigelfest previously served as Vice President of eCommerce at
Starguide Digital Networks, where he had responsibility over the
streaming media portal, CoolCast. CoolCast utilized satellite
technology to distribute high quality streaming content into
multi-cast enabled networks bypassing Internet bottlenecks. Prior
to Starguide, Mr. Steigelfest served as the Director of Product
Management at Gateway Computers, where he oversaw Gateway.com and
Gateway’s business-to-business extranet system, eSource. In
addition, Mr. Steigelfest has consulted for companies of all sizes
throughout his career addressing a wide variety of IT and business
challenges, including complex business process change, software
implementation and e-commerce. Mr. Steigelfest received a
Bachelor of Arts in International Relations and Psychology from
Syracuse University, and a JD with an emphasis in business
transactions and business law from Widener University School of
Law.
Clayton Haynes
Chief Financial Officer
Mr. Haynes was appointed as our Chief Financial Officer in August
2018. From 2001 to August 2018, Mr. Haynes served as Chief
Financial Officer, Senior Vice President of Finance and Treasurer
of Acacia Research Corporation (NASDAQ: ACTG), an industry-leading intellectual
property licensing and enforcement and technology investment
company. Mr. Haynes is a party to a transition related consulting
agreement with Acacia Research Corporation that expires on February 14, 2019. From 1992 to
March 2001, Mr. Haynes was employed by PricewaterhouseCoopers LLP,
ultimately serving as a Manager in the Audit and Business Advisory
Services practice, where he provided and managed full scope
financial statement audit and business advisory services for public
and private company clients with annual revenues up to $1 billion
in a variety of sectors, including manufacturing, distribution, oil
and gas, engineering, aerospace and retail. Mr. Haynes
received a Bachelor of Arts in Economics and Business/Accounting
from the University of California at Los Angeles, an MBA from the
University of California at Irvine Paul Merage School of Business
and is a Certified Public Accountant
(Inactive).
Matt Edelman
Chief Commercial Officer
Mr.
Edelman oversees the Company’s revenue, marketing, content,
creative services and business development activities, and has
served as our Chief Commercial Officer since July 2017. Mr. Edelman
is the owner of PickTheBrain, a leading digital self-improvement
business, a board member and marketing committee member of the
Epilepsy Foundation of Greater Los Angeles and has over 20 years of
experience working in the digital and traditional media and
entertainment industries. Since 2001, he has served as an advisor
and consultant to numerous digital and media companies, including,
amongst others, Nike, Marvel, MTV, Sony Pictures, 20th Century Fox and TV
Guide. Prior to joining the Company, from 2014 to 2017, Mr. Edelman
served as the Head of Digital Operations and Marketing Solutions at
WME-IMG (now Endeavor), where he was responsible for several areas,
including digital audience and revenue growth through content,
social media and paid customer acquisition across the
company’s global live events business within sports, fashion
culinary and entertainment verticals; digital marketing services
for consumer brands, college athletics programs and talent; and
management of direct-to-consumer digital content businesses,
including both eSports and Fashion OTT properties. From 2010 to
2013, Mr. Edelman served as the Chief Executive Officer of Glossi
(previously ThisNext), an authoring platform enabling individuals
to create their own digital magazines. Previously, Mr. Edelman also
founded and/or served in executive positions at multiple early
stage digital media companies. Mr. Edelman earned a Bachelor of
Arts in Politics from Princeton University.
Board of Directors
Ann Hand
Chief Executive Officer, President, Chair of the Board
Please
see Ms. Hand’s biography in the preceding section under the
heading “Executive
Officers.”
Ms. Hand’s extensive background in corporate leadership and
her practical experience in brand creation and turn- around
directly align with the Company’s focus, and ideally position
her to make substantial contributions to the Board, both as Chair
of the Board and as the leader of the Company’s executive
team.
David Steigelfest
Chief Product and Technology Officer, Director
Please
see Mr. Steigelfest’s biography in the preceding section
under the heading “Executive
Officers.”
As a co-founder of the Company and a lead developer of the
Company’s platform, Mr. Steigelfest provides the Board with
critical insight into the technological aspects of the
Company’s operations and the ongoing development of the
platform, attributes that make Mr. Steigelfest a particularly
valued member of the Board.
John Miller
Director
Mr. Miller co-founded the Company in 2014 and has served as a
director on our Board since its inception. In addition, Mr. Miller
founded and has served as Chief Executive Officer and Chairman of
Cali Group, a holding company with ownership positions in various
companies focused on the development of new technologies for the
restaurant and retail industries and a significant investor in the
Company, since 2011. Prior to founding Cali Group, Mr. Miller
worked for Arrowhead Pharmaceuticals, Inc. (NASDAQ: ARWR), where he
was responsible for the formation, growth and the ultimate sale of
Arrowhead’s electronics business unit. From 2005 to 2010, Mr.
Miller served as Vice President of Intellectual Property at Undiym,
Inc. (formerly, Nanopolaris, Inc.), which he also founded. Mr.
Miller is an author of The Handbook of Nanotechnology Business,
Policy, and Intellectual Property Law, as well as various other
publications related to nanomaterials and nanoscale electronics. He
obtained an undergraduate degree from University of Redlands and
graduated Order of the Coif from Stanford Law
School.
Mr.
Miller’s focus on the development of new technologies and his
involvement with the Company since inception has significantly
supported the Board’s perspective during the early stages of
the development of the Company’s platform and are key assets
to the Board as the Company looks to scale the utilization of its
technology.
Jeff Gehl
Independent Director
Mr.
Gehl has served as a director on our Board since 2015. Mr. Gehl is
a Co-Owner at VLOC LLC. Since 2001, Mr. Gehl has been a Managing
Partner of RCP Advisors. Mr. Gehl is responsible for leading RCP's
client relations function and covering private equity fund managers
in the Western United States. He is a General Partner of BKM
Capital Partners, L.P. Previously, Mr. Gehl was an Advisor at
Troy Capital Partners until 2018. In addition, Mr. Gehl founded and
served as Chairman and Chief Executive Officer of MMI, a technical
staffing company, and acquired Big Ballot, Inc., a sports marketing
firm. He currently serves as a Director of P10 Industries, Inc., a
Director of Veritone, Inc. (NASDAQ: VERI) and an Advisory Board
member of several of RCP’s underlying funds, as well as
Accel-KKR and Seidler Equity Partners. Mr. Gehl was the Manager of
VLOC. Mr. Gehl received the 1989 “Entrepreneur of the
Year” award from University of Southern California’s
Entrepreneur Program. He obtained a Bachelor of Science in Business
Administration from the University of Southern California's
Entrepreneur Program.
Mr. Gehl’s wide range of experience in
financing,
developing and managing high-growth technology companies, as well
as his entrepreneurial experience, has
considerably broadened the Board’s perspective, particularly
as the Company engaged in capital raising activities to fund the
early stages of its development. Mr. Gehl also serves as our
Board-designated “audit committee financial expert” and
as the Chair of the Board’s Audit
Committee.
Robert
Stewart
Independent
Director
Mr. Stewart
has served as a director on our Board since October 2014. From 1997
to August 2018, Mr. Stewart served in various executive officer
roles with Acacia, including as Vice-President of Corporate Finance
and Senior Vice-President, Corporate Finance and Investor
Relations. Prior to joining Acacia, Mr. Stewart served as President
of Macallan, Dunhill & Associates, a private investment fund.
Mr. Stewart received a Bachelor of Science in Economics from the
University of Colorado at Boulder.
Mr. Stewart’s
11 years in various executive officer roles of a public company
brings extensive leadership experience and public company expertise
to our Board, experience that will be invaluable to the Board
following the Company becomes a public company following the
completion of its initial public offering. Mr. Stewart also serves as a member of the
Board’s Audit Committee, and as Chair of the Compensation
Committee.
Peter
Levin
Independent Director
Mr.
Levin has served as a director on our Board since November 2018,
and currently serves as President of Interactive Ventures and Games
at Lions Gate Entertainment Corp., a position he has held since May
2014. Mr. Levin is responsible for expanding Lionsgate's content
creation into video games and other interactive ventures, including
incubation of new properties, investment in existing games and
digital media vehicles and leveraging Lionsgate's franchises and
other branded properties into the gaming space. Mr. Levin also
currently serves as the President of Bellrock Media, Inc., a
company engaged in the development and distribution of content for
mobile and broadband platforms in North America and Japan, is a
co-owner of the Chicago Rush of the Arena Football League and has
been Partner of Palisades Baseball since 2000, which owns and
operates three Minor League Baseball franchises. Mr. Levin serves
as the Managing Director of Sedona Capital, Inc., where he steers
the fund's investments and partnerships in the new media and mobile
content industries. In addition, Mr. Levin has served as a director
at Razz, Inc. since September 2005 and as a director of Next Games
Oyj since June 2014. He also serves as Member of the Board of
Advisors of Global Streams, Mofactor, MESoft, Inc. and
Auctionhelper. Mr. Levin earned his Bachelor of Arts degree from
the University of Southern California.
We
believe Mr. Levin’s extensive experience in digital media,
particularly in the gaming space, and as an owner of multiple
professional sports teams enables him to provide the Board with
invaluable insight in to matters involving both gaming and the
organization and management of sports teams. Mr. Levin also serves
as a member of the Board’s Compensation Committee and the
Nominating and Corporate Governance Committee.
Kristin Patrick
Independent Director
Ms.
Patrick has served as a director on our Board since November 2018,
and currently serves as Global Chief Marketing Officer of Soda
Brand at Pepsico, Inc., a position she has held since June 2013.
Prior to her time with Pepsico, Inc., Ms. Patrick served as Chief
Marketing Officer of Playboy Enterprises, Inc. from November 2011
to June 2013, and as Executive Vice President of Marketing Strategy
for William Morris Endeavor from January 2010 to November 2011. Ms.
Patrick has also held senior marketing positions at Liz
Claiborne's Lucky Brand, Walt Disney Company, Calvin Klein, Revlon
and NBC Universal and Gap, Inc. A Brandweek "Next Gen Marketer" and
Reggie Award recipient, Ms. Patrick received her Bachelor of Arts
from Emerson College and J.D. from Southwestern
University.
As we
continue to expand the visibility of our Brand, we believe Ms.
Patrick will provide instrumental input on our marketing efforts,
and will assist the Board and management with initiating marketing
programs to enable us to meet our short-term and long-term growth
objectives. Ms. Patrick also serves as a member of the
Board’s Compensation Committee and the Nominating and
Corporate Governance Committee.
Michael Keller
Independent Director
Mr. Keller has served as a director on our Board since November
2018. From July 2014 to February 2018, Mr. Keller served as an
advisor and board member for Cake Entertainment, an independent
entertainment company specializing in the production, distribution,
development, financing and brand development of kids’ and
family properties, as managing director of Tiedemann Wealth
Management from March 2008 to December 2013, as co-founder and
principal of Natrica USA, LLC from August 2006 to March 2008 and as
Senior Vice President of Brown Brothers Harriman Financial Services
from July 1996 to June 2006. Mr. Keller earned his Bachelors of
Arts in History from Colby College.
With
over 15 years of experience in asset and portfolio management, and
experience in helping companies gain exposure for their products
and services, including in the entertainment industry, we believe
Mr. Keller provides our Board with useful insight that will help us
as we allocate resources to expand the utility of our platform and
other technologies. Mr. Keller also serves as Chair of the
Board’s Nominating and Corporate Governance Committee and as
a member of the Compensation Committee.
Significant Employees
Andy Babb
Executive Vice President of Game Partnerships
Mr.
Babb overseas the Company’s game strategy and publisher and
developer relationships and has served as our Executive Vice
President of Game Partnerships since September 2015. Prior to
joining the Company, from 2007 to 2015, Mr. Babb served as
President of Brandissimo, Inc., the company that created and
developed NFL RUSH, including NFL RUSH Zone, a multiplayer online
virtual game world, and over 100 NFL video games and apps. From
2006 to 2007, Mr. Babb served as the President of Infusio-NA, a
French mobile video game publisher, and for ten years prior to
that, he managed business development for Take Two Interactive, 2K
Games and SegaSoft. Throughout his career, Mr. Babb has published
over 200 video games across console, handheld, PC, online and
mobile platforms. He earned a Bachelor of Arts in Communications
Studies from the University of California Los Angeles and an MBA
from Stanford University.
Anne Gailliot
Chief of Staff, Vice President of Special
Projects
Ms. Gailliot has served as our Chief of Staff since July 2015, as
well as our Vice President of Special Projects since 2016. She
provides oversight to strategic programs and partnerships, ranging
from theatre relationships, the development of a national
contracted workforce, our after-school programs, and end-to-end
live event execution. Prior to joining the Company, Ms. Gailliot
served as Chief of Staff of Project Frog from 2007 to 2015, where
she led strategic and financial planning and supported supply chain
optimization. Before pursuing a graduate degree, Anne spent several
years at the National Trust for Historic Preservation managing
grant programs, community advocacy efforts, and local leadership
development initiatives for the western region. Ms. Gailliot earned
a Bachelor of Arts in Art History from Princeton University and an
MBA from University of Pennsylvania – the Wharton
School.
Board Composition and Election of Directors
Board Composition
Our
Board currently consists of eight members but will be reduced to
seven members upon Mr. Miller's resignation immediately prior to
the effectiveness of the registration statement to which this
prospectus forms a part.
Each of
our continuing directors will serve until our next annual meeting
of stockholders or until his or her successor is elected and duly
qualified. Our Board is authorized to appoint persons to the
offices of Chair of the Board of Directors, Vice Chair of the Board
of Directors, Chief Executive Officer, President, one or more Vice
Presidents, Chief Financial Officer, Treasurer, one or more
Assistant Treasurers, Secretary, one or more Assistant Secretaries,
and such other officers as may be determined by the Board. The
Board may also empower the Chief Executive Officer, or in absence
of a Chief Executive Officer, the President, to appoint such other
officers and agents as our business may require. Any number of
offices can be held by the same person.
Director Independence
Our
Board has determined that five of its directors qualify as
independent directors, as determined in accordance with the rules
of the Nasdaq Stock Market, consisting of Ms.
Patrick and Messrs. Gehl, Stewart, Levin and Keller. Under
the applicable listing requirements of the Nasdaq Capital Market,
we are permitted to phase in our compliance with the majority
independent board requirement of the Nasdaq Stock Market rules
within one year of our listing on Nasdaq. The director independence
definition under the Nasdaq Stock Market rule includes a series of
objective tests, including that the director is not, and has not
been for at least three years, one of our employees and that
neither the director nor any of his family members has engaged in
various types of business dealings with us. In addition, as
required by Nasdaq Stock Market rules, our Board has made a
subjective determination as to each independent director that no
relationships exist, which, in the opinion of our Board, would
interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. In making these determinations,
our Board reviewed and discussed information provided by the
directors and us with regard to each director’s business and
personal activities and relationships as they may relate to us and
our management.
Ms. Hand, our President and Chief Executive Officer, is a first
cousin of Mr. Gehl, a member of our Board. There are no other
family relationships among any of our directors or executive
officers.
Role of Board in Risk Oversight Process
Our
Board has responsibility for the oversight of the Company’s
risk management processes and, either as a whole or through its
committees, regularly discusses with management our major risk
exposures, their potential impact on our business, and the steps we
take to manage them. The risk oversight process includes receiving
regular reports from Board committees and members of senior
management to enable our Board to understand our risk
identification, risk management and risk mitigation strategies with
respect to areas of potential material risk, including operations,
finance, legal, regulatory, strategic and reputational risk.
Cybersecurity risk is a key consideration in our operational risk
management capabilities. We are in the process of instituting a
formal information security management program, which will be
subject to oversight by, and reporting to, our Board. Given the
nature of our operations and business, cybersecurity risk may
manifest itself through various business activities and channels
and is thus considered an enterprise-wide risk which is subject to
control and monitoring at various levels of management throughout
the business. Our Board will oversee and review reports on
significant matters of corporate security, including cybersecurity.
In addition, we maintain specific cyber insurance through our
corporate insurance program, the adequacy of which is subject to
review and oversight by our Board.
Our
audit committee reviews information regarding liquidity and
operations and oversees our management of financial risks.
Periodically, our audit committee reviews our policies with respect
to risk assessment, risk management, loss prevention and regulatory
compliance. Oversight by the audit committee includes direct
communication with our external auditors, and discussions with
management regarding significant risk exposures and the actions
management has taken to limit, monitor or control such exposures.
Our compensation committee is responsible for assessing whether any
of our compensation policies or programs has the potential to
encourage excessive risk-taking. Matters of significant strategic
risk are considered by our Board as a whole.
Board Committees and Independence
Our
Board has established the following three standing committees:
audit committee, compensation committee, and nominating and
governance committee. Our Board has adopted written charters for
each of these committees. Upon completion of this offering, we
intend to make each committee’s charter available under the
Corporate Governance section of our website at
www.superleague.com/corporategovernance. The reference to our
website address does not constitute incorporation by reference of
the information contained at or available through our website, and
you should not consider it to be a part of this
prospectus.
Audit Committee
Our
audit committee is currently comprised of Jeff Gehl, who serves as
the committee chair, Robert Stewart and Michael Keller,
each of whom are independent directors as determined in accordance
with the rules of the Nasdaq Stock Market. The audit
committee’s main function is to oversee our accounting and
financial reporting processes and the audits of our financial
statements. Pursuant to its charter, the audit committee’s
responsibilities include, among other things:
●
appointing,
compensating, retaining, evaluating, terminating, and overseeing
our independent registered public accounting
firm;
●
reviewing with our independent registered public accounting firm
the scope and results of their audit;
●
approving the audit
and non-audit services to be performed by our independent
registered public accounting firm;
●
evaluating the
qualifications, independence and performance of our independent
registered public accounting firm;
●
reviewing the
design, implementation, adequacy and effectiveness of our internal
accounting controls and our critical accounting
policies;
●
reviewing and
discussing our annual audited financial statements and quarterly
financial statements with management and the independent auditor,
including our disclosures under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” prior
to the release of such information;
●
reviewing and
reassessing the adequacy of the audit committee’s charter, at
least annually;
●
reviewing,
overseeing and monitoring the integrity of our financial statements
and our compliance with legal and regulatory requirements as they
relate to financial statements or accounting matters;
●
reviewing on a
periodic basis, or as appropriate, our policies with respect to
risk assessment and management, and our plan to monitor, control
and minimize such risks and exposures, with the independent public
accountants, internal auditors, and management;
●
reviewing any
earnings announcements and other public announcements regarding our
results of operations;
●
preparing the
report that the SEC requires in our annual proxy statement, upon
becoming subject to the Exchange Act;
●
complying with all
preapproval requirements of Section 10A(i) of the Exchange Act and
all SEC rules relating to the administration by the audit committee
of the auditor engagement to the extent necessary to maintain the
independence of the auditor as set forth in 17 CFR Part
210.2-01(c)(7);
●
administering the
policies and procedures for the review, approval and/or
ratification of related party transactions involving the Company or
any of its subsidiaries; and
●
making such other
recommendations to the Board on such matters, within the scope of
its function, as may come to its attention and which in its
discretion warrant consideration by the Board.
Our
Board has affirmatively determined that all members of our audit
committee meet the requirements for independence and financial
literacy under the applicable rules and regulations of the SEC and
the Nasdaq Stock Market. Our Board has determined that Mr. Gehl
qualifies as an “audit committee financial expert” as
defined by applicable SEC rules and has the requisite financial
sophistication as defined under the applicable Nasdaq Stock Market
rules and regulations. The audit committee operates under a written
charter that satisfies the applicable standards of the SEC and the
Nasdaq Stock Market.
Compensation Committee
Our compensation committee is currently comprised of Robert
Stewart, who serves as the committee chair, Kristin Patrick and Peter Levin, each of whom are
independent directors as determined in accordance with the
rules of the Nasdaq Stock Market. The compensation
committee’s main function is to assist our Board in the
discharge of its responsibilities related to the compensation of
our executive officers. Pursuant to
its charter, the compensation committee is primarily responsible
for, among other things:
●
reviewing
our compensation programs and arrangements applicable to our
executive officers, including all employment-related agreements or
arrangements under which compensatory benefits are awarded or paid
to, or earned or received by, our executive officers, and advising
management and the Board regarding such programs and
arrangements;
●
reviewing and recommending to the Board the goals
and objectives relevant to CEO compensation, evaluating CEO
performance in light of such goals and objectives, and determining
CEO compensation based on the evaluation;
●
retaining,
reviewing and assessing the independence of compensation
advisers;
●
monitoring issues
associated with CEO succession and management
development;
●
overseeing and
administering our equity incentive plans;
●
reviewing and
making recommendations to our Board with respect to compensation of
our executive officers and senior management;
●
reviewing and
making recommendations to our Board with respect to director
compensation;
●
endeavoring to ensure that our executive
compensation programs are reasonable and appropriate, meet their
stated purpose (which, among other things, includes rewarding and
creating incentives for individuals and Company performance), and
effectively serve the interests of the Company and our
stockholders; and
●
upon becoming
subject to the Exchange Act, preparing and approving an annual
report on executive compensation and such other statements to
stockholders which are required by the SEC and other governmental
bodies.
Nominating and Governance Committee
Our nominating and governance committee is currently comprised
of Michael
Keller, who serves as the committee chair, Kristin Patrick and Peter Levin, each of whom are
independent directors as determined in accordance with the
rules of the Nasdaq Stock Market.
Pursuant to its charter, the
nominating and governance committee is primarily responsible for,
among other things:
●
assisting the Board
in identifying qualified candidates to become directors, and
recommending to our Board nominees for election at the next annual
meeting of stockholders;
●
leading the Board
in its annual review of the Board’s performance;
●
recommending to the
Board nominees for each Board committee and each committee
chair;
●
reviewing and
overseeing matters related to the independence of Board and
committee members, in light of independence requirement of the
Nasdaq Stock Market and the rules and regulations of the
SEC;
●
overseeing the
process of succession planning of our CEO and other executive
officers; and
●
developing and
recommending to the Board corporate governance guidelines,
including our Code of Business Conduct, applicable to the
Company.
Board Diversity
Upon the closing of this offering, our nominating and governance
committee will be responsible for reviewing with the Board, on an
annual basis, the appropriate characteristics, skills and
experience required for the Board as a whole and its individual
members. In evaluating the suitability of individual candidates
(both new candidates and current members), the nominating and
governance committee, in recommending candidates for election, and
the Board, in approving (and, in the case of vacancies, appointing)
such candidates, will take into account many factors, including the
following:
●
personal
and professional integrity, ethics and values;
●
experience
in corporate management, such as serving as an officer or former
officer of a publicly-held company;
●
experience
as a board member or executive officer of another publicly-held
company;
●
strong
finance experience;
●
diversity
of expertise and experience in substantive matters pertaining to
our business relative to other board members;
●
diversity
of background and perspective, including, but not limited to, with
respect to age, gender, race, place of residence and specialized
experience;
●
experience
relevant to our business industry and with relevant social policy
concerns; and
●
relevant
academic expertise or other proficiency in an area of our business
operations.
Currently, our Board evaluates, and following the closing of this
offering will evaluate, each individual in the context of the Board
as a whole, with the objective of assembling a group that can best
maximize the success of the business and represent stockholder
interests through the exercise of sound judgment using its
diversity of experience in these various areas.
Compensation Committee Interlocks and Insider
Participation
None of
the members of our compensation committee, at any time, have been
one of our officers or employees. None of our executive officers
currently serves, or in the past year has served, as a member of
the board of directors or compensation committee of any other
entity that has one or more executive officers on our Board of
Directors or compensation committee.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics applicable to
our employees, officers and directors. Upon completion
of this offering, we intend to make our Code of Business Conduct and Ethics
available under the Corporate Governance section of our website at
www.superleague.com/corporategovernance/. The
reference to our website address does not constitute incorporation
by reference of the information contained at or available through
our website, and you should not consider it to be a part of this
prospectus. We intend to
disclose any future amendments to certain provisions of our Code of
Business Conduct and Ethics, or waivers of these provisions, on our
website or in our filings with the SEC under the Exchange
Act.
Limitation of Liability and Indemnification
Our certificate of incorporation, as amended and restated
(“Charter”), and our amended and restated bylaws
(“Bylaws”) provide the indemnification of our
directors and officers to the fullest extent permitted under the
Delaware General Corporation Law (“DGCL”). In addition, the Charter
provides that our directors shall not be personally liable to us or
our shareholders for monetary damages for breach of fiduciary duty
as a director and that if the DGCL is amended to authorize
corporate action further eliminating or limiting the personal
liability of directors, then the liability of our directors shall
be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
As
permitted by the DGCL, we have entered into or plan to enter into
separate indemnification agreements with
each of our directors and certain of our officers that require us,
among other things, to indemnify them
against certain liabilities which may arise by reason of their
status as directors, officers or certain other
employees. We expect to obtain and maintain insurance policies
under which our directors and officers are insured, within the
limits and subject to the limitations of those policies, against
certain expenses in connection with the defense of, and certain
liabilities that might be imposed as a result of, actions, suits or
proceedings to which they are parties by reason of being or having
been directors or officers. The coverage provided by these policies
may apply whether or not we would have the power to indemnify such
person against such liability under the provisions of the
DGCL.
We
believe that these provisions and agreements are necessary to
attract and retain qualified persons as our officers and
directors. At present, there is no pending litigation or proceeding
involving our directors or officers for whom indemnification is
required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for
indemnification.
We are
an emerging growth company for purposes of the SEC’s
executive compensation disclosure rules. In accordance with such
rules, we are required to provide a Summary Compensation Table and
an Outstanding Equity Awards at Fiscal Year End Table, as well as
limited narrative disclosures regarding executive compensation for
our last two completed fiscal years. Further, our reporting
obligations extend only to our “named executive
officers,” who are those individuals serving as our principal
executive officer and our two other most highly compensated
executive officers who were serving as executive officers at
December 31,
2018, the end of the last completed fiscal year (the
“Named Executive
Officers”).
We have
identified Ann Hand, David Steigelfest and Matt Edelman as our
Named Executive Officers for the year ended
December 31, 2018. Our Named Executive Officers for our
fiscal year ending December 31, 2019 could change, as we may hire
or appoint new executive officers.
For the
fiscal years ended December 31, 2018 and 2017, compensation for our Named Executive Officers was
as follows:
Name
and principal position
|
|
Year
|
|
|
|
|
All
Other Compensation ($)
|
|
Ann
Hand
Chief Executive Officer, President
|
|
2018
|
$ 400,000
|
$100,000
|
-
|
$ 3,526,000
|
-
|
$ 4,026,000
|
|
|
2017
|
$ 354,000
|
-
|
-
|
$ 1,564,000
|
-
|
$ 1,918,000
|
David
Steigelfest
Chief Products and Technology Officer
|
|
2018
|
$ 300,000
|
-
|
-
|
$ 833,000
|
-
|
$ 1,133,000
|
|
|
2017
|
$ 285,000
|
$ 20,000
|
-
|
$ 559,000
|
-
|
$ 864,000
|
Matt
Edelman
Chief Commercial Officer (2)
|
|
2018
|
$ 300,000
|
$-
|
-
|
$ 378,000
|
-
|
$ 678,000
|
|
|
2017
|
$ 132,000
|
-
|
-
|
$ 574,000
|
-
|
$ 706,000
|
(1)
This column represents the
grant date fair value calculated in accordance with the
FASB’s
Accounting Standards Codification Topic 718, Compensation –
Stock Compensation (“ASC 718”). The methodology used
to calculate the estimated value of the equity awards granted is
set forth under Note 2 and Note 8 to the audited Financial
Statements as of and for the years ended December 31, 2018 and
2017, included elsewhere in this prospectus. These amounts do not
represent the actual value, if any, that may be realized by the
Named Executive Officers.
(2)
Mr. Edelman was
appointed to serve as the Company’s Chief Commercial Officer
in July 2017 and did not receive any compensation from the Company
prior to that time.
Elements of Compensation
Our
executive compensation program consisted of the following
components of compensation during the years
ended December 31, 2018 and 2017:
Base Salary
Each of
our executive officers receives a base salary for the expertise,
skills, knowledge and experience he or she offers to our management
team. The base salary of each of our executive officers is
re-evaluated annually, and may be adjusted to reflect:
●
the nature,
responsibilities, and duties of the officer’s
position;
●
the officer’s
expertise, demonstrated leadership ability, and prior
performance;
●
the officer’s
salary history and total compensation, including annual equity
incentive awards; and
●
the competitiveness
of the officer’s base salary.
Equity Incentive Awards
We believe that to attract and retain management, key employees and
non-management directors, the compensation paid to these persons
should include, in addition to base salary, annual equity
incentives. Our compensation committee determines the amount
and terms of equity-based compensation granted to each individual.
In determining whether to grant certain equity awards to our
executive officers, the compensation committee assesses the level
of the executive officer’s achievement of meeting individual
goals, as well as the executive officer’s contribution
towards goals of the Company. Whenever possible, equity incentive
awards are granted under our stock option plan. However, due to a
prior lack of shares available for issuances under the 2014 Plan,
we have granted certain awards in the form of warrants to key
executive officers in the past.
Employment Agreements and Potential Payments upon Termination or
Change of Control
Ann Hand
On June
16, 2017, we entered into an employment agreement with Ms. Hand to
serve as our Chief Executive Officer, President and Chair of the
Board. The initial term of the agreement is three years (the
“Hand Initial
Term”), and provided that neither party provides 30
days’ notice prior to the expiration of the Hand Initial Term
or a Renewal Term (defined below) of their intent to allow the
agreement to expire and thereby terminate, the agreement shall
continue in effect for successive periods of one year (each, a
“Hand Renewal
Term”). The employment agreement with Ms. Hand
provides for a base annual salary of $400,000, which amount may be increased annually, at the
sole discretion of the Board. Additionally, Ms. Hand shall be
entitled to (i) an annual cash bonus, the amount of which shall be
determined by our compensation committee, (ii) health insurance for
herself and her dependents, for which the Company shall pay 90% of
the premiums, (iii) reimbursement for all reasonable business
expenses, and (iv) participate in the Company’s 401(k) Plan
upon the Board electing to institute it. As additional
compensation, Ms. Hand was issued a warrant to purchase
100,000 shares of Company Common Stock at an exercise
price of $10.80 per share (the “Hand Warrant”). The warrant has a
ten-year term and shall vest at a rate of 1/36th per month, subject
to the acceleration of all unvested shares upon a Change of
Control, as defined in the employment agreement.
Ms.
Hand’s employment agreement is terminable by either party at
any time. In the event of termination by us without Cause or by Ms.
Hand for Good Reason, as those terms are defined in the agreement,
she shall receive a severance package consisting of the following:
(i) all accrued obligations as of the termination date; (ii) a cash
payment equal to the greater of (A) her base annual salary for 18
months, payable 50% upon termination, 25% 90 days after the
termination date and 25% 180 days after the termination date, or
(B) the remaining payments due for the term of the agreement; and
(iii) an additional 18 months’ vesting on the Hand Warrant.
In the event of termination by us with Cause or by Ms. Hand without
Good Reason, Ms. Hand shall be entitled to all salary and benefits
accrued prior to the termination date, and nothing else;
provided, however, that Ms.
Hand shall be entitled to exercise that portion of the Hand Warrant
that has vested as of the effective date of the termination until
the Hand Warrant’s expiration.
Ms.
Hand’s employment agreement was amended and restated on
November 15, 2018, pursuant to which the Hand Initial Term of the
agreement was extended through December 31, 2021, with the terms of
the Hand Renewal Term remaining the same. In addition, under the
terms of the amended and restated employment agreement, Ms. Hand
shall be entitled to the following compensation: (i) a base annual
salary of $400,000, which amount may
be increased annually, at the sole discretion of the Board; (ii)
cash bonuses as follows: (a) $100,000 upon the close of a fully
subscribed $10.0 million private placement of 9.00% secured
convertible promissory notes, (b) $250,000 upon the consummation of
the Company’s IPO or a private financing of not less than
$15.0 million (a “Qualified
Financing”), (c)
$150,000, payable in three increments of $50,000 upon achievement
of certain milestones, as determined by the compensation committee;
(iii) health insurance for herself and her dependents, for which
the Company shall pay 90% of the premiums; (iv) reimbursement for
all reasonable business expenses; and (v) participate in the
Company’s 401(k) Plan upon the Board electing to institute
it. As
additional compensation, Ms. Hand was also granted (i) a ten-year
common stock purchase warrant to purchase up to 250,000 shares of
the Company’s common stock, exercisable at $10.80 per share,
which vests as follows: (a) 25% immediately upon issuance, (b) 50%
upon the consummation of the Company’s IPO or a Qualified
Financing, and (c) 25% on the one-year anniversary of the IPO or a
Qualified Financing; and (ii) ten-year stock options to purchase
166,667 shares of Common Stock, exercisable at $10.80 per share,
which shall vest as follows: (a) 50% upon consummation of the
Company’s IPO or a Qualified Financing, (b) 25% upon
achievement of 300,000 registered members, and (c) 25% upon
achievement of 400,000 registered members. Further, pursuant to the
terms of the amended and restated employment agreement, in the
event that Ms. Hand is terminated other than for Cause, Ms. Hand
shall be entitled to receive all of her severance benefits on the
effective date of
termination.
David Steigelfest
Effective
October 31, 2016, we entered into an employment agreement with Mr.
Steigelfest to serve as our Chief Technology Officer. The initial
term of the agreement is two years (the “Steigelfest Initial Term”), and
provided that neither party provides 30 days' notice prior to the
expiration of the Steigelfest Initial Term or a Steigelfest Renewal
Term of their intent to allow the agreement to expire and thereby
terminate, the agreement shall continue in effect for successive
periods of one year (each, a “Steigelfest Renewal Term”). The
employment agreement with Mr. Steigelfest provides for a base
annual salary of $270,000, which
amount may be increased annually, at the sole discretion of the
Board and was increased to $300,000 by the Board in the fourth
quarter of 2017. Additionally, Mr. Steigelfest
shall be entitled to (i) health
insurance for himself and his dependents, for which the Company
shall pay 50% of the premiums, (ii) reimbursement for all
reasonable business expenses, and (iv) participate in the
Company’s 401(k) Plan upon the Board electing to institute
it.
Mr.
Steigelfest’s employment agreement is terminable by either
party at any time. In the event of termination by us without Cause,
as defined in the agreement, he shall be entitled to all salary and
benefits accrued prior to the date of termination, as well as six
months of accelerated vesting of the Option from the date of
termination. In the event of termination by us with Cause, Mr.
Steigelfest shall be entitled to all salary accrued prior to the
termination date, and nothing else; provided, however, that Mr. Steigelfest
shall be entitled to exercise any stock options that have vested
prior to the date of termination.
Mr. Steigelfest’s employment agreement was amended and
restated on November 1, 2018, pursuant to which the Steigelfest
Initial Term of the agreement was extended to two years from
November 1, 2018 and Mr. Steigelfest shall serve as both the
Company’s Chief Technology Officer and Chief Product Officer.
In addition, under the terms of the amended and restated employment
agreement, Mr. Steigelfest shall be entitled to the following
compensation: (i) a base annual salary of $300,000, which amount may be increased annually, at the
sole discretion of the Board; (ii) cash bonuses as follows: (a)
$50,000 upon the consummation of the Company’s IPO or a
Qualified Financing, (b) $75,000, payable in five separate
increments of $15,000 upon achievement of certain milestones, as
determined by the compensation committee, and (c) $100,000, payable
in four separate increments of $25,000 upon achievement of certain
milestones on or before June 30, 2019; (iii) health insurance for
himself and his dependents, for which the Company shall pay 90% of
the premiums; (iv) reimbursement for all reasonable business
expenses; and (v) participate in the Company’s 401(k) Plan
upon the Board electing to institute it. As additional
compensation, Mr. Steigelfest was also granted ten-year stock
options to purchase 100,000 shares of Common Stock,
exercisable at the same price per share of the Company’s IPO,
which shall vest in accordance with the Company’s traditional
vesting schedule. Further, pursuant to the terms of the amended and
restated employment agreement, in the event that Mr. Steigelfest is
terminated other than for Cause, Mr. Steigelfest shall be entitled
to receive cash equal to his annual base salary for one year on the
effective date of termination.
Matt Edelman
Effective
November 1, 2018, we entered into an employment agreement with Mr.
Edelman to serve as our Chief Commercial Officer. The initial term
of Mr. Edelman’s employment agreement is two years (the
“Edelman Initial
Term”), and provided that neither party provides 30
days’ notice prior to the expiration of the Edelman Initial
Term or a an Edelman Renewal Term (defined below) of their intent
to allow the agreement to expire and thereby terminate, the
agreement shall continue in effect for successive periods of one
year (each, a “an Edelman
Renewal Term”). The employment agreement with Mr.
Edelman provides for a base annual salary of $300,000, which amount may be increased annually, at the
sole discretion of the Board. Additionally, Mr. Edelman
shall be entitled to (i) health
insurance for himself and his dependents, for which the Company
shall pay 90% of the premiums, (ii) reimbursement for all
reasonable business expenses, and (iii) participate in the
Company’s 401(k) Plan upon the Board electing to institute
it.
Mr.
Edelman’s employment agreement is terminable by either party
at any time. In the event of termination by us without Cause, as
defined in the agreement, he shall be entitled to the following
severance payment based upon his length of employment with the
Company and his existing annual salary, which he shall receive 30
days after the final day of his employment: (i) from six to nine
months of employment, one month of severance pay; (ii) from nine
months to one year of employment, two months of severance pay;
(iii) from one year to two years of employment, three months of
severance pay; and (iv) for each additional year of employment
beyond one year, one additional month of severance pay;
provided, however, that in
the event of a change of control transaction involving the Company,
Mr. Edelman shall be entitled to six months of severance pay. In
the event of such termination, and in order to receive the
foregoing severance benefits, Mr. Edelman shall be required to
execute a mutually agreed upon Mutual Release agreement. In the
event of termination by us with Cause, Mr. Edelman shall be
entitled to all salary accrued prior to the termination date, and
nothing else; provided,
however, that Mr. Edelman shall be entitled to exercise any
stock options that have vested prior to the date of
termination.
Clayton Haynes
Effective
November 1, 2018, we entered into an employment agreement with Mr.
Haynes to serve as our Chief Financial Officer. The initial term of
Mr. Haynes’ employment agreement is two years (the
“Haynes Initial
Term”), and provided that neither party provides 30
days’ notice prior to the expiration of the Haynes Initial
Term or a Haynes Renewal Term (defined below) of their intent to
allow the agreement to expire and thereby terminate, the agreement
shall continue in effect for successive periods of one year (each,
a “Haynes Renewal
Term”). The employment agreement with Mr. Haynes
provides for a base annual salary of $300,000, which amount may be increased annually, at the
sole discretion of the Board. Additionally, Mr. Haynes
shall be entitled to (i) health
insurance for himself and his dependents, for which the Company
shall pay 90% of the premiums, (ii) reimbursement for all
reasonable business expenses, and (ii) participate in the
Company’s 401(k) Plan upon the Board electing to institute
it.
Mr.
Haynes’ employment agreement is terminable by either party at
any time. In the event of termination by us without Cause, as
defined in the agreement, he shall be entitled to the following
severance payment based upon his length of employment with the
Company and his existing annual salary, which he shall receive 30
days after the final day of his employment: (i) from six to nine
months of employment, one month of severance pay; (ii) from nine
months to one year of employment, two months of severance pay;
(iii) from one year to two years of employment, three months of
severance pay; and (iv) for each additional year of employment
beyond one year, one additional month of severance pay;
provided, however, that in
the event of a change of control transaction involving the Company,
Mr. Haynes shall be entitled to six months of severance pay. In the
event of such termination, and in order to receive the foregoing
severance benefits, Mr. Haynes shall be required to execute a
mutually agreed upon Mutual Release agreement. In the event of
termination by us with Cause, Mr. Haynes shall be entitled to all
salary accrued prior to the termination date, and nothing else;
provided, however, that Mr.
Haynes shall be entitled to exercise any stock options that have
vested prior to the date of termination.
Outstanding Equity Awards at Fiscal Year-End
The following table discloses outstanding stock option awards held
by each of the Named Executive Officers as of December 31,
2018:
|
|
Name
|
|
Number of securities underlying unexercised
options/ warrants (#)
Exercisable
|
Number of securities underlying unexercised
options/ warrants (#)
Unexercisable
|
Option/ warrant
exercise price
($)
|
Option/ warrant
expiration date
|
|
6/5/15
|
145,833
|
20,834
|
(1)
|
$ 6.00
|
6/5/25
|
|
6/16/17
|
44,917
|
6,417
|
(2)
|
$ 9.00
|
6/15/27
|
|
6/16/17
|
28,000
|
4,000
|
(3)
|
$ 10.80
|
6/15/27
|
|
6/16/17
|
50,000
|
50,000
|
(4)
|
$ 10.80
|
6/6/27
|
|
10/31/18
|
-
|
166,667
|
(5)
|
$ 10.80
|
10/31/28
|
|
10/31/18
|
62,500
|
187,500
|
(6)
|
$ 10.80
|
10/31/28
|
|
10/16/14
|
116,667
|
-
|
(7)
|
$ 0.30
|
10/15/24
|
|
6/16/17
|
30,334
|
4,334
|
(8)
|
$ 9.00
|
6/15/27
|
|
6/16/17
|
28,000
|
4,000
|
(9)
|
$ 10.80
|
6/15/27
|
|
10/31/18
|
-
|
100,000
|
(10)
|
$ 10.80
|
10/31/28
|
|
7/24/17
|
23,177
|
42,264
|
(11)
|
$ 10.80
|
7/24/27
|
|
6/29/18
|
|
16,667
|
(12)
|
$ 10.80
|
6/29/28
|
|
10/31/18
|
8,334
|
16,667
|
(13)
|
$ 10.80
|
10/31/28
|
(1)
Represents
a warrant to purchase shares of our common stock, which warrant
vests at a rate of 3,473 shares per month, and becomes fully vested
on June 5, 2019. The warrant was issued in lieu of options due to
the lack of sufficient available shares authorized for issuance
under the 2014 Plan.
(2)
Represents
an option to purchase shares of our common stock, which option
vests 50% immediately upon grant, and thereafter at a rate of 2,139
shares per month, and becomes fully vested on June 16,
2019.
(3)
Represents
an option to purchase shares of our common stock, which option
vests 50% immediately upon grant, and thereafter at a rate of 1,333
shares per month, and becomes fully vested on June 16,
2019.
(4)
Represents
a warrant to purchase shares of our common stock, which warrant
vests 2,778 shares per month, and becomes fully vested on June 6,
2020. The warrant was issued in lieu of options due to the lack of
sufficient available shares authorized for issuance under the 2014
Plan.
(5)
Represents
an option to purchase shares of our common stock which shall vest
as follows: (a) 50% upon consummation of the Company’s IPO or
a Qualified Financing, (b) 25% upon achievement of 300,000
registered members, and (c) 25% upon achievement of 400,000
registered members.
(6)
Represents
a warrant to purchase shares of our common stock, which warrant
vests as follows: (a) 25% immediately upon issuance, (b) 50% upon
the consummation of the Company’s IPO or a Qualified
Financing, and (c) 25% on the one-year anniversary of the IPO or a
Qualified Financing.
(7)
Represents
an option to purchase shares of our common stock, which option
vests at a rate of 2,778 shares per month, and becomes fully vested
on April 16, 2018.
(8)
Represents
an option to purchase shares of our common stock, which option
vests 50% immediately upon grant, and thereafter at a rate of 1,445
shares per month, and becomes fully vested on June 16,
2019.
(9)
Represents an option to purchase
shares of our common stock, which option vests 50% immediately upon
grant, and thereafter at a rate of 1,334 shares per month, and
becomes fully vested on June 16, 2019.
(10)
Represents
an option to purchase shares of our common stock, which option
shall vest with respect to 25,000 shares on October 31, 2019, and
then at a rate of 2,084 shares per month, and becomes fully vested
on October 30, 2022.
(11)
Represents
an option to purchase shares of our common stock, which option
vested with respect to 16,360 shares on July 24, 2018, and then at
a rate of 1,364 shares per month, and becomes fully vested on July
24, 2021.
(12)
Represents
an option to purchase shares of our common stock, which option
shall vest with respect to 4,167 shares on October 31, 2019, and
then at a rate of 348 shares per month, and becomes fully vested on
October 30, 2022.
(13)
Represents
an option to purchase shares of our common stock, which option
vested with respect to 8,334 shares on December 17, 2018, and
thereafter shall vest as follows: (a) 25% upon achievement of
300,000 registered members; and (b) 25,000 upon achievement of $1
million in national sponsorships.
Securities Authorized for Issuance under Equity Compensation
Plans
The following table provides a summary of the securities authorized
for issuance under our equity compensation plans as of December 31,
2018.
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
|
|
Equity compensation
plans approved by security holders
|
|
|
|
2014
Plan
|
1,524,468
|
$9.15
|
274,698
|
Equity compensation
plans not approved by security holders
|
-
|
-
|
-
|
Total
|
1,524,468
|
$9.15
|
274,698
|
Stock Option and Incentive Plan
2014 Stock Option and Incentive Plan
Our Board unanimously approved the 2014 Plan on October 13, 2014. The 2014 Plan was
subsequently amended in May 2015, May 2016, July 2017 and October
2018. The maximum number of shares of Common Stock issuable under
the 2014 Plan is currently 1,833,334 (as adjusted for the
Reverse Stock Split (defined below)) shares, subject to
adjustments for stock splits, stock dividends or other similar
changes in our common stock or our capital
structure.
Our 2014 Plan provides for the grant of (a) Incentive Stock Options
(within the meaning of Section 422 of the Code) to our
full-time employees (“Employees”), subject to the requirements of Section
422(c)(6) where an Employee owns 10% or more of our voting stock
outstanding; (b) Non-Qualified Options (together with Incentive
Stock Options, “Options”); (c) stock awards; and (d) performance
shares to any individual who is (i) an Employee, (ii) a member of
our Board, or (iii) an independent contractor who provides services
for the Company.
Plan Administration
Pursuant to the 2014 Plan, our Board has delegated the authority to
administer the 2014 Plan to the Board’s compensation
committee (the “Committee”). Subject to the provisions of our 2014
Plan, the Committee has the power to determine the terms of the
awards, including the exercise price, the number of shares subject
to each award, the exercisability of the awards, and the form of
consideration, if any, payable upon exercise. The Committee also
has the authority to amend, modify, extend renew or terminate
outstanding Options, or may accept the cancellation of outstanding
Options, whether or not granted under the 2014 Plan, in return for
the grant of new Options at the same or a different price.
Additionally, the Committee may shorten the vesting period, extend
the exercise period, remove any or all restrictions or convert an
Incentive Option to a Non-Qualified Option, if, at its sole
discretion, it determines that such action is in the best interest
of the Company; provided, however,
that any modification made to
outstanding Options requires the prior consent of the holder(s) of
such Options, unless the Committee determines that the action would
not materially and adversely affect such
holder(s).
Incentive Stock Options
The exercise price of Incentive Stock Options granted under our
2014 Plan must at least be equal to 100% of the fair market value
of our common stock on the date of grant. The term of an Incentive
Stock Option may not exceed ten years, except that with respect to
any participant who owns more than 10% of the voting power of all
classes of our outstanding stock, the term must not exceed five
years and the exercise price must equal at least 110% of the fair
market value on the grant date.
Non-Qualified Stock Options
The exercise price of Non-Qualified Options granted under our 2014
Plan must at least be equal to 85% of the fair market value of our
common stock on the date of grant. The term of a Non-Qualified
Stock Option may not exceed ten years.
Stock Awards or Sales
Eligible individuals may be issued shares of common stock directly,
upon the attainment of performance milestones or the completion of
a specified period of service or as a bonus for past services. The
purchase price for the shares shall not be less than 100% of the
fair market value of the shares on the date of issuance, and
payment may be in the form of cash or past services rendered.
Eligible individuals shall have no stockholder rights with respect
to any unvested restricted shares or restricted share units issued
to them under the stock award or sales program, however, eligible
individuals shall have the right to receive any regular cash
dividends paid on such shares.
Termination of Relationship
Except as the Committee may otherwise determine with respect to a
Non-Qualified Stock Option, if the holder of an Option ceases to
have a Relationship (as defined in the 2014 Plan) with the Company
for any reason other than death or permanent disability, any
Options granted to him shall terminate 90 days from the date on
which such Relationship terminates; provided,
however, that no Option may be
exercised or claimed by the holder of an Option following the
termination of his Relationship for Cause (as defined in the 2014
Plan). In the event that the Relationship terminates as a result of
the death or permanent disability of the Option holder, any Options
granted to him shall terminate one year from the date of his death
or termination due to permanent disability. In no event may an
option be exercised later than the expiration of its
term.
Certain Adjustments
In the event of certain changes in our capitalization, to prevent
diminution or enlargement of the benefits or potential benefits
available under the 2014 Plan, the administrator will adjust the
number and class of shares available for future grants under the
2014 Plan, the exercise price of outstanding Options, the number of
shares covered by each outstanding award, or the purchase price of
each outstanding award.
In connection with the one-for-three Reverse Stock Split (defined
below) of our common stock that was effected on February 8, 2019,
the terms of certain awards granted under our 2014 Plan were
equitably adjusted in accordance with the provisions
thereof.
Reorganization
In the event we are a party to a merger or other corporate
reorganization, all outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement may provide
for the assumption of the outstanding Options by the surviving
corporation or its parent or for their continuation by the Company
(if the Company is a surviving corporation); provided,
however, that if the assumption
or continuation is not provided by such agreement, then the
Committee, in its sole discretion, shall have the option of
offering the payment of a cash settlement equal to the difference
between the amount to be paid for one share under the agreement and
the exercise price.
Change of Control
Under the 2014 Plan, a Change of Control is generally defined as:
(i) the sale of all or substantially all of the assets of the
Company, or (ii) any merger, consolidation or acquisition of the
Company with, by or into another corporation, entity or third
party, the result of which is a change in the ownership of more
than 50% of the voting capital stock of the Company.
In the event of a Change of Control, all restrictions on all awards
or sales of shares will accelerate and vesting on all unexercised
and unvested Options will occur on the Change of Control
date.
Director Compensation
On
January 31, 2019, our Board adopted a director compensation plan
for our non-employee directors, which plan will go into effect upon
completion of our IPO, the details of which are presented in the
table below. We do not provide non-equity incentive plan
awards, deferred compensation or retirement plans
for non-employee directors.
Schedule of Director Fees
Compensation
Element
|
Cash (1)
|
Equity (2)
|
|
|
|
One-Time Payment
Upon Completion of IPO
|
$ -
|
$ 60,000(3)
|
|
|
|
New Director
Payment
|
$ -
|
$ 60,000(4)
|
|
|
|
Annual
Retainer
|
$ 20,000
|
$ 60,000(5)
|
(1)
|
Cash
compensation is payable in equal installments on a quarterly basis;
provided, however, that no monthly cash retainer will be paid after
any termination of service.
|
|
|
(2)
|
Equity
awards will be issuable in the form of restricted stock units
(“RSUs”), which
RSUs will vest in equal installments on a monthly basis and become
fully vested on the one-year anniversary of each respective initial
grant date.
|
|
|
(3)
|
Upon
competition of the IPO, each non-employee director will receive
that number of RSUs at a per share price equal to the per share
initial public offering price disclosed in this
prospectus.
|
|
|
(4)
|
Following
the completion of the IPO, any new non-employee director appointed
to the Board will receive a RSU having a grant date value equal to
a prorated portion of annual RSU award amount, which RSU will vest
in equal installments on a monthly basis and become fully vested on
the earlier of (i) the one year anniversary of the initial grant
date or (ii) the next annual meeting of the Company’s
stockholders.
|
|
|
(5)
|
On the
date of the Company’s annual meeting of stockholders, each
director will receive an RSU at a per share price equal to the
closing price of the Company’s common stock on the grant
date, which RSU will vest in equal installments on a monthly basis
and become fully vested on the one-year anniversary of the initial
grant date.
|
2018 Summary Table of Director Compensation
The following table sets forth the compensation awarded to, earned
by, or paid to each person who served as a non-employee director
during the fiscal year ended December 31, 2018:
Name
|
Fees Earned
or
Paid
in Cash (1) ($)
|
|
|
|
|
|
|
|
|
John Miller (2)
|
-
|
$75,000(3)
|
|
$ 75,000
|
(1)
|
Our non-employee directors did not receive any cash payments as
compensation for their service on our Board for Fiscal
2018.
|
(2)
|
Mr.
Miller intends to resign from the Board contingent upon and
effective immediately prior to the effectiveness of the
registration statement to which this prospectus forms a
part.
|
(3)
|
Represents $75,000 paid to Mr. Miller in consideration for
providing strategic advisory services to the Company during the
year ended December 31, 2018. Such payments were unrelated to those
services he provided to us as a director on our Board.
|
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
On
August 3, 2018, CaliBurger entered into a Note Purchase Agreement
for the purchase of a 2018 Note in the principal amount of $1.0
million, as well as corresponding 2018 Warrants. Subsequent to
August 3, 2018, $200,000 of the 2018 Notes and related 2018
Warrants were transferred to unrelated third-parties. John Miller,
one of our co-founders and members of our Board, is also the
founder and serves on the board of directors of
CaliBurger.
On
February 21, 2018, the Company issued a 9.00% Senior Secured
Convertible Promissory Note with common stock purchase warrants in
the original principal amount of $1.0 million, which note was
converted (including all original principal and accrued interest)
on May 28, 2018 into a new 9.00% Senior Secured Convertible
Promissory Note with common stock purchase warrants. Subsequently,
on August 2, 2018, CaliBurger purchased an additional
9.00% Senior Secured Convertible Promissory Note in the original
principal amount of $1,000,000 with common stock purchase
warrants.
On June 30, 2017,
CaliBurger purchased 222,222 shares of our common stock at a price
of $10.80 per share, resulting in total aggregate proceeds to the
Company of $2.4 million.
In October 2014, we
entered into an asset purchase agreement (the “APA”) with CaliBurger, pursuant
to which the Company purchased certain assets from CaliBurger in
exchange for 333,333 shares of our common stock, then valued at
$100,000 in the aggregate.
In May
2015, we entered into a consulting agreement with Mr. Miller,
pursuant to which Mr. Miller provided consulting services including
assistance with business and corporate strategies, for which Mr.
Miller received a monthly consulting fee of $6,250. The term of the
consulting agreement ended as of December 31, 2018.
Related Party Transaction Policy
Our
Board recognizes the fact that transactions with related persons
present a heightened risk of conflicts of interests and/or improper
valuation (or the perception thereof). Accordingly, our Board has
adopted a written policy addressing the approval of transactions
with related persons, in conformity with the requirements for
issuers having publicly held common stock listed on the Nasdaq
Capital Market. Pursuant to our Related Persons Transactions Policy
(the “Policy”),
any related-person transaction, and any material amendment or
modification of a related-person transaction, is required to be
reviewed and approved or ratified by the Board’s audit
committee, which shall be composed solely of independent directors
who are disinterested, or in the event that a member of the audit
committee is a Related Person, as defined below, then by the
disinterested members of the audit committee; provided, however, that in the event
that management determines that it is impractical or undesirable to
delay the consummation of a related person transaction until a
meeting of the audit committee, then the Chair of the audit
committee may approve such transaction in accordance with this
policy; such approval must be reported to the audit committee at
its next regularly scheduled meeting. In determining whether to
approve or ratify any related person transaction, the audit
committee must consider all of the relevant facts and circumstances
and shall approve only those transactions that are deemed to be in
the best interests of the Company.
Pursuant to our Policy and SEC rules, a “related person
transaction” includes any transaction, arrangement or
relationship which: (i) the Company is a participant; (ii) the
amount involved exceeds $120,000; and (iii) an executive officer,
director or director nominee, or any person who is known to be the
beneficial owner of more than 5% of our common stock, or any person
who is an immediate family member of an executive officer, director
or director nominee or beneficial owner of more than 5% of our
common stock, had or will have a direct or indirect material
interest (each a “Related
Person”).
In
connection with the review and approval or ratification of a
related person transaction:
●
Management shall be
responsible for determining whether a transaction constitutes a
related person transaction subject to the Policy, including whether
the Related Person has a material interest in the transaction,
based on a review of all of the facts and circumstances;
and
●
Should management
determine that a transaction is a related person transaction
subject to the Policy, it must disclose to the audit committee all
material facts concerning the transaction and the Related
Person’s interest in the transaction.
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The
following table sets forth certain information known to us
regarding beneficial ownership of our common stock as of
February 11, 2019 for (i) each of our executive
officers and directors individually, (ii) all of our executive
officers and directors as a group, and (iii) each person, or group
of affiliated persons, known by us to be the beneficial owner of
more than 5% of our capital stock. The percentage of beneficial
ownership in the table below is based on 4,610,109
shares of common stock deemed to be outstanding as of
February 11, 2019.
Name,
address and title of beneficial owner (1)
|
|
Total
Number of Shares Subject to Exercisable Options and
Warrants
|
Total
Number of Shares Issuable Upon Conversion of Outstanding Promissory
Notes (2)
|
Total
Number of Shares Beneficially Owned
|
Percentage
of Voting Common Stock Outstanding (3)
|
|
Officers and Directors
|
|
|
|
|
|
Ann
Hand
Chief Executive Officer, President and Chair
|
73,374
|
563,543
|
-
|
636,917
|
13.8%
|
|
David
Steigelfest
Chief Products and Technology Officer
|
50,000
|
179,170
|
-
|
229,170
|
5.0%
|
|
Clayton
Haynes
Chief Financial Officer
|
-
|
20,001
|
-
|
20,001
|
*
|
|
Matt
Edelman
Chief Commercial Officer
|
-
|
35,600
|
-
|
35,600
|
*
|
|
John Miller (4)
Director
|
56,153
|
186,694
|
168,175
|
411,022
|
8.9%
|
|
Jeff Gehl (5)
Director
|
64,529
|
106,622
|
35,324
|
206,475
|
4.5%
|
|
Robert Stewart, Jr. (6)
Director
|
225,926
|
77,907
|
9,387
|
313,220
|
6.8%
|
|
Peter
Levin
Director
|
-
|
31,251
|
-
|
31,251
|
*
|
|
Kristin
Patrick
Director
|
-
|
-
|
-
|
-
|
-
|
|
Michael Keller (7)
Director
|
-
|
88,544
|
79,284
|
167,828
|
3.6%
|
|
Executive Officers and Directors as a
Group (10 persons)
|
469,982
|
1,289,332
|
292,170
|
2,051,484
|
44.5%
|
|
|
|
|
|
|
|
|
Greater
than 5% Stockholders
|
|
|
|
|
|
CaliBurger
(8)
Floor 4, Willow
House, Cricket Square
Grand Cayman,
Cayman Islands
KY1-1104
|
261
|
186,693
|
168,174
|
355,128
|
7.2%
|
|
Pu Luo Chung VC Private
Limited (9)
37 Jalan
Pemimpin
#
06-12
Singapore
577177
|
471,129
|
-
|
-
|
471,129
|
8.9%
|
|
_______________________
* Less
than 1.0%
(1)
|
Unless otherwise
indicated, the business address for each of the executive officers
and directors is c/o Super League Gaming, Inc., 2906 Colorado Ave.,
Santa Monica, CA 90404.
|
(2)
|
Includes shares
issuable upon conversion of outstanding 2018 Notes issued by the
Company in connection with the 2018 Bridge Financing. Upon closing
of the offering described in this prospectus, all outstanding
principal and accrued interest will automatically convert into
shares of common stock at the lesser of (x) $10.80 per share or (y)
a 15% discount to the public offering price per share. For purposes
of this table, we have assumed the 2018 Notes held by Mr. Gehl and
the Robert B. Stewart, Jr. Sole and Separate Property Trust will
convert into shares of common stock at a price of $10.80 per share
and have excluded any accrued but unpaid
interest.
For additional
information regarding the 2018 Notes held by Mr. Gehl and the
Robert B. Stewart, Jr. Sole and Separate Property Trust, as well as
the 2018 Warrants issued in connection with the issuance of the
2018 Notes, see footnotes 5, 6 and 8, hereto,
respectively.
|
(3)
|
Beneficial
ownership is determined in accordance with the rules of the SEC. In
computing the number of shares beneficially owned by a person and
the percentage of ownership by that person, shares of voting common
stock subject to outstanding rights to acquire shares of voting
common stock held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares are
not deemed outstanding for the purpose of computing the percentage
of ownership by any other person.
|
(4)
|
In January 2019, CaliBurger completed a
dividend pursuant to which it distributed all of the shares of the
Company’s common stock previously held by CaliBurger to its
stockholders (the “CaliBurger Dividend”). Following
the CaliBurger Dividend, Mr. Miller retained beneficial ownership
of the following shares: (i) 804 shares held directly by Mr.
Miller; (ii) 333 shares held by the Miller Investment Partnership;
(iii) 5,804 shares held by Miller Resort, LLC; (iv) 47,619 shares
held by Miller Time, LLC;(v) 2,318 shares held by the
Miller-Lomelino Partnership; and (vi) all securities that are held
by CaliBurger following the CaliBurger Dividend as described in
footnote 8 below.
As a partner of the
Miller Investment Partnership and the Miller-Lomelino Partnership,
a principal of Miller Resort, LLC and Miller Time, LLC, and a
Director of CaliBurger, Mr. Miller may be deemed to beneficially
own the securities held directly by each
entity.
|
(5)
|
Includes shares
issuable upon conversion of 2018 Notes held by BigBoy, LLC and
BigBoy Investment Partnership, entities controlled by Mr. Gehl, in
the collective principal amount of $381,494, as well as shares of
common stock issuable upon exercise of the 2018 Warrants issued to
Mr. Gehl’s entities in connection with his purchase of the
2018 Notes. As noted in footnote 2 above, for purposes of this
table, we have assumed the 2018 Notes held by Mr. Gehl’s
entities will convert into shares of common stock at a price of
$10.80 per share, and accordingly will result in the issuance of
35,324 shares of common stock, and the 2018 Warrants issued to Mr.
Gehl’s entities will be exercisable for up to 39,954 shares
of common stock. A portion of the 2018 Warrants, exercisable for
35,324 shares of common stock, are callable, at the option of the
Company, at any time following the completion of the offering
described in this prospectus.
Also includes 6,667
shares held by Jeff Gehl, 33,333 shares held by BigBoy Investment
Partnership, LLC and 24,532 shares held by BigBoy, LLC. Mr. Gehl is
the Managing Member of BigBoy Investment Partnership and BigBoy,
LLC, and, therefore, may be deemed to beneficially own these
shares.
The business
address for BigBoy Investment Partnership and BigBoy, LLC is 111
Bayside Dr., Suite 270, Newport Beach, CA
92625.
|
(6)
|
Includes shares
issuable upon conversion of 2018 Notes held by the Robert B.
Stewart, Jr. Sole and Separate Property Trust (the
“Stewart
Trust”) in the principal amount of $101,380, as well
as shares of common stock issuable upon exercise of the 2018
Warrant issued to the Stewart Trust in connection with its purchase
of the 2018 Notes. As noted in footnote 2 above, for purposes of
this table, we have assumed the 2018 Notes held by the Stewart
Trust will convert into shares of common stock at a price of $10.80
per share, and accordingly will result in the issuance of 9,387
shares of common stock, and the 2018 Warrants held by the Stewart
Trust will be exercisable for up to 9,387 shares of common stock. A
portion of the 2018 Warrants, exercisable for 9,387 shares of
common stock, are callable, at the option of the Company, at any
time following the completion of the offering described in this
prospectus.
Also includes
92,592 shares held by the Stewart Trust, additional 2018 Warrants
(non-callable) to purchase up to 1,852 shares of common stock held
by the Stewart Trust, and an option to purchase 33,334 shares of
common stock.
Mr. Stewart is the
trustee for the Stewart Trust, and, therefore, may be deemed to
beneficially own these shares.
|
(7)
|
Includes shares
issuable upon conversion of 2018 Notes held by Michael Keller in
the principal amount of $856,245, as well as shares of common stock
issuable upon exercise of the 2018 Warrants issued to Michael
Keller in connection with the purchase of the 2018 Notes. As noted
in footnote 2 above, for purposes of this table, we have assumed
the 2018 Notes held by Michael Keller will convert into shares of
common stock at a price of $10.80 per share, and accordingly will
result in the issuance of 79,284 shares of common stock, and the
2018 Warrants held by Michael Keller will be exercisable for up to
88,544 shares of common stock. A portion of the 2018 Warrants,
exercisable for 79,284 shares of common stock, are callable, at the
option of the Company, at any time following the completion of the
offering described in this prospectus.
|
(8)
|
Includes shares
issuable upon conversion of 2018 Notes held by CaliBurger in the
principal amount of $2,016,270, as well as shares of common stock
issuable upon exercise of the 2018 Warrant issued to CaliBurger in
connection with its purchase of the 2018 Notes. As noted in
footnote 2 above, for purposes of this table, we have assumed the
2018 Notes held by CaliBurger will convert into shares of common
stock at a price of $10.80 per share, and accordingly will result
in the issuance of 168,175
shares of common stock, and the 2018 Warrants held by CaliBurger
will be exercisable for up to 186,694
shares of common stock. A portion of the 2018 Warrants, exercisable
for 168,175
shares of common stock, are callable, at the option of the Company,
at any time following the completion of the offering described in
this prospectus.
As noted in
footnote 4 above, Mr. Miller, a member of our Board of Directors,
is a Director of CaliBurger, and may be deemed to beneficially own
these securities.
|
(9)
|
Stuart Hills,
partner of Pu Luo Chung VC Private Limited has sole voting and
dispositive power over these shares and may be deemed to
beneficially own these securities.
|
DESCRIPTION
OF SECURITIES
The following is a summary of the rights of our capital stock as
provided in our Charter and our Bylaws. For more detailed
information, please see our Charter and Bylaws that will be in
effect upon the completion of this offering, which have been filed
as exhibits to the Registration Statement of which this prospectus
is a part.
Summary of Securities
The
following description summarizes certain terms of our capital
stock, as in effect upon the completion of this offering. Our Board
of Directors and holders of a majority of our outstanding voting
securities approved of a second amendment and restatement of our
Charter (the “Amended and
Restated Charter”), which was subsequently approved by
our stockholders and filed with the State of Delaware on November
19, 2018. The following description summarizes the provisions of
the Amended and Restated Charter, including the number of shares of
common stock that are authorized for issuance under the Amended and
Restated Charter, and the authorization of shares of preferred
stock. Because the foregoing is only a summary, it does not contain
all the information that may be important to you. For a complete
description of the matters set forth in this section you should
refer to our Charter and Bylaws, which are included as exhibits to
this prospectus, and to the
applicable provisions of Delaware law.
Common Stock
Our Amended and Restated Charter currently authorizes 100.0 million
shares of common stock for issuance. As of February
11, 2019, there were 4,610,109 shares of our
common stock issued and outstanding, which were held by
approximately 231 stockholders of record,
approximately 1,208,936 shares of common stock
issuable pursuant to outstanding convertible promissory notes
(assuming the 2018 Notes are convertible into shares of common
stock at a price of $10.80 per share), approximately
2,390,968 shares of common stock issuable upon
exercise of warrants to purchase our common stock (assuming the
2018 Notes are convertible into shares of common stock at a price
of $10.80 per share, resulting in the same number of
2018 Warrants), 1,524,468 shares of common stock
issuable upon exercise of options held, 10,834 shares
of our common stock issuable upon the vesting of restricted stock
units held and 274,698 shares of common stock authorized and available
for issuance pursuant to our 2014 Plan. Each holder of common stock
is entitled to one vote for each share of common stock held on all
matters submitted to a vote of the stockholders, including the
election of directors. Neither our Bylaws or the Amended and
Restated Charter do not and will not provide for cumulative voting
rights.
In addition to the Amended and Restated Charter, in September 2018
holders of a majority of our issued and outstanding securities
authorized our Board of Directors, acting in its sole discretion
without further approval of our stockholders, to effect a reverse
split of our issued and outstanding common stock, at a ratio of not
less than one-for-two, but not more than one-for-five, at any time
on or before August 15, 2019 (the “Reverse Stock
Split”). On
January 31, 2019, our Board of Directors approved of a ratio of
one-for three, and on February 8, 2019, we filed a Certificate of
Amendment to our Charter to implement the Reverse Stock
Split.
Holders of our common stock have no preemptive, conversion or
subscription rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The rights, preferences
and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares
of any series of our preferred stock that we may designate and
issue in the future.
Preferred Stock
Under our Amended and Restated Charter, our Board of Directors has
the authority, without further action by our stockholders, to issue
up to 10.0 million shares of preferred stock in one or more series
and to fix the voting powers, designations, preferences and the
relative participating, optional or other special rights and
qualifications, limitations and restrictions of each series,
including, without limitation, dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any
series.
As of February 11, 2019, no shares of our authorized
preferred stock are outstanding. Because our Board of Directors has
the power to establish the preferences and rights of the shares of
any additional series of preferred stock, it may afford holders of
any preferred stock preferences, powers and rights, including
voting and dividend rights, senior to the rights of holders of our
common stock, which could adversely affect the holders of the
common stock and could delay, discourage or prevent a takeover of
us even if a change of control of our company would be beneficial
to the interests of our stockholders.
Registration Rights
In connection with the 2018 Bridge Financing, we provided each
holder of a 2018 Note with registration rights to register the
shares of common stock issuable upon conversion of the 2018 Notes
and upon exercise of the 2018 Warrants, subject to certain
limitations. In addition, the holders of the 2018 Notes and the
2018 Warrants agreed to certain lock-up restrictions on the shares
of common stock underlying the 2018 Notes and the 2018 Warrants
that limit the ability of each holder to freely trade such shares
during the 180-day period following the completion of the offering
described in this prospectus.
In
addition, we granted certain registration rights to Riot Games with
respect to shares of common stock and shares of common stock
issuable upon exercise of certain warrants issued to Riot Games
pursuant to the Riot Licensing Agreement.
We have agreed to pay all of the expenses associated with each of
such registrations.
Anti-Takeover Matters
Charter and Bylaw Provisions
The
provisions of Delaware law, our Amended and Restated Charter, and
our Bylaws include a number of provisions that may have the effect
of delaying, deferring, or discouraging another person from
acquiring control of our company and discouraging takeover bids.
These provisions may also have the effect of encouraging persons
considering unsolicited tender offers or other unilateral takeover
proposals to negotiate with our Board rather than pursue
non-negotiated takeover attempts. These provisions include
the items described below.
Board Composition and Filling Vacancies
Our
Bylaws provide that any vacancy on our Board may only be filled by
the affirmative vote of a majority of our directors then in office,
even if less than a quorum. Further, any directorship vacancy
resulting from an increase in the size of our Board of Directors,
may be filled by election of the Board of Directors, but only for a
term continuing until the next election of directors by our
stockholders.
No Cumulative Voting
The
DGCL provides that stockholders are not entitled to the right to
cumulate votes in the election of directors unless certificate of
incorporation of the Company in which they own stock provides
otherwise. Neither our Amended and
Restated Charter nor our Bylaws provide that our
stockholders shall be entitled to cumulative voting.
Delaware Anti-Takeover Statute
Upon
completion of this offering, we will be subject to the provisions
of Section 203 of the DGCL. In general, Section 203 prohibits
persons deemed to be “interested
stockholders” from engaging in a “business
combination” with a publicly held Delaware corporation for
three years following the date these persons become interested
stockholders unless the business combination is, or the transaction
in which the person became an interested stockholder was, approved
in a prescribed manner or another prescribed exception applies.
Generally, an “interested stockholder” is a person who,
together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status
did own, 15% or more of a corporation’s voting stock.
Generally, a “business combination” includes a merger,
asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. The existence of this
provision may have an anti-takeover effect with respect to
transactions not approved in advance by the Board. A Delaware
corporation may “opt out” of these provisions with an
express provision in its original certificate of incorporation or
an express provision in its certificate of incorporation or bylaws
resulting from an amendment approved by at least a majority of the
outstanding voting shares. We have not opted out of these
provisions. As a result, mergers or other takeover or change in
control attempts of us may be discouraged or
prevented.
Choice of Forum
Our
Bylaws provide that Delaware will be the exclusive forum for any
derivative action or proceeding brought on our behalf; any action
asserting a breach of fiduciary duty; any action asserting a claim
against us arising pursuant to the DGCL, our Amended and
Restated Charter or our
Bylaws; or any action asserting a claim against us that is governed
by the internal affairs doctrine. The enforceability of similar
choice of forum provisions in other companies’ certificates
of incorporation has been challenged in legal proceedings, and it
is possible that a court could find these types of provisions to be
inapplicable or unenforceable.
MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section summarizes the material U.S. federal income tax
considerations relating to the acquisition, ownership and
disposition of our common stock acquired by “non-U.S.
holders” (as defined below) pursuant to this offering. This
summary does not provide a complete analysis of all potential U.S.
federal income tax considerations relating thereto. The information
provided below is based upon provisions of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated
thereunder, administrative rulings and judicial decisions currently
in effect. These authorities may change at any time, possibly
retroactively, or the Internal Revenue Service (the
“IRS”), might interpret the existing authorities
differently. In either case, the tax considerations of owning or
disposing of our common stock could differ from those described
below. As a result, we cannot assure you that the tax consequences
described in this discussion will not be challenged by the IRS or
will be sustained by a court if challenged by the
IRS.
This summary does not address the tax considerations arising under
the laws of any non-U.S., state or local jurisdiction, or under
U.S. federal gift and estate tax laws, except to the limited extent
provided below. In addition, this discussion does not address tax
considerations applicable to an investor’s particular
circumstances or to investors that may be subject to special tax
rules, including, without limitation:
●
banks,
insurance companies or other financial institutions;
●
partnerships
or entities or arrangements treated as partnerships or other
pass-through entities for U.S. federal tax purposes (or investors
in such entities);
●
corporations
that accumulate earnings to avoid U.S. federal income tax;
●
persons
subject to the alternative minimum tax or Medicare contribution tax
on net investment income;
●
tax-exempt
organizations or tax-qualified retirement plans;
●
controlled
foreign corporations or passive foreign investment
companies;
●
dealers
in securities or currencies;
●
traders
in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
●
persons
that own, or are deemed to own, more than 5% of our capital stock
(except to the extent specifically set forth below);
●
certain
former citizens or former long-term residents of the United
States;
●
persons
who hold our common stock as a position in a hedging transaction,
“straddle,” “conversion transaction” or
other risk reduction transaction;
●
persons
who do not hold our common stock as a capital asset within the
meaning of Section 1221 of the Code (generally, for investment
purposes); or
●
persons
deemed to sell our common stock under the constructive sale
provisions of the Code.
In
addition, if a partnership or entity classified as a partnership
for U.S. federal income tax purposes is a beneficial owner of our
common stock, the tax treatment of a partner in the partnership or
an owner of the entity will depend upon the status of the partner
or other owner and the activities of the partnership or other
entity. Accordingly, this summary does not address tax
considerations applicable to partnerships that hold our common
stock, and partners in such partnerships should consult their tax
advisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS,
AND TAX TREATIES.
Non-U.S. Holder Defined
For purposes of this summary, a “non-U.S. holder” is
any beneficial owner of our common stock, other than a partnership,
that is not:
●
an
individual who is a citizen or resident of the United
States;
●
a
corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized under the laws of
the United States,
●
any
state therein or the District of Columbia;
●
a
trust if it (i) is subject to the primary supervision of a U.S.
court and one of more U.S. persons have authority to control all
substantial decisions of the trust or (ii) has a valid election in
effect under applicable U.S. Treasury regulations to be treated as
a U.S. person; or
●
an
estate whose income is subject to U.S. income tax regardless of
source.
If
you are a non-U.S. citizen that is an individual, you may, in many
cases, be treated as a resident alien, as opposed to a nonresident
alien, by virtue of being present in the United States for at least
31 days in the calendar year and for an aggregate of at least 183
days during a three-year period ending in the current calendar
year. For these purposes, all the days present in the current year,
one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year are
counted. Resident aliens are subject to U.S. federal income tax as
if they were U.S. citizens. Such an individual is urged to consult
his or her own tax advisor regarding the U.S. federal income tax
consequences of the ownership or disposition of our common
stock.
Dividends
We do not expect to declare or make any distributions on our common
stock in the foreseeable future. If we do make distributions on
shares of our common stock, however, such distributions will
constitute dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits,
as determined under U.S. federal income tax principles.
Distributions in excess of our current and accumulated earnings and
profits will constitute a return of capital that is applied against
and reduces, but not below zero, a non-U.S. holder’s adjusted
tax basis in shares of our common stock. Any remaining excess will
be treated as gain realized on the sale or other disposition of our
common stock. See “Sale of Common
Stock”
below.
Any dividend paid to a non-U.S. holder of our common stock that is
not effectively connected with the non-U.S. holder’s conduct
of a trade or business in the United States will generally be
subject to U.S. withholding tax at a 30% rate. The withholding tax
might apply at a reduced rate, however, under the terms of an
applicable income tax treaty between the United States and the
non-U.S. holder’s country of residence. You should consult
your tax advisors regarding your entitlement to benefits under a
relevant income tax treaty. Generally, in order for us or our
paying agent to withhold tax at a lower treaty rate, a non-U.S.
holder must certify its entitlement to treaty benefits. A non-U.S.
holder generally can meet this certification requirement by
providing an IRS Form W-8BEN or Form W-8BEN-E (or any successor of
such forms) or appropriate substitute form to us or our paying
agent. If the non-U.S. holder holds the stock through a financial
institution or other agent acting on the holder’s behalf, the
holder will be required to provide appropriate documentation to the
agent. The holder’s agent will then be required to provide
certification to us or our paying agent, either directly or through
other intermediaries. If you are eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty, you may
obtain a refund or credit of any excess amounts withheld by filing
an appropriate claim for a refund with the IRS in a timely
manner.
Dividends received by a non-U.S. holder that are effectively
connected with a U.S. trade or business conducted by the non-U.S.
holder, and if required by an applicable income tax treaty between
the United States and the non-U.S. holder’s country of
residence, are attributable to a permanent establishment maintained
by the non-U.S. holder in the United States, are not subject to
U.S. withholding tax. To obtain this exemption, a non-U.S. holder
must provide us or our paying agent with an IRS Form W-8ECI
properly certifying such exemption. Such effectively connected
dividends, although not subject to withholding tax, are taxed at
the same graduated income tax rates applicable to U.S. persons, net
of certain deductions and credits. In addition to being taxed at
graduated tax rates, dividends received by corporate non-U.S.
holders that are effectively connected with a U.S. trade or
business of the corporate non-U.S. holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.
Sale of Common Stock
Subject to the discussions below regarding backup withholding and
the Foreign Account Tax Compliance Act, non-U.S. holders will
generally not be subject to U.S. federal income tax on any gains
realized on the sale, exchange or other disposition of our common
stock unless:
●
the
gain (i) is effectively connected with the conduct by the non-U.S.
holder of a U.S. trade or business and (ii) if required by an
applicable income tax treaty between the United States and the
non-U.S. holder’s country of residence, is attributable to a
permanent establishment maintained by the non-U.S. holder in the
United States (in which case the special rules described below
apply);
●
the
non-U.S. holder is an individual who is present in the United
States for 183 days or more in the taxable year of the sale,
exchange or other disposition of our common stock, and certain
other requirements are met (in which case the gain would be subject
to a flat 30% tax, or such reduced rate as may be specified by an
applicable income tax treaty, which may be offset by certain U.S.
source capital losses, even though the individual is not considered
a resident of the United States); or
●
the rules of the Foreign Investment in Real
Property Tax Act (“FIRPTA”), treat the stock as a “U.S. real
property interest” as defined in Section 897 of the
Code.
The FIRPTA rules may apply to a sale, exchange or
other disposition of our common stock if we are, or were within the
shorter of the five-year period preceding the disposition and the
non-U.S. holder’s holding period, a “U.S. real property
holding corporation” (as defined in Section 897 of the Code)
(“USRPHC”). In general, we would be a USRPHC if
interests in U.S. real estate comprised at least half of the value
of our business assets. We do not believe that we are a USRPHC and
we do not anticipate becoming one in the future. Even if we become
a USRPHC, as long as our common stock is regularly traded on an
established securities market, such common stock will be treated as
U.S. real property interests only if beneficially owned by a
non-U.S. holder that actually or constructively owned more than 5%
of our outstanding common stock at sometime within the five-year
period preceding the disposition.
If any gain from the sale, exchange or other disposition of our
common stock, (1) is effectively connected with a U.S. trade or
business conducted by a non-U.S. holder and (2) if required by an
applicable income tax treaty between the United States and the
non-U.S. holder’s country of residence, is attributable to a
permanent establishment maintained by such non-U.S. holder in the
United States, then the gain generally will be subject to U.S.
federal income tax at the same graduated rates applicable to U.S.
persons, net of certain deductions and credits. If the non-U.S.
holder is a corporation, under certain circumstances, that portion
of its earnings and profits that is effectively connected with its
U.S. trade or business, subject to certain adjustments, generally
would be subject also to a “branch profits tax.” The
branch profits tax rate is 30% unless reduced by applicable income
tax treaty.
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject
to U.S. federal estate tax on property with a U.S. situs. Because
we are a U.S. corporation, our common stock will be U.S. situs
property and therefore will be included in the taxable estate of a
nonresident alien decedent, unless an applicable estate tax treaty
between the United States and the decedent’s country of
residence provides otherwise.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make
specified payments to report the payments to the IRS. Among the
specified payments are dividends and proceeds paid by brokers to
their customers. The required information returns enable the IRS to
determine whether the recipient properly included the payments in
income. This reporting regime is reinforced by “backup
withholding” rules. These rules require the payors to
withhold tax from payments subject to information reporting if the
recipient fails to cooperate with the reporting regime by failing
to provide his taxpayer identification number to the payor,
furnishing an incorrect identification number, or failing to report
interest or dividends on his returns. The backup withholding tax
rate is currently 28%. The backup withholding rules do not apply to
payments to corporations, whether domestic or foreign, provided
they establish such exemption.
Payments to non-U.S. holders of dividends on common stock generally
will not be subject to backup withholding, and payments of proceeds
made to non-U.S. holders by a broker upon a sale of common stock
will not be subject to information reporting or backup withholding,
in each case so long as the non-U.S. holder certifies its status as
a non-U.S. holder (and we or our paying agent do not have actual
knowledge or reason to know the holder is a U.S. person or that the
conditions of any other exemption are not, in fact, satisfied) or
otherwise establishes an exemption. The certification procedures to
claim treaty benefits described under “Dividends” will generally satisfy
the certification requirements necessary to avoid the backup
withholding tax. We must report annually to the IRS any dividends
paid to each non-U.S. holder and the tax withheld, if any, with
respect to these dividends. Copies of these reports may be made
available to tax authorities in the country where the non-U.S.
holder resides.
Under the Treasury regulations, the payment of proceeds from the
disposition of shares of our common stock by a non-U.S. holder made
to or through a U.S. office of a broker generally will be subject
to information reporting and backup withholding unless the
beneficial owner certifies, under penalties of perjury, among other
things, its status as a non-U.S. holder (and the broker does not
have actual knowledge or reason to know the holder is a U.S.
person) or otherwise establishes an exemption. The payment of
proceeds from the disposition of shares of our common stock by a
non-U.S. holder made to or through a non-U.S. office of a broker
generally will not be subject to backup withholding and information
reporting, except as noted below. Information reporting, but not
backup withholding, will apply to a payment of proceeds, even if
that payment is made outside of the United States, if you sell our
common stock through a non-U.S. office of a broker that
is:
●
a
U.S. person (including a foreign branch or office of such
person);
●
a
“controlled foreign corporation” for U.S. federal
income tax purposes;
●
a
foreign person 50% or more of whose gross income from certain
periods is effectively connected with a U.S. trade or business;
or
●
a
foreign partnership if at any time during its tax year (a) one or
more of its partners are U.S. persons who, in the aggregate, hold
more than 50% of the income or capital interests of the partnership
or (b) the foreign partnership is engaged in a U.S. trade or
business, unless the broker has documentary evidence that the
beneficial owner is a non-U.S. holder and certain other conditions
are satisfied, or the beneficial owner otherwise establishes an
exemption (and the broker has no actual knowledge or reason to know
to the contrary).
Backup withholding is not an additional tax. Any amounts withheld
from a payment to a holder of common stock under the backup
withholding rules can be credited against any U.S. federal income
tax liability of the holder and may entitle the holder to a refund,
provided that the required information is furnished to the IRS in a
timely manner.
Foreign Account Tax Compliance Act
A U.S. federal withholding tax of 30% may apply to dividends and
the gross proceeds of a disposition of our common stock paid to a
foreign financial institution (as specifically defined by the
applicable rules) unless such institution enters into an agreement
with the U.S. government to withhold on certain payments and to
collect and provide to the U.S. tax authorities substantial
information regarding U.S. account holders of such institution
(which includes certain equity holders of such institution, as well
as certain account holders that are foreign entities with U.S.
owners). This U.S. federal withholding tax of 30% will also apply
to dividends and the gross proceeds of a disposition of our common
stock paid to a non-financial foreign entity unless such entity
provides the withholding agent with either a certification that it
does not have any substantial direct or indirect U.S. owners or
provides information regarding direct and indirect U.S. owners of
the entity. The 30% federal withholding tax described in this
paragraph cannot be reduced under an income tax treaty with the
United States or by providing an IRS Form W-8BEN or similar
documentation. The withholding tax described above will not apply
if the foreign financial institution or non-financial foreign
entity otherwise qualifies for an exemption from the rules and
certifies as such on a Form W-8BEN-E (or any successor of such
form). Under certain circumstances, a non-U.S. holder might be
eligible for refunds or credits of such taxes. Holders should
consult with their own tax advisors regarding the possible
implications of the withholding described herein.
The withholding provisions described above generally apply to
proceeds from a sale or other disposition of common stock if such
sale or other disposition occurs on or after January 1, 2019
and to payments of dividends on our common stock.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR
GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE
PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING
THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE
LAWS.
We are offering the shares of common stock described in this
prospectus through the underwriters listed below. Subject to the
terms of the underwriting agreement, the underwriters named below
have agreed to buy, severally and not jointly, the number of shares
of common stock listed opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment
option described below. Northland Securities, Inc. and Lake
Street Capital Markets, LLC are acting as the joint book-running
managers of this offering and representatives of the
underwriters.
Underwriter
|
|
Number
of Shares
|
|
Northland
Securities, Inc.
|
|
|
|
Lake
Street Capital Markets, LLC
|
|
|
|
National Securities
Corporation
|
|
|
|
|
|
|
|
Total
|
|
|
|
The
underwriters have advised us that they propose to initially offer
the shares of common stock to the public at a price of
$ per share. The
underwriters propose to offer the shares of common stock to certain
dealers at the same price less a concession of not more than
$ per share. After
the initial offering, these figures may be changed by the
underwriters.
The shares sold in this offering are expected to be ready for
delivery against payment in immediately available funds on or about
,
2019, subject to customary closing conditions. The underwriters may
reject all or part of any order.
We have granted to the underwriters an option to purchase up to an
additional 340,909 shares of common stock from us at
the same price to the public, and with the same underwriting
discount, as set forth in the table below. The underwriters may
exercise this option any time during the 30-day period after the
date of this prospectus, but only to cover over-allotments, if any.
To the extent the underwriters exercise the option, the
underwriters will become obligated, subject to certain conditions,
to purchase the shares for which they exercise the
option.
Commissions and Discounts
The table below summarizes the underwriting discounts that we will
pay to the underwriters. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option. In
addition to the underwriting discount, we have agreed to pay (i) up
to $275,000 of the fees and expenses of the underwriters, which may
include the fees and expenses of counsel to the underwriters, and
(ii), at the sole discretion of Northland Securities, Inc., an
additional fee equal to 0.5% of the gross proceeds
from this offering to the underwriters.
In connection with the successful completion of this offering, for
the price of $50.00, the underwriters may purchase a
warrant to purchase shares of our common stock equal to
3.0% of the shares sold in this offering at an exercise
price that is 100% of the public offering price per
share in this offering; provided further, that the underwriters
will only receive such warrants relating to the over-allotment
option upon the closing (if any) of the over-allotment option. The
underwriters’ warrants are exercisable during the period
commencing from the date of the prospectus and ending
five years from the date of this prospectus. The
underwriters’ warrants may not be sold during this offering,
or sold, transferred, assigned, pledged or hypothecated, or be the
subject of any hedging, short sale, derivative, put, or call
transaction that would result in the effective economic disposition
of the underwriters’ warrants, or the shares acquirable upon
exercise thereof, by any person for a period of 180 days
immediately following the effective date of this registration
statement, except as provided in paragraph (g)(2) of Rule 5110 of
FINRA. The fees and expenses of the underwriters that we have
agreed to reimburse are not included in the underwriting discounts
set forth in the table below.
We granted Northland Securities, Inc. a right of first refusal to
serve as exclusive placement agent (in the case of a private
offering), lead-managing underwriter (in the case of a public
offering) or exclusive financial advisor (in the case of a merger,
acquisition or sale transaction) in the event that we determine to
undertake such transaction within one year following the effective
date of this offering. In accordance with applicable rules of
FINRA, Northland Securities, Inc. does not have more than one
opportunity to waive or terminate the right of first refusal in
consideration of any payment or fee, and any payment or fee to
waive or terminate the right of first refusal must be paid in cash
and have a value not in excess of the greater of 1% of the proceeds
in this offering (or, if greater, the maximum amount permitted by
FINRA rules for compensation in connection with this offering) or
5% of the underwriting discount or commission paid in connection
with any future financing subject to right of first refusal
(including any overallotment option that may be exercised). This
right of first refusal is not reflected in the table
below.
Except as disclosed in this prospectus, the underwriters have not
received and will not receive from us any other item of
compensation or expense in connection with this offering considered
by FINRA to be underwriting compensation under FINRA Rule 5110. The
underwriting discount was determined through an arms’ length
negotiation between us and the underwriters.
|
|
Total with No
Over-Allotment
|
Total with
Over-Allotment
|
Underwriting
discount to be paid by us
|
|
|
|
We estimate that the total expenses of this offering, excluding
underwriting discounts, will be $896,052. This
includes $275,000 of fees and expenses of the underwriters. These
expenses are payable by us.
Indemnification
We also have agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act
of 1933, as amended, or to contribute to payments that the
underwriters may be required to make in respect of those
liabilities.
No Sales of Common Stock
We, each of our directors and officers and certain of our
significant stockholders have agreed not to offer, sell, agree to
sell, directly or indirectly, or otherwise dispose of any shares of
common stock or any securities convertible into or exchangeable for
shares of common stock without the prior written consent of
Northland Securities, Inc. and Lake Street Capital Markets, LLC for
a period of 180 days after the date of this prospectus. These
lock-up agreements provide limited exceptions and their
restrictions may be waived at any time by Northland Securities,
Inc. and Lake Street Capital Markets, LLC.
Determination of Offering Price
The underwriters have advised us that they propose to offer the
shares of common stock directly to the public at the estimated
initial public offering price range set forth on the cover page of
this prospectus. That price range and the initial public offering
price are subject to change as a result of market conditions and
other factors. Prior to this offering, no public market exists for
our common stock. The initial public offering price of the shares
was determined by negotiation between us and the underwriters. The
principal factors considered in determining the initial public
offering price of the shares included:
●
the
information in this prospectus and otherwise available to the
underwriters, including our financial information;
●
the
history and the prospects for the industry in which we
compete;
●
the
ability and experience of our management;
●
the
prospects for our future earnings;
●
the
present state of our development and our current financial
condition;
●
the
general condition of the economy and the securities markets in the
United States at the time of this initial public
offering;
●
the
recent market prices of, and the demand for, publicly-traded
securities of generally comparable companies; and
●
other
factors as were deemed relevant.
We cannot be sure that the initial public offering price will
correspond to the price at which the shares of common stock will
trade in the public market following this offering or that an
active trading market for the shares of common stock will develop
or continue after this offering.
Price Stabilization, Short Positions and Penalty Bids
To facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price
of our common stock during and after the offering. Specifically,
the underwriters may create a short position in our common stock
for their own accounts by selling more shares of common stock than
we have sold to the underwriters. The underwriters may close out
any short position by purchasing shares in the open
market.
In addition, the underwriters may stabilize or maintain the price
of our common stock by bidding for or purchasing shares in the open
market and may impose penalty bids. If penalty bids are imposed,
selling concessions allowed to broker-dealers participating in this
offering are reclaimed if shares previously distributed in this
offering are repurchased, whether in connection with stabilization
transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of our common stock at a
level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our
common stock to the extent that it discourages resales of our
common stock. The magnitude or effect of any stabilization or other
transactions is uncertain. These transactions may be effected on
the Nasdaq Capital Market or
otherwise and, if commenced, may be discontinued at any
time.
In connection with this offering, the underwriters and selling
group members may also engage in passive market making transactions
in our common stock on the Nasdaq Capital Market. Passive market making consists of
displaying bids on the Nasdaq Capital Market limited by the prices of
independent market makers and effecting purchases limited by those
prices in response to order flow. Rule 103 of Regulation M
promulgated by the SEC limits the amount of net purchases that each
passive market maker may make and the displayed size of each bid.
Passive market making may stabilize the market price of our common
stock at a level above that which might otherwise prevail in the
open market and, if commenced, may be discontinued at any
time.
Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of our common
stock. In addition, neither we nor the underwriters make any
representation that the underwriters will engage in these
transactions or that any transaction, if commenced, will not be
discontinued without notice.
Electronic Offer, Sale and Distribution of Shares
The underwriters or syndicate members may facilitate the marketing
of this offering online directly or through one of their respective
affiliates. In those cases, prospective investors may view offering
terms and a prospectus online and place orders online or through
their financial advisors. Such websites and the information
contained on such websites, or connected to such sites, are not
incorporated into and are not a part of this
prospectus.
Other Relationships
The underwriters and their affiliates are full service financial
institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial
advisory, investment management, investment research, principal
investment, hedging, financing and brokerage activities. The
underwriters have in the past, and may in the future, engage in
investment banking and other commercial dealings in the ordinary
course of business with us or our affiliates. The underwriters have
in the past, and may in the future, receive customary fees and
commissions for these transactions.
In the ordinary course of their various business activities, the
underwriters and their affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments (including
bank loans) for their own account and for the accounts of their
customers, and such investment and securities activities may
involve securities and/or instruments of the issuer. The
underwriters and their affiliates may also make investment
recommendations and/or publish or express independent research
views in respect of such securities or instruments and may at any
time hold, or recommend to clients that it acquires, long and/or
short positions in such securities and instruments.
Listing
In connection with this offering, we have applied to have our
common stock listed on the Nasdaq Capital Market under the symbol
“SLGG.” There is no assurance, however, that our common
stock will ever be listed on the Nasdaq Capital Market or any other
national securities exchange.
Transfer Agent and Registrar
Our transfer agent is Issuer Direct whose address is 1981 E. Murray Holladay Rd
#100, Salt Lake City, Utah 84117 and its telephone number is (801)
272-9294.
Additional Information
Northland
Capital Markets is the trade name for certain capital markets and
investment banking services of Northland Securities, Inc., member
FINRA/SIPC.
Selling Restrictions
No action has been taken in any jurisdiction except the United
States that would permit a public offering of our common stock, or
the possession, circulation or distribution of this prospectus or
any other material relating to us or our common stock in any
jurisdiction where action for that purpose is required.
Accordingly, the shares may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering
material or advertisements in connection with the shares may be
distributed or published, in or from any country or jurisdiction
except in compliance with any applicable rules and regulations of
any such country or jurisdiction.
Canada
The securities may be sold in Canada only to purchasers purchasing,
or deemed to be purchasing, as principal that are accredited
investors, as defined in National Instrument 45
106 Prospectus
Exemptions or subsection
73.3(1) of the Securities Act (Ontario), and are permitted clients,
as defined in National Instrument 31 103 Registration Requirements,
Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in
accordance with an exemption from, or in a transaction not subject
to, the prospectus requirements of applicable securities
laws.
Securities legislation in certain provinces or territories of
Canada may provide a purchaser with remedies for rescission or
damages if this prospectus (including any amendment thereto)
contains a misrepresentation, provided that the remedies for
rescission 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 particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33
105 Underwriting
Conflicts (NI 33 105), the
underwriters are not required to comply with the disclosure
requirements of NI 33 105 regarding underwriter conflicts of
interest in connection with this offering.
United Kingdom
Each
of the underwriters has, separately and not jointly, represented
and agreed that:
●
it has
not made or will not make an offer of the securities to the public
in the United Kingdom within the meaning of section 102B of the
Financial Services and Markets Act 2000 (as amended), or the FSMA,
except to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities or otherwise in circumstances which do not require the
publication by us of a prospectus pursuant to the Prospectus Rules
of the Financial Services Authority, or FSA;
●
it has
only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement
to engage in investment activity (within the meaning of section 21
of FSMA) to persons who have professional experience in matters
relating to investments falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005 or in circumstances in which section 21 of FSMA
does not apply to us; and
●
it has
complied with and will comply with all applicable provisions of
FSMA with respect to anything done by it in relation to the
securities in, from or otherwise involving the United
Kingdom.
Switzerland
The securities will not be offered, directly or indirectly, to the
public in Switzerland and this prospectus does not constitute a
public offering prospectus as that term is understood pursuant to
article 652a or 1156 of the Swiss Federal Code of
Obligations.
Israel
In the State of Israel this prospectus shall not be regarded as an
offer to the public to purchase shares of common stock under the
Israeli Securities Law, 5728—1968, which requires a
prospectus to be published and authorized by the Israel Securities
Authority, if it complies with certain provisions of
Section 15 of the Israeli Securities Law, 5728—1968,
including, inter alia, if: (i) the offer is made, distributed or
directed to not more than 35 investors, subject to certain
conditions (the “Addressed
Investors”); or (ii) the offer is made,
distributed or directed to certain qualified investors defined in
the First Addendum of the Israeli Securities Law, 5728—1968,
subject to certain conditions (the “Qualified Investors”). The
Qualified Investors shall not be taken into account in the count of
the Addressed Investors and may be offered to purchase securities
in addition to the 35 Addressed Investors. The company has not and
will not take any action that would require it to publish a
prospectus in accordance with and subject to the Israeli Securities
Law, 5728—1968. We have not and will not distribute this
prospectus or make, distribute or direct an offer to subscribe for
our common stock to any person within the State of Israel, other
than to Qualified Investors and up to 35 Addressed
Investors.
Qualified Investors may have to submit written evidence that they
meet the definitions set out in of the First Addendum to the
Israeli Securities Law, 5728—1968. In particular, we may
request, as a condition to be offered common stock, that Qualified
Investors will each represent, warrant and certify to us and/or to
anyone acting on our behalf: (i) that it is an investor
falling within one of the categories listed in the First Addendum
to the Israeli Securities Law, 5728—1968; (ii) which of
the categories listed in the First Addendum to the Israeli
Securities Law, 5728—1968 regarding Qualified Investors is
applicable to it; (iii) that it will abide by all provisions
set forth in the Israeli Securities Law, 5728—1968 and the
regulations promulgated thereunder in connection with the offer to
be issued common stock; (iv) that the shares of common stock
that it will be issued are, subject to exemptions available under
the Israeli Securities Law, 5728—1968: (a) for its own
account; (b) for investment purposes only; and (c) not
issued with a view to resale within the State of Israel, other than
in accordance with the provisions of the Israeli Securities Law,
5728—1968; and (v) that it is willing to provide further
evidence of its Qualified Investor status. Addressed Investors may
have to submit written evidence in respect of their identity and
may have to sign and submit a declaration
containing, inter alia, the Addressed Investor’s name, address and
passport number or Israeli identification
number.
European Economic Area
In
relation to each Member State of the European Economic Area (each,
a “Relevant Member
State”), no offer of shares of common stock may be
made to the public in that Relevant Member State other
than:
(a)
to any legal entity
which is a “qualified investor” as defined in the
Prospectus Directive;
(b)
to fewer than 150
natural or legal persons (other than qualified investors as defined
in the Prospectus Directive), as permitted under the Prospectus
Directive, subject to obtaining the prior consent of the
representatives; or
(c)
in any other
circumstances falling within Article 3(2) of the Prospectus
Directive, provided that no such offer of shares shall require the
Company or the representatives to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a prospectus
pursuant to Article 16 of the Prospectus Directive,
Each
person in a Relevant Member State who initially acquires any shares
or to whom any offer is made will be deemed to have represented,
acknowledged and agreed to and with each of the representatives and
the Company that it is a “qualified investor” within
the meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive. In the case of any
shares being offered to a financial intermediary as that term is
used in Article 3(2) of the Prospectus Directive, each such
financial intermediary will be deemed to have represented,
acknowledged and agreed that the shares acquired by it in the offer
have not been acquired on a non-discretionary basis on behalf of,
nor have they been acquired with a view to their offer or resale
to, persons in circumstances which may give rise to an offer of any
shares to the public other than their offer or resale in a Relevant
Member State to qualified investors as so defined or in
circumstances in which the prior consent of the representatives has
been obtained to each such proposed offer or resale.
For the
purposes of this provision, the expression an “offer of
shares to the public” in relation to any shares in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and
the shares to be offered so as to enable an investor to decide to
purchase or subscribe the shares, as the same may be varied in the
Relevant Member State by any measure implementing the Prospectus
Directive in the Relevant Member State and the expression
“Prospectus Directive” means Directive 2003/71/EC (as
amended by Directive 2010/73/EU), and includes any relevant
implementing measure in the Relevant Member State.
Hong Kong
The contents of this document have not been reviewed or approved by
any regulatory authority in Hong Kong. This document does not
constitute an offer or invitation to the public in Hong Kong to
acquire shares. Accordingly, unless permitted by the securities
laws of Hong Kong, no person may issue or have in its possession
for the purposes of issue, this document or any advertisement,
invitation or document relating to the shares, whether in Hong Kong
or elsewhere, which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong other
than in relation to shares which are intended to be disposed of
only to persons outside Hong Kong or only to “professional
investors” (as such term is defined in the Securities and
Futures Ordinance (Cap. 571, Laws of Hong Kong)
(“SFO”) and the
subsidiary legislation made thereunder); or in circumstances which
do not result in this document being a “prospectus” as
defined in the Companies (Winding Up and Miscellaneous Provisions)
Ordinance (Cap. 32, Laws of Hong Kong) (“CO”); or which do not constitute
an offer or an invitation to the public for the purposes of the SFO
or the CO. The offer of the shares is personal to the person
to whom this document has been delivered, and a subscription for
shares will only be accepted from such person. No person to whom a
copy of this document is issued may issue, circulate or distribute
this document in Hong Kong, or make or give a copy of this document
to any other person. You are advised to exercise caution in
relation to the offer. If you are in any doubt about any of the
contents of this document, you should obtain independent
professional advice.
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus and
any other document or material in connection with the offer or
sale, or invitation for subscription or purchase, of the shares may
not be circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription or
purchase, whether directly or indirectly, to persons in Singapore
other than (i) to an institutional investor pursuant to
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (“SFA”), (ii) to a relevant
person (as defined in Section 275(2) of the SFA), or any
person pursuant to Section 275(1A), and in accordance with the
conditions, specified in Section 275 of the SFA, or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the
SFA.
Where the shares are subscribed or purchased pursuant to an offer
made in reliance on Section 275 of the SFA by a relevant
person which is:
(a)
a corporation
(which is not an accredited investor) the sole business of which is
to hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited investor;
or
(b)
a trust
(where the trustee is not an accredited investor) whose sole
purpose is to hold investments and each beneficiary is an
accredited investor;
shares, debentures and units of shares, and debentures of that
corporation, or the beneficiaries’ rights and interest
(howsoever described) in that trust shall not be transferable for
six months after that corporation or that trust has acquired the
shares under Section 275 except:
(1)
to an
institutional investor or to a relevant person (as defined in
Section 275(2) of the SFA), or any person pursuant to Section
275(1A) of the SFA (in the case of that corporation) or
Section 276(4)(i)(B) of the SFA (in the case of that
trust);
(2)
where
no consideration is or will be given for the transfer;
or
(3)
where
the transfer is by operation of law.
SHARES ELIGIBLE
FOR FUTURE SALE
The shares of our common stock sold in this offering will be freely
tradable in the public market, except to the extent they are
acquired by an “affiliate” of ours, as such term is
defined in Rule 405 under the Securities Act. Under Rule 405, an
affiliate of a specified person is a person that directly, or
indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the specified
person. Any affiliate of ours that acquires our common stock can
only further transact in such common stock in compliance with Rule
144 under the Securities Act, which imposes sales volume
limitations and other restrictions on such further transactions.
See “Rule 144,”
below.
Rule 144
In general, a person who has beneficially owned restricted shares
of our common stock for at least twelve months, at least six
months, in the event we have been a reporting company under the
Exchange Act for at least 90 days before the sale, would be
entitled to sell such securities, provided that such person is not
deemed to be an affiliate of ours at the time of sale or to have
been an affiliate of ours at any time during the 90 days preceding
the sale. A person who is an affiliate of ours at such time would
be subject to additional restrictions, by which such person would
be entitled to sell within any three-month period only a number of
shares that does not exceed the greater of the
following:
●
1% of
the number of shares of our common stock then outstanding;
or
●
the
average weekly trading volume of our common stock during the four
calendar weeks preceding the filing by such person of a notice on
Form 144 with respect to the sale;
provided that, in each case, we are subject to the periodic
reporting requirements of the Exchange Act for at least 90 days
before the sale. Rule 144 trades must also comply with the manner
of sale, notice and other provisions of Rule 144, to the extent
applicable.
Lock-Up Agreements
We and our officers, directors, and current stockholders have
agreed, or will agree, with the underwriters, subject to certain
exceptions, that, without the prior written consent of the
underwriters, we and they will not, directly or indirectly, during
the period ending 180 days after the date of the
prospectus:
●
offer,
pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, or otherwise dispose of
or transfer any shares of the common stock or any securities
convertible into or exchangeable or exercisable for the common
stock, whether now owned or hereafter acquired by the
aforementioned or with respect to which any of the aforementioned
has or hereafter acquires the power of disposition; or
●
enter
into any swap or any other agreement or any transaction that
transfers, in whole or in part, the economic consequence of
ownership of the common stock, whether any such swap or transaction
is to be settled by delivery of the common stock or other
securities, in cash or otherwise.
The
validity of our shares of our common stock offered by this
prospectus will be passed upon for us by Disclosure Law Group, a
Professional Corporation, of San Diego, California. The
underwriters are being represented by Faegre Baker Daniels LLP,
Minneapolis, Minnesota, in connection with the
offering.
EXPERTS
Our
financial statements as of and for the years ended December 31,
2018 and 2017, have been included herein in reliance upon the
report of Squar Milner LLP, an independent registered public
accounting firm, appearing elsewhere herein, and given upon the
authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to this offering of our common stock.
This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement, some items of which are contained in
exhibits to the registration statement as permitted by the rules
and regulations of the SEC. For further information with respect to
us and our common stock, we refer you to the registration
statement, including the exhibits and the financial statements and
notes filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any
contract, or any other document, are not necessarily complete. If a
contract or document has been filed as an exhibit to the
registration statement, please see the copy of the contract or
document that has been filed. Each statement is this prospectus
relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit. The exhibits to the
registration statement should be referenced for the complete
contents of these contracts and documents. The SEC maintains an
internet website that contains reports, proxy statements and other
information about issuers, like us, that file electronically with
the SEC. The address of the SEC’s website is
www.sec.gov.
In
connection with this offering and before this registration
statement becomes effective, we will register our common stock with
the SEC under Section 12 of the Exchange Act and, upon such
registration, we will become subject to the information and
periodic reporting requirements of the Exchange Act, and we will
file periodic reports, proxy statements and other information with
the SEC. These periodic reports, proxy statements and other
information will be available at the website of the SEC referred to
above. We maintain a website at http://www.superleague.com. You may
access our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports,
proxy statements and other information filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act with the SEC free of
charge at our website as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the SEC.
The information contained in, or that can be accessed through, our
website is not part of this prospectus.
INDEX TO FINANCIAL
STATEMENTS
SUPER LEAGUE GAMING, INC.
|
|
|
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Financial Statements for the Years Ended December 31, 2018 and
2017
|
|
|
|
|
|
Balance
Sheets as of December 31, 2018 and 2017
|
|
F-3
|
Statements
of Operations for the years ended December 31, 2018 and
2017
|
|
F-4
|
Statements
of Stockholders’ Equity (Deficit) for the years ended
December 31, 2018 and 2017
|
|
F-5
|
Statements
of Cash Flows for the years ended December 31, 2018 and
2017
|
|
F-6
|
Notes
to Financial Statements
|
|
F-7
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders
and Board of Directors
Super League
Gaming, Inc.
Opinion
on the Financial Statements
We have audited the
accompanying balance sheets of Super League Gaming, Inc. (the
“Company”) as of December 31, 2018 and 2017, the
related statements of operations, stockholders’ equity and
cash flows for the years then ended, and the related notes to the
financial statements (collectively, the financial statements). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and
its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Other
Matter
The accompanying
financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses
from operations, has negative operating cash flows, and has a
significant accumulated deficit that raise substantial doubt about
its ability to continue as a going concern. Management’s
plans regarding those matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Our opinion is not
modified with respect to that matter.
Basis
for Opinion
These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of
our audits, we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our
audits provide a reasonable basis for our
opinion.
SQUAR
MILNER LLP
We have served as
the Company’s auditor since 2016.
Irvine,
California
February 4, 2019,
except as to Note 12, as to which the date is February 12,
2019
SUPER LEAGUE GAMING, INC.
BALANCE SHEETS
DECEMBER 31, 2018 AND 2017
|
|
|
ASSETS
Current
Assets
|
|
Cash
|
$2,774,421
|
$1,709,473
|
Accounts
receivable
|
487,398
|
113,702
|
Prepaid expenses
and other current assets
|
487,148
|
780,111
|
Total current
assets
|
3,748,967
|
2,603,286
|
|
|
|
Property
and Equipment, net
|
531,369
|
1,137,817
|
Intangible
and Other Assets, net
|
706,821
|
340,998
|
|
|
|
Total
assets
|
$ 4,987,157
|
$4,082,101
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
Current
Liabilities
|
|
|
Accounts payable
and accrued expenses
|
$ 814,052
|
$383,814
|
|
45,000
|
-
|
Convertible
debt and accrued interest, net
|
10,922,601
|
-
|
Total current
liabilities
|
11,781,653
|
383,814
|
|
|
|
Commitments
and Contingencies (Note 10)
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
Preferred stock,
par value $0.001 per share; 10,000,000 shares authorized; no shares
issued or outstanding
|
-
|
-
|
Common stock, par
value $0.001 per share; 100,000,000 shares authorized;
4,610,109 and 4,603,443 shares issued and
outstanding as of December 31, 2018 and 2017,
respectively.
|
13,831
|
13,811
|
Additional paid-in
capital
|
48,325,146
|
38,191,133
|
Accumulated
deficit
|
(55,133,473)
|
(34,506,657)
|
Total
stockholders’ equity (deficit)
|
(6,794,496)
|
3,698,287
|
|
|
|
Total liabilities
and stockholders’ equity (deficit)
|
$ 4,987,157
|
$4,082,101
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
|
|
|
|
SALES
|
$1,046,359
|
$201,182
|
|
|
|
COST
OF SALES
|
684,105
|
1,487,905
|
|
|
|
GROSS
PROFIT (LOSS)
|
362,254
|
(1,286,723)
|
|
|
|
OPERATING
EXPENSES
|
|
|
Selling, marketing
and advertising
|
1,525,525
|
1,155,506
|
Research and
development
|
17,197
|
61,543
|
General and
administrative
|
14,979,732
|
12,451,636
|
Total operating
expenses
|
16,522,454
|
13,668,685
|
|
|
|
NET
OPERATING LOSS
|
(16,160,200)
|
(14,955,408)
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
Interest
expense
|
(4,468,692)
|
-
|
Other
|
2,076
|
-
|
Total
other income (expense)
|
(4,466,616)
|
-
|
|
|
|
NET
LOSS
|
$ (20,626,816)
|
$(14,955,408)
|
|
|
|
Net
loss attributable to common stockholders - basic and
diluted
|
|
|
Basic and diluted
loss per common share
|
$ (4.48)
|
$(3.52)
|
Weighted-average
number of shares outstanding, basic and diluted
|
4,606,951
|
4,246,626
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIT)
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
– December 31, 2016
|
3,722,571
|
$ 11,168
|
$ 24,281,984
|
$ (19,551,249)
|
$ 4,741,903
|
|
|
|
|
|
|
Issuance of common
stock for cash at $10.80 per share, net of issuance
costs
|
788,280
|
2,365
|
8,242,517
|
–
|
8,244,882
|
Stock-based
compensation
|
–
|
–
|
4,666,910
|
–
|
4,666,910
|
In-kind
contribution of services (Note 7)
|
92,592
|
278
|
999,722
|
–
|
1,000,000
|
Net
loss
|
–
|
–
|
–
|
(14,955,408)
|
(14,955,408)
|
|
|
|
|
|
|
BALANCE
– December 31, 2017
|
4,603,443
|
$ 13,811
|
$ 38,191,133
|
$ (34,506,657)
|
$ 3,698,287
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
–
|
–
|
3,905,254
|
–
|
3,905,254
|
Issuance of common
stock for services
|
6,666
|
20
|
71,980
|
–
|
72,000
|
Issuance of
warrants with convertible notes (Note 6)
|
–
|
–
|
6,156,779
|
–
|
6,156,779
|
Net
loss
|
–
|
–
|
–
|
(20,626,816)
|
(20,626,816)
|
|
|
|
|
|
|
BALANCE
– December 31, 2018
|
4,610,109
|
$ 13,831
|
$ 48,325,146
|
$ (55,133,473)
|
$ (6,794,496)
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(20,626,816)
|
$(14,955,408)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation and
amortization
|
1,105,989
|
1,237,608
|
Stock-based
compensation
|
3,943,128
|
3,612,743
|
Amortized license
fees – restricted stock units (Note 5)
|
-
|
1,054,167
|
Accretion of
discount on convertible notes (Note 6)
|
3,862,720
|
-
|
In-kind
contribution of services
|
666,667
|
333,333
|
Changes in assets
and liabilities:
|
|
|
Accounts
receivable
|
(373,696)
|
(113,702)
|
Prepaid expenses
and other current assets
|
(339,577)
|
(72,220)
|
Accounts payable
and accrued expenses
|
430,238
|
(65,407)
|
Deferred
revenue
|
45,000
|
-
|
Accrued interest on
convertible notes
|
605,972
|
-
|
Net
cash used in operating activities
|
(10,680,375)
|
(8,968,886)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Purchase of
property and equipment
|
(254,766)
|
(327,351)
|
Capitalization of
software development costs
|
(518,630)
|
(109,718)
|
Acquisition of
other intangible and other assets
|
(91,969)
|
–
|
Net
cash used in investing activities
|
(865,365)
|
(437,069)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds from
issuance of common stock, net of issuance costs
|
-
|
8,244,882
|
Proceeds from
convertible note payable, net of issuance costs
|
12,610,688
|
–
|
Net
cash provided by financing activities
|
12,610,688
|
8,244,882
|
|
|
|
INCREASE
(DECREASE) IN CASH
|
1,064,948
|
(1,161,073)
|
|
|
|
CASH – beginning of
year
|
1,709,473
|
2,870,546
|
|
|
|
CASH – end of year
|
$2,774,421
|
$1,709,473
|
|
|
|
SUPPLEMENTAL
NONCASH FINANCING ACTIVITIES
|
|
|
In-kind
contributions (Note 7)
|
$-
|
$1,000,000
|
Common stock issued
for services, net of expense of $37,874
|
$34,126
|
-
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
Income taxes
paid
|
$800
|
$800
|
The accompanying notes are an integral part of these financial
statements.
SUPER LEAGUE GAMING, INC.
NOTES TO FINANCIAL
STATEMENTS
1.
DESCRIPTION
OF BUSINESS
Super
League Gaming, Inc. (“Super League,” the
“Company,” “we” or “our”) is a
leading amateur esports community and content platform offering a
personalized experience to gamers. Through our proprietary,
cloud-based technology platform, we connect our network of gamers,
venues and brand partners to enable local, social and competitive
esports that can be uniquely broadcast through our platform. We
offer daily and season-focused offerings for which amateur
competitive gamers establish meaningful connections with each other
while improving their skills. We have multi-year strategic
partnerships with leading game publishers such as Microsoft and
Riot Games with titles including Minecraft and League of Legends,
respectively, to drive use among our member base and further
penetrate our target market. We deliver enhanced gaming experiences
to our members with these titles through our platform, and we
provide our venue and brand partners access to our member network
and platform technology.
Super
League was incorporated on October 1, 2014 as Nth Games, Inc. under
the laws of the State of Delaware and changed its name to Super
League Gaming, Inc. on June 15, 2015. We are an
“emerging growth company” as defined by the Jumpstart
Our Business Startups Act of 2012, as amended.
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements and accompanying notes have been prepared
in accordance with accounting principles generally accepted in the
United States of America (“U.S.
GAAP”).
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates. The
Company believes that, of the significant accounting policies
described herein, the accounting policies associated with revenue
recognition, the valuation of convertible notes and related common
stock purchase warrants discussed at Note 6, stock-based
compensation expense, income taxes and valuation allowances against
net deferred tax assets, require its most difficult, subjective or
complex judgments
Going Concern
The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. As presented in the financial statements, the
Company incurred net losses of $20,626,816 and $14,955,409 during
the years ended December 31, 2018 and 2017, respectively, and had
an accumulated deficit of $55,133,473 as of December 31, 2018.
Noncash expenses (excluding depreciation and amortization of fixed
and intangible assets, respectively) totaled $8,850,074 and
$5,000,243 for the years ended December 31, 2018 and 2017,
respectively. Net cash used in operating activities for the years
ended December 31, 2018 and 2017 were $10,680,375 and $8,968,886,
respectively.
The
Company has and will continue to use significant capital for the
growth and development of its business. The Company’s
management expects operating losses to continue in the near term in
connection with the pursuit of its strategic objectives. The
Company considers historical operating results, capital resources
and financial position, in combination with current projections and
estimates, as part of its plan to fund operations over a reasonable
period.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Going Concern (continued)
The Company’s management believes its current cash, net
proceeds from debt issuances and the amount available from the
issuance of common stock will be sufficient to fund working capital
requirements beyond the next 12 months. This belief assumes, among
other things, that the Company will be able to raise additional
equity financing, will continue to be successful implementing its
business strategy and that there will be no material adverse
development in the business, liquidity or capital requirements. If
one or more of these factors do not occur as expected, it could
result in a reduction or delay of business activities, sales of
material assets, default on obligations, or forced insolvency. The
accompanying financial statements do not contain any adjustments
which might be necessary if the Company were unable to continue as
a going concern.
Revenue Recognition
The
Company recognizes revenue when (i) persuasive evidence of an
arrangement exists, (ii) delivery of the products and/or services
has occurred, (iii) the selling price is fixed or determinable, and
(iv) the collectability of amounts is reasonably
assured.
Super
League generates revenues and related cash flows
from (i) the sale of subscriptions to gamers
for participation in Super League’s
in-person and online multiplayer gaming experiences
and (ii) brand and media partnerships. To date,
subscription revenues have consisted of the sale of season passes
to gamers for participation in our in-person and or online
multiplayer gaming experiences. For the periods presented herein,
season passes for gaming experiences were primarily comprised of
multi-week packages and include one-time, single experience
admissions. Subscription and sponsorship revenues are recognized as
the events occur or when performance is complete. Revenue collected
in advance is recorded as deferred revenue until the event occurs.
Deferred revenues were not material for the periods presented
herein.
Cost of Sales
Cost of
sales includes direct costs incurred in connection with the
production of Super League’s in-person and online gaming
events, including venue rental, venue entertainment, licenses, and
contract services.
Advertising
Gaming
experience and Super League brand related advertising costs include
the cost of ad production, social media, print media, marketing,
promotions, and merchandising. The Company expenses advertising
costs as incurred. Advertising expenses for the years ended
December 31, 2018 and 2017 were $613,984 and $492,936,
respectively, and are included in selling, marketing and
advertising expenses in the accompanying statements of
operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and Cash Equivalents
Super
League considers all highly liquid, short-term investments with
original maturities of three months or less when purchased to be
cash equivalents. As of December 31, 2018 and 2017, the Company did
not have any cash equivalents.
Accounts Receivable
Accounts
receivable are recorded at the original invoice amount, less an
estimate made for doubtful accounts, if any. The Company provides
an allowance for doubtful accounts for potential credit losses
based on its evaluation of the collectability and the
customers’ creditworthiness. Accounts receivable are written
off when they are determined to be uncollectible. As of December
31, 2018 and 2017, no allowance for doubtful accounts was
considered necessary.
Fair Value Measurements
The
Company did not have any assets or liabilities that were measured
at fair value on a recurring basis or non-recurring basis as of
December 31, 2018 and 2017.
Concentration of Credit Risks
The
Company maintains its cash on deposit with a bank that is insured
by the Federal Deposit Insurance Corporation. At various times, the
Company maintained balances in excess of insured amounts. The
Company has not experienced any significant losses on its cash held
in banks.
Deferred Equity Financing Costs
Specific
incremental costs directly attributable to a proposed or
actual offering of securities are deferred and charged against the
gross proceeds of the offering. In the event that the proposed or
actual offering is not completed, or is deemed not likely to be
completed, such costs are expensed in the period that such
determination is made. Deferred costs related to proposed offerings
of securities totaled $154,344 and $0 at December 31, 2018 and
2017, respectively, and are included in other current assets in the
accompanying balance sheet.
Property and Equipment
Property
and equipment are recorded at cost. Major additions and
improvements that materially extend useful lives of property and
equipment are capitalized. Maintenance and repairs are charged
against the results of operations as incurred. When these assets
are sold or otherwise disposed of, the asset and related
depreciation are relieved, and any gain or loss is included in the
statements of operations for the period of sale or disposal.
Depreciation and amortization are computed on a straight-line basis
over the estimated useful lives of the assets, typically over a
three to five-year period.
Intangible Assets
Intangible assets
primarily consist of software development costs, domain names,
copyrights and other intangible assets which are recorded at cost
and amortized using the straight-line method over the estimated
useful lives of the assets, ranging from three to ten years.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Intangible Assets (continued)
Software
development costs incurred to develop internal-use software during
the application development stage are capitalized and amortized on
a straight-line basis over the software’s estimated useful
life, which is generally three years. Software development costs
incurred during the preliminary stages of development are charged
to expense as incurred. Maintenance and training costs are charged
to expense as incurred. Upgrades or enhancements to existing
internal-use software that result in additional functionality are
capitalized.
Research and Development Costs
Research and development costs represent costs incurred in
connection with the testing of games on the
Company’s technology platform and
are primarily
comprised of payments to outside consultants and
contractors. Research and development costs are expensed as
incurred.
Impairment of Long-Lived Assets
The
Company assesses the recoverability of long-lived assets whenever
events or changes in circumstances indicate that their carrying
value may not be recoverable. If the cost basis of a long-lived
asset is greater than the projected future undiscounted net cash
flows from such asset, an impairment loss is recognized. Impairment
losses are calculated as the difference between the cost basis of
an asset and its estimated fair value. Management believes that
there was no impairment of long-lived assets for the periods
presented herein. There can be no assurance, however, that market
conditions or demand for the Company’s products or services
will not change, which could result in long-lived asset impairment
charges in the future.
Stock-Based Compensation
The
compensation cost for all stock-based awards is measured at the
grant date, based on the estimated fair value of the award, and is
recognized as an expense, typically on a straight-line basis over
the employee’s requisite service period (generally the
vesting period of the equity award) which is generally two to four
years. The fair value of restricted stock and restricted stock unit
awards is determined by the product of the number of shares or
units granted and the grant date market price of the underlying
common stock. The fair value of stock option and common stock
purchase warrant awards is estimated on the date of grant utilizing
the Black-Scholes-Merton option pricing model. The Company accounts
for forfeitures of awards as they occur.
Grants of equity-based awards (including warrants) to non-employees
in exchange for consulting or other services are accounted for
using the fair value of the consideration received (i.e., the value
of the goods or services) or the fair value of the equity
instruments issued, whichever is more reliably
measurable.
Risks and Uncertainties
Concentrations. The Company had
certain customers whose revenue individually represented 10% or
more of the Company’s total revenue, or whose accounts
receivable balances individually represented 10% or more of the
Company’s total accounts receivable, or whose accounts
payable balances individually represented 10% or more of the
Company’s total accounts payable, as
follows:
For the years ended December 31, 2018 and 2017, four customers
accounted for 82% and three customers accounted for 47% of revenue,
respectively. At
December 31, 2018, three customers accounted for 96% of
accounts receivable. At December 31, 2017, four
customers accounted for 96% of accounts receivable. At December 31,
2018, three vendors accounted for 43% of accounts
payable. At December 31, 2017, two vendors accounted for
32% of accounts payable.
Segment Information
The
Company operates in one segment.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed by dividing the income or
loss by the weighted-average number of outstanding shares of common
stock for the applicable period. Diluted earnings per share is
computed by dividing the income or loss by the weighted-average
number of outstanding shares of common stock for the applicable
period, including the dilutive effect of common stock equivalents.
Potentially dilutive common stock equivalents primarily consist of
employee stock options, common stock purchase warrants issued to
employee and non-employees in exchange for services and common
stock purchase warrants issued in connection with financings. All
outstanding stock options, and common stock purchase warrants for
the periods presented have been excluded from the computation of
diluted loss per share because the effect of inclusion would have
been anti-dilutive.
Income Taxes
Income
taxes are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company’s financial statements or income
tax returns. A valuation allowance is established to reduce
deferred tax assets if all, or some portion, of such assets will
more than likely not be realized, or if it is determined that there
is uncertainty regarding future realization of such
assets.
Under
U.S. GAAP, a tax position is a position in a previously filed tax
return, or a position expected to be taken in a future tax filing
that is reflected in measuring current or deferred income tax
assets and liabilities. Tax positions are recognized only when it
is more likely than not, based on technical merits, that the
position will be sustained upon examination. Tax positions that
meet the more likely than not thresholds are measured using a
probability weighted approach as the largest amount of tax benefit
being realized upon settlement. The Company considers many factors
when evaluating and estimating its tax positions and tax benefits,
which may require periodic adjustments, and which may not
accurately forecast actual outcomes. Management believes the
Company has no uncertain tax positions for the years ended December
31, 2018 and
2017.
The
Company has elected to include interest and penalties related to
its tax contingences as a component of income tax expense. There
were no accruals for interest and penalties related to uncertain
tax positions for the periods presented. Income tax returns remain
open for examination by applicable authorities, generally three
years from filing for federal and four years for state. The Company
is not currently under examination by any taxing authority nor has
it been notified of an impending examination.
Recent Accounting Guidance
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (Topic
606) (“ASU 2014-09”), which amends the existing
accounting standards for revenue recognition. ASU 2014-09 is based
on principles that govern the recognition of revenue at an amount
an entity expects to be entitled when products are transferred to
customers. Subsequently, the FASB issued additional ASUs to clarify
the guidance in ASU 2014-09. ASU 2014-09 and its related ASUs are
collectively referred to herein as the “new revenue
standard.” The new revenue standard may be applied
retrospectively to each prior period presented or retrospectively
with the cumulative effect recognized as of the date of adoption.
The new guidance is effective for emerging growth companies for
annual periods beginning after December 15, 2018, with early
adoption permitted. We are in the process of evaluating the impact,
if any, of the update on our financial position, results of
operations and financial statement
disclosures.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Recent Accounting Guidance (continued)
In
February 2016, the FASB issued an ASU that requires lessees to
present right-of-use assets and lease liabilities on the balance
sheet. The new guidance is to be applied using a modified
retrospective approach at the beginning of the earliest comparative
periods in the financial statements and is effective for fiscal
years beginning after December 15, 2019 and early adoption is
permitted. The Company is evaluating the impact that this guidance
will have on its financial position, results of operations and
financial statement disclosures.
In June 2016, the FASB issued guidance on the measurement and
recognition of credit losses on most financial assets. For trade
receivables, loans, and held-to-maturity debt securities, the
current probable loss recognition methodology is being replaced by
an expected credit loss model. For available-for-sale debt
securities, the recognition model on credit losses is generally
unchanged, except the losses will be presented as an adjustable
allowance. The guidance will be applied retrospectively with the
cumulative effect recognized as of the date of adoption. The
guidance will become effective at the beginning of the
Company’s first quarter of fiscal year ending
December 31, 2021 but can be adopted as early as the
beginning of the first quarter of fiscal year ending
December 31, 2020. The Company is currently assessing the
impact that adopting this new accounting guidance will have on its
financial statements and footnote
disclosures.
3.
PROPERTY
AND EQUIPMENT
Property
and equipment consisted of the following at December 31, 2018 and
2017 :
|
|
|
|
|
|
Furniture
and fixtures
|
$206,877
|
$76,156
|
Computer
hardware
|
3,195,444
|
3,073,319
|
|
3,402,321
|
3,149,475
|
Less:
accumulated depreciation and amortization
|
(2,870,952)
|
(2,011,658)
|
|
$ 531,369
|
$ 1,137,817
|
Depreciation
and amortization expense for property and equipment was $861,214
and $993,887 for the years ended December 31, 2018 and 2017,
respectively.
4.
INTANGIBLE
AND OTHER ASSETS
Intangible
and other assets consisted of the following as of December 31, 2018
and 2017:
|
|
|
|
|
|
Capitalized
software development costs
|
$ 1,281,201
|
$ 762,572
|
Domain
|
67,644
|
65,579
|
Copyrights and
other
|
126,474
|
36,570
|
|
1,475,319
|
864,721
|
Less:
accumulated amortization
|
(768,498)
|
(523,723)
|
|
$ 706,821
|
$ 340,998
|
Amortization
expense totaled $244,775 and $243,721 for the years ended December
31, 2018 and 2017, respectively.
4.
INTANGIBLE AND OTHER ASSETS
(continued)
Future
amortization expense of intangible and other assets is expected to
be as follows:
For the years
ending December 31:
|
|
2019
|
$262,413
|
2020
|
222,112
|
2021
|
151,338
|
2022
|
19,398
|
2023
|
18,600
|
Thereafter
|
32,960
|
|
$706,821
|
5.
GAMING
LICENSE AGREEMENT
In June 2016, the
Company entered into a gaming license agreement whereby the Company
agreed to issue 166,667 shares of common stock purchase warrants
(“License Warrants”) and 183,334 shares of restricted
stock units (“License RSUs”) when the following
performance or service conditions are met:
Vesting Conditions for License Warrant
|
Category
|
Number of License Warrants
|
Achievement
of:
|
|
|
Greater
than $5.0 million game related net revenues
|
Performance
|
41,667
|
Greater
than $15.0 million game related net revenues
|
Performance
|
58,333
|
Greater
than $35.0 million game related net revenues
|
Performance
|
66,667
|
|
166,667
|
Vesting Conditions for License RSUs
|
Category
|
|
|
|
|
Execution
of the gaming license agreement
|
Service
|
45,834
|
9-month
anniversary
|
Service
|
45,834
|
18-month
anniversary
|
Service
|
91,666
|
|
183,334
|
The License
Warrants have a five-year contractual term with an exercise price
of $9.00 per share, with vesting upon satisfactory performance
under the gaming license agreement. The value of the License
Warrants would be measured when any of vesting conditions are
satisfied. During the periods presented, achievement of the vesting
conditions was not deemed probable. Accordingly, no expense for the
License Warrants was recognized during the years ended December 31,
2018 and 2017. In future periods, in the event that a determination
is made that all or a portion of the vesting conditions may be met,
the related expense would be reflected in the statement of
operations.
The License RSUs
were expensed on a straight-line basis over the contractual
license term of 18-months beginning June 2016 and
ending December 31, 2017. Noncash expense included in
cost of sales related to License RSUs for the year ended December
31, 2017 was $1,054,167.
6.
CONVERTIBLE
NOTE PAYABLE TO A RELATED PARTY
In February through April 2018, the Company issued 9.00% secured
convertible promissory notes with a collective face value of
$3,000,000 (the “Initial 2018 Notes”). The Initial 2018
Notes (i) accrued simple interest at the rate of 9.00% per annum,
(ii) matured on the earlier of December 31, 2018 or the close of a
$15,000,000 equity financing (“Qualifying Equity
Financing”) by the Company, and (iii) all outstanding
principal and accrued interest was automatically convertible into
equity or equity-linked securities sold in a Qualifying Equity
Financing based upon a conversion rate equal to (x) a 10% discount
to the price per share of a Qualifying Equity Financing, with (y) a
floor of $10.80 per share. In addition, the holders of the Initial
2018 Notes were collectively issued warrants to purchase
approximately 55,559 shares of common stock, at an exercise price
of $10.80 per share and a term of five years (the “Initial
2018 Warrants”).
In May
through August 2018, the Company issued additional 9.00% secured
convertible promissory notes with a collective face value of
$10,000,000 (the “Additional 2018 Notes”). In May 2018,
all of the Initial 2018 Notes and related accrued interest,
totaling $3,056,182, were converted into the Additional 2018 Notes,
resulting in an aggregate principal amount of $13,056,182
(hereinafter collectively, the “2018 Notes”). The
holders of the converted Initial 2018 Notes retained their
respective Initial 2018 Warrants.
The 2018 Notes (i)
accrue simple interest at the rate of 9.00% per annum, (ii) mature
on the earlier of the closing of an initial public offering
(“IPO”) of the Company’s common stock on a
national securities exchange or April 30, 2019, and (iii) all
outstanding principal and accrued interest is automatically
convertible into shares of common stock upon the closing of an IPO
at the lesser of (x) $10.80 per share or (y) a 15% discount to the
price per share of the IPO. In
addition, the holders of the 2018 Notes were collectively
issued 1,208,936 warrants to purchase common stock equal to
100% of the aggregate principal amount of the 2018 Notes divided by
$10.80 per share (the “2018 Warrants”). The number of
2018 Warrants ultimately issued is subject to adjustment upon the
closing of an IPO and will be determined by dividing 100% of the
face value of the 2018 Notes by the lesser of (x) $10.80 per share
or (y) a 15% discount to the price per share of the IPO. The 2018
Warrants are exercisable for a term of five years, commencing on
the close of an IPO, at an exercise price equal to the lesser of
(x) $10.80 per share or (y) a 15% discount to the IPO price per
share and are callable at the election of the Company at any time
following the closing of an IPO. The 2018 Notes are secured by a
security interest in all of the assets, tangible and intangible, of
the Company.
The proceeds from
the sale of the 2018 Notes, the 2018 Warrants and the Initial 2018
Warrants, were allocated to the instruments based on the relative
fair values of the convertible debt instrument without the warrants
and of the warrants themselves at the time of issuance. The number
of warrants issued was determined based on an estimated per share
price of $10.80. The portion of the proceeds, totaling $5,933,424
allocated to the 2018 Warrants,
was accounted for as a discount to the debt, with the offsetting
credit to additional paid-in capital. The remainder of the proceeds
were allocated to the convertible debt instrument portion of the
transaction. The resulting debt discount is being amortized over
the period from issuance to April 30, 2019, the stated maturity
date of the debt.
The non-detachable conversion feature embedded in the 2018 Notes
provides for a conversion rate that is below market value at the
commitment date, and therefore, represents a beneficial conversion
feature (“BCF”). The BCF is generally recognized
separately at issuance by allocating a portion of the debt proceeds
equal to the intrinsic value of the BCF to additional paid-in
capital. The resulting convertible debt discount is recognized as
interest expense using the effective yield method. The BCF is
measured using the commitment date stock price. However, the
conversion feature associated with the 2018 Notes is not
exercisable until the consummation of an initial public offering by
the Company of its common stock. As such, the BCF is not recognized
in earnings until the contingency is resolved in future periods.
The intrinsic value of the BCF at December 31, 2018, which was
limited to the net proceeds allocated to the debt on a relative
fair value basis, was approximately $8,227,542.
Debt issuance costs were
comprised of $389,275 of cash commissions and common stock purchase
warrants with a fair value of $223,355, paid and issued,
respectively, to third-parties, and are reflected as a discount to
the debt instrument, net of accumulated amortization, in the
accompanying balance sheet. Debt issuance costs are amortized over
the term of the debt as interest expense in the statement of
operations.
Amounts
related to the convertible notes as of and for the year ended
December 31, 2018 were as follows:
|
|
|
Year
Ended
December
31, 2018
|
2018
Notes
|
$ 13,000,000
|
Accretion of
discount on 2018 Notes - warrants
|
$ 3,508,176
|
Accrued
interest
|
605,972
|
Accretion of 2018
Notes - issuance costs
|
354,544
|
Unamortized debt
discount
|
(2,425,248)
|
Accrued interest
expense
|
605,972
|
Unamortized debt
issuance costs
|
(258,123)
|
Total interest
expense
|
$ 4,468,692
|
|
$ 10,922,601
|
|
|
A summary of Initial 2018 Warrant and 2018 Warrant (collectively
“Debt Warrants”) activity for the year ended December
31, 2018 is as follows:
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value
($)
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
-
|
-
|
-
|
$ 1,609,800
|
Initial
2018 Warrants issued
|
55,559
|
$ 10.80
|
-
|
|
2018
Warrants issued
|
1,208,936
|
10.80
|
-
|
|
Commission
warrants issued
|
28,178
|
10.80
|
-
|
|
Outstanding
at December 31, 2018
|
1,292,673
|
$ 10.80
|
4.51
|
$ 1,609,800
|
Vested
and exercisable as of December 31, 2018
|
1,292,673
|
$ 10.80
|
4.51
|
$ 1,152,300
|
The
weighted-average grant date fair value of Debt Warrants issued
during the year ended December 31, 2018 was $7.98. The aggregate
fair value of Debt Warrants that vested during the year ended
December 31, 2018 was $10,296,926.
The
fair value of Debt Warrants issued was estimated on their
respective issue dates using the Black Scholes-Merton option
pricing model and the following weighted-average
assumptions:
Volatility
|
96%
|
Risk–free
interest rate
|
2.75
|
Dividend
yield
|
0%
|
Expected life of
options (in years)
|
5
|
Weighted-average
fair value of common stock
|
$10.80
|
Preferred Stock
The
Company’s initial certificate of incorporation authorized
5,000,000 shares of preferred stock, par value $0.001 per share. No
preferred stock had been issued and outstanding since inception of
the Company. In October 2016, the Company’s Board of
Directors and a majority of the holders of the Company’s
common stock approved an amendment and restatement of the
certificate of incorporation which, in part, eliminated the
authorized preferred stock. In August 2018, the Company’s
Board of Directors approved a second amendment and restatement of
the Company’s amended and restated certificate of
incorporation (the “Amended and Restated Charter”) to,
in part, increase the Company’s authorized capital to a total
of 110.0 million shares, including 10.0 million shares of newly
created preferred stock, par value $0.001 per share
(“Preferred Stock”), authorize the Company’s
Board of Directors to fix the designation and number of each series
of Preferred Stock, and to determine or change the designation,
relative rights, preferences, and limitations of any series of
Preferred Stock. The Amended and Restated Charter was approved by a
majority of the Company’s stockholders in September
2018, and was filed with
the State of Delaware in November 2018. All references in
the accompanying financial statements to Preferred Stock have been
restated to reflect the Amended and
Restated Charter.
Common Stock
The
Amended and Restated Charter also increased the Company’s
authorized capital to include 100.0 million shares of common stock,
par value $0.001, and removed the deemed liquidation provision, as
such term is defined in the Amended and Restated Charter. Each
holder of common stock is entitled to one vote for each share of
common stock held at all meetings of stockholders.
7.
STOCKHOLDERS’ EQUITY
(continued)
Common Stock Purchase Warrants
During
the year ended December 31, 2018, the Company issued common stock
purchase warrants to certain employees
and non-employees in exchange for services performed, subject to
certain vesting conditions. The warrants have expiration dates
ranging from five to 10 years from the date of grant and exercise
prices ranging from $0.30 to $10.80 per
share. A summary of warrant activity for the year ended December
31, 2018 is as follows:
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value ($)
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
848,295
|
$ 8.91
|
5.76
|
$1,609,800
|
Granted
|
250,000
|
$ 10.80
|
|
|
Outstanding
at December 31, 2018
|
1,098,295
|
$ 9.33
|
3.30
|
1,609,800
|
Vested
and exercisable as of December 31, 2018
|
566,626
|
$ 8.76
|
2.23
|
$1,152,300
|
Compensation
expense related to common stock purchase warrants was $1,400,488
and $1,664,563 for the years ended December 31, 2018 and 2017,
respectively. The weighted-average grant date fair value of
warrants granted during the years ended December 31, 2018 and 2017
was $7.80 and $7.77, respectively. The aggregate fair value of
warrants that vested during the years ended December 31, 2018 and
2017 was $1,401,113 and $1,651,891,
respectively.
As of
December 31, 2018, the total unrecognized compensation expense
related to warrants was $2,660,385, which is expected to be
recognized over a weighted-average term of approximately 1.07
years.
In-Kind Contribution of Services
In June
2017, the Company entered into an arrangement with a major media
network for $1,000,000 of in-kind contributions of media services
in exchange for 92,592
shares of common stock. Expense
included in general and administrative expenses in the statement of
operations for usage of the in-kind media services for the
years ended December 31, 2018 and 2017 was $666,667 and $333,333,
respectively. The balance included in prepaid expenses in the
accompanying balance sheets as of December 31, 2018 and 2017 was $0
and 666,667, respectively.
8.
STOCK-BASED
INCENTIVE PLANS
The
Super League 2014 Stock Option and Incentive Plan (the
“Plan” or “SOP”) was approved by the Board
of Directors and the stockholders of Super League in October 2014.
The Plan was subsequently amended in
May 2015, May 2016, July 2017 and October 2018. The Plan
allows grants of stock options, stock awards and performance shares
with respect to common stock of the Company to eligible
individuals, which generally includes directors, officers,
employees, advisors and consultants. The Plan provides for both the
direct award and sale of shares of common stock and for the grant
of options to purchase shares of common stock. Options granted
under the Plan include non-statutory options as well as incentive
options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended.
The
Board of Directors administers the Plan and determines which
eligible individuals are to receive option grants or stock
issuances under the Plan, the times when the grants or issuances
are to be made, the number of shares of common stock subject to
each grant or issuance, the status of any granted option as either
an incentive stock option or a non-statutory stock option under the
federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding. The exercise price of
options is generally equal to the fair market value of common stock
of the Company on the date of grant. Options generally begin
to be exercisable six months to one year after grant and typically
expire 10 years after grant. Stock options and restricted
shares generally vest over two to four years (generally
representing the requisite service period). The Plan terminates
automatically on July 1, 2027. The Plan provides for the following
programs:
Option Grants
Under
the discretionary option grant program, Super League’s
compensation committee may grant (1) non-statutory options to
purchase shares of common stock to eligible individuals in the
employ or service of Super League or its affiliates (including
employees, non-employee members of the Board of Directors and
consultants) at an exercise price
not less than 85% of the fair market value of such shares on the
grant date, and (2) incentive stock options to purchase shares of
common stock to eligible employees at an exercise price not less
than 100% of the fair market value of such shares on the grant date
(not less than 110% of fair market value if such employee actually
or constructively owns more than 10% of Super League’s voting
stock or the voting stock of any of its subsidiaries).
Stock Awards or Sales
Under
the stock award or sales program, eligible individuals may be
issued shares of common stock of the Company directly, upon the
attainment of performance milestones or the completion of a
specified period of service or as a bonus for past services. Under
this program, the purchase price for the shares will not be less
than 100% of the fair market value of the shares on the date of
issuance, and payment may be in the form of cash or past services
rendered. Eligible individuals will have no stockholder rights with
respect to any unvested restricted shares or restricted stock units
issued to them under the stock award or sales program; however,
eligible individuals will have the right to receive any regular
cash dividends paid on such shares.
8.
STOCK-BASED INCENTIVE PLANS
(continued)
Stock Awards or Sales (continued)
The initial reserve under the Plan was 583,334 shares of common
stock, which reserve was subsequently increased to 1,000,000 shares
upon stockholders’ approval in May 2016. In July 2017, the
Company amended and restated the SOP to increase the number of
shares of common stock reserved thereunder from1,000,000 shares to
1,500,000 shares. In October 2018, the Company amended and restated
the SOP to increase the number of shares of common stock reserved
thereunder from 1,500,000 shares to 1,833,334
shares.
Super
League issues new shares of common stock upon the exercise of stock
options, the grant of restricted stock, or the delivery of shares
pursuant to vested restricted stock units. The compensation
committee of the Board of Directors may amend or modify the Plan at
any time, subject to any required approval by the stockholders of
the Company, pursuant to the terms
therein.
Stock Options
The
fair value of stock options granted were estimated on their
respective grant dates using the Black-Scholes-Merton option
pricing model and the following weighted-average assumptions for
the years ended December 31, 2018 and 2017:
|
|
|
Volatility
|
96%
|
104%
|
Risk–free
interest rate
|
2.82
|
1.95%
|
Dividend
yield
|
0%
|
0%
|
Expected life of
options (in years)
|
5.78
|
5.62
|
Weighted-average
fair value of common stock
|
$10.80
|
$10.80
|
A
summary of stock option activity for the year ended December 31,
2018 is as follows:
|
|
|
|
|
|
Exercise
Price Per Share ($)
|
Remaining
Contractual Term (Years)
|
Aggregate
Intrinsic Value ($)
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
1,108,417
|
$ 8.51
|
8.66
|
$ 2,540,900
|
Granted
|
668,352
|
$ 10.80
|
|
|
Exercised
|
-
|
-
|
|
|
Canceled
/ forfeited
|
(252,301)
|
$ 10.54
|
|
|
Outstanding
at December 31, 2018
|
1,524,468
|
$ 9.18
|
8.35
|
$ 2,475,900
|
Vested
and exercisable at December 31, 2017
|
729,575
|
$ 7.62
|
7.43
|
$ 2,316,448
|
Compensation expense related to stock options was $2,490,277 and
$1,948,179 for the years ended December 31, 2018 and 2017,
respectively. The weighted-average grant date fair value of stock
options granted during the years ended December 31, 2018 and 2017
was $8.85 and $8.61, respectively. The
aggregate fair value of stock options that vested during the years
ended December 31, 2018 and 2017 was $4,720,009 and $2,601,477,
respectively.
8.
STOCK-BASED INCENTIVE PLANS
(continued)
Stock Options (continued)
As of
December 31, 2018, the total unrecognized compensation expense
related to non-vested stock option awards was $4,851,396, which is
expected to be recognized over a weighted-average term of
approximately 2.14 years.
Restricted Stock Units
The
following table summarizes non-vested restricted stock unit
activity for the year ended December 31, 2018:
|
Restricted
Stock
Units (#)
|
Weighted Average
Grant Date
Fair Value ($)
|
Non-vested
restricted stock units at December 31, 2017
|
8,334
|
$ 6.00
|
Granted
|
2,500
|
$ 10.80
|
Vested
|
(834)
|
|
Canceled
|
–
|
|
Non-vested
restricted stock units at December 31, 2018
|
10,000
|
$ 6.81
|
Compensation expense related to restricted stock units, including
the License RSUs described in Note 5, was $14,489 and $1,054,167
during the years ended December 31, 2018 and 2017, respectively. As
of December 31, 2018, the total unrecognized compensation expenses
related to non-vested restricted stock units was $62,511, of which
$12,511 will be recognized over a weighted-average term of
approximately 0.5 years and $50,000 will be recognized if and when
the applicable performance conditions are
satisfied.
Super
League’s provision for income taxes consisted of the
following for the years ended December 31, 2018 and
2017:
|
|
|
Current:
|
|
|
Federal
taxes
|
$–
|
$–
|
State
taxes
|
800
|
800
|
Total
current
|
800
|
800
|
|
|
|
9.
INCOME TAXES (continued)
|
|
|
Deferred:
|
|
|
Federal
taxes
|
4,072,936
|
675,668
|
State
taxes
|
1,609,476
|
1,390,658
|
Subtotal
|
5,682,412
|
2,066,326
|
Change
in valuation allowance
|
(5,682,412)
|
(2,066,326)
|
Total
deferred
|
–
|
–
|
|
|
|
Provision
for income taxes
|
$800
|
$800
|
The tax
effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets and liabilities
consist of the following as of December 31, 2018 and 2017.
|
|
|
Deferred
tax assets (liabilities):
|
|
|
Net
operating loss and credits
|
$ 11,128,731
|
$ 8,400,379
|
Stock
compensation
|
3,451,459
|
1,807,452
|
Accrued
interest expense
|
938,425
|
|
Fixed
assets and intangibles
|
87,359
|
(257,538)
|
Accrued
liabilities and other
|
-
|
(26,730)
|
Total
deferred tax assets
|
15,605,974
|
9,923,563
|
Valuation
allowance
|
(15,605,974)
|
(9,923,563)
|
Total
deferred tax assets, net of valuation allowance
|
$ -
|
$ -
|
A
reconciliation of the federal statutory income tax rate and the
effective income tax rate is as follows:
|
|
|
|
|
|
Statutory
federal tax rate - (benefit) expense
|
21%
|
35%
|
Non-deductible
permanent items
|
(1)
|
(1)
|
Change
in tax rate
|
-
|
(29)
|
Valuation
allowance
|
(20)
|
(5)
|
|
-%
|
-%
|
For the
years ended December 31, 2018 and 2017, the Company recorded full
valuation allowances against its net deferred tax assets due to
uncertainty regarding future realizability pursuant to guidance set
forth in the FASB’s Accounting Standards Codification Topic
No. 740, Income Taxes. In
future periods, if the Company determines it will more likely than
not be able to realize these amounts, the applicable portion of the
benefit from the release of the valuation allowance will generally
be recognized in the statements of operations in the period the
determination is made.
At
December 31, 2018, the Company had U.S. federal and state
income tax net operating loss carryforwards of approximating
$35,979,203 and $40,447,895, respectively, expiring through 2038.
Utilization of the net operating loss carryforwards may be subject
to a substantial annual limitation due to ownership change
limitations that may have occurred or that could occur in the
future, as required by Section 382 of the Internal Revenue
Code of 1986, as amended, as well as similar state provisions. The
Company has not completed a study to assess whether an ownership
change has occurred or whether there have been multiple ownership
changes since the Company’s formation due to the complexity
and cost associated with such a study, and the fact that there may
be additional such ownership changes in the future.
On December 22, 2017, new U.S. federal tax legislation was enacted
that significantly changed the U.S. federal income taxation of U.S.
corporations, including by reducing the U.S. corporate income tax
rate from 35% to 21%, revising the rules governing net operating
losses and foreign tax credits, and introducing new anti-base
erosion provisions. Many of the changes were effective immediately,
without any transition periods or grandfathering for existing
transactions. The legislation is unclear in many respects and could
be subject to potential amendments and technical corrections, as
well as interpretations and implementing regulations by the U.S.
Department of the Treasury and the Internal Revenue Service
(“IRS”), any of which could decrease or increase
certain adverse impacts of the legislation. In addition, it is
unclear how these U.S. federal income tax changes will affect state
and local taxation, which often uses federal taxable income as a
starting point for computing state and local tax
liabilities.
9.
INCOME TAXES (continued)
The new legislation reduced the corporate income tax rate from 35%
to 21% effective January 1, 2018. As a result, all deferred income
tax assets and liabilities, including NOL’s, have been
measured using the new rate under and are reflected in the
valuation of these assets as of December 31, 2018 and 2017. As a
result, as of December 31, 2017, the value of our deferred tax
assets was reduced by $4,278,626 and the related valuation
allowance was reduced by the same amount. Our analysis and
interpretation of this legislation is ongoing. Given the full
valuation allowance provided for net deferred tax assets for the
periods presented herein, the change in tax law did not have a
material impact on the Company’s financial statements
provided herein. There may be additional tax impacts identified in
subsequent periods throughout the Company’s fiscal year
ending December 31, 2019 in accordance with subsequent interpretive
guidance issued by the SEC or the IRS. Further, there may be other
material adverse effects resulting from the legislation that we
have not yet identified. No estimated tax provision has been
recorded for tax attributes that are incomplete or subject to
change.
10.
COMMITMENTS
AND CONTINGENCIES
Operating Leases
The
Company leases office space under an operating lease agreement
which expired on May 31, 2017 and was amended to a month-to-month
lease.
Rent
expense for the years ended December 31, 2018 and 2017 was
approximately $317,415 and $238,114, respectively, and is included
in general and administrative expenses in the accompanying
statements of operations. Rental payments are expensed in the
statements of operations in the period to which they relate.
Scheduled rent increases, if any, are amortized on a straight-line
basis over the lease term.
Related Party Transactions
In May
2015, the Company entered into a consulting agreement with a member
of the Company's Board of Directors, pursuant to which the director
provided consulting services including assistance with business and
corporate strategies, for which he was paid a monthly consulting
fee of $6,250. The term of the consulting agreement ended as of
December 31, 2018.
The
Company evaluated subsequent events for their potential impact on
the financial statements and disclosures through the date the
annual audited financial statements were available to be
issued.
On February 8, 2019, the Company filed an
amendment to the Company’s amended and restated certificate
of incorporation to effect a reverse split of shares of the
Company’s common stock on a one-for-three
basis (the “Reverse Stock Split”). All references to
common stock, warrants to purchase common stock, options to
purchase common stock, early exercised options, restricted stock,
share data, per share data and related information contained in the
financial statements have been retrospectively adjusted to reflect
the effect of the Reverse Stock Split for all periods presented. No
fractional shares were issued in connection with the Reverse Stock
Split. Any fractional shares resulting from the Reverse Stock Split
will be rounded down to a whole share, and any effected
stockholders will receive a cash payment equal to the value of such
fractional shares.
2,272,727
Shares
Super League Gaming,
Inc.
PROSPECTUS
Joint Book-Running Managers
Northland
Capital Markets
|
Lake
Street
|
Co-Manager
National
Securities Corporation
The date of this prospectus is ,
2019
Until
,
2019 (25 days after the date of this prospectus), all dealers that
buy, sell or trade shares of our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
Part II - INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The
following table indicates the expenses to be incurred in connection
with the offering described in this registration statement, other
than underwriting discounts and commissions, all of which will be
paid by us. All amounts are estimated except the Securities and
Exchange Commission (the “SEC”) registration fee, the
Financial Industry Regulatory Authority, Inc. (“FINRA”) filing fee and the Nasdaq
Capital Market listing fee.
|
|
SEC registration
fee
|
$ 3,802
|
FINRA filing
fee
|
4,250
|
Nasdaq Capital
Stock Market listing fee
|
55,000
|
Accountants’
fees and expenses
|
126,000
|
Legal fees and
expenses
|
176,000
|
Transfer
Agent’s fees and expenses
|
5,000
|
Printing and
engraving expenses
|
246,000
|
Underwriters
reimbursable expenses
|
275,000
|
Miscellaneous
|
5,000
|
|
|
|
$ 896,052
|
Item 14. Indemnification of Directors and
Officers.
Section
145(a) of the Delaware General Corporation Law
(“DGCL”)
provides, in general, that a Delaware corporation may indemnify any
person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) because that
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or
other enterprise. The indemnity may include expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, so long as the person acted in good
faith and in a manner he or she reasonably believed was in or not
opposed to the corporation’s best interests, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was
unlawful.
Section 145(b) of the DGCL provides, in general, that a Delaware
corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation to
obtain a judgment in its favor because the person is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or other
enterprise. The indemnity may include expenses (including
attorneys’ fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action,
so long as the person acted in good faith and in a manner the
person reasonably believed was in or not opposed to the
corporation’s best interests, except that no indemnification
shall be permitted without judicial approval if a court has
determined that the person is to be liable to the corporation with
respect to such claim. Section 145(c) of the DGCL provides that, if
a present or former director or officer has been successful in
defense of any action referred to in Sections 145(a) and (b) of the
DGCL, the corporation must indemnify such officer or director
against the expenses (including attorneys’ fees) he or she
actually and reasonably incurred in connection with such
action.
Section 145(g) of the DGCL provides, in general, that a corporation
may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or
other enterprise against any liability asserted against and
incurred by such person, in any such capacity, or arising out of
his or her status as such, whether or not the corporation could
indemnify the person against such liability under Section 145 of
the DGCL.
Our certificate of incorporation, as amended and restated
(“Charter”), and our amended and restated bylaws
(“Bylaws”) provide for the indemnification of our
directors and officers to the fullest extent permitted under the
DGCL.
We also expect to enter into separate indemnification agreements
with our directors and officers in addition to the indemnification
provided for in our Amended and
Restated Charter and Bylaws. These indemnification
agreements will provide, among other things, that we will indemnify
our directors and officers for certain expenses, including damages,
judgments, fines, penalties, settlements and costs and
attorneys’ fees and disbursements, incurred by a director or
officer in any claim, action or proceeding arising in his or her
capacity as a director or officer of the company or in connection
with service at our request for another corporation or entity. The
indemnification agreements also provide for procedures that will
apply in the event that a director or officer makes a claim for
indemnification.
We also maintain a directors’ and officers’ insurance
policy pursuant to which our directors and officers are insured
against liability for actions taken in their capacities as
directors and officers.
We have entered into an underwriting agreement in connection with
this offering, which provides for indemnification by the
underwriter of us, our officers and directors, for certain
liabilities, including liabilities arising under the Securities
Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions or otherwise, the registrant has been advised that in
the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
Item 15. Recent Sales of Unregistered Securities.
Set
forth below is information regarding all securities sold by us
within the last three years which were not registered under the
Securities Act. Also included is the consideration received by us
for such securities and information relating to the section of the
Securities Act, or rule of the SEC, under which exemption from
registration was claimed.
(a)
Issuances of Capital Stock:
During the year
ended December 31, 2016, we issued 505,696 shares of common stock
at a price of $10.80 per share to certain accredited investors in
private placement transactions, resulting in aggregate net proceeds
of $5,356,645.
During the year
ended December 31, 2017, we issued 788,280 shares of common stock
at a price of $10.80 per share to certain accredited investors in
private placement transactions, resulting in aggregate net proceeds
of $8,244,883.
In connection with
these issuances of common stock, we granted the investors certain
demand and piggyback registration rights for the shares purchased
in these transactions. In addition, the investors were provided
with the right to participate on a pro-rata basis in any future
financings, subject to certain exceptions including the issuance of
securities in connection with the closing of our initial public
offering, to maintain their respective ownership interest in the
Company.
In June 2016, we
entered into a gaming license agreement whereby we agreed to issue
183,333 shares of restricted stock upon the achievement of certain
game related service conditions.
Issuances of Warrants to Purchase Common Stock
On June 22, 2016,
we granted a ten-year warrant to purchase 166,667 shares of common
stock with an exercise price of $9.00 per share to a third-party as
partial consideration for the execution of a license agreement.
Pursuant to its terms, the warrant will vest in increments of 25%,
35% and 40%, respectively, upon the occurrence of certain
performance-based achievements.
From January 1,
2016 to December 31, 2018, we granted five and ten year warrants to
purchase an aggregate of 355,584 shares of our common stock at an
average exercise price of $10.17 per share, to certain employees,
consultants and directors of the Company, including our Chief
Executive Officer Ann Hand, and Robert Stewart and Jeff Gehl, each
of whom serve as a member of our Board of Directors, as
consideration for their previous and future services to the
Company.
On November 15,
2018, we granted an employee a ten-year common stock purchase
warrant to purchase up to 250,000 shares of the Company’s
common stock, at an exercise price of $10.80, pursuant to an
amended employment agreement, subject to the following vesting
schedule: (i) 25% upon issuance; (ii) 50% upon close of an IPO or
an additional private financing (occurring subsequent to September
1, 2018) of not less than $15,000,000; and (iii) 25% on the
one-year anniversary of an IPO or the one-year anniversary of an
additional private equity financing of not less than $15,000,000
(occurring subsequent to September 1, 2018).
Sale of Convertible Promissory Notes in Private
Placements
In October 2015, we
entered into a non-interest bearing, unsecured convertible note in
the principal amount of $3,250,000 (the “2015 Note”) with a stockholder of
the Company. In April 2016, the 2015 Note automatically converted
into 387,795 shares of common stock pursuant to the terms of the
2015 Note.
In April 2016, we
entered into non-interest bearing, unsecured convertible notes with
an aggregate principal amount of $5,350,000 (the
“2016 Notes”)
with certain stockholders of the Company, $5,050,000 of such
principal amount was automatically converted into 517,161 shares of
common stock in October 2016 upon closing of a “qualified
equity offering” (as such term is defined in the 2016 Notes)
pursuant to the terms of the 2016 Notes. The remaining principal
amount of $300,000 was fully repaid by us during the year ended
December 31, 2016.
In February through
April 2018, we issued 9.00% secured convertible promissory notes
with a collective face value of $3,000,000 (the “Initial 2018 Notes”). The
Initial 2018 Notes (i) accrued simple interest at the rate of 9.00%
per annum, (ii) matured on the earlier of December 31, 2018 or the
close of a $15,000,000 equity financing (“Qualifying Equity
Financing”) by us, and (iii) all outstanding principal
and accrued interest was automatically convertible into equity or
equity-linked securities sold in a Qualifying Equity Financing
based upon a conversion rate equal to (x) a 10% discount to the
price per share of a Qualifying Equity Financing, with (y) a floor
of $10.80 per share. In addition, the holders of the Initial 2018
Notes were collectively issued warrants to purchase approximately
55,559 shares of common stock, at an exercise price of $10.80 per
share and a term of five years (the “Initial 2018
Warrants”).
In May through
August 2018, we issued additional 9.00% secured convertible
promissory notes with a collective face value of $10,000,000 (the
“Additional 2018
Notes”). In May 2018, all of the Initial 2018 Notes
and related accrued interest, totaling $3,056,182, were converted
into the Additional 2018 Notes, resulting in an aggregate principal
amount of $13,056,182 (hereinafter collectively, the “2018 Notes”). The holders
of the converted Initial 2018 Notes retained their respective
Initial 2018 Warrants.
The 2018 Notes (i)
accrue simple interest at the rate of 9.00% per annum, (ii) mature
on the earlier of the closing of an initial public offering
(“IPO”) of our
common stock on a national securities exchange or April 30, 2019,
and (iii) all outstanding principal and accrued interest is
automatically convertible into shares of common stock upon the
closing of an IPO at the lesser of (x) $10.80 per share or (y) a
15% discount to the price per share of the IPO. In addition, the holders of the 2018 Notes were
collectively issued 1,208,936 warrants to purchase common
stock equal to 100% of the aggregate principal amount of the 2018
Notes divided by $10.80 per share (the “2018 Warrants”). The
number of 2018 Warrants ultimately issued is subject to adjustment
upon the closing of an IPO and will be determined by dividing 100%
of the face value of the 2018 Notes by the lesser of (x) $10.80 per
share or (y) a 15% discount to the price per share of the IPO. The
2018 Warrants are exercisable for a term of five years, commencing
on the close of an IPO, at an exercise price equal to the lesser of
(x) $10.80 per share or (y) a 15% discount to the IPO price per
share and are callable at our election at any time following the
closing of an IPO.
Grants of Restricted Common Stock
On January 15,
2016, we issued 140,000 shares of our common stock to an employee
upon the exercise of certain previously issued warrants at an
exercise price of $0.30 per share.
The
offers, sales and issuances of the securities described in
Item 15 were deemed to be exempt from registration under the
Securities Act under either (i) Rule 701 promulgated
under the Securities Act as offers and sale of securities pursuant
to certain compensatory benefit plans and contracts relating to
compensation in compliance with Rule 701 or
(ii) Section 4(a)(2) of the Securities Act as
transactions by an issuer not involving any public offering. The
recipients of securities in each of these transactions represented
their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the stock
certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with
us, to information about us. The share and per share
information in this Item 15 reflects the one-for-three reverse
stock split of our common stock that was consummated on February 8,
2019.
Item 16. Exhibits and Financial Statement
Schedules.
(a) Exhibits. The list of exhibits is set forth below and is
incorporated by reference herein.
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Form of Underwriting Agreement,
filed herewith.
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Second Amended and Restated
Certificate of Incorporation of Super League Gaming,
Inc., dated November 19,
2018.
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Second Amended and Restated Bylaws
of Super League Gaming, Inc.
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Certificate of
Amendment to the Second Amended and Restated Certificate of
Incorporation of Super League Gaming, Inc., dated February 8, 2019,
filed herewith.
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Form of Common Stock
Certificate, filed herewith.
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Form of Registration Rights
Agreement, among Super League Gaming, Inc. and certain accredited
investors.
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Common Stock Purchase Warrant dated
June 16, 2017 issued to Ann Hand.
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Form of 9.00%
Secured Convertible Promissory Note.
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Form of Callable Common Stock
Purchase Warrant, issued to certain accredited
investors.
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Form of
Representative’s Warrant, filed
herewith.
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Opinion of Disclosure Law Group, a
Professional Corporation, filed herewith.
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Super League Gaming, Inc. Amended
and Restated 2014 Stock Option and Incentive Plan.
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Form of Stock Option Agreement
under 2014 Stock Option and Incentive Plan.
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Subscription Agreement, among Nth
Games, Inc. and certain accredited investors.
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Subscription Agreement, among Super
League Gaming, Inc. and certain accredited
investors.
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Form of Theater
Agreement, filed
herewith.
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Lease between Super League Gaming,
Inc. and Roberts Business Park Santa Monica LLC, dated June 1,
2016.
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License Agreement between Super
League Gaming, Inc. and Riot Games, Inc., dated June 22,
2016, filed herewith.
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Amended and Restated License
Agreement between Super League Gaming, Inc. and Mojang AB, dated
August 1, 2016, filed herewith.
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Master Agreement between Super
League Gaming, Inc. and Viacom Media Networks, dated June 9,
2017, filed herewith.
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Form of Common Stock Purchase
Agreement, among Super League Gaming, Inc. and certain accredited
investors.
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Form of Investors’ Rights
Agreement, among Super League Gaming, Inc. and certain accredited
investors.
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Employment Agreement, between Super
League Gaming, Inc. and Ann Hand, dated June 16,
2017.
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Employment Agreement, between Super
League Gaming, Inc. and David Steigelfest, dated October 31,
2017.
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Riot Games, Inc. Extension Letter,
dated November 21, 2017.
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Form of Note Purchase Agreement,
among Super League Gaming, Inc. and certain accredited
investors.
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Form of Security Agreement, between
Super League Gaming, Inc. and certain accredited
investors.
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Form of Intercreditor and
Collateral Agent Agreement, among Super League Gaming, Inc. and
certain accredited investors.
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Form of Investors’ Rights
Agreement (9% Secured
Convertible Promissory Notes), among Super League Gaming,
Inc. and certain accredited investors.
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Master Service Agreement and
Initial Statement of Work between Super League Gaming, Inc. and
Logitech Inc., dated March 1, 2018.
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Asset Purchase Agreement, between
Super League Gaming, Inc. and Minehut, dated June 22,
2018.
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Amended and Restated
Employment Agreement, between Super League Gaming, Inc. and Ann
Hand, dated November 15, 2018.
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Amended and Restated
Employment Agreement, between Super League Gaming, Inc. and David
Steigelfest, dated November 1, 2018.
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Employment Agreement, between Super
League Gaming, Inc. and Matt Edelman, dated November 1,
2018.
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Employment Agreement, between Super
League Gaming, Inc. and Clayton Haynes, dated November 1,
2018.
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Super League Gaming, Inc. Code of
Business Conduct and Ethics.
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Consent of Squar Milner LLP, filed
herewith.
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Consent of Disclosure Law Group, a
Professional Corporation (included in Exhibit
5.1).
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Power of attorney (included on
signature page to the
Registration Statement on Form S-1, filed on January 4,
2019).
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#
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Previously
filed.
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†
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Identifies
exhibits that consist of a management contract or compensatory plan
or arrangement.
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+
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Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 406 under the Securities
Act of 1933, as amended, and Rule 24b-2 under the Securities
Exchange Act of 1934, as amended (together, the
“Rules”). In accordance with the Rules, these
confidential portions have been omitted from this exhibit and filed
separately with the Securities and Exchange
Commission.
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(b)
Financial Statement Schedules. Schedules not listed above
have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements
or notes thereto.
Item 17. Undertakings.
The
undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each
purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The
registrant hereby further undertakes that:
(1) For
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For
purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Santa
Monica, State of California, on this 12th
day of February, 2019.
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Super League Gaming, Inc.
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By:
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/s/ Ann
Hand
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Ann
Hand
Chief Executive Officer, President and
Chair of the Board
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Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities held on the dates indicated.
Signature
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Title
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Date
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/s/ Ann
Hand
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Chief
Executive Officer,
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February 12,
2019
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Ann
Hand
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President,
Chair of the Board
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(Principal
Executive Officer)
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/s/ Clayton
Haynes
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Chief
Financial Officer
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February 12,
2019
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Clayton
Haynes
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(Principal
Financial and Accounting Officer)
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*
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Director
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February 12,
2019
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David
Steigelfest
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*
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Director
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February 12,
2019
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John
Miller
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*
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Director
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February 12,
2019
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Jeff
Gehl
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*
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Director
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February 12,
2019
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Robert
Stewart
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*
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Director
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February
12,
2019
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Peter Levin
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*
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Director
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February 12,
2019
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Kristin Patrick
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*
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Director
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February
12,
2019
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Michael Keller
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* By: /s/ Ann
Hand
Ann
Hand
Attorney-in-Fact
[●] Shares
SUPER LEAGUE GAMING, INC.
Common Stock, par value $0.001 per share
UNDERWRITING AGREEMENT
[●], 2019
NORTHLAND
SECURITIES, INC.
c/o
Northland Securities, Inc.
45
South Seventh Street, Suite 2000
Minneapolis,
Minnesota 55402
And
LAKE
STREET CAPITAL MARKETS, LLC
c/o
Lake Street Capital Markets, LLC
920
Second Avenue South, Suite 700
Minneapolis,
Minnesota 55402
As
Representatives of the several Underwriters
Named
in Schedule I hereto
Ladies
and Gentlemen:
Super
League Gaming, Inc., a Delaware corporation (the “Company”),
proposes to sell to the several Underwriters named in Schedule I hereto (the
“Underwriters”)
an aggregate of [●]
authorized but unissued shares (the “Firm
Shares”) of Common Stock, par value $0.001 per share
(the “Common
Stock”), of the Company. The Company also proposes to
grant to the several Underwriters an option to purchase up to
[●] additional shares
of Common Stock on the terms and for the purposes set forth in
Section 3
hereof (the “Option
Shares”). The Firm Shares and any Option Shares
purchased pursuant to this Underwriting Agreement (this
“Agreement”)
are herein collectively called the “Securities.”
The
Company hereby confirms its agreement with respect to the sale of
the Securities to the several Underwriters, for whom Northland
Securities, Inc. and Lake Street Capital Markets, LLC are acting as
representatives (the “Representatives” or “you”).
To the extent there are no additional Underwriters named in
Schedule I hereto
other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms “Representative”
and “Underwriter” shall mean either the singular or the
plural as the context requires.
1. Registration Statement and
Prospectus. A registration statement on Form S-1
(File No. 333-229144) with respect to the Securities,
including a preliminary form of prospectus, has been prepared by
the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the “Act”),
and the rules and regulations (“Rules and
Regulations”) of the U.S. Securities and Exchange
Commission (the “Commission”)
thereunder and has been filed with the Commission. Such
registration statement, including the amendments, exhibits and
schedules thereto, as of the time it became effective, including
the Rule 430A Information (as defined below), is referred to herein
as the “Registration
Statement.” The Company
will prepare and file a prospectus pursuant to Rule 424(b) of
the Rules and Regulations that discloses the information previously
omitted from the prospectus in the Registration Statement in
reliance upon Rule 430A of the Rules and Regulations, which
information will be deemed retroactively to be a part of the
Registration Statement in accordance with Rule 430A of the Rules
and Regulations (“Rule 430A
Information”). If the Company has elected to rely upon
Rule 462(b) of the Rules and Regulations to increase the size
of the offering registered under the Act, the Company will prepare
and file with the Commission a registration statement with respect
to such increase pursuant to Rule 462(b) of the Rules and
Regulations (such registration statement, including the contents of
the Registration Statement incorporated by reference therein is the
“Rule
462(b) Registration Statement”). References herein to
the “Registration
Statement” will be deemed to include the Rule 462(b)
Registration Statement at and after the time of filing of the Rule
462(b) Registration Statement. “Preliminary
Prospectus” means any prospectus included in the
Registration Statement prior to the effective time of the
Registration Statement, any prospectus filed with the Commission
pursuant to Rule 424(a) under the Rules and Regulations and each
prospectus that omits Rule 430A Information used after the
effective time of the Registration Statement. “Prospectus”
means the prospectus that discloses the public offering price and
other final terms of the Securities and the offering and otherwise
satisfies Section 10(a) of the Act. All references
in this Agreement to the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement to any of
the foregoing, is deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System or any successor system thereto (“EDGAR”).
All
references herein to the Registration Statement, any Preliminary
Prospectus or a Prospectus shall be deemed as of any time to
include the documents and information incorporated therein by
reference in accordance with the Rules and
Regulations.
2. Representations and
Warranties of the Company.
(a) Representations
and Warranties of the Company. The Company represents and
warrants to, and agrees with, the several Underwriters as
follows:
(i) Registration
Statement and Prospectuses. The Registration Statement and
any post-effective amendment thereto has become effective under the
Act. The Company has complied to the Commission’s
satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any part thereto or
any post-effective amendment thereto has been issued, and no
proceeding for that purpose has been initiated or, to the
Company’s knowledge, threatened by the Commission. No order
preventing or suspending the use of any Preliminary Prospectus or
the Prospectus (or any supplement thereto) has been issued by the
Commission and no proceeding for that purpose has been initiated or
is pending or, to the Company’s knowledge, threatened by the
Commission. As of the time each part of the Registration Statement
(or any post-effective amendment thereto) became or becomes
effective, such part conformed or will conform in all material
respects to the requirements of the Act and the Rules and
Regulations. Upon the filing or first use within the meaning of the
Rules and Regulations, each Preliminary Prospectus and the
Prospectus (or any supplement to either) conformed or will conform
in all material respects to the requirements of the Act and the
Rules and Regulations.
(ii) Accurate
Disclosure. Each Preliminary Prospectus, at the time of
filing thereof or the time of first use within the meaning of the
Rules and Regulations, did not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Neither the Registration Statement nor any amendment
thereto, at the effective time of each part thereof, at the First
Closing Date (as defined below) or at the Second Closing Date (as
defined below), contained, contains or will contain an untrue
statement of a material fact or omitted, omits or will omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading. As of the Time of Sale
(as defined below), neither (A) the Time of Sale Disclosure Package
(as defined below) nor (B) any issuer free writing prospectus (as
defined below), when considered together with the Time of Sale
Disclosure Package, included an untrue statement of a material fact
or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. Neither the Prospectus nor any
supplement thereto, as of its issue date, at the time of any filing
with the Commission pursuant to Rule 424(b) of the Rules and
Regulations, at the First Closing Date or at the Second Closing
Date, included, includes or will include an untrue statement of a
material fact or omitted, omits or will omit to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
representations and warranties in this Section 2(a)(ii) shall not
apply to statements in or omissions from any Preliminary
Prospectus, the Registration Statement (or any amendment thereto),
the Time of Sale Disclosure Package or the Prospectus (or any
supplement thereto) made in reliance upon, and in conformity with,
written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation of
such document, it being understood and agreed that the only such
information furnished by any Underwriter consists of the
information described as such in Section 6(e).
“Time of Sale
Disclosure Package” means the Preliminary Prospectus
dated [●], 2019 and the information on Schedule III, all considered
together.
Each
reference to a “free writing
prospectus” herein means a free writing prospectus as
defined in Rule 405 of the Rules and Regulations.
“Time of
Sale” means [●] [a.m.][p.m.] (New York City
time) on the date of this Agreement.
(iii) No
Other Offering Materials. The Company has not distributed
and will not distribute any prospectus or other offering material
in connection with the offering and sale of the Securities other
than any Preliminary Prospectus, the Time of Sale Disclosure
Package or the Prospectus or other materials permitted by the Act
to be distributed by the Company;
provided, further, that the Company has not made and will not make
any offer relating to the Securities that would constitute a free
writing prospectus and, except as set
forth on
Schedule IV, the Company has not
made and will not make any communication relating to the Securities
that would constitute a Testing-the-Waters Communication (as
defined below), except in accordance with the provisions of
Section 2(a)(v) of this
Agreement.
(iv) Emerging
Growth Company. From the time of
initial confidential submission of the Registration Statement to
the Commission (or, if earlier, the first date on which the Company
engaged directly or through any person authorized to act on its
behalf in any Testing-the-Waters Communication (as defined below))
through the date hereof, the Company has been and is an
“emerging growth company,” as defined in
Section 2(a) of the Act (an “Emerging
Growth Company”). “Testing-the-Waters
Communication” means any oral or
written communication with potential investors undertaken in
reliance on Section 5(d) of the Act.
(v) Testing-the-Waters
Materials. The Company
(i) has not alone engaged in any Testing-the-Waters
Communications, other than Testing-the-Waters Communications with
the prior consent of the Representatives with entities that are
qualified institutional buyers within the meaning of Rule 144A
under the Act or institutions that are accredited investors within
the meaning of Rule 501 under the Act and (ii) has not
authorized anyone other than the Representatives to engage in
Testing-the-Waters Communications. The Company has not distributed
any Written Testing-the-Waters Communications (as defined below)
other than those listed on
Schedule IV hereto. “Written
Testing-the-Waters Communication” means any
Testing-the-Waters Communication that is a written communication
within the meaning of Rule 405 under the Act. Any individual
Written Testing-the-Waters Communication does not conflict with the
information contained in the Registration Statement or the Time of
Sale Disclosure Package, complied in all material respects with the
Act, and when taken together with the Time of Sale Disclosure
Package as of the Applicable Time, did not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading.
(vi) Financial
Statements. The financial statements of the Company,
together with the related notes, set forth in the Registration
Statement, the Time of Sale Disclosure Package and Prospectus
comply in all material respects with the requirements of the Act
and the Rules and Regulations and fairly present the financial
condition of the Company as of the dates indicated and the results
of operations, cash flows and changes in stockholders’ equity
for the periods therein specified. The financial statements of the
Company, together with the related notes, set forth in the
Registration Statement, the Time of Sale Disclosure Package and
Prospectus are in conformity with generally accepted accounting
principles in the United States (“GAAP”)
consistently applied throughout the periods involved. The
supporting schedules of the Company included in the Registration
Statement present fairly the information required to be stated
therein. All non-GAAP financial information included in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus complies with the requirements of Regulation G and Item
10 of Regulation S-K under the Act. Except as disclosed in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus, there are no material off-balance sheet arrangements
(as defined in Regulation S-K under the Act, Item 303(a)(4)(ii)) or
any other relationships with unconsolidated entities or other
persons, that may have a material current or, to the
Company’s knowledge, material future effect on the
Company’s financial condition, results of operations,
liquidity, capital expenditures, capital resources or significant
components of revenue or expenses. No other financial statements or
schedules are required to be included in the Registration
Statement, the Time of Sale Disclosure Package or the Prospectus.
Squar Milner LLP, which has expressed its opinion with respect to
the financial statements of the Company and related schedules filed
as a part of the Registration Statement and included in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus, is (x) an independent
registered public accounting firm within the meaning of the Act and
the Rules and Regulations, (y) a registered public accounting firm
(as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley
Act”)) and (z) not in
violation of the auditor independence requirements of the
Sarbanes-Oxley Act.
(vii) Organization
and Good Standing. The Company has been duly
organized and is validly existing as an entity in good standing
under the laws of its jurisdiction of organization. The Company has
full corporate power and authority to own its properties and
conduct its business as currently being carried on and as described
in the Registration Statement, the Time of Sale Disclosure Package
and the Prospectus, and is duly qualified to do business as a
foreign entity in good standing in each jurisdiction in which it
owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect upon the
business, prospects, management, properties, operations, condition
(financial or otherwise) or results of operations of the Company,
taken as a whole (“Material Adverse
Effect”).
(viii) Absence
of Certain Events. Except as contemplated in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus, subsequent to the respective dates as of which
information is given in the Time of Sale Disclosure Package, the
Company has not incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions, or
declared or paid any dividends or made any distribution of any kind
with respect to its capital stock; and there has not been any
change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares
upon the exercise of outstanding options or warrants or conversion
of convertible securities), or any material change in the
short-term or long-term debt (other than as a result of the
conversion of convertible securities), or any issuance of options,
warrants, convertible securities or other rights to purchase the
capital stock, of the Company, or any material adverse change in
the general affairs, condition (financial or otherwise), business,
prospects, management, properties, operations or results of
operations of the Company, taken as a whole (“Material Adverse
Change”) or any development which could reasonably be
expected to result in any Material Adverse Change.
(ix) Absence
of Proceedings.
Except as set forth in the Time of Sale Disclosure Package and the
Prospectus, there is no pending or, to the knowledge of the
Company, threatened or contemplated, action, suit or proceeding (a)
to which the Company is a party or (b) which has as the subject
thereof any officer or director of the Company, any employee
benefit plan sponsored by the Company or any property or assets
owned or leased by the Company before or by any court or
Governmental Authority (as defined below), or any arbitrator,
which, individually or in the aggregate, might result in any
Material Adverse Change, or would materially and adversely affect
the ability of the Company to perform its obligations under this
Agreement or the Representative’s Warrant (as defined below)
or which are otherwise material in the context of the sale of the
Securities. There are no current or, to the knowledge of the
Company, pending, legal, governmental or regulatory actions, suits
or proceedings (x) to which the Company is subject or (y) which has
as the subject thereof any officer or director of the Company, any
employee plan sponsored by the Company or any property or assets
owned or leased by the Company, that are required to be described
in the Registration Statement, Time of Sale Disclosure Package and
Prospectus by the Act or by the Rules and Regulations and that have
not been so described.
(x) Authorization; No
Conflicts; Authority. This Agreement has been duly
authorized, executed and delivered by the Company. The
Representative’s Warrant has been duly authorized and, at the
First Closing Date and, if applicable, the Second Closing Date,
will be duly executed and delivered by the Company. This Agreement
constitutes, and the Representative’s Warrant will constitute
at the First Closing Date and, if applicable, the Second Closing
Date, a valid, legal and binding obligation of the Company,
enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities
laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles
of equity. The execution, delivery and performance of this
Agreement and the Representative’s Warrant and the
consummation of the transactions herein contemplated will not (A)
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company
is subject, (B) result in any violation of the provisions of the
Company’s charter or bylaws or (C) result in the violation of
any law or statute or any judgment, order, rule, regulation or
decree of any court or arbitrator or federal, state, local or
foreign governmental agency or regulatory authority having
jurisdiction over the Company or any of its properties or assets
(each, a “Governmental
Authority”), except in the case of clause (A) as would
not result in a Material Adverse Effect. No consent, approval,
authorization or order of, or registration or filing with any
Governmental Authority is required for the execution, delivery and
performance of this Agreement or the Representative’s Warrant
or for the consummation of the transactions contemplated hereby,
including the issuance or sale of the Securities by the Company or
the issuance of shares of Common Stock upon the exercise of the
Representative’s Warrant, except such as may be required
under the Act, the rules of the Financial Industry Regulatory
Authority, Inc. (“FINRA”),
the Nasdaq Capital Market or state securities or blue sky laws; and
the Company has full power and authority to enter into this
Agreement and the Representative’s Warrant and to consummate
the transactions contemplated hereby, including the authorization,
issuance and sale of the Securities as contemplated by this
Agreement and the issuance of shares of Common Stock upon the
exercise of the Representative’s Warrant.
(xi) Capitalization;
the Securities; Registration Rights. All of the issued and
outstanding shares of capital stock of the Company, including the
outstanding shares of Common Stock, are duly authorized and validly
issued, fully paid and nonassessable, have been issued in
compliance with all federal and state and foreign securities laws,
were not issued in violation of or subject to any preemptive rights
or other rights to subscribe for or purchase securities that have
not been waived in writing (a copy of which has been delivered to
counsel to the Underwriters), and the holders thereof are not
subject to personal liability by reason of being such holders; the
Securities which may be sold hereunder by the Company and the
shares of Common Stock which may be sold pursuant to the
Representative’s Warrant have been duly authorized and, when
issued, delivered and paid for in accordance with the terms of this
Agreement and the Representative’s Warrant (as applicable),
will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders; and the capital
stock of the Company, including the Common Stock, conforms to the
description thereof in the Registration Statement, in the Time of
Sale Disclosure Package and in the Prospectus. Except as otherwise
stated in the Registration Statement, in the Time of Sale
Disclosure Package and in the Prospectus, (A) there are no
preemptive rights or other rights to subscribe for or to purchase,
or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company’s charter, bylaws or any
agreement or other instrument to which the Company is a party or by
which the Company is bound, (B) none of the filing of the
Registration Statement, the offering, the sale of the Securities or
the Representative’s Warrant as contemplated by this
Agreement, or the issuance of shares of Common Stock upon exercise
of the Representative’s Warrant, give rise to any rights for
or relating to the registration of any shares of Common Stock or
other securities of the Company (collectively “Registration
Rights”) and (C) any person to whom the Company
has granted Registration Rights has agreed not to exercise such
rights until after expiration of the Lock-Up Period (as defined
below). The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement, in the
Time of Sale Disclosure Package and in the Prospectus under the
caption “Description of Capital Stock.” The Common
Stock (including the Securities) conforms in all material respects
to the description thereof contained in the Time of Sale Disclosure
Package and the Prospectus.
(xii) Stock
Options. Except as described in the Registration Statement,
in the Time of Sale Disclosure Package and in the Prospectus, there
are no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company any shares of the
capital stock of the Company. The description of the
Company’s stock option, stock bonus and other stock plans or
arrangements (the “Company Stock
Plans”), and the options (the “Options”)
or other rights granted thereunder, set forth in the Time of Sale
Disclosure Package and the Prospectus accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights. Each grant of an Option
(A) was duly authorized no later than the date on which the grant
of such Option was by its terms to be effective by all necessary
corporate action, including, as applicable, approval by the board
of directors of the Company (or a duly constituted and authorized
committee thereof) and any required stockholder approval by the
necessary number of votes or written consents, and the award
agreement governing such grant (if any) was duly executed and
delivered by each party thereto and (B) was made in accordance
with the terms of the applicable Company Stock Plan, and all
applicable laws and regulatory rules or requirements, including all
applicable federal securities laws.
(xiii) Compliance
with Laws. The Company holds, and is operating in compliance
in all material respects with, all franchises, grants,
authorizations, licenses, permits, easements, consents,
certificates and orders of any Governmental Authority or
self-regulatory body required for the conduct of its business and
all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in
full force and effect; and the Company has not received notice of
any revocation or modification of any such franchise, grant,
authorization, license, permit, easement, consent, certification or
order or has reason to believe that any such franchise, grant,
authorization, license, permit, easement, consent, certification or
order will not be renewed in the ordinary course; and the Company
is in compliance in all material respects with all applicable
federal, state, local and foreign laws, regulations, orders and
decrees.
(xiv) Ownership
of Assets. The Company has good and marketable title to, or
has valid rights to lease or otherwise use, all property (whether
real or personal) described in the Registration Statement, the Time
of Sale Disclosure Package and the Prospectus as being owned,
leased or used by it, in each case free and clear of all liens,
claims, security interests, other encumbrances or defects except
such as are described in the Registration Statement, the Time of
Sale Disclosure Package and the Prospectus. The property held under
lease by the Company is held by it under valid, subsisting and
enforceable leases with only such exceptions with respect to any
particular lease as do not interfere in any material respect with
the conduct of the business of the Company.
(xv) Intellectual
Property.
(A) The
Company owns or has the right to use pursuant to a valid and
enforceable written license or other legally enforceable right, or
can acquire on commercially reasonable terms, all Intellectual
Property (as defined below) necessary for the conduct of the
Company’s business as now conducted or as described in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus to be conducted, except as such failure to own, right to
use or acquire such rights would not result in a Material Adverse
Effect (the “Company
IP”). “Intellectual
Property” means all patents, patent applications,
trade and service marks, trade and service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets,
domain names, technology, know-how and other intellectual
property.
(B) To
the knowledge of the Company, there is no infringement,
misappropriation or violation by third parties of any Company IP,
except for as such infringement, misappropriation or violation that
would not result in a Material Adverse Effect. There is no pending
or, to the knowledge of the Company, threatened, action, suit,
proceeding or claim by others challenging the Company’s
rights in or to any Company IP, and the Company is unaware of any
facts which would form a reasonable basis for any such claim. The
Intellectual Property owned by the Company, and to the knowledge of
the Company, the Intellectual Property licensed to the Company, has
not been adjudged invalid or unenforceable, in whole or in part,
and there is no pending or, to the knowledge of the Company,
threatened action, suit, proceeding or claim by others challenging
the validity or scope of any Company IP, and the Company is unaware
of any facts which would form a reasonable basis for any such
claim. There is no pending or, to the knowledge of the Company,
threatened action, suit, proceeding or claim by others that the
Company infringes, misappropriates or otherwise violates any
Intellectual Property or other proprietary rights of others, and
the Company has not received any written notice of such claim and
the Company is unaware of any other fact which would form a
reasonable basis for any such claim.
(C) To
the Company’s knowledge, no employee of the Company is in or
has ever been in material violation of any term of any employment
contract, patent disclosure agreement, invention assignment
agreement, non-competition agreement, non-solicitation agreement,
nondisclosure agreement or any restrictive covenant to or with a
former employer where the basis of such violation relates to such
employee’s employment with the Company or actions undertaken
by the employee while employed with the Company.
(D) The
Company has taken commercially reasonable security measures to
protect the secrecy, confidentiality and value of all of their
material Intellectual Property.
(E) All
patent applications owned by the Company and filed with the U.S.
Patent and Trademark Office (the “PTO”)
or any foreign or international patent authority that have resulted
in patents or currently pending applications that describe
inventions necessary to conduct the business of the Company as now
conducted or as described in the Registration Statement, the Time
of Sale Disclosure Package and the Prospectus to be conducted
(collectively, the “Company Patent
Applications”) have been or were duly and properly
filed.
(F) The
Company has complied with its duty of candor and disclosure to the
PTO for the Company Patent Applications. To the Company’s
knowledge, there are no facts required to be disclosed to the PTO
that were not disclosed to the PTO and which would preclude the
grant of a patent for the Company Patent Applications. The Company has no knowledge of any facts
which would preclude it from having clear title to the Company
Patent Applications that have been identified by the Company as
being exclusively owned by the Company.
(xvi) No
Violations or Defaults. The Company is not in violation of
its charter, bylaws or other organizational documents, or in breach
of or otherwise in default, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default in
the performance of any material obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which
it is subject or may be bound, or to which any of the material
property or assets of the Company is subject.
(xvii) Payment
of Taxes. The Company has timely filed all federal, state,
local and foreign income and franchise tax returns required to be
filed and is not in default in the payment of any taxes which were
payable pursuant to said returns or any assessments with respect
thereto, other than any which the Company is contesting in good
faith. There is no pending dispute with any taxing authority
relating to any of such returns, and the Company has no knowledge
of any proposed liability for any tax to be imposed upon the
properties or assets of the Company for which there is not an
adequate reserve reflected in the Company’s financial
statements included in the Registration Statement, the Time of Sale
Disclosure Package and the Prospectus.
(xviii) Exchange
Listing and Exchange Act Registration. The Securities have been
approved for listing on the Nasdaq Capital Market upon official
notice of issuance and, on the date the Registration Statement
became effective, the Company’s Registration Statement on
Form 8-A or other applicable form under the Securities Exchange Act
of 1934, as amended (the
“Exchange Act”), became or was
effective. Except as previously disclosed to counsel for the
Underwriters or as set forth in the Time of Sale Disclosure Package
and the Prospectus, there are no affiliations with members of FINRA
among the Company’s officers or directors or, to the
knowledge of the Company, any five percent or greater stockholders
of the Company or any beneficial owner of the Company’s
unregistered equity securities that were acquired during the
180-day period immediately preceding the initial filing date of the
Registration Statement. The Company is currently in compliance in
all material respects with the applicable requirements of the
Nasdaq Capital Market for maintenance of inclusion of the Common
Stock thereon and has not received any notice regarding the removal
of the Company’s listing with such exchange.
(xix) Ownership
of Other Entities. The Company, directly or indirectly, owns
no capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust or
other entity.
(xx) Internal
Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with
management’s general or specific authorization;
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
Except as disclosed in the Registration Statement, in the Time of
Sale Disclosure Package and in the Prospectus, the Company’s
internal control over financial reporting is effective and none of
the Company, its board of directors and its audit committee is
aware of any [“significant deficiencies”] or
“material weaknesses” (each as defined by the Public
Company Accounting Oversight Board) in its internal control over
financial reporting, or any fraud, whether or not material, that
involves management or other employees of the Company who have a
significant role in the Company’s internal controls; and
since the end of the latest audited fiscal year, there has been no
change in the Company’s internal control over financial
reporting (whether or not remediated) that has materially affected,
or is reasonably likely to materially affect, the Company’s
internal control over financial reporting. The Company’s board of
directors has, subject to the exceptions, cure periods and the
phase-in periods specified in the applicable stock exchange rules
(the “Exchange
Rules”), validly appointed an audit committee to
oversee internal accounting controls whose composition satisfies
the applicable requirements of the Exchange Rules and the
Company’s board of directors and/or the audit committee has
adopted a charter that satisfies the requirements of the Exchange
Rules.
(xxi) No
Brokers or Finders. Other than as contemplated by this
Agreement, the Company has not incurred and will not incur any
liability for any finder’s or broker’s fee or
agent’s commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xxii) Insurance.
The Company carries, or is covered by, insurance from reputable
insurers in such amounts and covering such risks as is adequate for
the conduct of its business and the value of its properties and as
is customary for companies engaged in similar businesses in similar
industries; all policies of insurance and any fidelity or surety
bonds insuring the Company or its business, assets, employees,
officers and directors are in full force and effect; the Company is
in compliance with the terms of such policies and instruments in
all material respects; there are no claims by the Company under any
such policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights
clause; the Company has not been refused any insurance coverage
sought or applied for; and the Company has no reason to believe
that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business
at a cost that would not have a Material Adverse
Effect.
(xxiii) Investment
Company Act. The Company is not and, after giving effect to
the offering and sale of the Securities, will not be an
“investment company,” as such term is defined in the
Investment Company Act of 1940, as amended.
(xxiv) Sarbanes-Oxley
Act. The Company is in compliance with all applicable
provisions of the Sarbanes-Oxley Act and the rules and regulations
of the Commission thereunder.
(xxv) Disclosure
Controls. The Company has established and maintains
disclosure controls and procedures (as defined in Rules 13a-14 and
15d-14 under the Exchange Act) and such controls and procedures are
effective in ensuring that material information relating to the
Company is made known to the principal executive officer and the
principal financial officer and such controls and procedures are
effective to perform the functions for which they were established.
The Company has utilized such controls and procedures in preparing
and evaluating the disclosures in the Registration Statement, the
Time of Sale Disclosure Package and the Prospectus.
(xxvi) Anti-Bribery
and Anti-Money Laundering Laws. The Company, its officers,
directors, supervisors, managers and employees, and to the
knowledge of the Company, its affiliates or agents and any of their
respective officers, directors, supervisors, managers, agents and
employees, has not violated, its participation in the offering will
not violate, and the Company has instituted and maintains policies
and procedures designed to ensure continued compliance with, each
of the following laws: (A) anti-bribery laws, including but not
limited to, any applicable law, rule, or regulation of any
locality, including but not limited to any law, rule, or regulation
promulgated to implement the OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions,
signed December 17, 1997, including the U.S. Foreign Corrupt
Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or
any other law, rule or regulation of similar purposes and scope or
(B) anti-money laundering laws, including but not limited to,
applicable federal, state, international, foreign or other laws,
regulations or government guidance regarding anti-money laundering,
including, without limitation, Title 18 U.S. Code section 1956 and
1957, the Patriot Act, the Bank Secrecy Act, and international
anti-money laundering principles or procedures by an
intergovernmental group or organization, such as the Financial
Action Task Force on Money Laundering, of which the United States
is a member and with which designation the United States
representative to the group or organization continues to concur,
all as amended, and any executive order, directive, or regulation
pursuant to the authority of any of the foregoing, or any orders or
licenses issued thereunder.
(xxvii) OFAC.
(A) Neither
the Company nor any of its directors, officers or employees, nor,
to the Company’s knowledge, any agent, affiliate or
representative of the Company, is an individual or entity that is,
or is owned or controlled by an individual or entity that
is:
(1) the
subject of any sanctions administered or enforced by the U.S.
Department of Treasury’s Office of Foreign Assets Control,
the United Nations Security Council, the European Union, Her
Majesty’s Treasury, or other relevant sanctions authority
(collectively, “Sanctions”),
nor
(2) located,
organized or resident in a country or territory that is the subject
of Sanctions (including, without limitation, the Crimea Region of
the Ukraine, Cuba, Iran, North Korea, Sudan and
Syria).
(B) The
Company will not, directly or indirectly, use the proceeds of the
offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other
individual or entity:
(1) to
fund or facilitate any activities or business of or with any
individual or entity or in any country or territory that, at the
time of such funding or facilitation, is the subject of Sanctions;
or
(2) in
any other manner that will result in a violation of Sanctions by
any individual or entity (including any individual or entity
participating in the offering, whether as underwriter, advisor,
investor or otherwise).
(C) For
the past five years, neither the Company nor any of its
subsidiaries, whether or not currently existing, has knowingly
engaged in, and is not now knowingly engaged in, any dealings or
transactions with any individual or entity, or in any country or
territory, that at the time of the dealing or transaction is or was
the subject of Sanctions.
(xxviii) Compliance
with Environmental Laws. Except as disclosed in the
Registration Statement, the Time of Disclosure Package and the
Prospectus, the Company is not in violation of any statute, rule,
regulation, decision or order of any Governmental Authority or any
court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, “Environmental
Laws”), owns or operates any real property
contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or is subject to
any claim relating to any Environmental Laws, which violation,
contamination, liability or claim would individually or in the
aggregate, have a Material Adverse Effect; and the Company is not
aware of any pending investigation which might lead to such a
claim. The Company does not anticipate incurring any material
capital expenditures relating to compliance with Environmental
Laws.
(xxix) Compliance
with Occupational Laws. The Company (A) is in compliance, in
all material respects, with any and all applicable foreign,
federal, state and local laws, rules, regulations, treaties,
statutes and codes promulgated by any and all Governmental
Authorities (including pursuant to the Occupational Health and
Safety Act) relating to the protection of human health and safety
in the workplace (“Occupational
Laws”); (B) has received all material permits,
licenses or other approvals required of it under applicable
Occupational Laws to conduct its business as currently conducted;
and (C) is in compliance, in all material respects, with all terms
and conditions of such permits, licenses or approvals. No action,
proceeding, revocation proceeding, writ, injunction or claim is
pending or, to the Company’s knowledge, threatened against
the Company relating to Occupational Laws, and the Company does not
have knowledge of any facts, circumstances or developments relating
to its operations or cost accounting practices that could
reasonably be expected to form the basis for or give rise to such
actions, suits, investigations or proceedings.
(xxx) ERISA
and Employee Benefits Matters. (A) To the knowledge of the
Company, no “prohibited transaction” as defined under
Section 406 of ERISA (as defined below) or Section 4975 of the Code
(as defined below) and not exempt under ERISA Section 408 and the
regulations and published interpretations thereunder has occurred
with respect to any Employee Benefit Plan (as defined below). At no
time has the Company or any ERISA Affiliate (as defined below)
maintained, sponsored, participated in, contributed to or has or
had any liability or obligation in respect of any Employee Benefit
Plan subject to Part 3 of Subtitle B of Title I of ERISA, Title IV
of ERISA, or Section 412 of the Code or any “multiemployer
plan” as defined in Section 3(37) of ERISA or any multiple
employer plan for which the Company or any ERISA Affiliate has
incurred or could incur liability under Section 4063 or 4064 of
ERISA. No Employee Benefit Plan provides or promises, or at any
time provided or promised, retiree health, life insurance, or other
retiree welfare benefits except as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
or similar state law. Each Employee Benefit Plan is and has been
operated in material compliance with its terms and all applicable
laws, including but not limited to ERISA and the Code and, to the
knowledge of the Company, no event has occurred (including a
“reportable event” as such term is defined in Section
4043 of ERISA) and no condition exists that would subject the
Company or any ERISA Affiliate to any material tax, fine, lien,
penalty or liability imposed by ERISA, the Code or other applicable
law. Each Employee Benefit Plan intended to be qualified under Code
Section 401(a) is so qualified and has a favorable determination or
opinion letter from the IRS upon which it can rely, and any such
determination or opinion letter remains in effect and has not been
revoked; to the knowledge of the Company, nothing has occurred
since the date of any such determination or opinion letter that is
reasonably likely to adversely affect such qualification; (B) with
respect to each Foreign Benefit Plan (as defined below), such
Foreign Benefit Plan (1) if intended to qualify for special tax
treatment, meets, in all material respects, the requirements for
such treatment, and (2) if required to be funded, is funded to the
extent required by applicable law, and with respect to all other
Foreign Benefit Plans, adequate reserves therefor have been
established on the accounting statements of the applicable Company
or subsidiary; (C) the Company does not have any obligations under
any collective bargaining agreement with any union and no
organization efforts are underway with respect to employees of the
Company. As used in this Agreement, “Code”
means the Internal Revenue Code of 1986, as amended; “Employee Benefit
Plan” means any “employee benefit plan”
within the meaning of Section 3(3) of ERISA, including, without
limitation, all stock purchase, stock option, stock-based
severance, employment, change-in-control, medical, disability,
fringe benefit, bonus, incentive, deferred compensation, employee
loan and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA,
under which (x) any current or former employee, director or
independent contractor of the Company has any present or future
right to benefits and which are contributed to, sponsored by or
maintained by the Company or (y) the Company has had or has any
present or future obligation or liability; “ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended; “ERISA
Affiliate” means any member of the Company’s
controlled group as defined in Code Section 414(b), (c), (m) or
(o); and “Foreign Benefit
Plan” means any Employee Benefit Plan established,
maintained or contributed to outside of the United States of
America or which covers any employee working or residing outside of
the United States.
(xxxi) Business
Arrangements. Except as disclosed in the Registration
Statement, the Time of Sale Disclosure Package and the Prospectus,
the Company has not granted any material rights to develop,
manufacture, produce, assemble, distribute, license, market or sell
its products to any other person and is not bound by any material
agreement that affects the exclusive right of the Company to
develop, manufacture, produce, assemble, distribute, license,
market or sell its products.
(xxxii) Labor
Matters. No labor problem or dispute with the employees of
the Company exists or is threatened or imminent, and the Company is
not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, contractors or
customers, that could have a Material Adverse Effect.
(xxxiii) Disclosure
of Legal Matters.
There are no statutes, regulations, legal or governmental
proceedings or contracts or other documents required to be
described in the Time of Sale Disclosure Package or in the
Prospectus or included as exhibits to the Registration Statement
that are not described or included as required.
(xxxiv) Statistical
Information. Any third-party statistical and market-related
data included in the Registration Statement, the Time of Sale
Disclosure Package and the Prospectus are based on or derived from
sources that the Company believes to be reliable and accurate in
all material respects.
(xxxv) Forward-looking
Statements. No forward-looking statement (within the meaning
of Section 27A of the Act and Section 21E of the Exchange
Act) contained in the Registration Statement, the Time of Sale
Disclosure Package or the Prospectus has been made or reaffirmed
without a reasonable basis or has been disclosed other than in good
faith.
(xxxvi) No
Rated Securities. There
are no debt securities or preferred stock of, or guaranteed by, the
Company that are rated by a “nationally recognized
statistical rating organization,” as such term is defined in
Section 3(a)(62) of the Exchange Act.
(xxxvii) Related-Party
Transactions. To the
Company’s knowledge, no transaction has occurred between or
among the Company, on the one hand, and any of the Company’s
officers, directors or five percent or greater stockholders or any
affiliate or affiliates of any such officer, director or five
percent or greater stockholders that is required to be described
that is not so described in the Registration Statement, the Time of
Sale Disclosure Package and the Prospectus. The Company has not,
directly or indirectly, extended or maintained credit, or arranged
for the extension of credit, or renewed an extension of credit, in
the form of a personal loan to or for any of its directors or
executive officers in violation of applicable laws, including
Section 402 of the Sarbanes-Oxley Act.
(xxxviii) Cybersecurity;
Data Protection. The Company’s information technology assets
and equipment, computers, systems, networks, hardware, software,
websites, applications, and databases (collectively,
“IT
Systems”) are adequate in
all material respects for, and operate and perform in all material
respects as required in connection with the operation of the
business of the Company as currently conducted, and to the
knowledge of the Company, free and clear of all material bugs,
errors, defects, Trojan horses, time bombs, malware and other
corruptants. The Company has implemented and maintains commercially
reasonable controls, policies, procedures and safeguards to
maintain and protect its material confidential information and the
integrity, continuous operation, redundancy and security of all IT
Systems and data (including all personal, personally identifiable,
sensitive, confidential or regulated data
(“Personal
Data”)) used in
connection with its businesses, and to the knowledge of the
Company, there have been no material breaches, violations, outages
or unauthorized uses of or accesses to the same, except for those
that have been remedied without material cost or liability or the
duty to notify any other person, nor are there any material
incidents under internal review or investigations relating to the
same. The Company is presently in compliance with all applicable
laws or statutes and all judgments, orders, rules and regulations
of any court or arbitrator or governmental or regulatory authority,
internal policies and contractual obligations relating to the
privacy and security of IT Systems and Personal Data and to the
protection of such IT Systems and Personal Data from unauthorized
use, access, misappropriation or modification, except as would not
reasonably be expected to have a Material Adverse
Effect.
(b) Effect of
Certificates. Any certificate signed by any officer of the
Company and delivered to you or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
3. Purchase, Sale and Delivery
of Securities.
(a) Firm
Shares. On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell
the Firm Shares to the several Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from the Company the
number of Firm Shares set forth opposite the name of such
Underwriter in Schedule
I hereto. The purchase price for each Firm Share shall be
$[●] per share. In making this Agreement, each Underwriter is
contracting severally and not jointly. Except as provided in
paragraph (d) of this Section 3, the agreement of
each Underwriter is to purchase only the respective number of Firm
Shares specified in Schedule I.
(b) Option
Shares. On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants to the
several Underwriters an option to purchase all or any portion of
the Option Shares at the same purchase price as the Firm Shares,
for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Shares. The
option granted hereunder may be exercised in whole or in part at
any time within 30 days after the effective date of this Agreement
upon notice (confirmed in writing) by the Representatives to the
Company setting forth the aggregate number of Option Shares as to
which the several Underwriters are exercising the option and the
date and time, as determined by you, when the Option Shares are to
be delivered, but in no event earlier than the First Closing Date
(as defined below) nor (unless otherwise agreed by you and the
Company) earlier than the second business day or later than the
tenth business day after the date on which the option shall have
been exercised. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage of the total number of
Option Shares to be purchased by the several Underwriters as the
number of Firm Shares to be purchased by such Underwriter is of the
total number of Firm Shares to be purchased by the several
Underwriters, as adjusted by the Representatives in such manner as
the Representatives deems advisable to avoid fractional shares. No
Option Shares shall be sold and delivered unless the Firm Shares
previously have been, or simultaneously are, sold and
delivered.
(c) Payment and
Delivery.
(i)
The Securities to
be purchased by each Underwriter hereunder, in book-entry form in
such authorized denominations and registered in such names as you
may request upon at least forty-eight hours’ prior notice to
the Company, shall be delivered by or on behalf of the Company to
you, through the facilities of the Depository Trust Company
(“DTC”),
for the account of such Underwriter, with any transfer taxes
payable in connection with the transfer of the Securities to the
Underwriters duly paid, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by the Company to
you at least forty-eight hours in advance. The time and date of
such delivery and payment shall be, with respect to the Firm
Shares, 9:30 a.m., New York City time, on [●], 2019, or
such other time and date as you and the Company may agree upon in
writing, and, with respect to the Option Shares, 9:30 a.m.,
New York City time, on the date specified by you in each written
notice given by you of the election to purchase such Option Shares,
or such other time and date as you and the Company may agree upon
in writing. Such time and date for delivery of the Firm Shares is
herein called the “First Closing
Date,” each such
time and date for delivery of the Option Shares, if not the First
Closing Date, is herein called a “Second Closing
Date,” and each such time and date for delivery is
herein called a “Closing”
or a “Closing
Date.”
(ii)
The documents to be
delivered at each Closing by or on behalf of the parties hereto
pursuant to Section 5 hereof,
including the cross receipt for the Securities and any additional
documents requested by the Underwriters pursuant to Section 5(n) hereof, will
be delivered at the offices of the Company, and the Securities will
be delivered to you, through the facilities of the DTC, for the
account of such Underwriter, all at such Closing.
(d) Purchase by
Representatives on Behalf of Underwriters. It is understood
that you, individually and not as Representatives of the several
Underwriters, may (but shall not be obligated to) make payment to
the Company, on behalf of any Underwriter for the Securities to be
purchased by such Underwriter. Any such payment by you shall not
relieve any such Underwriter of any of its obligations hereunder.
Nothing herein contained shall constitute any of the Underwriters
an unincorporated association or partner with the
Company.
4. Covenants. The
Company covenants and agrees with the several Underwriters as
follows:
(a) Required
Filings. The Company will prepare and file a Prospectus with
the Commission containing the Rule 430A Information omitted
from the Preliminary Prospectus within the time period required by,
and otherwise in accordance with the provisions of,
Rules 424(b) and 430A of the Rules and Regulations. If the
Company has elected to rely upon Rule 462(b) of the Rules and
Regulations to increase the size of the offering registered under
the Act and the Rule 462(b) Registration Statement has not yet been
filed and become effective, the Company will prepare and file the
Rule 462(b) Registration Statement with the Commission within the
time period required by, and otherwise in accordance with the
provisions of, Rule 462(b) of the Rules and Regulations and
the Act. The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus that, in your opinion, may be
necessary or advisable in connection with the distribution of the
Securities by the Underwriters; and the Company will furnish you
and counsel for the Underwriters a copy of any proposed amendment
or supplement to the Registration Statement or Prospectus and will
not file any amendment or supplement to the Registration Statement
or Prospectus to which you shall reasonably object by notice to the
Company after having been furnished a copy a reasonable time prior
to the filing.
(b) Notification of
Certain Commission Actions. The Company will advise you,
promptly after it shall receive notice or obtain knowledge thereof,
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or any post-effective
amendment thereto or preventing or suspending the use of any
Preliminary Prospectus, the Time of Sale Disclosure Package, the
Prospectus or any issuer free writing prospectus, of the suspension
of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding
for any such purpose; and the Company will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such a stop order should be issued.
(c) Continued
Compliance with Securities Laws.
(A) Within
the time during which a prospectus (assuming the absence of Rule
172) relating to the Securities is required to be delivered under
the Act by any Underwriter or any dealer, the Company will comply
with all requirements imposed upon it by the Act, as now and
hereafter amended, and by the Rules and Regulations, as from time
to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities as contemplated by the
provisions hereof, the Time of Sale Disclosure Package and the
Prospectus. If during such period any event occurs as a result of
which the Prospectus (or if the Prospectus is not yet available to
prospective purchasers, the Time of Sale Disclosure Package) would
include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if
during such period it is necessary to amend the Registration
Statement or supplement the Prospectus (or if the Prospectus is not
yet available to prospective investors, the Time of Sale Disclosure
Package) to comply with the Act, the Company promptly will (x)
notify you of such untrue statement or omission, (y) amend the
Registration Statement or supplement the Prospectus (or, if the
Prospectus is not yet available to prospective purchasers, the Time
of Sale Disclosure Package) (at the expense of the Company) so as
to correct such statement or omission or effect such compliance and
(z) notify you when any amendment to the Registration Statement is
filed or becomes effective or when any supplement to the Prospectus
(or, if the Prospectus is not yet available to prospective
purchasers, the Time of Sale Disclosure Package) is
filed.
(B) If
at any time following issuance of a Written Testing-the-Waters
Communication there occurred or occurs an event or development as a
result of which such Written Testing-the-Waters Communication
conflicted or would conflict with the information contained in the
Registration Statement, any Preliminary Prospectus or the
Prospectus relating to the Securities or included or would include
an untrue statement of a material fact or omitted or would omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances prevailing at that
subsequent time, not misleading, the Company (x) has promptly
notified or promptly will notify the Representatives of such
conflict, untrue statement or omission, (y) has promptly amended or
will promptly amend or supplement, at its own expense, such Written
Testing-the-Waters Communication to eliminate or correct such
conflict, untrue statement or omission and (z) has notified or
promptly will notify you when such amendment or supplement was or
is filed with the Commission to the extent required to be filed by
the Rules and Regulations.
(d) Blue Sky
Qualifications. The Company shall take or cause to be taken
all necessary action to qualify the Securities for sale under the
securities laws of such domestic United States or foreign
jurisdictions as you reasonably designate and to continue such
qualifications in effect so long as required for the distribution
of the Securities, except that the Company shall not be required in
connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process in any
state.
(e) Provision of
Documents. The Company will furnish, at its own expense, to
the Underwriters and counsel for the Underwriters copies of the
Registration Statement, and to the Underwriters and any dealer each
Preliminary Prospectus, the Time of Sale Disclosure Package, the
Prospectus, and all amendments and supplements to such documents,
in each case as soon as available and in such quantities as you may
from time to time reasonably request.
(f) Rule 158.
The Company will make generally available to its security holders
as soon as practicable, but in no event later than 15 months after
the end of the Company’s current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period
beginning after the effective date of the Registration Statement
(which, for purposes of this paragraph, will be deemed to be the
effective date of the Rule 462(b) Registration Statement, if
applicable) that shall satisfy the provisions of Section 11(a)
of the Act and Rule 158 of the Rules and
Regulations.
(g) Payment and
Reimbursement of Expenses. The Company, whether or not the
transactions contemplated hereunder are consummated or this
Agreement is terminated, will pay or cause to be paid (A) all
expenses (including transfer taxes allocated to the respective
transferees) incurred in connection with the delivery to the
Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the
Company’s accountants and counsel) in connection with the
preparation, printing, filing, delivery, and shipping of the
Registration Statement (including the financial statements therein
and all amendments, schedules, and exhibits thereto), the
Securities, each Preliminary Prospectus, the Time of Sale
Disclosure Package, the Prospectus, and any amendment thereof or
supplement thereto, and the printing, delivery, and shipping of
this Agreement and other underwriting documents, including Blue Sky
Memoranda (covering the states and other applicable jurisdictions),
(C) all filing fees and fees incurred in connection with the
qualification of the Securities for offering and sale by the
Underwriters or by dealers under the securities or blue sky laws of
the states and other jurisdictions which you shall designate, (D)
the fees and expenses of any transfer agent or registrar, (E) the
reasonable out-of-pocket accountable fees and disbursements
incurred by the Underwriters in connection with the offer, sale or
marketing of the Securities and performance of the
Underwriters’ obligations hereunder, including all reasonable
out-of-pocket accountable fees and disbursements of
Underwriters’ counsel, and for the avoidance of doubt,
excluding any general overhead, salaries, supplies, or similar
expenses of the Underwriters incurred in the normal conduct of
business, (F) listing fees, if any, (G) all fees, expenses and disbursements relating to
background checks of the Company’s officers and
directors, (H) the cost and expenses of the Company relating
to investor presentations or any “road show” undertaken
in connection with marketing of the Securities, including, without
limitation, expenses associated with the preparation or
dissemination of any electronic road show, expenses associated with
the production of road show slides and graphics, fees and expenses
of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company
and any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (I) all other costs and expenses of
the Company incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein.
The expenses to be paid by the Company and reimbursed to the
Underwriters under this Section 4(g) shall not exceed
$275,000 without the prior approval of the Company. If this
Agreement is terminated by you pursuant to Section 8 hereof or if the sale
of the Securities provided for herein is not consummated by reason
of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any
other condition of the Underwriters’ obligations hereunder
required to be fulfilled by the Company is not fulfilled, the
Company will reimburse the several Underwriters for all reasonable
out-of-pocket accountable disbursements (including but not limited
to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges) incurred by the
Underwriters in connection with their investigation, preparing to
market and marketing the Securities or in contemplation of
performing their obligations hereunder.
(h) Use of
Proceeds. The Company will apply the net proceeds from the
sale of the Securities to be sold by it hereunder for the purposes
set forth in the Time of Sale Disclosure Package and in the
Prospectus and will file such reports with the Commission with
respect to the sale of the Securities and the application of the
proceeds therefrom as may be required in accordance with
Rule 463 of the Rules and Regulations.
(i) Company
Lock-Up. The Company will not, without the prior written
consent of the Representatives, from the date of execution of this
Agreement and continuing to and including the date 180 days after
the date of the Prospectus (the “Lock-Up
Period”), (A) offer, pledge, announce the intention to
sell, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for
Common Stock or (B) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction
described in clause (A) or (B) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise,
except to the Underwriters pursuant to this Agreement and
(x) grants of options, shares of Common Stock and other awards
to purchase or receive shares of Common Stock under the Company
Stock Plans that are in effect as of or prior to the date hereof,
(y) issuances of shares of Common Stock upon the exercise of
options or other awards granted under such Company Stock Plans, or
(z) [issuances of shares of Common Stock upon conversion of the
Company’s outstanding 9.00% secured convertible promissory
notes and upon exercise of the Company outstanding warrants that
are described in the Prospectus]. The Company agrees not to
accelerate the vesting of any option or warrant or exercise any
repurchase or expiry right in respect of any option, warrant or
convertible promissory note prior to the expiration of the Lock-Up
Period.
(j) Stockholder
Lock-Ups. The Company has caused to be delivered to you
prior to the date of this Agreement a letter, in the form of
Exhibit A hereto
(the “Lock-Up
Agreement”), from each individual or entity listed on
Schedule
II. The Company
will enforce the terms of each Lock-Up Agreement and issue
stop-transfer instructions to its transfer agent and registrar for
the Common Stock with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the
applicable Lock-Up Agreement.
(k) Lock-up Release or
Waiver. If the
Representatives in their sole discretion, agree to release or waive
the restrictions set forth in a lock-up agreement described in
Section 4(j) hereof
for an officer or director of the Company and provide the Company
with notice of the impending release or waiver at least three
business days before the effective date of the release or waiver,
the Company agrees to announce the impending release or waiver by a
press release substantially in the form of Exhibit C hereto through a
major news service at least two business days before the effective
date of the release or waiver.
(l) No
Market Stabilization or Manipulation. The Company has not
taken and will not take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or
result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities, and has not
effected any sales of Common Stock which are required to be
disclosed in response to Item 701 of Regulation S-K under
the Act which have not been so disclosed in the Registration
Statement.
(m) SEC
Reports. The Company will file on a timely basis with the
Commission such periodic and special reports as required by the
Rules and Regulations.
(n) Free Writing
Prospectuses. The Company represents and agrees that, unless
it obtains the prior written consent of the Representatives, and
each Underwriter represents and agrees that, unless it obtains the
prior written consent of the Company and the Representatives, it
has not made and will not make any offer relating to the Securities
that would constitute an issuer free writing prospectus or that
would otherwise constitute a free writing prospectus. Each Underwriter
severally represents and agrees that, (A) unless it obtains
the prior written consent of the Company and the Representatives,
it has not distributed, and will not distribute any Written
Testing-the-Waters Communication other than those listed on
Schedule IV, and (B) any
Testing-the-Waters Communication undertaken by it was with entities
that are qualified institutional buyers with the meaning of
Rule 144A under the Act or institutions that are accredited
investors within the meaning of Rule 501 under the
Act.
(o) Emerging
Growth Company.
The Company
will promptly notify the Representatives if the Company ceases to
be an Emerging Growth Company at any time prior to the later of (A)
completion of the distribution of the Securities within the meaning
of the Act and (B) completion of the Lock-up Period referenced
in
Section 4(i) hereof.
(p) Representative’s
Warrant.
On each Closing Date, the Company shall sell to Northland
Securities, Inc., for an aggregate purchase price of $50, a warrant
in the form attached as Exhibit B hereto (the
“Representative’s
Warrant”) to purchase the number of shares of the
Company’s Common Stock equal to 3.0% of the Firm Shares or
Option Shares, as applicable, issued on such Closing Date (rounded
up to the nearest whole share) at an exercise price equal to 100%
of the public offering price per share in the Offering.
5. Conditions of
Underwriters’ Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of
the date hereof and at each of the First Closing Date and the
Second Closing Date (as if made at such Closing Date), of and
compliance with all representations, warranties and agreements of
the Company contained herein, to the performance by the Company of
its obligations hereunder and to the following additional
conditions:
(a) Required Filings;
Absence of Certain Commission Actions. The Registration Statement shall have become
effective not later than 5:30 p.m., New York City time, on the date
of this Agreement, or such later time and date as you, as
Representatives of the several Underwriters, shall approve and
all filings required by Rules 424, 430A and 433 of the
Rules and Regulations shall have been timely made (without reliance
on Rule 424(b)(8) or Rule 164(b)); no stop order suspending the
effectiveness of the Registration Statement or any part thereof or
any amendment thereof, nor suspending or preventing the use of the
Time of Sale Disclosure Package or the Prospectus shall have been
issued by the Commission; no proceedings for the issuance of such
an order shall have been initiated or threatened; and any request
of the Commission for additional information (to be included in the
Registration Statement, the Time of Sale Disclosure Package, the
Prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) Continued
Compliance with Securities Laws. No Underwriter shall have
advised the Company that (i) the Registration Statement or any
amendment thereof or supplement thereto contains an untrue
statement of a material fact which, in your opinion, is material or
omits to state a material fact which, in your opinion, is required
to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Time of Sale Disclosure Package or the
Prospectus, or any amendment thereof or supplement thereto,
contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is
material and is required to be stated therein, or necessary to make
the statements therein, in light of the circumstances under which
they are made, not misleading.
(c) Absence of Certain
Events. Except as contemplated in the Time of Sale
Disclosure Package and in the Prospectus, subsequent to the
respective dates as of which information is given in the Time of
Sale Disclosure Package and the Prospectus, the Company shall have
not incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, or declared
or paid any dividends or made any distribution of any kind with
respect to its capital stock; and there shall not have been any
change in the capital stock (subject to the requirements of
Section 4(i)
hereof, other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants or conversion of convertible
securities), or any material change in the short-term or long-term
debt of the Company (other than as a result of the conversion of
convertible securities), or any issuance of options, warrants,
convertible securities or other rights to purchase the capital
stock of the Company, or any Material Adverse Change or any
development involving a prospective Material Adverse Change
(whether or not arising in the ordinary course of business), that,
in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated
in the Time of Sale Disclosure Package and in the
Prospectus.
(d) Opinion of Company
Counsel. On each Closing Date, there shall have been
furnished to you, as Representatives of the several Underwriters,
the opinion and negative assurance statement of Disclosure Law
Group, a Professional Corporation, counsel for the Company, dated
as of such Closing Date and addressed to you in form and substance
reasonably satisfactory to you.
(e) Opinion of Company
Intellectual Property Counsel. On each Closing Date, there
shall have been furnished to you, as Representatives of the several
Underwriters, the opinion of Polsinelli PC, special intellectual
property counsel for the Company, dated as of such Closing Date and
addressed to you in form and substance reasonably satisfactory to
you.
(f) Opinion
of Underwriters’ Counsel. On each Closing Date, there
shall have been furnished to you, as Representatives of the several
Underwriters, such opinion or opinions and negative assurance
statement of Faegre Baker Daniels LLP, counsel for the
Underwriters, dated as of such Closing Date and addressed to you,
with respect to such matters as you reasonably may request, and
such counsel shall have received such papers and information as
they request to enable them to pass upon such matters.
(g) Comfort
Letters. On the date hereof, on the effective date of any
post-effective amendment to the Registration Statement filed after
the date hereof and on each Closing Date, you, as Representative of
the several Underwriters, shall have received a letter from Squar
Milner LLP, each dated as of such date and addressed to you, in
form and substance satisfactory to you.
(h) Officers’
Certificate. On each Closing Date, there shall have been
furnished to you, as Representatives of the several Underwriters, a
certificate, dated as of such Closing Date and addressed to you,
signed by the chief executive officer and by the chief financial
officer of the Company, to the effect that:
(i) The representations
and warranties of the Company in this Agreement are true and
correct as if made at and as of such Closing Date, and the Company
has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such Closing Date; and
(ii) No
stop order or other order suspending the effectiveness of the
Registration Statement or any part thereof or any amendment thereof
or the qualification of the Securities for offering or sale, nor
suspending or preventing the use of the Time of Sale Disclosure
Package, the Prospectus or any issuer free writing prospectus, has
been issued, and no proceeding for that purpose has been instituted
or, to the best of their knowledge, is contemplated by the
Commission or any state or regulatory body.
(i) Lock-Up
Agreement. The Representatives shall have received all of
the Lock-Up Agreements referenced in Section 4 and the Lock-Up
Agreements shall remain in full force and effect.
(j) Representative’s
Warrant. Northland Securities, Inc. shall have received the
Representative’s Warrant referenced in Section 4(p) with the respect
to the Securities to be delivered on such Closing
Date.
(k) FINRA No
Objections. FINRA shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(l) Exchange
Listing. The Securities to be delivered on such Closing Date
will have been approved for listing on the Nasdaq Capital
Market.
(m) Other
Documents. The Company shall have furnished to you, as
Representatives of the several Underwriters, and counsel for the
Underwriters such additional documents, certificates and evidence
as you or they may have reasonably requested.
All
such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory
in form and substance to you, as Representatives of the several
Underwriters, and counsel for the Underwriters. The Company will
furnish you with such conformed copies of such opinions,
certificates, letters and other documents as you shall reasonably
request.
6. Indemnification and
Contribution.
(a) Indemnification by
the Company. The Company agrees to indemnify and hold
harmless each Underwriter, its affiliates, directors and officers
and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any losses, claims, damages or liabilities, joint
or several, to which such Underwriter may become subject, under the
Act or otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) (i) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, including the 430A
Information and any other information deemed to be a part of the
Registration Statement at the time of effectiveness and at any
subsequent time pursuant to the Rules and Regulations, if
applicable, any Preliminary Prospectus, the Time of Sale Disclosure
Package, the Prospectus, or any amendment or supplement thereto,
any issuer free writing prospectus, any issuer information that the
Company has filed or is required to file pursuant to Rule 433(d) of
the Rules and Regulations, any Written
Testing-the-Waters Communication, or any road show as
defined in Rule 433(h) under the Act (a “road
show”), or (ii) arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection
with investigating or defending against such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the Company
will not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with
written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation
thereof; it being understood and agreed that the only information
furnished by an Underwriter consists of the information described
as such in Section
6(e).
(b) Indemnification by
the Underwriters. Each Underwriter will, severally and not
jointly, indemnify and hold harmless the Company, its affiliates,
directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act and Section 20
of the Exchange Act, from and against any losses, claims, damages
or liabilities to which the Company may become subject, under the
Act or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (i) arise out of
or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Time of Sale Disclosure Package, the
Prospectus, or any amendment or supplement thereto, any issuer free
writing prospectus, any issuer information that the Company has
filed or is required to file pursuant to Rule 433(d) of the Rules
and Regulations, any Written
Testing-the-Waters Communication, or any road show, or
(ii) arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in conformity with written information furnished
to the Company by you, or by such Underwriter through you,
specifically for use in the preparation thereof (it being
understood and agreed that the only information furnished by an
Underwriter consists of the information described as such in
Section 6(e)),
and will reimburse the Company for any legal or other expenses
reasonably incurred and documented by the Company in connection
with investigating or defending against any such loss, claim,
damage, liability or action as such expenses are
incurred.
(c) Notice and
Procedures. Promptly after receipt by an indemnified party
under subsection (a) or (b) above of notice of the commencement of
any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from
any liability that it may have to any indemnified party except to
the extent such indemnifying party has been materially prejudiced
by such failure (through the forfeiture of substantive rights or
defenses). In case any such action shall be brought against any
indemnified party, and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled
to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of the indemnifying party’s election so to
assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any
legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that if, in your sole
judgment, it is advisable for the Underwriters to be represented as
a group by separate counsel, you shall have the right to employ a
single counsel (in addition to local counsel) to represent all
Underwriters who may be subject to liability arising from any claim
in respect of which indemnity may be sought by the Underwriters
under subsection (a) above, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the
indemnifying party or parties and reimbursed to the Underwriters as
incurred. An indemnifying party shall not be obligated under any
settlement agreement relating to any action under this Section 6 to which it has
not agreed in writing. In addition, no indemnifying party shall,
without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld or delayed) effect any
settlement of any pending or threatened proceeding unless such
settlement includes an unconditional release of such indemnified
party for all liability on claims that are the subject matter of
such proceeding and does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on
behalf of an indemnified party. Notwithstanding the foregoing, if
at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel pursuant to this Section 6(c), such
indemnifying party agrees that it shall be liable for any
settlement effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such
settlement.
(d) Contribution;
Limitations on Liability; Non-Exclusive Remedy. If the
indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b), (i) in such
proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear
to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the Company or the Underwriters and the parties’ relevant
intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were to be
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable
considerations referred to in the first sentence of this
subsection (d). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
against any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total underwriting
discounts and commissions received by such Underwriter with respect
to the Securities exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters’ obligations in this
subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint. The remedies
provided for in this Section 6 are not exclusive and
shall not limit any rights or remedies that might otherwise be
available to any indemnified party at law or in
equity.
(e) Information
Provided by the Underwriters. The Underwriters severally
confirm that the statements with respect to the public offering of
the Securities by the Underwriters set forth in the [●] and
[●] paragraphs under the caption “Underwriting”
in the Time of Sale Disclosure Package and in the Prospectus are
correct and the Company acknowledges such statements constitute the
only information concerning the Underwriters furnished in writing
to the Company by or on behalf of the Underwriters specifically for
inclusion in the Registration Statement, any Preliminary
Prospectus, the Time of Sale Disclosure Package, the Prospectus or
any issuer free writing prospectus.
7. Representations and
Agreements to Survive Delivery. All representations,
warranties, and agreements of the Company herein or in certificates
delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any
controlling person thereof, or the Company or any of its officers,
directors, or controlling persons, and shall survive delivery of,
and payment for, the Securities to and by the Underwriters
hereunder and any termination of this Agreement.
8. Termination.
(a) Right to
Terminate. You shall have the right to terminate this
Agreement by giving notice as hereinafter specified at any time at
or prior to the First Closing Date, and the option referred to in
Section 3(b),
if exercised, may be cancelled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or
been unable, at or prior to such Closing Date, to perform any
agreement on its part to be performed hereunder, (ii) any
other condition of the Underwriters’ obligations hereunder is
not fulfilled, (iii) trading on the Nasdaq Stock Market or New
York Stock Exchange shall have been wholly suspended,
(iv) minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been
required, on the Nasdaq Stock Market or New York Stock Exchange, by
such exchange or by order of the Commission or any other
Governmental Authority, (v) a banking moratorium shall have
been declared by federal or state authorities, or (vi) there shall
have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your
judgment, is material and adverse and makes it impractical or
inadvisable to proceed with the completion of the sale of and
payment for the Securities. Any such termination shall be without
liability of any party to any other party except that the
provisions of Section 4(g) and
Section 6
hereof shall at all times be effective.
(b) Notice of
Termination. If you elect to terminate this Agreement as
provided in this Section
8, the Company shall be notified promptly by you by
telephone, confirmed by letter.
9. Default by the
Company.
(a) Default by the
Company. If the Company shall fail at the First Closing Date
to sell and deliver the Securities which it is obligated to sell
hereunder, then this Agreement shall terminate without any
liability on the part of any Underwriter.
(b) No Relief from
Liability. No action taken pursuant to this Section 9 shall relieve the
Company from liability, if any, in respect of any default
hereunder.
10. Notices.
Except as otherwise provided herein, all communications hereunder
shall be in writing and, if to the Underwriters, shall be mailed
via overnight delivery service or hand delivered via courier, (i)
to the Representatives (A) c/o Northland Securities, Inc., 45 South
Seventh Street, Suite 2000, Minneapolis, Minnesota 55402,
Attention: Investment Banking, and (B) c/o Lake Street Capital
Markets, LLC, 920 Second Avenue South, Suite 700, Minneapolis,
Minnesota 55402, Attention: Investment Banking, with a copy to
Faegre Baker Daniels LLP, 2200 Wells Fargo Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402, Attention: Ben A. Stacke; and
(ii) if to the Company, shall be mailed or delivered to it at 2906
Colorado Avenue, Santa Monica, California 90404, Attention: Ann
Hand, with a copy to Disclosure Law Group, a Professional
Corporation, 655 West Broadway, Suite 870, San Diego, California
92101, Attention: Jessica Sudweeks. Any party to this Agreement may
change such address for notices by sending to the parties to this
Agreement written notice of a new address for such
purpose.
11. Persons Entitled to Benefit
of Agreement. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this
Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein
contained. The term “successors and assigns” as herein
used shall not include any purchaser, as such purchaser, of any of
the Securities from any of the several Underwriters.
12. Absence of Fiduciary
Relationship. The Company acknowledges and agrees that: (a)
the Representatives have been retained solely to act as
underwriters in connection with the sale of the Securities and that
no fiduciary, advisory or agency relationship between the Company
and the Representatives has been created in respect of any of the
transactions contemplated by this Agreement, irrespective of
whether the Representatives have advised or are advising the
Company on other matters; (b) the price and other terms of the
Securities set forth in this Agreement were established by the
Company following discussions and arms-length negotiations with the
Representatives and the Company is capable of evaluating and
understanding and understands and accepts the terms, risks and
conditions of the transactions contemplated by this Agreement; (c)
it has been advised that the Representatives and their affiliates
are engaged in a broad range of transactions which may involve
interests that differ from those of the Company and that the
Representatives have no obligation to disclose such interest and
transactions to the Company by virtue of any fiduciary, advisory or
agency relationship; (d) it has been advised that the you are
acting, in respect of the transactions contemplated by this
Agreement, solely for the benefit of the Underwriters, and not on
behalf of the Company; (e) it waives to the fullest extent
permitted by law, any claims it may have against the Underwriters
for breach of fiduciary duty or alleged breach of fiduciary duty in
respect of any of the transactions contemplated by this Agreement
and agrees that the Underwriters shall have no liability (whether
direct or indirect) to the Company in respect of such a fiduciary
duty claim on behalf of or in right of the Company, including
stockholders, employees or creditors of the Company.
13. Governing Law; Waiver of
Jury Trial. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. The
Company (on its behalf and, to the extent permitted by applicable
law, on behalf of its stockholders and affiliates) and each of the
Underwriters 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 Agreement,
the Representative’s Warrant or the transactions contemplated
hereby.
14. Counterparts. This
Agreement may be executed in one or more counterparts and, if
executed in more than one counterpart, the executed counterparts
shall each be deemed to be an original and all such counterparts
shall together constitute one and the same instrument.
15. General
Provisions. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof, including
that certain engagement letter dated June 14, 2018, by and between
the Company and Northland Securities, Inc. (the “Engagement
Letter”), except as to the provisions contained in
Sections [●] and [●] thereto that shall survive and
remain in full force and effect. This Agreement may not be amended
or modified unless in writing by all of the parties hereto, and no
condition herein (express or implied) may be waived unless waived
in writing by each party whom the condition is meant to benefit.
The section headings herein are for the convenience of the parties
only and shall not affect the construction or interpretation of
this Agreement. The invalidity or unenforceability of any section,
paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or
provision hereof. If any section, paragraph or provision of this
Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes
(and only such minor changes) as are necessary to make it valid and
enforceable.
[The
remainder of this page has intentionally been left
blank.]
1 Plus an option to purchase up to
[●]
additional shares to cover
over-allotments, if any.
Please
sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement
between the Company and the several Underwriters in accordance with
its terms.
|
Very truly
yours,
Super League Gaming, Inc.
By:
__________________________________
Name:
Ann Hand
Title:
Chief Executive Officer, President and Chair of the Board
|
Confirmed
as of the date first
above
mentioned, on behalf of
itself
and the other several
Underwriters
named in Schedule I
hereto.
Northland Securities, Inc.
By:
______________________________
Name:
Title:
Lake Street Capital Markets, LLC
By:
______________________________
Name:
Title:
SCHEDULE I
Underwriter
|
Number
of Firm Shares (1)
|
Northland
Securities, Inc.
Lake
Street Capital Markets, LLC
National
Securities Corporation
|
[●]
[●]
[●]
|
|
_______________
|
Total.
. . . . . . . . . . . . . . . . . . . . . . . . .
|
[●]
|
|
|
_________________
(1)
The Underwriters
may purchase up to an additional [●] Option Shares, to the
extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner
described in the Agreement.
SCHEDULE II
List of Individuals and Entities Executing Lock-Up
Agreements
Ann
Hand
David
Steigelfest
Clayton
Haynes
Matt
Edelman
John
Miller
Jeff
Gehl
Robert
Stewart
Peter
Levin
Kristin
Patrick
Michael
Keller
CaliBurger
Pu Luo
Chung VC Private Limited
SCHEDULE III
Pricing Information
Firm
Shares: [●]
Option
Shares: [●]
Price
to the public: $[●] per share
Price
to the Underwriters: $[●] per share
SCHEDULE IV
Written Testing-the-Waters Communications
[●]
EXHIBIT A
Form
of Lock-Up Agreement
Form of Lock-Up Agreement
Date:
__________________, 20__
Northland
Securities, Inc.
Lake
Street Capital Markets LLC
As
representatives of the several underwriters
named
in Schedule I to the Underwriting Agreement
referred
to below
c/o
Northland
Securities, Inc.
150
South Fifth Street, Suite 3300
Minneapolis,
Minnesota 55402
Lake
Street Capital Markets LLC
920
Second Avenue South, Suite 700
Minneapolis,
Minnesota 55402
Ladies
and Gentlemen:
As an
inducement to the underwriters (the “Underwriters”)
to execute an underwriting agreement (the “Underwriting
Agreement”)
providing for a public offering (the “Offering”) of common stock, par value
$[●] per share (the
“Common
Stock”), or
other securities, of Super League Gaming, Inc., a Delaware
corporation, and any successor (by merger or otherwise) thereto
(the “Company”), the undersigned hereby agrees
that without, in each case, the prior written consent of Northland
Securities, Inc. (“Northland”),
and Lake Street Capital Markets LLC (“Lake Street”
and together with Northland, the “Representatives”),
during the period specified in the second succeeding paragraph (the
“Lock-Up
Period”), the
undersigned will not: (1) offer, pledge, announce the intention to
sell, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, make any short sale or
otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into,
exercisable or exchangeable for or that represent the right to
receive Common Stock (including without limitation, Common Stock
which may be deemed to be beneficially owned by the undersigned in
accordance with the rules and regulations of the U.S. Securities
and Exchange Commission (the “SEC”) and
securities which may be issued upon exercise of a stock option or
warrant) whether now owned or hereafter acquired (the “Undersigned’s
Securities”);
(2) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of the
Undersigned’s Securities, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise; (3)
make any demand for or exercise any right with respect to, the
registration of any Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock; or (4) publicly
disclose the intention to do any of the foregoing.
The
undersigned agrees that the foregoing restrictions preclude the
undersigned from engaging in any hedging or other transaction which
is designed to or which reasonably could be expected to lead to or
result in a sale or disposition of the Undersigned’s
Securities even if such Securities would be disposed of by someone
other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale or any
purchase, sale or grant of any right (including without limitation
any put or call option) with respect to any of the
Undersigned’s Securities or with respect to any security that
includes, relates to, or derives any significant part of its value
from such Securities.
The
Lock-Up Period will commence on the date of this Lock-up Agreement
(this “Agreement”)
and continue and include the date one hundred eighty (180) days
after the date of the final prospectus used to sell Common Stock in
the Offering pursuant to the Underwriting Agreement.
Notwithstanding the
foregoing, the undersigned may transfer the Undersigned’s
Securities (i) as a bona
fide gift or gifts, (ii) to any trust for the direct or
indirect benefit of the undersigned or the immediate family of the
undersigned, (iii) if the undersigned is a corporation,
partnership, limited liability company, trust or other business
entity (1) transfers to another corporation, partnership, limited
liability company, trust or other business entity that is a direct
or indirect affiliate (as defined in Rule 405 promulgated under the
Securities Act of 1933, as amended) of the undersigned or (2)
distributions of shares of Common Stock or any security convertible
into or exercisable for Common Stock to limited partners, limited
liability company members or stockholders of the undersigned, (iv)
if the undersigned is a trust, transfers to the beneficiary of such
trust, (v) transfers by testate succession or intestate succession,
or (vi) pursuant to the Underwriting Agreement;provided, in the case of clauses (i)
through (v), that (x) such transfer shall not involve a disposition
for value, (y) the transferee agrees in writing with the
Representatives to be bound by the terms of this Agreement, and (z)
no filing by any party under Section 16(a) of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”), shall
be required or shall be made voluntarily in connection with such
transfer. For purposes of this Agreement, “immediate
family” shall mean any relationship by blood, marriage or
adoption, nor more remote than first cousin.
In
addition, the foregoing restrictions shall not apply to
(i) the exercise of stock options granted pursuant to the
Company’s equity incentive plans;provided that such restrictions shall
apply to any of the Undersigned’s Securities issued upon such
exercise, or (ii) the establishment of any contract,
instruction or plan (a “Plan”) that satisfies all of the
requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange
Act;provided that no sales
of the Undersigned’s Securities shall be made pursuant to
such a Plan prior to the expiration of the Lock-Up Period, and such
a Plan may only be established if no public announcement of the
establishment or existence thereof and no filing with the SEC or
other regulatory authority in respect thereof or transactions
thereunder or contemplated thereby, by the undersigned, the Company
or any other person, shall be required, and no such announcement or
filing is made voluntarily, by the undersigned, the Company or any
other person, prior to the expiration of the Lock-Up
Period.
If the
undersigned is an officer or director of the Company, the
undersigned further agrees that the restrictions imposed by this
Agreement shall be equally applicable to any issuer-directed shares
of Common Stock the undersigned may purchase in the
Offering.
If the
undersigned is an officer or director of the Company, (i) the
Representatives agree that, at least three business days before the
effective date of any release or waiver of the foregoing
restrictions in connection with a transfer shares of Common Stock,
the Representatives will notify the Company of the impending
release or waiver and (ii) the Company has agreed and has or will
agree in the Underwriting Agreement to announce the impending
release or waiver by press release through a major news service at
least two business days before the effective date of the release or
waiver. Any release or waiver granted by the Representatives
hereunder to any such officer or director shall only be effective
two business days after the publication date of such press release.
The provisions of this paragraph will not apply if (a) the release
or waiver is effected solely to permit a transfer not for
consideration and (b) the transferee has agreed in writing to be
bound by the same terms described in this letter to the extent and
for the duration that such terms remain in effect at the time of
the transfer.
In
furtherance of the foregoing, the Company and its transfer agent
and registrar are hereby authorized to decline to make any transfer
of shares of Common Stock if such transfer would constitute a
violation or breach of this Agreement.
The
undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Agreement and that upon
request, the undersigned will execute any additional documents
necessary to ensure the validity or enforcement of this Agreement.
All authority herein conferred or agreed to be conferred and any
obligations of the undersigned shall be binding upon the
successors, assigns, heirs or personal representatives of the
undersigned.
The
undersigned understands that the undersigned shall be released from
all obligations under this Agreement if (i) the Company
notifies the Representatives that it does not intend to proceed
with the Offering, (ii) the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the
provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Common Stock to
be sold thereunder, or (iii) the Offering is not completed by
__________, 20__.
The
undersigned understands that the Underwriters are entering into the
Underwriting Agreement and proceeding with the Offering in reliance
upon this Agreement.
This
Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
[Remainder of page intentionally
left blank. Signature page follows.]
|
Very truly
yours,
_____________________________________
Printed Name of
Holder
_____________________________________
Signature
_____________________________________
Printed Name and Title of Person
Signing
(if signing as custodian, trustee, or on behalf
of an entity)
|
EXHIBIT B
Form of Representative’s Warrant
EXHIBIT C
Form of Company Press Release for Waivers or Releases
of Officer/Director Lock-Up Agreements
Super League Gaming, Inc.
[Date]
Super
League Gaming, Inc., a Delaware corporation (the
“Company”),
announced today that Northland Securities, Inc. and Lake Street
Capital Markets, LLC (the “Representatives”),
as the representatives of the several underwriters pursuant to that
certain Underwriting Agreement, dated as of [●], 2019, by and
between the Company and the Representatives, is [waiving] [releasing] [a] lock-up
restriction[s] with respect to an aggregate of [____] shares of
common stock held by certain [officers] [directors] of the Company.
These [officers] [directors] entered into lock-up agreements with
the Representatives in connection with the Company’s initial
public offering.
This [waiver] [release] will take effect on [date that is at least two
business days following date of this press
release].
This press release is not an offer for sale of the securities in
the United States or in any other jurisdiction where such offer is
prohibited, and such securities may not be offered or sold in the
United States absent registration or an exemption from registration
under the United States Securities Act of 1933, as
amended.
Form of Representative’s Warrant
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES UNDER THE SECURITIES ACT AND ALL APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION THEREFROM.
THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFER AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED, OR BE THE
SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT, OR CALL
TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION
OF THIS WARRANT OR THE SHARES ACQUIRABLE UPON EXERCISE HEREOF,
OTHER THAN IN COMPLIANCE WITH THE 180 DAY LOCK-UP PERIOD OF RULE
5110(G) OF THE FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. AND
SECTION 7 HEREOF.
WARRANT
To Subscribe for and Purchase
Shares
of Common Stock of
SUPER LEAGUE GAMING, INC.
Date:
[_________], 2019
THIS
CERTIFIES THAT, for value received, Northland Securities, Inc., or
its registered assigns (herein referred to as the
“Purchaser” or
“holder”), is
entitled to subscribe for and purchase from Super League Gaming,
Inc., a Delaware corporation (herein called the “Company”), ____________
(____________) shares (the “Shares”) of common stock, par
value $0.001 per share (the “Common Stock”), of the Company
(subject to adjustment as noted below) at the exercise price of
$[____] per Share (the “Warrant Purchase Price”) (subject
to adjustment as noted below). This Warrant may only be exercised
during the Exercise Period specified herein. This Warrant has been
issued pursuant to the Underwriting Agreement, dated [______],
2019, between the Company and the Purchaser and Lake Street Capital
Markets, LLC as the representatives of the several underwriters
listed in Schedule
I thereto, in connection with a public offering (the
“Offering”) of
[_______] shares of Common Stock.
This
Warrant is subject to the following provisions, terms and
conditions:
1. The
Warrant exercise period (the “Exercise Period”) for this
Warrant shall begin the effective date of the Offering and shall
end on the fifth (5th) anniversary of the
effective date of the Offering. As used herein, the
“effective date of the Offering” means [_______], 2019.
2. The
rights represented by this Warrant may be exercised, in whole or in
part, by the holder hereof as follows:
(a) The
holder hereof shall deliver to the Company written notice of
exercise of this Warrant and in connection therewith shall
surrender this Warrant (properly endorsed if required) at the
principal office of the Company and pay the Warrant Purchase Price
for such Shares as provided for herein.
(a) The
holder hereof shall pay the Warrant Purchase Price (i) in
immediately available funds or (ii) by “cashless
exercise,” in which event the Company shall issue to the
holder hereof a number of Shares determined as
follows:
X = Y *
[(A-B)/A]
where:
X = the
number of Shares to be issued to the holder.
Y = the
total number of Shares with respect to which this Warrant is being
exercised.
A = the
fair market value of one Share at the time the “cashless
exercise” election is made.
B = the
Warrant Purchase Price then in effect for the Shares at the
“cashless exercise” election is made.
For
purposes of this Warrant, the fair market value of one Share as of
a particular date shall be determined as follows: (i) if the Common
Stock is traded on a U.S. national securities exchange, the value
shall be deemed to be the average of the closing prices of the
Common Stock on such exchange over the 10-Trading Day period ending
on the Trading Day prior to the net exercise election; (ii) if
clause (i) is not applicable, the value shall be deemed to be the
average of the closing bid or sale prices (whichever is applicable)
of the Common Stock on the principal securities exchange or
securities market on which the Common Stock trades over the
10-Trading Day period ending on the Trading Day prior to the net
exercise election; and (iii) if none of the foregoing is
applicable, the value shall be the fair market value of one share
of Common Stock mutually agreed upon by the holder and the Company;
provided, that if the Company and the holder are unable to agree
upon the fair market value of a Share, then the board of directors
of the Company shall use its good faith judgment to determine the
fair market value, and such determination shall be binding upon all
parties absent demonstrable error.
For
purposes of this Warrant, “Trading Day” means any day on
which the Common Stock is traded on a U.S. stock exchange or, if
inapplicable, the principal securities exchange or securities
market on which the Common Stock is then traded.
(b) Upon
exercise of this Warrant, the Company shall promptly (but in no
event later than two Trading Days after the date this Warrant is
exercised in accordance with its terms) issue or cause to be issued
and cause to be delivered to or upon the written order of the
holder and in such name or names as the holder may designate
(provided that, if the holder directs the Company to deliver a
certificate for the Shares in a name other than that of the holder
or an affiliate (as defined in Rule 405 under the Securities Act of
1933, as amended (the “Securities Act”)) of the holder,
it shall deliver to the Company on the date of exercise an opinion
of counsel reasonably satisfactory to the Company to the effect
that the issuance of such Shares in such other name may be made
pursuant to an available exemption from the registration
requirements of the Securities Act and all applicable state
securities or blue sky laws), a certificate for the Shares issuable
upon such exercise or credit for such Shares through the facilities
of The Depository Trust Company (“DTC”) to the account designated
by the holder (with any restrictive legends required by applicable
securities laws). The form of delivery of the Shares acquired upon
exercise will be at the election of the holder, subject to the
other terms of this Warrant. The holder, or any person permissibly
so designated by the holder to receive the Shares acquired upon
exercise hereof, shall be deemed to have become the holder of
record of such Shares as of the date notice of exercise and payment
of the applicable Warrant Purchase Price is made in accordance with
the terms hereof.
(c) If
by the fifth Trading Day after the date this Warrant is exercised
in accordance with this Section 2 the Company fails to
deliver the required number of Shares in the manner required
pursuant to Section 2(c), then, in
addition to any other remedy the holder may have at law or in
equity (including a decree of specific performance or injunctive
relief), the holder hereof will have the right to rescind such
exercise.
(d) In
the event that this Warrant has not been exercised prior to the end
of the Exercise Period and the fair market value of one Share as
determined in accordance with the provisions hereof exceeds the
Warrant Purchase Price on the last day of the Exercise Period, on
such date this Warrant will be automatically exercised pursuant to
the cashless exercise provisions set forth in Section 2(b); provided, that
the holder hereof, upon the request of the Company, must surrender
to the Company this Warrant within 30 days of a request for
delivery of thereof by the Company. If the holder hereof does not
surrender this Warrant within such time period, this Warrant will
be deemed to not have been exercised under this Section 2(e) and will terminate
and no longer be exercisable.
3. The
Company represents and warrants that this Warrant has been duly
authorized by all necessary corporate action, has been duly
executed and delivered and is a legal and binding obligation of the
Company, enforceable against the Company in accordance with the
terms of this Warrant, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles
of equity. The Company covenants and agrees that all Shares which
may be issued upon the exercise of the rights represented by this
Warrant according to the terms hereof have been duly authorized and
will, upon issuance and payment therefor, be validly issued and
fully paid. The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of its shares
of Common Stock to provide for the exercise of the rights
represented by this Warrant, free from preemptive rights or other
actual contingent purchase rights other than those held by a holder
of this Warrant (as a result of holding this Warrant).
4. The
Company will pay any documentary stamp taxes attributable to the
issuance of Shares upon the exercise of this Warrant; provided, however, that the Company
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any
certificates for Warrants, or Shares issued upon exercise of this
Warrant, in a name other than that of the Purchaser. The Purchaser
shall be responsible for all other tax liability that may arise as
a result of holding or transferring this Warrant or receiving
Shares upon exercise hereof.
5. The
above provisions are, however, subject to the
following:
(a) The
Warrant Purchase Price shall, from and after the date of issuance
of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the Warrant Purchase
Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Warrant Purchase Price resulting from such
adjustment, the number of Shares obtained by multiplying the
Warrant Purchase Price in effect immediately prior to such
adjustment by the number of Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product
thereof by the Warrant Purchase Price resulting from such
adjustment.
(b) In
case the Company shall at any time subdivide its outstanding shares
of Common Stock into a greater number of shares, the Warrant
Purchase Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Warrant Purchase Price in effect immediately
prior to such combination shall be proportionately
increased.
(c) If
any capital reorganization or reclassification of the capital stock
of the Company, shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock or securities with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization, reclassification or consolidation, lawful and
adequate provision shall be made whereby the holder hereof shall
thereafter have the right to purchase and receive, upon the basis
and upon the terms and conditions specified in this Warrant and in
lieu of the Shares immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such
shares of stock or securities as may be issued or payable with
respect to or in exchange for a number of Shares equal to the
number of Shares immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby had such
reorganization, reclassification or consolidation not taken place,
and in any such case appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments of the warrant purchase price and of the
number of shares purchasable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to
any shares of stock or securities thereafter deliverable upon the
exercise hereof.
(d) Upon
any adjustment of the Warrant Purchase Price or any adjustment of
any material terms hereof, then and in each such case an officer of
the Company shall, as soon as practicable after the occurrence of
any event that requires an adjustment or readjustment, give signed
written notice thereof, by first–class mail, postage prepaid,
addressed to the registered holder of this Warrant at the address
of such holder as shown on the books of the Company, which notice
shall state the Warrant Purchase Price resulting from such
adjustment, any material change in the terms of the Warrant, and
the increase or decrease, if any, in the number of Shares
purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(e) If
at any time during the Exercise Period:
(i) there
shall be any capital reorganization, or reclassification of the
capital stock of the Company; or
(ii) there
shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then,
in any one or more of said cases, the Company shall give written
notice, by first–class mail, postage prepaid, addressed to
the registered holder of this Warrant at the address of such holder
as shown on the books of the Company, of the date on which (A) the
books of the Company shall close or a record shall be taken for
such distribution or subscription rights, or (B) such
reorganization, reclassification or consolidation, dissolution,
liquidation or winding up, or conversion or redemption shall take
place, as the case may be. Such notice shall also specify the date
as of which the holders of capital stock of record shall
participate in such distribution or subscription rights, or shall
be entitled to exchange their capital stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, dissolution, liquidation or winding up, or
conversion or redemption, as the case may be. Such written notice
shall be given at least 20 days prior to the action in question and
not less than 20 days prior to the record date or the date on which
the Company’s transfer books are closed in respect
thereto.
(f) If
any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this Section 5 are not strictly
applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of the Common
Stock in accordance with the essential intent and principles of
such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such
purchase rights as aforesaid.
6. This
Warrant shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company.
7. This
Warrant is exchangeable, upon the surrender hereof by the holder
hereof at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the right to subscribe for
and purchase the number of shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the
right to subscribe for and purchase such number of shares as shall
be designated by said holder hereof at the time of such surrender.
Subject to compliance with applicable securities laws and the other
terms of this Warrant, this Warrant may be assigned or transferred
by the holder and this Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective transferees,
successors and assigns. Notwithstanding the foregoing, pursuant to
Rule 5110(g) of the Financial Industry Regulatory Authority, Inc.
(“FINRA”), this
Warrant shall not be sold during the Offering, or sold,
transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of this
Warrant or the Shares acquirable upon exercise hereof, by any
person for a period of 180 days immediately following the effective
date of the Offering, except as provided in paragraph (g)(2) of
Rule 5110(g) of the FINRA.
8. Each
certificate for the securities purchased under this Warrant shall
bear a legend as follows unless such securities have been
registered under the Securities Act of 1933, as amended (the
“Act”):
“The
securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the
“Act”), or applicable state law. Neither the securities
nor any interest therein may be offered for sale, sold or otherwise
transferred except pursuant to an effective registration statement
under the Act, or pursuant to an exemption from registration under
the Act and applicable state law which, in the opinion of counsel
to the Company, is available.”
The
securities evidenced by this Warrant shall not be transferred
unless and until: (i) the Company has received the opinion of
counsel for the Holder that the securities may be transferred
pursuant to an exemption from registration under the Act and
applicable state securities laws, the availability of which is
established to the reasonable satisfaction of the counsel of the
Company, or (ii) a registration statement relating to the offer and
sale of such securities has been filed by the Company and declared
effective by the U.S. Securities and Exchange Commission and
compliance with applicable state securities law has been
established.
9. The
Company will not be required upon the exercise of this Warrant to
issue fractions of Shares, but may, at its option, either (a)
purchase such fraction for an amount in cash equal to the current
value of such fraction computed on the basis of the closing market
price of the Common Stock as quoted on the principal exchange or
trading facility on which the Common Stock is traded on the Trading
Day immediately preceding the day upon which this Warrant was
surrendered for exercise in accordance with Section 2 hereof, or (b) issue
the required Share. By accepting this Warrant, the holder hereof
expressly waives any right to receive any fractional share upon
exercise of a Warrant, except as expressly provided in this
Section
9.
10. If
this Warrant is exercised for less than all of the then-current
number of Shares purchasable hereunder, then the Company shall,
concurrently with the issue of the Shares purchased by the holder
hereof upon such exercise in accordance with Section 2, issue a new warrant
exercisable for the remaining number of Shares purchasable under
this Warrant.
11. Upon
receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and
security reasonably satisfactory to it, the Company shall execute
and deliver a new warrant of like tenor as the Warrant so lost,
stolen, destroyed or mutilated.
12. This
Warrant shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving
effect to conflict of laws principles thereof. The Company and the
holder agree that the prevailing party(ies) in any action or
proceeding arising out of or relating to this Warrant shall be
entitled to recover from the other party(ies) all of its reasonable
attorneys’ fees and expenses relating to such action or
proceeding and/or incurred in connection with the preparation
therefor.
13. All
modifications or amendments of this Warrant shall require the
written consent of and be signed by the party against whom
enforcement of the modification or amendment is
sought.
14. This
Warrant (together with the other agreements and documents being
delivered pursuant to or in connection with this Warrant)
constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements
and understandings of the parties, oral and written, with respect
to the subject matter hereof.
15. This
Warrant shall inure solely to the benefit of and shall be binding
upon, the holder and the Company and their permitted assignees,
respective successors, legal representative and assigns, and no
other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by
virtue of this Warrant or any provisions herein
contained.
[The
remainder of this page has intentionally been left
blank.]
IN
WITNESS WHEREOF, Super League Gaming, Inc. has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be
dated as of the date set forth above.
Super League Gaming, Inc.
By:
___________________________________
Name:
Ann Hand
Title:
Chief Executive Officer, President and Chair
of the
Board
Acknowledged
and agreed:
Northland Securities, Inc.
By:
__________________________________
Lake Street Capital Markets, LLC
By:
___________________________________
[Signature
Page to Representative’s Warrant]
-8-
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such
Holder
Desires
to Exercise this Warrant in Whole or in Part
To:
Super League
Gaming, Inc. (the “Company”)
The
undersigned ___________________________________
Please insert Social Security or other
identifying
number of Subscriber:
_______________________________
hereby
irrevocably elects to exercise the right of purchase represented by
this Warrant for, and to purchase thereunder, ___________ shares of
Common Stock (the “Shares”) provided for
therein.
Payment
of the Warrant Purchase Price for the Shares shall take the form of
[Check the applicable box below]:
☐
Immediately
available U.S. funds; or
☐
the cancellation of
such number of Shares as is necessary to satisfy the Warrant
Purchase Price with respect to the exercise of the number of Shares
set forth above in accordance with the formula set forth in
Section 2(b) of the
Warrant.
The
undersigned requests that such Shares be registered in the name of
the undersigned or in such other name specified below:
The
Shares shall be delivered as follows:
and, if
such number of Shares does not constitute all shares purchasable
under the Warrant, that a new Warrant for the balance remaining of
such shares be registered in the name of, and delivered to, the
undersigned at the address stated above.
Unless
the undersigned has selected the “cashless exercise”
option provided for in Section 2(b) of the Warrant,
the undersigned hereby represents and warrants that the undersigned
is acquiring the Shares for its own account for investment purposes
only, and not for resale or with a view to distribution of such
shares or any part thereof.
Dated:
__________________
[Signature
Page to Representative’s Warrant]
-10-
LICENSE
AGREEMENT
1.1.
The parties to this
license agreement (the “Agreement”) made as of June 22,
2016 (“Effective
Date”) are:
1.1.1.
Riot Games, Inc., a
Delaware corporation located at 12333 W. Olympic Blvd, Los Angeles,
CA 90064 (“Riot”); and
1.1.2.
Super League
Gaming, Inc., a Delaware corporation located at 2912 Colorado Ave.,
Suite 200, Santa Monica, CA 90404 (“SLG”).
1.2.
SLG and Riot shall
each be a “Party” and collectively shall be
the “Parties” to
this Agreement.
2.1.
Riot develops and
publishes video games, including League of Legends, a popular
multiplayer online battle arena computer game.
2.2.
SLG operates
recreational leagues for gamers of all ages to compete, socialize
and play video games in movie theatres worldwide.
2.3.
SLG wants to make
Riot’s popular League of
Legends game available for use in SLG’s operations
within the Territory.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-1-
3.1.
“Approved Movie Theatres” means any
of the physical movie theatres identified in Appendix A hereto and any other
physical movie theatres that the Parties mutually agree to in
writing during the performance of this Agreement.
3.2.
“Game” means the multiplayer online
battle arena game, League of
Legends.
3.3.
“Game Content” means the
Game’s audio-visual content, including the visual appearances
of its characters, and corresponding in-game data that is rendered
and made available to users or viewers of the Game
Content.
3.4.
“Game League Business” means
SLG’s business of operating Leagues featuring Participatory
Gaming in Approved Movie Theatres that utilizes the Game
Content.
3.5.
“Merchandise” means any merchandise
derived from, based on, using and/or featuring Game
Content.
3.6.
“Participatory Gaming” means
actively playing or consuming digital video game content in a
manner that requires a combination of real-time inputs,
communication and coordination either alone or in tandem with other
players. For the avoidance of doubt, Participatory Gaming does not
include: (i) video game viewing parties (e.g.,
theaters
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-2-
showing
organized/competitive video game events for customers to watch);
(ii) eSports events (e.g., competitive video game tournaments being
held in theaters for customers to watch); or (iii) any other
activities not reasonably contemplated within the scope of the Game
League Business as of the Effective Date, unless approved by
Riot.
3.7.
“Riot Marks” means the Riot
trademarks, logos and/or symbols identified in Appendix B, attached
hereto.
3.8.
“SLG Marks” means the SLG
trademarks, logos and/or symbols identified in Appendix B, attached
hereto.
4.1.
Advertising and Merchandise.
During the Term and within the Territory, Riot grants SLG a
limited, non-exclusive, non-sublicenseable, non-transferable
license, subject to the terms of this Agreement and, in particular,
the approval process described in Section 7 below, to: (i)
display Game Content solely in connection with advertising,
marketing and promoting the Game League Business; and (ii) create
derivative works using Game Content and/or Riot Marks solely in
connection with the creation of Merchandise in strict accordance
with the terms of the Merchandise provision in Section 8 below.
4.2.
Operation of Game League.
During the Term and within the Territory, Riot grants SLG a
limited, non-sublicenseable, non-transferable license, subject to
the terms of this Agreement and, in particular, the approval
process described in Section 7 below, to use,
reproduce, distribute, display, and publicly perform the Game and
Game Content for operation of the Game League
Business.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-3-
4.3.
SLG Marks. During the Term and
within the Territory, SLG grants Riot a limited, non- exclusive,
non-sublicenseable, non-transferable license to: (i) use the SLG
Marks solely as needed to fulfill Riot’s obligations to
promote, market, advertise and support the Game League Business;
and (ii) subject to SLG’s approval, which shall not be
unreasonably withheld, use the SLG Marks solely as needed to
manufacture, distribute and/or sell any Riot-approved
Merchandise.
The
territory for this Agreement shall be [*****].
6.4.
One-Time Extension. Any further
extensions of the Term beyond the Extension Term must be agreed to
in writing by the Parties.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-4-
7.1.
Process for approving the Game
League. SLG shall submit the following key milestone
documents (the “Key Milestone
Documents”) to Riot for approval:
7.1.1.
Preliminary Product Plan and Roadmap:
At least sixty (60) days prior to the commercial launch of the Game
League Business, high-level concept documentation, audience
segmentation/targeting and a twelve (12) month product/Game League
Business roll-out plan.
7.1.2.
Final Product Plan: At least thirty
(30) days prior to the commercial launch of the Game League
Business, a detailed product plan and go-to-market strategy
including, but not limited to: (i) a Game League Business
description, format and structure; (ii) Game League Business
pricing and a marketing/communications strategy and spend (the
“Marketing
Plan”); (iii) a staffing plan describing, in detail,
how the Game League Business will be staffed; and (iv) a roll-out
plan for each market. The Marketing Plan shall describe, in detail,
the marketing efforts that both Parties shall undertake during the
Initial Term.
7.1.2.1.1. If Riot
does not approve any of the Key Milestone Documents, Riot shall
provide feedback to SLG within ten (10) business days explaining
the reason for disapproval. For the avoidance of doubt, SLG may not
commercially launch the Game League Business without first
obtaining Riot’s approval on each of the Key Milestone
Documents.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-5-
7.2.
Process for approving promotional
material. Prior to displaying any Game Content in connection
with any advertising, marketing and/or promotions of the Game
League Business (“Promotional
Material”), SLG shall submit a sample of any
Promotional Material to Riot for approval, at least five (5)
business days prior to distributing, displaying, and/or otherwise
using such Promotional Material. SLG shall not distribute, display,
and/or otherwise use such Promotional Material without receiving
Riot’s prior written approval. Riot may withhold its approval
in its sole and absolute discretion. If Riot fails to respond to
SLG’s request for approval within five (5) business days,
SLG’s request for approval shall be deemed denied by Riot. If
Riot fails to respond within five
(5)
business days, SLG shall send a reminder email to Riot within
forty-eight (48) hours thereafter. SLG shall not be required to
re-submit any previously approved Promotional Material for
subsequent use.
7.3.
Process for approving
Merchandise. Prior to manufacturing, distributing or selling
any Merchandise, SLG shall submit a sample to Riot for approval.
Riot may withhold its approval in its sole and absolute discretion.
For the avoidance of doubt, Riot has no obligation whatsoever to
approve any Merchandise. If Riot fails to respond to SLG’s
request for approval, SLG’s request for approval shall be
deemed denied by Riot.
7.4.
Revocation of Riot’s
approval. Notwithstanding anything herein to the contrary,
Riot may revoke any previously granted approval, in its sole an
absolute discretion; provided, however, that Riot shall use good
faith efforts to provide context for such revocation, suggestions
for alternatives, and provide a reasonable time period for SLG to
come into compliance with the revocation.
8.1.
Co-branding requirement. Any
Merchandise submitted by SLG to Riot for approval must be
co-branded.
8.2.
Distribution Channels. SLG may
only sell Riot-approved Merchandise on its website
(https://superleague.com/) and in Approved Movie
Theatres.
8.3.
Sell-off. After the expiration
or termination of this Agreement, unless earlier terminated, SLG
shall have a one (1) month sell-off period for any Riot-approved
Merchandise. At the expiration of the sell-off period, SLG shall
destroy any remaining Merchandise and provide verification to
Riot.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-6-
9.1.
SLG will expend, on
an annual basis, a minimum of the greater of (i) [*****] or (ii)
[*****] of SLG’s gross revenue, on marketing, advertising and
promotions relating solely to the Game League (the
“Marketing
Expenditures”).
9.2.
SLG shall hire a
dedicated, full-time employee who is deeply knowledgeable about the
Game and the gaming industry to manage Game League operations and
ensure an authentic, player-focused experience.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-7-
9.4.
SLG will operate
the Game League in a manner that maximizes the performance of the
Game League on a standalone basis and not take any actions
materially adverse to Riot.
9.6.
SLG Change of
Control. In the event of a SLG Change of Control (as defined
below), and without prejudice to any other obligations of SLG under
this License Agreement, SLG shall reasonably maintain the same
level of commitment and employee engagement, including the ongoing
involvement of not less than a majority of SLG senior management in
existence of a SLG Change of Control, with respect to the Game
League operations, in all material respects, after the SLG Change
of Control, in comparison to that level prior to the SLG Change of
Control, for no less than one year.
9.6.1.
“SLG Change of Control” means any
(i) transaction, or series of related transactions, in which a
person, or a group of related persons, acquires from stockholders
of SLG, shares representing more than fifty percent (50%) of the
out- standing voting power of SLG, or (ii) sale of all or
substantially all assets of SLG.
10.1.
Riot shall assign a
Game product owner to interface with SLG on all Game League
matters.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-8-
10.3.
Riot shall work in
good faith with SLG to provide the following technical and
operational assistance:
11.
MARKETING
RESTRICTIONS
11.1.
Neither Party shall
place, display or post any materials depicting the other
Party’s intellectual property which contains any material
which is unlawful, libelous, obscene, indecent, threatening,
intimidating, or harassing. Additionally, SLG shall not feature, or
permit any third-party to feature, any of the following in its
advertising or promotions relating to the Game or the Game
League:
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-9-
12.1.
Game League Operations: SLG
shall pay Riot a royalty of [*****] on the first ten million USD
($10,000,000.00) of aggregate Game League net revenue accrued over
the Term (the “Net Revenue
Threshold”) and [*****] on additional Game League net
revenue in excess of the Net Revenue Threshold.
12.1.1.
For purposes of
this Section 12.1, “Net
Revenue” shall mean all Game League revenue, less the
amounts actually charged to SLG by theatre operators (the
“Theatre
Costs”). Theatre Costs are capped at a maximum of
fifty percent (50%) of
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-10-
Game
League revenue. Calculations of Net Revenue shall be made on an
individual theatre company basis and SLG may not aggregate Theatre
Costs across multiple theatre operators.
12.2.
Merchandise: SLG shall pay Riot
a royalty of [*****] on gross revenue for all Merchandise sold
(other than by Riot).
12.2.1.
For purposes of
this Section 12.2, “gross
revenue” means the amounts actually paid by consumers
for the Merchandise. For the avoidance of doubt, Riot shall have no
obligation to pay any royalty to SLG for Merchandise that Riot
sells.
12.3.
GAAP. All amounts calculated
under this Agreement must be calculated in accordance with U.S.
generally accepted accounting principles (“GAAP”).
13.1.
No later than
thirty (30) days after the end of each quarterly period during the
Term, SLG shall send Riot a detailed report to
sharan@riotgames.com, which shall include detailed information for:
[*****]. If reasonably requested by Riot, SLG shall use
commercially reasonable efforts to provide reports on a monthly
basis.
13.2.
Riot will send SLG
invoices reflecting amounts due to Riot based on SLG’s
reports. SLG shall pay the invoiced amounts within seven (7)
calendar days of receipt of Riot’s invoices. All payments
will be made in U.S. Dollars by wire transfer into Riot’s
bank account specified below or such other bank account of Riot in
the U.S. as Riot may specify in writing. SLG will bear any wire
transfer fees charged by the transferred bank, and Riot will bear
any wire transfer fees charged by the receiving bank.
[*****]
SLG
shall maintain and keep (at SLG’s principal place of business
and at its sole expense), during the Term and for at least three
(3) years after expiration or earlier termination of this
Agreement, accurate books of accounting and records covering all
matters and transactions related to this Agreement. Riot and its
duly authorized representative(s) shall have the right, upon
reasonable notice and at all reasonable hours
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-11-
of the
day, to examine and copy and otherwise audit said books of
accounting, records and all other documents and materials in the
possession or under the control of SLG with respect to all
transactions related to this Agreement. [*****].
15.1.
Capitalization
Representations and Warranties. SLG represents and warrants to Riot
the following:
15.1.1.
Authorized Shares.
The authorized capital of SLG consists, immediately prior to the
Effective Date, of: (i) 45,000,000 shares of common stock, par
value $0.001 per share (“Common Stock”), of which
7,549,279 shares are issued and outstanding and
(ii)
5,000,000 shares of preferred stock, of which 0 shares are issued
and outstanding, immediately prior to the Effective Date. The
Company holds no Common Stock in its treasury. The rights,
privileges and preferences of the Common Stock will be as stated in
the Certificate of Incorporation which has been provided to
Riot.
15.1.2.
Company Plan. SLG
has reserved 3,000,000 shares of Common Stock for issuance to
officers, directors, employees and consultants of SLG pursuant to
the 2014 Stock Option and Incentive Plan (the “Company Plan”) duly adopted by the
Board of Directors and approved by SLG stockholders. Of such
reserved shares of Common Stock, 2,483,493 shares of Common Stock
have been issued pursuant to options to purchase Common Stock, a
stock option to purchase 70,000 shares of Common Stock has been
exercised pursuant to the Company Plan, and 446,507 shares of
Common Stock remain available for issuance to officers, directors,
employees and consultants pursuant to the Company Plan. SLG has
furnished to Riot complete and accurate copies of the Company Plan
and forms of agreements used thereunder.
15.1.3.
Rights. Except for
(i) options outstanding to purchase 2,463,493 shares of Common
Stock, all of which have been issued pursuant to the Company Plan,
with a weighted average exercise price of $2.36 per share, (ii)
warrants outstanding to purchase 1,450,000 shares of Common Stock,
with a weighted average exercise price of $2.43 per share, (iii)
restricted stock units underlying 25,000 shares of Common Stock,
(iv) the conversion privileges of the zero coupon unsecured
convertible promissory notes outstanding in the original principal
amount of
$5,050,000 relating
to the May 2016 financing of SLG; (v) the pro rata rights provided
in Section 6 of the Series B Subscription Agreement entered into by
and between SLG and each of the investors in the Series B round
which closed in 2015;
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-12-
and
(vi) the pro rata rights provided for in Section 15.4 of this
Agreement; there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, to
purchase or acquire from the Company any shares of Common Stock, or
any securities convertible into or exchangeable for shares of
Common Stock.
15.1.4.
Lock-Up. All
outstanding shares of the SLG’s Common Stock and all shares
of the SLG Common Stock underlying outstanding options or other
award agreements are subject to a lock-up or market standoff
agreement (applicable only as may be required by an underwriter of
SLG’s equity securities) following a public offering pursuant
to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 (the
“Securities
Act”).
15.1.5.
Repurchase,
Redemption, Acceleration. Except for the SLG 2014 Stock Option and
Incentive Plan, and certain existing executive employment
agreements, which provide for acceleration upon a change of
control, no stock plan, stock purchase, stock option or other
agreement or understanding between SLG and any holder of any
securities or rights exercisable or convertible for securities
provides for acceleration or other changes in the vesting
provisions or other terms of such agreement or understanding as the
result of the occurrence of any event. SLG has no obligation
(contingent or otherwise) to purchase or redeem any of its capital
stock.
15.1.6.
Securities Laws.
That all outstanding securities of Company were duly and validly
authorized and issued, fully paid and non-assessable, in accordance
with the Securities Act, as amended, and relevant state
(“Blue Sky”)
securities laws, and issued pursuant to valid exemptions from
securities registration under Federal and Blue Sky
laws.
15.1.7.
Documentation. SLG
has provided Riot with all relevant and material documentation with
respect to the securities issued by SLG to Riot and all rights
pertaining thereto. No securities-related agreements entered into
between SLG and any other shareholder or party in respect of its
capital stock provides for any rights or preferences that are
materially different or preferential in any material respect from
the rights or preferences of Riot as described in this Agreement
(and exhibits hereto).
15.2.
Restricted Stock Grant.
Pursuant to the vesting and other terms and conditions of the
Restricted Stock Grant Agreement attached hereto as Exhibit A, SLG hereby issues to
Riot five hundred fifty thousand (550,000) restricted shares of
Common Stock of SLG.
15.3.
Common Stock Purchase Warrant.
Pursuant to the vesting, exercise price, exercise term and other
hereto terms and conditions of the Common Stock Purchase Warrant
(“Warrant”)
attached as Exhibit
B, SLG hereby issues the Warrant to purchase the sum of five
hundred thousand (500,000) shares of Common Stock of
SLG.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-13-
15.4.
Registration
Rights. Riot shall be afforded the right to enter into the
Registration Rights Agreement in the form attached hereto as
Exhibit
C.
15.5.
Pro-Rata Rights in Future
Financings. Riot shall have the right to participate, upon
reasonable prior notice from SLG, in future equity financings of
SLG to maintain its respective fully diluted ownership in SLG
(“Pro-Rata
Rights”). The Pro-Rata Rights shall conclude
immediately prior to an initial public offering of
SLG.
15.6.
Most Favored Nation. In the
event that SLG enters into a shareholder agreement,
investors’ rights agreement, side letter, or similar
agreement with any investor, whereby such investor obtains any
investor rights (including, but not limited to, information,
notification, preemptive, tag-along, or drag-along rights, but
excluding, for the avoidance of doubt, any board representation or
observation rights, or any SLG industry- specific rights), Riot
shall be made a party as a “major holder” (or similar
party) thereto or otherwise shall be given rights commensurate to
such investors.
15.7.
Information
Rights.
15.7.1.
SLG shall provide
the following to Riot upon request:
15.7.1.1.
As soon as
practicable, but in any event within ninety (90) days after the end
of each fiscal year of SLG, an income statement for such fiscal
year, a balance sheet of SLG and statement of stockholders’
equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with GAAP, except that such
financial statements may (i) be subject to normal year-end audit
adjustments and (ii) not contain all notes thereto that may be
required in accordance with GAAP).
15.7.1.2.
As soon as
practicable, but in any event within forty-five (45) days after the
end of each of the first three (3) quarters of each fiscal year of
SLG, an unaudited income statement, statement of cash flows for
such fiscal quarter and an unaudited balance sheet and statement of
stockholders’ equity as of the end of such fiscal quarter,
all prepared in accordance with GAAP (except that such financial
statements may (i) be subject to normal year-end audit adjustments
and (ii) not contain all notes thereto that may be required in
accordance with GAAP);
15.7.1.3.
If, for any period,
SLG has any subsidiary whose accounts are consolidated with those
of SLG, then in respect of such period the financial statements
delivered pursuant to the foregoing sections shall be the
consolidated and consolidating financial statements of the SLG and
all such consolidated subsidiaries.
15.7.2.
Notwithstanding
anything else in this Section 15.7 to the contrary, SLG may cease
providing the information set forth in this Section 15.7 during the
period starting with the date thirty (30) days before SLG’s
good-faith estimate of the date
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-14-
of
filing of a registration statement as mandated by “quiet
period” regulations; provided that SLG’s covenants
under this Section 15.7 shall be reinstated at such time as SLG is
no longer actively employing its commercially reasonable efforts to
cause such registration statement to become effective.
15.7.3.
The covenants set
forth in this Section 15.7 shall terminate and be of no further
force or effect upon the earlier to occur of (a) the consummation
of an IPO, (b) when SLG first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur or (c) the consummation of a
change of control.
Unless
otherwise set forth in this Agreement, each Party will bear its own
costs and expenses that are incurred in the performance of their
obligations under this Agreement.
17.1.
Termination by Riot. Riot shall
have the right to terminate this Agreement by providing written
notice to SLG as follows:
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-15-
17.2.
Effect of Termination. If Riot
terminates this Agreement, each Party shall promptly destroy or
return the other party’s Confidential Information in its
possession, custody or control, unless retention of such
information is required by law (e.g., by tax regulations); all sums
due to Riot hereunder shall become immediately due and payable in
full without set-off of any kind; SLG shall immediately cease
exploitation of the rights granted herein, including without
limitation, its operation of the Game League (unless Riot advises
SLG in the notice of termination that SLG should instead wind- down
the Game League over a prescribed period of time), advertising and
promotion of the Game League, and its production and sale of
Merchandise; SLG shall, within one (1) month after termination,
deliver to Riot a complete and accurate inventory of all
Merchandise on hand and/or in the process of manufacture, as of
both the date of termination and the date of such statement and
Riot shall have the right, upon fifteen
(15)
days prior notice, to enter onto SLG’s premises during normal
business hours to conduct physical inventories to verify the
accuracy of such statement; and Riot shall have the opportunity, in
its sole discretion, to purchase all existing Merchandise at
SLG’s cost of manufacture in its sole or demand that such
Merchandise be destroyed.
18.1.
Confidential Information. Each
Party acknowledges that by reason of its relationship to the other
Party under this Agreement it will have access to and acquire
knowledge, material, data, systems and other information concerning
the operation, business, financial affairs and intellectual
property of the other Party that may not be accessible or known to
the general public, including the terms of this Agreement (referred
to as “Confidential
Information”).
18.2.
No Disclosure/Use. Each Party
agrees that it will: (i) maintain and preserve the confidentiality
of all Confidential Information received from the other Party (the
“Disclosing
Party”), both orally and in writing, including taking
such steps to protect the confidentiality of the Disclosing
Party’s Confidential Information as the Party receiving such
Confidential Information (the “Receiving Party”) takes to protect
the confidentiality of its own confidential or proprietary
information; provided, however, that in no instance shall the
Receiving Party use less than a reasonable standard of care to
protect the Disclosing Party’s Confidential Information; (ii)
disclose such Confidential Information only to its own employees on
a “need-to-know” basis, and only to those employees who
have agreed to maintain the confidentiality thereof pursuant to a
written agreement containing terms least as stringent as those set
forth in this Agreement; (iii) not disassemble, “reverse
engineer” or “reverse compile” such software for
any purpose in the event that software is involved; and (iv) not
disclose such Confidential Information to any third party without
the prior written consent of the Disclosing Party; provided,
however, that each Party may disclose the financial terms of this
Agreement to its legal and business advisors and to potential
investors so long as such third parties agree to maintain the
confidentiality of such Confidential Information.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-16-
Each
Receiving Party further agrees to use the Confidential Information
of the Disclosing Party only for the purpose of performing its
obligations under this Agreement. The Receiving Party’s
obligation of confidentiality shall survive this Agreement for a
period of five (5) years from the date of its termination or
expiration and thereafter shall terminate and be of no further
force or effect; provided, however, that with respect to
Confidential Information which constitutes a trade secret, such
information shall remain confidential so long as such information
continues to remain a trade secret. The Parties also mutually agree
to (1) not alter or remove any identification or notice of any
copyright, trademark, or other proprietary rights which indicates
the ownership of any part of the Disclosing Party’s
Confidential Information; and (2) notify the Disclosing Party of
the circumstances surrounding any possession or use of the
Confidential Information by any person or entity other than those
authorized under this Agreement.
18.3.
Exclusions. The confidentiality
obligations of the Parties described18.1 above shall not apply to
Confidential Information which the Receiving Party can prove: (i)
has become a matter of public knowledge through no fault, action or
omission of or by the Receiving Party; (ii) was rightfully in the
Receiving Party’s possession prior to disclosure by the
Disclosing Party; (iii) subsequent to disclosure by the Disclosing
Party, was rightfully obtained by the Receiving Party from a third
party who was lawfully in possession of such Confidential
Information without restriction; (iv) was independently developed
by the Receiving Party without resort to the Disclosing
Party’s Confidential Information; or (v) must be disclosed by
the Receiving Party pursuant to law, judicial order or any
applicable regulation (including any applicable stock exchange
rules and regulations); provided, however, that in the case of
disclosures made in accordance with the foregoing clause (v), the
Receiving Party must provide prior written notice to the Disclosing
Party of any such legally required disclosure of the Disclosing
Party’s Confidential Information as soon as practicable in
order to afford the Disclosing Party an opportunity to seek a
protective order, or, in the event that such order cannot be
obtained, disclosure may be made in a manner intended to minimize
or eliminate any potential liability.
18.4.
Terms of this Agreement
Confidential. Subject to the exception provided by Section
18.2(iv), for the avoidance of doubt, the terms of this Agreement
shall be considered Confidential Information, and SLG shall not
disclose or make reference thereto without the prior written
consent of Riot for any purpose. For the avoidance of doubt,
disclosure of Appendix
C by SLG shall be deemed an uncurable material breach of
this Agreement.
19.
PRIVACY
AND DATA SECURITY
19.1.
Privacy Laws. SLG shall at all
times perform its obligations hereunder in accordance with
SLG’s privacy policies, the requirements of any contracts or
codes of conduct to which SLG is a party and any applicable laws or
regulations related to the processing of Personal Data (as defined
below) and/or the privacy of individual data subjects
(collectively, “Privacy
Laws”), including obtaining and at all times
maintaining any appropriate registrations or certifications under
such Privacy Laws.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-17-
19.2.
Data Processing. For the
purposes of this Agreement, “Personal Data” has the meaning set
forth in applicable Privacy Laws, specifically including without
limitation any and all personally identifiable information of Riot
customers or employees, as well any copies or corresponding
reference files kept or made by SLG thereof in any format. To the
extent the Services require SLG to process Personal Data, SLG
expressly acknowledges and agrees that it will only process such
Personal Data in accordance with terms and conditions of this
Agreement and Riot’s instructions, and only as necessary to
perform its obligations hereunder. Without limiting the generality
of the foregoing, under no circumstances shall SLG (i) sell, rent,
share with or otherwise distribute or disclose Personal Data to any
third parties without Riot’s express prior written
consent;
(ii)
use Personal Data for directed marketing or advertising; or (iii)
otherwise process Personal Data for any purposes whatsoever except
as necessary to provide the Services.
19.3.
Information Security. SLG shall
establish, employ and at all times maintain physical, technical and
administrative security safeguards and procedures sufficient to
prevent any unauthorized processing of Personal Data and/or use,
access, copying, exhibition, transmission or removal of
Riot’s Confidential Information from SLG’s facilities.
SLG shall promptly provide Riot with written descriptions of such
procedures and policies upon request. Riot shall have the right,
upon reasonable prior written notice to SLG and during normal
business hours, to conduct on-site security audits or otherwise
inspect SLG’s facilities to confirm compliance with such
security requirements.
19.4.1.
Informing Riot. In the event of
any actual or potential unauthorized processing of Personal Data in
SLG’s possession or control (each, a “Security Breach”), SLG shall
notify Riot as soon as practicable (but in no event later than
twenty-four (24) hours after SLG becomes aware of such a Security
Breach) and immediately start coordinating with Riot to investigate
the Security Breach.
19.4.2.
Investigation and Costs. SLG
agrees to fully cooperate with Riot in Riot’s handling of any
Security Breach, including: (1) assisting with any investigation;
(2) providing Riot and/or its authorized representatives with
physical access to the facilities and operations affected; (3)
facilitating interviews with SLG’s employees and others
involved in the matter; (4) making available all relevant records,
logs, files, data reporting and other materials required to comply
with applicable law; and
(5) at
Riot’s request and expense, making available all relevant
records, logs, files, data reporting and other materials required
to comply with any regulation, industry standards or as otherwise
required by Riot. Additionally, SLG agrees to reimburse Riot for
actual costs incurred by Riot in responding to, and mitigating
damages caused by, any Security Breach, including all costs of
notice and/or remediation pursuant to this Section 19.
19.4.3.
Breach Notification. SLG shall
not inform any third party of any Security Breach without
Riot’s prior written consent, other than to inform a
complainant that the matter has been forwarded to Riot. Further,
SLG agrees that Riot shall have the sole right to determine: (1)
whether notice of the Security Breach is to be provided
to
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-18-
any
individual data subjects, regulators, law enforcement agencies,
consumer reporting agencies or others as required by Privacy Laws
or otherwise in Riot’s discretion; and (2) the contents of
such notice, whether any type of remediation may be offered to
affected persons and the nature and extent of any such
remediation.
19.4.4.
Termination. In the event of a
Security Breach, Riot shall have the option to immediately
terminate this Agreement without penalty upon written notice to SLG
(notwithstanding any other termination rights set forth herein, and
without limiting any other remedies that may be available to Riot
at law, in equity or otherwise).
20.
REPRESENTATIONS
AND WARRANTIES
20.1.
Standing; Due Authorization.
SLG represents, warrants and covenants that it: (i) is an entity
duly formed and/or organized and validly subsisting pursuant to the
laws of its jurisdiction of formation and/or organization; (ii) is
qualified to do business in the jurisdictions in which it operates
the Game League; and (iii) has due authorization and authority to
enter into this Agreement and to fully perform its obligations
hereunder.
20.2.
Performance. SLG represents and
warrants that in performing its obligations hereunder and operating
the Game Leagues, it shall at all times: (i) conduct itself in a
professional manner in reasonable accordance with industry
standards; and (ii) comply with all applicable laws, statutes,
ordinances, rules, regulations and requirements of all governmental
agencies and regulatory bodies.
21.1.
Each Party will
indemnify the other Party and any of its affiliates, subsidiaries,
directors, officers, agents, employees, successors and assigns from
and against any and all third party claims, actions, losses,
damages and expenses (including reasonable, outside attorney fees)
arising out of or caused by: (i) any material failure by the other
Party to perform its obligations under this Agreement; and (ii) the
material breach of any representation, warranty, and/or covenant
made by the other Party under this Agreement.
21.2.
If any action is
brought against a Party being indemnified hereunder and/or its
affiliates, subsidiaries, directors, officers, agents, employees,
successors and assigns (the “Indemnified Party”) with respect
to any allegation for which indemnity may be sought from the other
Party (the “Indemnifying
Party”), the Indemnified Party shall promptly notify
the Indemnifying Party in writing. The Indemnified Party shall
cooperate with the Indemnifying Party, at the Indemnifying
Party’s expense and in all reasonable respects, in connection
with the defense of any such action. The Indemnifying Party shall
conduct all proceedings or negotiations in connection therewith,
assume the defense thereof, and all other required steps or
proceedings to settle or defend any such action, including the
employment of counsel and payment of all expenses. The Indemnified
Party shall have the right to employ separate counsel and
participate in the defense at the Indemnified Party’s sole
expense. The Indemnifying Party shall not enter into any settlement
that obligates the Indemnified Party to take any action or incur
any expense without such
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-19-
Indemnified
Party’s prior written consent, which consent shall not be
unreasonably withheld or delayed.
SLG
shall secure and maintain, at its sole cost and expense, in
connection with its obligations hereunder and operation of the Game
League, all customary and necessary insurance policies, including
comprehensive general liability insurance with limits of not less
than One Million USD ($1,000,000) per occurrence / Two Million USD
($2,000,000) in the aggregate, employer’s liability insurance
in a minimum amount of One Million USD ($1,000,000) per occurrence,
automobile liability insurance in a minimum amount of One Million
USD ($1,000,000) per occurrence, statutory worker’s
compensation insurance and professional liability or cyber
liability insurance (which shall include errors and omissions,
media liability, privacy and network security insurance) with
limits of not less than Two Million USD ($2,000,000) per occurrence
/ Two Million USD ($2,000,000) in the aggregate, which policies
shall list Riot as additional insureds (collectively, the
“Insurance”).
SLG shall deliver to Riot a certificate evidencing the Insurance
required by this Section 22. SLG shall use an Insurance provider
with an AM BEST ratings of at least A-VII and shall be pre-
approved by Riot in writing.
[*****]
24.
LIMITATION
OF LIABILITY
TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, UNDER NO CIRCUMSTANCES
SHALL RIOT BE LIABLE TO SLG FOR ANY CLAIM (REGARDLESS OF THEORY OF
LIABILITY, WHETHER BASED UPON PRINCIPLES OF CONTRACT, WARRANTY,
NEGLIGENCE OR OTHER TORT, BREACH OF ANY STATUTORY DUTY, PRINCIPLES
OF INDEMNITY, THE FAILURE OF ANY LIMITED REMEDY TO ACHIEVE ITS
ESSENTIAL PURPOSE OR OTHERWISE) FOR ANY SPECIAL, CONSEQUENTIAL,
RELIANCE, INDIRECT, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES,
WHETHER FORESEEABLE OR NOT, INCLUDING LOST PROFITS, REVENUE OR
GOODWILL. IN NO EVENT SHALL RIOT’S LIABILITY TO SLG ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT EXCEED THE TOTAL
AMOUNTS PAID BY SLG TO RIOT HEREUNDER.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-20-
25.1.
Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of
the State of California.
25.2.
Injunctive Relief. SLG agrees
that in the event of any breach or alleged breach by SLG of any
covenant or agreement in this Agreement, Riot would encounter
extreme difficulty in attempting to prove the actual amount of
damages suffered by it as a result of such breach and would not
have adequate remedy at law in such event. SLG therefore agrees
that, in addition to any other remedy available at law or in
equity, in the event of such breach, Riot shall be entitled to seek
and receive specific performance and temporary, preliminary and
permanent injunctive relief from violation of any of said covenants
and agreements without the requirement of proving the amount of any
actual damage to Riot resulting or expected from such
breach.
25.3.
Attorney Fees. In any action
arising out of or related to this Agreement, the prevailing Party
shall be entitled to recover its costs and attorney fees reasonably
incurred in connection with the dispute.
26.1.
Assignment and Change of
Control. Neither Party may assign this Agreement, in whole
or in part, by operation of law or otherwise, without the other
Party’s prior written consent.
26.2.
Notices. All notices or other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given (a) on the date
delivered in person or by courier, (b) on the date a Party responds
via e-mail that it has received the other Party’s notice via
e-mail, (c) on the date indicated on the return receipt if mailed
postage prepaid, by certified or registered U.S. Mail, with return
receipt requested; or (d) if sent or mailed by Federal Express or
other nationally recognized overnight delivery service, then as of
the next business day. In each case, such notices and other
communications shall be sent to a Party at the following
addresses:
If to
SLG:
Super
League Gaming, Inc. 2912 Colorado Ave., Suite 200 Santa Monica, CA
90404 Attn: General Counsel
Email:
gregg@superleague.com
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-21-
If to
Riot:
[*****]
26.3.
Severability. If any provision
of this Agreement is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, such provision shall be deemed
amended to conform to the applicable laws of such jurisdiction so
as to be valid and enforceable, or, if it cannot be so amended
without materially altering the intention of the Parties, it will
be stricken, but the validity, legality and enforceability of such
provision shall not in any way be affected or impaired thereby in
any other jurisdiction and the remainder of this Agreement shall
remain in full force and effect.
26.4.
Waiver. Waiver by either of the
Parties of any breach of any provision of this Agreement shall not
operate or be construed as a waiver of any prior or subsequent
breach of the same or any other provision hereof.
26.5.
Entire Agreement. This
Agreement (including all exhibits attached hereto, which are
incorporated herein by reference) constitutes the entire agreement
between the Parties with respect to the subject matter hereto and
all prior agreements and negotiations are merged herein. This
Agreement may not be changed, modified, amended or supplemented,
except in writing signed by both Parties.
26.6.
Interpretation. The headings
contained herein are for convenience and reference only, do not
form a substantive part of this Agreement and in no way modify,
interpret or construe the intentions of the Parties. No provision
of this Agreement shall be interpreted for or against any Party
because that Party or its legal representative drafted such
provision. The words “including” and/or
“include” shall be interpreted without limitation when
used in this Agreement. If this Agreement is translated into any
language other than English, the English language version of this
Agreement shall prevail. A reference to a statute or statutory
provision herein is a reference to such statute or statutory
provision as amended, extended or re-enacted from time to
time.
26.7.
Counterparts. This Agreement
may be executed in multiple counterparts, each of which shall be
deemed to be an original, and all such counterparts shall
constitute one instrument, and signatures transmitted by facsimile
or electronic scan shall be effective.
26.8.
Not Effective Until Execution.
This Agreement shall have no force or effect, and nothing in this
Agreement shall be binding upon Riot and SLG, unless and until such
time, if any, as this Agreement has been executed by an authorized
signatory of Riot and SLG, respectively.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-22-
IN WITNESS
WHEREOF, this Agreement has
been executed and is effective as of the Grant
Date.
SUPER LEAGUE GAMING, INC.
By: /s/ Ann
Hand
Ann
Hand
CEO
RIOT GAMES, INC.
By:
/s/ A. Dylan
Jadeja
Name:
A. Dylan Jadeja
Its:
Financial Officer
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-23-
Appendix
A
Approved Movie Theatres
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-24-
Appendix
B
Riot Marks
1. To
be provided by Riot.
SLG Marks
3.
Netname –
www.superleague.com
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-25-
Appendix
C
[*****]
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-26-
EXHIBIT
A RESTRICTED STOCK AGREEMENT
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-27-
THE
SHARES OF COMMON STOCK GRANTED UNDER THIS RESTRICTED STOCK
AGREEMENT HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL
SECURITIES LAWS. NO SHARES OF COMMON STOCK GRANTED UNDER THIS
RESTRICTED STOCK AGREEMENT MAY BE OFFERED OR SOLD, PLEDGED, OR
OTHERWISE DISTRIBUTED, AND NO SHARES OF COMMON STOCK MAY BE
TRANSFERRED ON THE BOOKS OF THE COMPANY, EXCEPT IN A TRANSACTION
(I) THAT, IN THE OPINION OF COUNSEL, IS SATISFACTORY TO THE
COMPANY, WOULD RESULT IN NO VIOLATION OF SECURITIES LAWS AND (II)
THAT WOULD COMPLY WITH THE TRANSFER RESTRICTION PROVISIONS
CONTAINED OR REFERENCED IN THIS RESTRICTED STOCK
AGREEMENT.
SUPER
LEAGUE GAMING, INC. RESTRICTED STOCK AGREEMENT
Recipient:
Riot Games,
Inc.
Grant
Date:
June 22,
2016
Number
of Shares of Common Stock
Subject
to this Restricted Stock Grant: 550,000 Vesting
Schedule:
Vesting
Date
|
Percentage
of Shares of Restricted Stock Vesting
|
Number
of Shares of Restricted Stock Subject to Vesting
|
Cumulative
Total of Shares of Restricted Stock Vesting
|
Execution
hereof
|
25%
|
137,500
|
137,500
|
9-Month Anniversary
of
Grant Date
|
25%
|
137,500
|
275,000
|
18-Month
Anniversary of Grant Date
|
50%
|
275,000
|
550,000
|
This
Restricted Stock Agreement (“Agreement”), dated as of
the Grant Date specified above, is between Super League Gaming,
Inc., a Delaware corporation (“Company”), and the Riot
Games, Inc., a Delaware corporation (“Recipient”).
Capitalized terms used but not defined in this Agreement have the
meanings attributed to them in Appendix 1.
The
parties agree as follows:
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-28-
ARTICLE
I GRANT OF
SHARES
1.1 Grant. As of the Grant Date,
subject to the vesting schedule and other terms contained in this
Agreement, the Company hereby grants to the Recipient, and the
Recipient hereby accepts, the sum of Five Hundred Fifty Thousand
(550,000) shares of common stock (“Shares”), as partial
consideration for the issuance of a license to the Company to
utilize League of Legends (“LoL”) for purposes of
in-theater, participatory gaming in the North America region as
detailed in the License Agreement between the parties of even date
herewith.
1.2 Delivery of Shares. Promptly
following the execution and delivery of this Agreement and other
definitive agreements between the parties of even date herewith
(collectively, the “Transaction Agreements”), and
subject to Section 2.1, the Company shall issue to the Recipient
three (3) common stock certificates totaling the amount of the
Shares and consisting of the common share counts set forth in the
vesting schedule on the first page of this Agreement. The Company
shall provide Recipient with a common stock certificate in the
amount of One Hundred Thirty-Seven Thousand Five Hundred (137,500)
shares, representing the vested shares upon execution hereof, and
the remaining two (2) common stock certificates, consisting of Four
Hundred Twelve Thousand Five Hundred (412,500) shares of common
stock shall be deemed Unvested Shares (as defined below) and shall
be held in escrow in accordance with the terms of Article
IV.
1.3 Rights as a Shareholder. Upon
receipt of the Shares, the Recipient has all the rights of a
shareholder with respect to the Shares, subject to the terms
contained in this Agreement.
ARTICLE
II
TRANSFER RESTRICTIONS; SECURITIES LAW COMPLIANCE
2.1 Transfer Restrictions. The
Recipient shall not make or attempt to make any disposition,
pledge, gift, assignment, or other transfer (voluntarily or
involuntarily) of the Shares while the Shares are Unvested Shares
(as defined below). Any such transfer, purported transfer, or
attempted transfer will be void.
2.2 Legend. In addition to any
other restrictive legend required by the Company, in order to
reflect the restrictions on disposition of the Unvested Shares, the
Unvested Shares will bear and be subject to a restrictive legend,
similar to the following:
“THE SHARES
REPRESENTED BY THIS COMMON STOCK CERTIFICATE ARE SUBJECT TO A
RESTRICTED STOCK AGREEMENT, WHICH INCLUDES VESTING REQUIREMENTS AND
RESTRICTIONS ON SHARE TRANSFERS. THE NUMBER OF SHARES SUBJECT TO
VESTING ARE AS STATED IN THE RESTRICTED STOCK AGREEMENT. A COPY OF
THE RESTRICTED STOCK AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY AND WILL BE MAILED TO ANY PROPERLY INTERESTED PERSON
WITHOUT CHARGE UPON THE COMPANY’S RECEIPT OF A WRITTEN
REQUEST FOR IT. ANY SALE OR TRANSFER IN VIOLATION OF THE RESTRICTED
STOCK AGREEMENT WILL BE VOID.”
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-29-
2.3 Restricted Securities. The
Recipient makes the following representations to the
Company:
(a) The Recipient is
aware of the Company's business affairs and financial condition and
has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to accept the grant of the
Shares as partial consideration for a license to LoL.
(b) The Recipient will
hold the Shares for the Recipient’s own account, not with a
view to or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the
same.
(c) The Recipient
confirms that the Recipient has been informed that the Shares have
not been, and will not be, registered under state and federal
securities laws, and are restricted securities under the Securities
Act of 1933 (“Securities Act”). The Recipient
understands that no Shares may be resold or transferred unless the
Shares are first registered under applicable state and federal
securities laws or unless an exemption from such registration is
available.
(d) The Recipient is
prepared to hold the Shares for an indefinite period and that the
Recipient is aware that Rule 144 of the Securities Act is not
presently available to exempt the sale of the Shares from the
registration requirements of the Securities Act.
(e) The Recipient
understands that no public market now exists for any of the Shares
issued by the Company, and that the Company has made no assurances
that a public market will ever exist for the Shares.
2.4 Lock-up Agreement. If required
by any underwriter in connection with a public offering of the
Company’s equity securities in a registration statement under
the Securities Act, if applicable, the Recipient shall not transfer
or dispose of the Shares (other than securities included in the
registration statement or shares purchased in the public market
after the effective date of registration) or any interest in the
Shares during such reasonable period as is acceptable to the
underwriter (and provided that all directors, officers, or 1%
shareholders are subject to the same) following the effective date
of such registration statement. In addition, the Recipient shall
sign one or more agreements as may be requested by an underwriter
in connection with such registration. The underwriters in
connection with such registration are intended third party
beneficiaries of this section and have the right, power, and
authority to enforce the provisions of this Agreement as though
they were a party to it. In order to enforce the covenants
contained in this section, the Company may impose stop-transfer
instructions with respect to the Shares until the end of such
restricted period.
ARTICLE
III VESTING
3.1
Vesting of Shares.
The vesting schedule for the Shares is set forth on the first page
of this Agreement. All Shares for which the Recipient has a vested
right are referred to herein as “Vested Shares,” and
all Shares for which the Recipient does not have a vested
right
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-30-
are
referred to herein as “Unvested Shares.” While in
escrow as provided in Article IV, the Unvested Shares will continue
to vest during the period in which Recipient and the Company have
an ongoing contractual business relationship as detailed in the
Transaction Agreements.
ARTICLE
IV ESCROW
4.1 Deposit of the Unvested Shares.
Upon issuance of the Shares, the Recipient shall deposit the
Unvested Shares (in certificated form) granted as part of such
issuance in escrow with the Company to be held in accordance with
the provisions of this Agreement.
4.2 Deposit of Additional Securities and
Other Property. Except as otherwise provided in this
Agreement, the Company shall deposit in escrow any new,
substituted, or additional securities or other property distributed
with respect to the Unvested Shares.
4.3 Release of Vested Shares. Upon
the vesting of all or a portion of the Unvested Shares, the Company
shall release to the Recipient the Vested Shares and all securities
and other property held in escrow with respect to the Unvested
Shares that have become Vested Shares.
4.4 Forfeiture of Unvested Shares.
Upon the termination of the Transaction Agreements, all Unvested
Shares, and any rights or claims attached thereto, securities, and
other property held in escrow from a distribution previously made
on account of the Unvested Shares, will be deemed immediately
forfeited by the Recipient to the Company.
4.5 Assignment. In the event of
forfeiture of the Unvested Shares, the Recipient hereby assigns,
transfers, and surrenders to the Company for cancellation the
Unvested Shares, and all related securities and other property held
in escrow with respect to such Unvested Shares, and hereby
irrevocably constitutes and appoints the Company’s secretary
as attorney to cancel such stock in the records of the Company with
full power of substitution in the premises.
ARTICLE
V TAX
PROVISIONS
5.1 Valuation of Common Stock. The
Recipient understands that the Company has valued the Shares at
$3.00 per share as of the Grant Date, which equals the fair market
value of one share of common stock as determined by the Company in
a manner consistent with Internal Revenue Code Section 409A.
Further, the valuation of the Shares at $3.00 per share is equal to
the price paid per share by third party investors in the
Company’s most recent private placement of common
stock.
5.2 Withholding. As a condition
precedent to the release of the Vested Shares from the escrow as
described in Article IV, the Recipient shall comply with the
requests of the Company as they relate to the satisfaction of any
federal, state, or local withholding tax obligations that arise in
connection with the release of the Vested Shares. Such requests may
include among others (a) the deduction of any such required
withholding from any payments due or to become due to the
Recipient, (b) the payment in cash by the Recipient to the Company
in an amount equal to any required withholding, and (c) signing
such documentation necessary to enable withholding of Shares to
satisfy tax obligations.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-31-
ARTICLE
VI GENERAL
PROVISIONS
6.1 Adjustments. The existence of
the Recipient’s rights under this Agreement does not affect
in any way the right or power of the Company or its shareholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company’s capital
structure or its business, or any merger, consolidation, or share
exchange of the Company, or any issuance of bonds, debentures or
preferred or prior preference stock ahead of or affecting Common
Stock or the rights thereof, or 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 character or otherwise.
6.2 Notices. To be effective, any
notice, consent, or communication required or permitted to be given
in connection with this Agreement must be in writing and (i)
delivered in person, (ii) mailed by certified or registered mail,
return receipt requested, postage prepaid, (iii) sent by same-day
messenger or nationally recognized overnight delivery service, with
all fees prepaid, or (iv) sent by fax, with a fax transmission
receipt, as follows:
If to the
Company:
Super League
Gaming, Inc.
2912
Colorado Ave., Suite 200 Santa Monica, CA 90404 Attn: General
Counsel
If to the
Recipient:
Riot Games,
Inc.
12333
West Olympic Blvd. Los Angeles, CA 90064 Attn: Legal
Department
Email:
legalnotices@riotgames.com
With
copy to:
Sean
Haran, sharan@riotgames.com
A party
may update the party’s contact information by providing
notice thereof to the other party. A notice, consent, or
communication is effective on the earlier of (i) the date it is
delivered in person, (ii) the date it is delivered to the address
required by this Agreement as indicated by the date of the
acknowledgment or signed receipt, (iii) the date delivery is
refused or deemed undeliverable at the address required by this
Agreement, as the U.S. Postal Service, messenger service, or
overnight courier, as the case may be, indicates through its
records, or (iv) with respect to a fax, the date on which the fax
is sent and receipt of which is confirmed, provided that if such
date is not a business day or the confirmation time as after 5:00
p.m. local time of the recipient on a business day, then the
following business day.
6.3 Entire Agreement. This
Agreement constitutes the entire and final agreement between the
parties as relates to the grant of the Shares. It is the complete
and exclusive expression of the parties’ agreement on the
matters contained in this Agreement. All prior and contemporaneous
negotiations, term sheets, and other agreements, either oral or in
writing, between the parties on the matters contained in this
Agreement are expressly merged into and
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-32-
superseded by this
Agreement.
No provisions of
this Agreement may be explained, supplemented, or qualified through
evidence of trade usage or a prior course of dealings.
6.4 Amendments and Waivers. No
amendment, rescission, waiver, or termination of this Agreement or
any of its terms is effective, except by a writing signed by the
party or parties against whom enforcement is sought. No failure or
delay in exercising any right or remedy or requiring the
satisfaction of any condition under this Agreement, and no course
of dealing between the parties, operates as a waiver or estoppel of
any right, remedy, or condition. A waiver made in writing on one
occasion is effective only in that instance and only for the
purpose that it is given and is not to be construed as a waiver on
any future occasion or against any other person. To the extent any
course of dealing, act, omission, failure, or delay in exercising
any right or remedy under this Agreement constitutes the election
of an inconsistent right or remedy, that election does not either
constitute a waiver of any right or remedy or limit or prevent the
subsequent enforcement of any contract provision.
6.5 Headings. The descriptive
headings of the articles, sections, and subsections of this
Agreement are for convenience of reference only. They do not
constitute a part of this Agreement and do not affect this
Agreement’s construction or interpretation.
6.6 Assignability; Successors and
Assigns. The Recipient shall not assign this Agreement or
the rights and duties set forth herein, but the Company may assign
them, in whole or in part. This Agreement binds and benefits the
parties and their respective heirs, executors, administrators,
legal representatives, and permitted successors and
assigns.
6.7 Governing Law. The laws of the
State of California govern all matters arising out of or relating
to this Agreement, including, without limitation, its
interpretation, construction, performance, and enforcement, without
giving effect to such state’s conflicts of law principles or
rules of construction concerning the drafter hereof. Any reference
to a specific federal, state, or local statute or code includes (i)
any rules and regulations promulgated thereunder and (ii) any
subsequent amendment, restatement, supplement, or superseding
statute, code or other law as may be in effect at the particular
time. Any reference to an agreement includes such agreement as it
may be amended, restated, supplemented, or modified from time to
time.
6.8 Further Assurances. Each party
shall use reasonable efforts to take, or cause to be taken, all
actions necessary or desirable as requested to consummate and make
effective the transactions contemplated by this Agreement. If any
further action is necessary or desirable as requested to carry out
the purposes of this Agreement, each party shall use reasonable
efforts to take, or cause to be taken, such action.
6.9 Professional Advice. The
acceptance of this Agreement and the issuance of the Shares may
have consequences under federal and state tax and securities laws,
which may vary depending on the circumstances of the Recipient.
Accordingly, the Recipient acknowledges that it has consulted with
its legal and tax advisors in connection with this Agreement and
the acquisition, holding and disposition of the Shares. The
Recipient acknowledges that neither the Company nor any of its
officers, directors, attorneys, or agents has made any
representations as to the federal or state tax effects of the
acceptance of the Shares or any rights under this
Agreement.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-33-
6.10 Counterparts.
If the parties sign this Agreement in counterparts, each
counterpart constitutes an original, and all counterparts,
collectively, constitute only one agreement. The signatures of all
the parties need not appear on the same counterpart, and delivery
of a signed counterpart signature page by fax or other electronic
transmission is as effective as signing and delivering an
original.
[SIGNATURE PAGE FOLLOWS]
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-34-
IN
WITNESS
WHEREOF, this Agreement has
been executed
and is effective
as of the Grant Date.
SUPER LEAGUE GAMING, INC.
By: /s/
Ann Hand
Ann Hand CEO
RIOT GAMES, INC.
By:
/s/ A.
Dylan Jadeja____
Name: A. Dylan Jadeja Its: Chief Financial Officer
[SIGNATURE PAGE
TO RESTRICTED STOCK
AGREEMENT]
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-35-
EXHIBIT
B
COMMON
STOCK PURCHASE WARRANT
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-36-
THE
SECURITIES REPRESENTED BY THIS COMMON STOCK PURCHASE WARRANT HAVE
NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SHARES UNDER
THE SECURITIES ACT OR AN EXEMPTION FROM THE SECURITIES ACT. ANY
SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS AND THE LAWS OF OTHER APPLICABLE
JURISDICTIONS.
COMMON
STOCK PURCHASE WARRANT
For the
Purchase of 500,000 Shares of Common Stock, $0.001 par value
of
SUPER LEAGUE GAMING, INC.
A
Delaware Corporation
For
value received, RIOT GAMES,
INC. (the “Holder”), or its assigns, is entitled
to, on or before the date specified below on which this Common
Stock Purchase Warrant (the “Warrant”) expires, but not
thereafter, to subscribe for, purchase and receive the number of
fully paid and non-assessable shares of the common stock, $0.001
par value (the “Common Stock”), of Super League Gaming,
Inc., a Delaware corporation (the “Company”) set forth
above, at a price per share equal to the purchase price in the next
(i.e., “Series C”) Common Stock financing transaction
(provided, however, that if such transaction is not closed within
60 days of the date of the License Agreement between Holder and the
Company, the exercise price shall be the purchase price in the last
Common Stock financing transaction prior to the date of the License
Agreement) in order to purchase and receive such securities) (the
“Exercise Price”), upon presentation and surrender of
this Warrant and upon payment by wire transfer or bank check of the
Exercise Price for such shares of Common Stock to the Company at
its principal office.
1. Vesting of Warrant.
The Warrant is subject to vesting as follows:
●
25% of the Warrant,
consisting of 125,000 shares of common stock, will vest upon the
Company realizing $5,000,000 of net revenue from League of Legends
events
●
35% of the Warrant,
consisting of 175,000 shares of common stock, will vest upon the
Company realizing an additional $10,000,000 of net revenue from
League of Legends events (i.e., $15,000,000 in total net
revenue)
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-37-
●
40% of the Warrant,
consisting of 200,000 shares of common stock, will vest upon the
Company realizing an additional $20,000,000 of net revenue from
League of Legends events (i.e., $35,000,000 in total net
revenue)
For
purposes of Section 1 of this Warrant, net revenue shall mean
“net revenue” as such term is defined in Section 12.1.1
of the License Agreement.
2. Exercise of Warrant. This
Warrant may be exercised in whole or in part, from time to time and
expressly subject to satisfaction of the vesting conditions set
forth in Section 1, commencing on the date hereof (the “Issue
Date”) and expiring on the fifth (5th) anniversary hereof, by
presentation and surrender hereof to the Company, with the Notice
of Exercise form annexed hereto as Appendix A duly executed and
accompanied by payment by wire transfer or bank check of the
Exercise Price for the number of shares specified in such form,
together with all federal and state taxes applicable upon such
exercise, if any. If this Warrant should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the shares purchasable hereunder.
Upon receipt by the Company of this Warrant and the Exercise Price
at the office of the Company, in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that
certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder. If the subscription
rights represented hereby shall not be exercised at or before 5:00
P.M., Pacific Time, on the expiration date specified above, this
Warrant shall become void and without further force or effect, and
all rights represented hereby shall cease and expire.
3. Rights of the Holder. Prior to
exercise of this Warrant, the Holder shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either
at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
4.
Adjustment in Number of
Shares.
(A) Adjustment for
Reclassifications. In case at any time, or from time to
time, after the Issue Date the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received,
or, on or after the record date fixed for the determination of
eligible stockholders, shall have become entitled to receive,
without payment therefore, other or additional stock or other
securities or property (including cash) by way of stock-split,
spinoff, reclassification, combination of shares or similar
corporate rearrangement (exclusive of any stock dividend of its or
any subsidiary’s capital stock), then and in each such case
the Holder(s) of this Warrant, upon the exercise hereof as provided
in Section 2, shall be entitled to receive the amount of stock and
other securities and property which such Holder(s) would hold on
the date of such exercise if on the Issue Date they had been the
holder of record of the number of shares of Common Stock of the
Company called for on the face of this Warrant and had thereafter,
during the period from the Issue Date, to and including the date of
such exercise, retained such shares and/or all other or additional
stock and other securities and property receivable by them as
aforesaid during such period, giving effect to
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-38-
all
adjustments called for during such period. In the event of a
declaration of a dividend payable in shares of any equity security
of a subsidiary of the Company, then the Company may cause to be
issued a warrant to purchase shares of the subsidiary
(“Springing Warrant”) in an amount equal to such number
of shares of the subsidiary’s securities to which the Holders
would have been entitled, but conditioned upon the exercise of this
Warrant as a prerequisite to receiving the shares issuable pursuant
to the Springing Warrant.
(B) Adjustment for Reorganization,
Consolidation, Merger. In case of any reorganization of the
Company (or any other corporation the stock or other securities of
which are at the time receivable on the exercise of this Warrant)
after the Issue Date, or in case, after such date, the Company (or
any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all of its
assets to another corporation, then and in each such case the
Holder(s) of this Warrant, upon the exercise hereof as provided in
Section 1, at any time after the consummation of such
reorganization, consolidation, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities and
property receivable upon the exercise of this Warrant prior to such
consummation, the stock or other securities or property to which
such Holder(s) would be entitled had the Holders exercised this
Warrant immediately prior thereto, all subject to further
adjustment as provided herein; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant
after such consummation.
5. Officer’s Certificate.
Whenever the number of shares of Common Stock issuable upon
exercise of this Warrant or the Exercise Price shall be adjusted as
required by the provisions hereof, the Company shall forthwith file
in the custody of its Secretary at its principal office, an
officer’s certificate showing the adjusted number of shares
of Common Stock or Exercise Price determined as herein provided and
setting forth in reasonable detail the facts requiring such
adjustment. Each such officer’s certificate shall be made
available at all reasonable times for inspection by the Holder(s)
and the Company shall, forthwith after each such adjustment,
deliver a copy of such certificate to the Holder(s). Such
certificate shall be conclusive as to the correctness of such
adjustment.
6. Restrictions on Transfer.
Certificates for the shares of Common Stock to be issued upon
exercise of this Warrant shall bear the following
legend:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SHARES UNDER
THE SECURITIES ACT OR AN EXEMPTION FROM THE SECURITIES ACT. ANY
SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS AND THE LAWS OF OTHER APPLICABLE
JURISDICTIONS.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-39-
The
Holder, by acceptance hereof, agrees that, absent an effective
registration statement under the Securities Act of 1933, as amended
(the “Act”), covering the disposition of this Warrant
or the Common Stock issued or issuable upon exercise hereof, such
Holder(s) will not sell or transfer any or all of this Warrant or
such Common Stock without first providing the Company with an
opinion of counsel reasonably satisfactory to the Company to the
effect that such sale or transfer will be exempt from the
registration and prospectus delivery requirements of the Act. The
Holder agrees that the certificates evidencing the Warrant and
Common Stock which will be delivered to the Holder by the Company
shall bear substantially the following legend: The Holder of this
Warrant, at the time all or a portion of such Warrant is exercised,
agrees to make such written representations to the Company as
counsel for the Company may reasonably request, in order that the
Company may be reasonably satisfied that such exercise of the
Warrant and consequent issuance of Common Shares will not violate
the registration and prospectus delivery requirements of the Act,
or other applicable state securities laws.
7. Loss or Mutilation. Upon
receipt by the Company of evidence satisfactory to it (in the
exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the
case of loss, theft or destruction) of indemnity satisfactory to it
(in the exercise of reasonable discretion), and (in the case of
mutilation) upon surrender and cancellation thereof, the Company
will execute and deliver in lieu thereof a new Warrant of like
tenor.
8. Reservation of Common Stock.
The Company shall at all times reserve and keep available for issue
upon the exercise of the Warrants such number of its authorized but
unissued shares of Common Stock as will be sufficient to permit the
exercise in full of all outstanding Warrants.
9. Notices. All notices and other
communications from the Company to the Holder of this Warrant shall
be mailed by first class registered or certified mail, postage
prepaid, to the address furnished to the Company in writing by the
Holder.
10. Change; Waiver. Neither this
Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver,
discharge or termination is sought.
12.
Law Governing. This
Warrant shall be construed and enforced in accordance with and
governed by the laws of Delaware.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-40-
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on June 22, 2016.
SUPER
LEAGUE GAMING, INC.
By:
/s/ Ann Hand
Ann
Hand
Chief
Executive Officer
[SIGNATURE PAGE TO
COMMON STOCK PURCHASE WARRANT]
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-41-
APPENDIX A NOTICE
OF EXERCISE
TO:
SUPER LEAGUE
GAMING,
INC.
DATE:
The
undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase
shares of the
Common Stock of the Company called for thereby, and hereby makes
payment by bank check or wire transfer in the amount of
$.
Please
issue the shares of the Common Stock as to which this Warrant is
exercised to:
and if
said number of Warrants shall not be all the Warrants evidenced by
the Common Stock Purchase Warrant surrendered in connection with
this exercise, then the Company shall issue a new Warrant
Certificate for the balance remaining of such Warrants
to
at the
address stated above.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-42-
EXHIBIT
C
REGISTRATION RIGHTS AGREEMENT
[attached]
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-43-
REGISTRATION
RIGHTS AGREEMENT
THIS
REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is
dated June 22, 2016 by and between Super League Gaming, Inc., a
Delaware corporation (the “Company”), and Riot Games,
Inc. (the “Licensor”).
RECITALS
WHEREAS, the
Company has agreed to provide certain registration rights to
Licensor under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the “Securities Act”), and applicable
state securities laws.
NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Licensor hereby agree as
follows:
AGREEMENT
As used
in this Agreement, the following terms shall have the following
meanings:
a. “Person”
means a corporation, a limited liability company, an association, a
partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental
agency.
b. “Register,”
“registered,” and “registration” refer to a
registration effected by preparing and filing one or more
Registration Statements (as defined below) in compliance with the
Securities Act and pursuant to Rule 415 under the Securities Act or
any successor rule providing for offering securities on a
continuous or delayed basis (“Rule 415”), and the
declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange
Commission (the “SEC”).
c. “Registrable
Securities” means the Shares issued to Licensor pursuant to a
Restricted Stock Agreement and a Common Stock Purchase Warrant,
subject to the vesting conditions set forth in each of the
foregoing agreements.
d. “Registration
Statement” means a registration statement filed with the SEC,
pursuant to the Securities Act, that covers the Registrable
Securities.
a. Piggyback
Registration Rights. Licensor shall be afforded unlimited piggyback
registration rights with respect to the Securities (including, for
the avoidance of doubt, piggyback registration rights with respect
to any demand registrations). The Company shall notify the Licensor
in writing no less than fifteen (15) calendar days prior to the
filing of any Registration Statement on Form S- 1 or S-3 of its
intention to file such registration statement with the Securities
and Exchange Commission. The Licensor shall have a period of ten
(10) calendar days to notify the Company of its intention to have
its Registrable Securities included in such Registration
Statement.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-44-
b. Sufficient Number
of Shares Registered. The number of shares of common stock
available under the Registration Statement filed pursuant to
Section 2(a) shall be sufficient to cover all of the Registrable
Securities that the Licensor has been issued pursuant to the
Offering.
a. The Company shall
keep the Registration Statement effective pursuant to Rule 415 at
all times until the date on which the Licensor shall have sold all
the Registrable Securities covered by such Registration Statement
(the “Registration Period”), which Registration
Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to a material fact required to
be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading.
b. The Company shall
prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the Securities Act, as may be necessary
to keep such Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of
all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as
set forth in such Registration Statement. In the case of amendments
and supplements to a Registration Statement which are required to
be filed pursuant to this Agreement (including pursuant to this
Section 3(b)) by reason of the Company’s filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Company shall have incorporated such report by
reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on
which the Exchange Act report is filed which created the
requirement for the Company to amend or supplement the Registration
Statement.
c. The Company shall
furnish to the Licensor without charge, (i) at least one (1) copy
of such Registration Statement as declared effective by the SEC and
any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) one (1) copy of the
final prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies
as Licensor may reasonably request) and (iii) such other documents
as Licensor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by
Licensor.
d. The Company shall
use its best efforts to (i) register and qualify the Registrable
Securities covered by a Registration Statement under such other
securities or “blue sky” laws of such jurisdictions in
the United States as the Licensor reasonably requests, (ii) prepare
and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations
and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation
or by-laws, (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section
3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process
in any such jurisdiction. The Company shall promptly notify the
Licensor of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of
any of the Registrable
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-45-
Securities for sale
under the securities or “blue sky” laws of any
jurisdiction in the United States or its receipt of actual notice
of the initiation or threat of any proceeding for such
purpose.
e. As promptly as
practicable after becoming aware of such event or development, the
Company shall notify the Licensor in writing of the happening of
any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading (provided that in no event shall such notice contain
any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct
such untrue statement or omission, and deliver one (1) copy of such
supplement or amendment to Licensor. The Company shall also
promptly notify the Licensor in writing (i) when a prospectus or
any prospectus supplement or post- effective amendment has been
filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness
shall be delivered to the Licensor by facsimile on the same day of
such effectiveness), (ii) of any request by the SEC for amendments
or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable
determination that a post-effective amendment to a Registration
Statement would be appropriate.
f. The Company shall
use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction within the United States of
America and, if such an order or suspension is issued, to obtain
the withdrawal of such order or suspension at the earliest possible
moment and to notify the Licensor of the issuance of such order and
the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such
purpose.
g. At the reasonable
request of the Licensor, the Company shall furnish to the Licensor,
on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as the Licensor may
reasonably request (i) a letter, dated such date, from the
Company’s independent certified public accountants in form
and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
offering, if any, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in
an underwritten public offering (if applicable), addressed to the
Licensor.
h. The Company shall
hold in confidence and not make any disclosure of information
concerning the Licensor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal
or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other final, non-appealable order
from a court or governmental body of competent jurisdiction, or
(iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or
any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning the
Licensor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written
notice to the Licensor and allow the Licensor, at the
Licensor’s expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.
i. The Company shall
use its best efforts either to cause all the Registrable Securities
covered by a Registration Statement (i) to be listed on each
securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of
such exchange or to secure the inclusion for
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-46-
quotation on a
national securities exchange for such Registrable Securities. The
Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(i).
j. The Company shall
cooperate with the Licensor to the extent applicable, to facilitate
the timely preparation and delivery of certificates (not bearing
any restrictive legend) representing the Registrable Securities to
be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case
may be, as the Licensor may reasonably request and registered in
such names as the Licensor may request; provided, however, delivery
of such certificates shall not be made until such Registration
Statement is declared effective by the SEC and all applicable state
securities regulatory agencies.
k. The Company shall
use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may
be necessary to consummate the disposition of such Registrable
Securities.
l. The Company shall
otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC in connection with any registration
hereunder.
m. Within two (2)
business days after a Registration Statement which covers
Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities
(with copies to the Licensor) confirmation that such Registration
Statement has been declared effective by the SEC in the form
attached hereto as Exhibit 1.
n. The Company shall
take all other reasonable actions necessary to expedite and
facilitate disposition by the Licensor of Registrable Securities
pursuant to a Registration Statement.
4.
OBLIGATIONS OF THE
LICENSOR.
The
Licensor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f)
or the first sentence of 3(e), the Licensor will immediately
discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities
until the Licensor’s receipt of a copy of the supplemented or
amended prospectus contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required. Notwithstanding
anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended certificates for shares of Common Stock
to a transferee of the Licensor in accordance with the terms of the
Offering in connection with any sale of Registrable Securities with
respect to which the Licensor has entered into a contract for sale
prior to the Licensor’s receipt of a notice from the Company
of the happening of any event of the kind described in Section 3(f)
or the first sentence of 3(e) and for which the Licensor has not
yet settled. All selling expenses relating to the Registrable
Securities shall be borne exclusively by the Licensor.
5.
EXPENSES OF
REGISTRATION.
All
expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees,
printers, legal and accounting fees shall be paid by the
Company.
With
respect to Registrable Securities which are included in a
Registration Statement under this
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-47-
Agreement:
a. To the fullest
extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend the Licensor, the directors,
officers, partners, employees, agents, representatives of, and each
Person, if any, who controls the Licensor within the meaning of the
Securities Act or the Exchange Act (each, an “Indemnified
Person”), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable
attorneys’ fees, amounts paid in settlement or expenses,
joint or several (collectively, “Claims”) incurred in
investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or
other regulatory agency, body or the SEC, whether pending or
threatened, whether or not an indemnified party is or may be a
party thereto (“Indemnified Damages”), to which any of
them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or
any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the
securities or other “blue sky” laws of any jurisdiction
in which Registrable Securities are offered (“Blue Sky
Filings”), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) any untrue statement or
alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading; or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any
rule or regulation there under relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”). The Company shall
reimburse the Licensor and each such controlling person promptly as
such expenses are incurred and are due and payable, for any legal
fees or disbursements or other reasonable expenses incurred by them
in connection with investigating or defending any such Claims.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (x) shall
not apply to a Claim by an Indemnified Person arising out of or
based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by
such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment
thereof or supplement thereto; (y) shall not be available to the
extent such Claim is based on a failure of the Licensor to deliver
or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the
Company pursuant to Section 3(e); and (z) shall not apply to
amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person. In connection with
a Registration Statement, the Licensor agrees to indemnify, hold
harmless and defend, to the same extent and in the same manner as
is set forth in this Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration
Statement and each Person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act (each an
“Indemnified Party”), against any Claim or Indemnified
Damages to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such
Claim or Indemnified Damages arise out of or is based upon any
Violation, in each case to the extent, and only to the extent, that
such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by the Licensor
expressly for use in connection with such Registration Statement;
and, subject to Section 6(d), the Licensor will reimburse any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that
the indemnity agreement contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall
not apply to amounts paid in
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-48-
settlement of any
Claim if such settlement is effected without the prior written
consent of the Licensor, which consent shall not be unreasonably
withheld; provided, further, however, that the Licensor shall be
liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to the
Licensor as a result of the sale of Registrable Securities pursuant
to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of such Indemnified Party. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained
in this Section 6 with respect to any prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the prospectus was corrected
and such new prospectus was delivered to the Licensor prior to the
Licensor’s use of the prospectus to which the Claim
relates.
b. Promptly after
receipt by an Indemnified Person or Indemnified Party under this
Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a
Claim, such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying
party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified
Party, as the case may be; provided, however, that an Indemnified
Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for
such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel
in such proceeding. The Indemnified Party or Indemnified Person
shall cooperate fully with the indemnifying party in connection
with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or
Indemnified Person that relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written
consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party or Indemnified
Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder,
the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which
indemnification has been made. The failure to deliver written
notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such
action.
c. The indemnification
required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or
defense, as and when bills are received or Indemnified Damages are
incurred.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-49-
d. The indemnity
agreements contained herein shall be in addition to (i) any cause
of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to
the law.
To the
extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted
by law; provided, however, that: (i) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any seller of Registrable Securities who was
not guilty of fraudulent misrepresentation; and (ii) contribution
by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale
of such Registrable Securities.
8.
REPORTS UNDER THE
EXCHANGE ACT.
With a
view to making available to the Licensor the benefits of Rule 144
promulgated under the Securities Act or any similar rule or
regulation of the SEC that may at any time permit the Licensor to
sell securities of the Company to the public without registration
(“Rule 144”) the Company agrees, upon becoming a
publicly reporting company under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), to:
a. make and keep
public information available (from the date the Company becomes
subject to the periodic reporting requirements of the Exchange
Act), as those terms are understood and defined in Rule
144;
b. file with the SEC
in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act so long as
the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company’s
obligations under Section 6 hereof) and the filing of such reports
and other documents is required for the applicable provisions of
Rule 144; and
c. furnish to the
Licensor, so long as the Licensor owns Registrable Securities,
promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and
(iii)
such other information as may be reasonably requested to permit the
Licensor to sell such securities pursuant to Rule 144 without
registration.
9.
AMENDMENT OF
REGISTRATION RIGHTS.
Provisions of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the Licensor. Any amendment or waiver effected in
accordance with this Section 9 shall be binding upon the Licensor
and the Company. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration
also is offered to all of the parties to this
Agreement.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-50-
a. A Person is deemed
to be a holder of Registrable Securities whenever such Person owns
or is deemed to own of record such Registrable Securities. If the
Company receives conflicting instructions, notices or elections
from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
b. Any notices,
consents, waivers or other communications required or permitted to
be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered:
(i)
upon receipt, when delivered personally; (ii) upon receipt, when
sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a
nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall
be:
If to the Company,
to:
Super League
Gaming, Inc.
2912
Colorado Ave., Suite 200 Santa Monica, CA 90404 Attn: General
Counsel
If to the Licensor,
to:
Riot Games,
Inc.
12333
West Olympic Blvd.
Los
Angeles, CA 90064
Attn:
Legal Department
Email: legalnotices@riotgames.com
With copy to:
Sean Haran, sharan@riotgames.com
Any
party may change its address by providing written notice to the
other parties hereto at least five (5) days prior to the effective
date of such change. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the
sender’s facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission, or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt
by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii)
above, respectively.
c. Failure of any
party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement
shall be governed by and construed under the law of the State of
California, disregarding any principles of conflicts of law that
would otherwise provide for the application of the substantive law
of another jurisdiction. The Company and the Licensor each: (a)
agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in
California, or in the United States District Court, Los Angeles,
California; (b) waives any objection to the venue of any such suit,
action or proceeding and the right to assert that such forum is not
a convenient forum; and (c) irrevocably consents to the
jurisdiction of the California State Court, or the United States
District Court, Los Angeles, California in any such suit, action or
proceeding. EACH PARTY HEREBY
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-51-
IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR
THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
e. The Agreement and
the Subscription Agreement constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and
thereof. The foregoing agreements supersede all prior agreements
and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. This Agreement
shall inure to the benefit of and be binding upon the permitted
heirs, personal representatives, successors and assigns of each of
the parties hereto.
g. The headings in
this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
h. This Agreement may
be executed in identical counterparts, each of which shall be
deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so
delivering this Agreement.
i. Each party shall do
and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
j. The language used
in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict
construction will be applied against any party.
k. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted heirs, personal representatives, successors and assigns,
and is not for the benefit of, nor may any provision hereof be
enforced by any other Person.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-52-
IN
WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written
above.
SUPER
LEAGUE GAMING, INC.,
Name: Ann Hand
Title: Chief
Executive Officer LICENSOR
By:
/s/ A. Dylan
Jadeja
Title:
Chief Financial Officer
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-53-
EXHIBIT
1
FORM
OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[TRANSFER
AGENT]
Re:
SUPER LEAGUE
GAMING, INC.
Ladies
and Gentlemen:
We are
counsel to Super League Gaming, Inc., a Delaware corporation (the
“Company”), and have represented the Company in
connection with that certain private placement of shares of common
stock (the “Offering”), pursuant to which the Company
issued to
(the
“Licensor”) shares of its common stock, $0.001 par
value (the “Common Stock”). Pursuant to the Offering,
the Company also has entered into a Registration Rights Agreement
with the Licensor (the “Registration Rights Agreement”)
pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration
Rights Agreement) under the Securities Act of 1933, as amended (the
“Securities Act”). In connection with the
Company’s obligations under the Registration Rights
Agreement, on, the Company filed a Registration Statement on
Form(File No. 333- ) (the
“Registration Statement”) with the Securities and
Exchange Commission (the “SEC”) relating to the
Registrable Securities which names the Licensor as a selling
stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the
SEC’s staff has advised us by telephone that the SEC has
entered an order declaring the Registration Statement effective
under the Securities Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we
have no knowledge, after telephonic inquiry of a member of the
SEC’s staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are
pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act
pursuant to the Registration Statement.
Very
truly yours,
SUPER
LEAGUE GAMING, INC.
*****SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
-54-
MASTER
AGREEMENT
1.1.
The parties to this
Master Agreement (this “Agreement”) made as of June 9,
2017 (“Effective
Date”) are:
1.1.1.
Viacom Media
Networks, a division of Viacom International Inc., a Delaware
corporation located at 1515 Broadway, New York, NY 10036
(“VMN”);
and
1.1.2.
Super League
Gaming, Inc., a Delaware corporation located at 2906 Colorado Ave.,
Santa Monica, CA 90404 (“SLG”).
1.2.
SLG and VMN shall
each be a “Party” and collectively shall be
the “Parties” to
this Agreement.
2.1.
VMN owns and
operates a basic cable children’s programming service known
as Nickelodeon.
2.2.
SLG operates
recreational leagues for gamers of all ages to compete, socialize
and play video games in public spaces worldwide.
2.3.
Concurrently
herewith, VMN is purchasing 277,778 shares of the common stock,
$0.001 par value per share (“Common Stock”), of SLG, pursuant
to a Common Stock Purchase Agreement, dated as of the date hereof,
by and among SLG, VMN and the other parties thereto in connection
with a financing of Common Stock (the “Purchase Agreement”).
2.4.
As a condition and
inducement to VMN entering into the Purchase Agreement, VMN and SLG
desire to enter into this Agreement and agree to certain matters as
set forth herein.
3.1.
VMN hereby agrees to contribute $1,000,000 in
advertising inventory across the domestic platforms of VMN’s
Nickelodeon Group business (the “Nickelodeon
Group”) in accordance
with the terms set forth herein (the “In-Kind
Contribution”). Such
advertising inventory shall be priced on a net basis;
provided,
that SLG shall be solely responsible for payment of any applicable
advertising agency or other commissions. The In-Kind Contribution
shall be made available as follows: (a) $333,000 from the Effective
Date through December 31, 2017 and
(b) $667,000 from January 1, 2018 through December 31,
2018. SLG shall forfeit any advertising inventory unused as of
December 31, 2018, which forfeiture shall not reduce or otherwise
affect VMN’s equity ownership of SLG; provided,
however,
subject to Section 3.6
below, in the event that SLG, in good
faith, fails to fully utilize the In-Kind Contribution by the dates
noted in the immediately preceding sentence, (x) up to $250,000 of
any unused inventory for the period ending December 31, 2017 shall
be made available through the twelve (12) month-period ending
December 31, 2018 and (y) up to $250,000 of any unused
inventory for the period ending December 31, 2018 shall be made
available through the six (6)-month period ending June 30,
2019.
3.2.
The In-Kind Contribution shall be allocated among
the Nickelodeon Group’s (a) digital platforms, (b)
video-on-demand services and (c) linear television networks
(specifically, Nicktoons and/or TeenNick (6 a.m. – 9 p.m.),
subject to availability) (each such category, a
“Platform”), in accordance with the preliminary
framework attached as Appendix A or as otherwise mutually agreed by the Parties in
connection with the media planning process set forth below. The
pricing for inventory on each Platform shall be as set forth
on Appendix
A.
3.3.
SLG shall begin the media planning process by
providing to VMN, no later than June 30, 2017, its initial
inventory requests (timing and quantity) through December 31, 2018,
on a per-Platform basis. VMN shall provide SLG with a media plan
(the “Media Plan”) no later than July 31, 2017, including
applicable placement and guaranteed impressions. SLG may thereafter
request revisions to the Media Plan no later than ninety (90)
calendar days before the start of the applicable quarter, which VMN
shall consider in good faith. In all events, all advertising
pursuant to the Media Plan and any revisions thereto shall be
provided subject to the terms and conditions of VMN’s
standard insertion order process and all requests shall be subject
to inventory availability and constraints, particularly during peak
advertising periods. The In-Kind Contribution is personal to SLG
and shall be used solely to promote SLG and its events; in no event
shall SLG resell, exchange or otherwise provide any advertising
inventory to any third party.
-1-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
3.4.
SLG
shall be solely responsible for the production and delivery to VMN
of all advertising creative materials and spots, together with all
expenses associated therewith. Creative materials must be a fifteen
(15)- or thirty (30)-second format, submitted to VMN no later than
ten (10) business days prior to the applicable go-live/air date.
SLG materials must comply with all applicable laws and regulations
and must be approved by the Viacom Advertising Standards group in
accordance with its customary process. VMN shall provide SLG with
post-delivery reports showing inventory usage by no later than
thirty (30) calendar days after the end of each month.
3.5.
Any digital advertising placements on websites,
applications or other online services owned or operated by VMN that
are Nickelodeon Group-branded, as indicated on the list available
at http://www.nick.com/nick-assets/copy/nickelodeon-sites.html (but
subject to the express exclusions listed thereon), are impressions
served on a website or online service directed to children as such
term is defined in the Children’s Online Privacy Protection
Act (“COPPA”) (a “Nickelodeon Kids
Buy”). Accordingly, SLG
and any parties acting on SLG’s behalf in connection with any
Nickelodeon Kids Buy shall be responsible for ensuring their
compliance with COPPA.
4.1.
Common Stock Grant. As
consideration for the In-Kind Contribution, SLG hereby issues to
VMN 277,778 shares of Common Stock (the “VMN Shares”).
4.2.
Shareholder Rights. SLG and VMN
hereby agree that the VMN Shares are deemed to be
“Shares” for all purposes under the Purchase Agreement,
and the respective rights and obligations of SLG and VMN with
respect to the Shares thereunder shall apply to the VMN Shares as
if the VMN Shares were purchased by, and issued to, VMN pursuant to
the terms and conditions thereof. For the avoidance of doubt, the
VMN Shares are also deemed to be “Registrable
Securities” for all purposes under the Investors’
Rights Agreement, dated as of the date hereof, to be entered into
by SLG, VMN and the other parties thereto in connection with the
Purchase Agreement (the “IRA” and together with the
Purchase Agreement, the “Financing Documents”), and the
respective rights and obligations of SLG and VMN with respect to
Registrable Securities thereunder shall apply to the VMN
Shares.
4.3.1.
For so long as VMN
and/or any of its Affiliates beneficially own any shares of Common
Stock, SLG shall invite a representative of VMN to attend all
meetings of the Board of Directors of SLG (the “Board”) in a non-voting observer
capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents and other materials that
it provides to its directors at the same time and in the same
manner as provided to such directors; provided, that such
representative shall agree to hold in strict confidence and trust
all information so provided; and provided, further, that SLG reserves the
right to withhold any information and to exclude such
representative from any meeting or portion thereof if SLG
reasonably determines in good faith, upon advice of counsel, that
access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between SLG and its
counsel or result in disclosure of trade secrets or a conflict of
interest.
4.3.2.
For purposes of
this Agreement, “Affiliate” means, with respect to
either Party, any other individual or entity that directly, or
through one or more intermediaries, controls or is controlled by or
is under common control with such Party; provided, however, that, for all purposes
hereunder, the Affiliates of VMN shall consist solely of Viacom
Inc. and each other individual or entity that Viacom Inc.,
directly, or through one or more intermediaries, controls. For
purposes of this definition, the term “control” (including the terms
“controlled by”
and “under common control
with”) means the possession, directly or indirectly,
of the power to direct or cause the direction of management and
policies, whether through ownership of voting securities, by
contract or otherwise.
-2-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
4.4.
Nothing in this
Agreement shall preclude or in any way restrict VMN or any of its
Affiliates from investing or participating in any particular
enterprise whether or not such enterprise has products or services
that compete with those of SLG.
The
Parties shall execute and deliver the Master Joint Promotion
Agreement, in the form attached hereto as Appendix B, concurrently with the
execution and delivery of this Agreement.
6.1.
VMN shall have the opportunity, but not the
obligation, to sell third-party sponsorships to any of SLG’s
child-directed products and services that are available for
sponsorship, including all live and online kid league competitions
conducted by SLG prior to December 31, 2018
(“SLG
Kids Events”). The
Parties shall consult and coordinate a sales strategy and proposed
sponsorship packages and guidelines prior to either Party seeking
new sponsorships for SLG Kids Events. In the event that VMN secures
a sponsor for any such SLG Kids Event, VMN shall receive sixty
percent (60%) of the applicable sponsorship fee (the
“Sponsorship
Fee”) after the
recoupment of any actual, out-of-pocket expenses incurred by the
Party executing and fulfilling the sponsorship commitment.
Sponsorship Fee allocations shall be paid within thirty (30)
calendar days following the end of the quarter
received.
6.2.
In the event that an SLG Kids Event sponsorship is
connected to a media buy, advertising spend or any related
arrangement on VMN channels, platforms or similar outlets (each, a
“Media
Buy”), amounts received
by VMN in connection with such Media Buy shall not be considered
part of the Sponsorship Fee and shall be retained in full by
VMN.
6.3.
The Parties may elect to enter into a long-form
agreement setting forth additional terms in connection with
sponsorship sales by VMN. VMN shall have the right to continue to
sell sponsorships to SLG kids events following December 31, 2018,
on economic terms to be negotiated in good faith, mutually agreed
upon and documented by the Parties; provided,
that, prior to December 31, 2019, SLG shall not engage any other
third parties to sell sponsorships on terms more favorable to such
third party than those offered by SLG to VMN.
Unless
otherwise set forth in this Agreement, each Party shall bear its
own costs and expenses that are incurred in the performance of its
obligations under this Agreement.
-3-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
10.1.
Confidential Information. Each
Party acknowledges that by reason of its relationship to the other
Party under this Agreement it shall have access to and acquire
knowledge, material, data, systems and other information concerning
the operation, business and financial affairs of the other Party
that may not be accessible or known to the general public,
including the terms of this Agreement (referred to as
“Confidential
Information”).
10.2.1.
Each Party (the
“Receiving
Party”) agrees that it shall (a) maintain and preserve
the confidentiality of all Confidential Information received from
the other Party (the “Disclosing Party”), both orally
and in writing; (b) disclose Confidential Information only to
the directors, officers, employees and representatives, including
auditors, legal advisors, financial advisors and consultants, of
the Receiving Party and its subsidiaries (and, with respect to VMN,
the directors, officers, employees and representatives of Viacom
Inc. and its subsidiaries) (collectively, “Representatives”), on a
“need-to-know” basis, and advise its Representatives
that Confidential Information is confidential and that by receiving
Confidential Information they are agreeing to be bound by the
confidentiality provisions contained herein and use the
Confidential Information only for the purposes described herein;
and (c) not disclose Confidential Information to any third party
without the prior written consent of the Disclosing
Party.
10.2.2.
Each Receiving
Party further agrees to use the Confidential Information of the
Disclosing Party only for the purpose of performing its obligations
under this Agreement and the Financing Documents. The Receiving
Party’s obligation of confidentiality shall survive this
Agreement for a period of two (2) years from the date of its
termination or expiration and thereafter shall terminate and be of
no further force or effect.
10.2.3.
Exclusions. The confidentiality
obligations of the Parties described above shall not apply to
Confidential Information which (a) has become a matter of public
knowledge through no fault, action or omission of or by the
Receiving Party; (b) was in the Receiving Party’s possession
prior to disclosure by the Disclosing Party; (c) subsequent to
disclosure by the Disclosing Party, was obtained by the Receiving
Party from a third party who, to the knowledge of the Receiving
Party, was entitled to disclose the Confidential Information to the
Receiving Party; (d) was independently developed by the Receiving
Party without reference to or use of the Disclosing Party’s
Confidential Information; or (e) must be disclosed by the Receiving
Party pursuant to law, judicial order or any applicable regulation
(including any applicable stock exchange rules and regulations);
provided,
however, that in
the case of disclosures made in accordance with the foregoing
clause (e), the Receiving Party must provide prior written notice
to the Disclosing Party (if permitted by law) of any such legally
required disclosure of the Disclosing Party’s Confidential
Information as soon as practicable in order to afford the
Disclosing Party an opportunity to seek, at its expense, a
protective order, or, in the event that such order cannot be
obtained, disclosure may be made in a manner intended to minimize
or eliminate any potential liability.
11.1.
Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Delaware.
11.2.
Dispute Resolution. The Parties
(a) hereby irrevocably and unconditionally submit to the
jurisdiction of the federal and state courts located in Los Angeles
County, California for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement, (b) agree
not to commence any suit, action or other proceeding arising out of
or based upon this Agreement except in the federal and state courts
located in Los Angeles County, California, and (c) hereby waive,
and agree not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that
it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or
execution, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court.
-4-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EACH
PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE
FINANCING DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR
THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE),
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE
PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY
EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND
REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL
11.3.
Assignment. Neither Party may
assign this Agreement, in whole or in part, by operation of law or
otherwise, without the other Party’s prior written consent;
provided,
however, that VMN
may assign this Agreement to any of its Affiliates without
obtaining SLG’s prior written consent.
11.4.
Notices. All notices and other
communications hereunder shall be in writing and given by
nationally recognized overnight delivery service, such as Federal
Express, or delivery against receipt to the Party to whom it is
given, in each case, at such Party’s address set forth below
or such other address as such Party may hereafter specify by notice
to the other Party given in accordance herewith, together with a
copy thereof by email transmitted to the recipient’s email
address below (or such other email address as such Party may
hereafter specify by notice to the other Party given in accordance
herewith) which copy shall not constitute notice hereunder;
provided, that the
failure to deliver a copy of a notice or other communication to a
recipient via email shall in no way affect or limit the validity of
such notice or other communication. Any such notice or other
communication shall be deemed to have been given as of the date so
delivered (or, if so delivered after normal business hours at the
location of the recipient, on the next business day).
If to
SLG:
Super
League Gaming, Inc.
2906
Colorado Ave.
Santa
Monica, CA 90404
Attn:
General Counsel
Email:
gregg@superleague.com
If to
VMN:
Viacom
International Inc.
1515
Broadway
New
York, NY 10036
Attn: General
Counsel
[*****]
[*****]
-5-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
11.5.
Severability. If any provision
of this Agreement is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, such provision shall be deemed
amended to conform to the applicable laws of such jurisdiction so
as to be valid and enforceable, or, if it cannot be so amended
without materially altering the intention of the Parties, it shall
be stricken, but the validity, legality and enforceability of such
provision shall not in any way be affected or impaired thereby in
any other jurisdiction and the remainder of this Agreement shall
remain in full force and effect.
11.6.
Waiver. Waiver by either of the
Parties of any breach of any provision of this Agreement shall not
operate or be construed as a waiver of any prior or subsequent
breach of the same or any other provision hereof.
11.7.
Entire Agreement. This
Agreement (including all exhibits attached hereto, which are
incorporated herein by reference) and the Financing Documents
constitute the entire agreement between the Parties with respect to
the subject matter hereof and any other written or oral agreement
relating to the subject matter hereof existing between the Parties
is expressly canceled. This Agreement may not be changed, modified,
amended or supplemented, except in writing signed by both
Parties.
11.8.
Interpretation. The headings
contained herein are for convenience and reference only, do not
form a substantive part of this Agreement and in no way modify,
interpret or construe the intentions of the Parties. No provision
of this Agreement shall be interpreted for or against any Party
because that Party or its legal representative drafted such
provision. The words “including” and/or
“include” shall be interpreted without limitation when
used in this Agreement. If this Agreement is translated into any
language other than English, the English language version of this
Agreement shall prevail. A reference to a statute or statutory
provision herein is a reference to such statute or statutory
provision as amended, extended or re-enacted from time to
time.
11.9.
Counterparts. This Agreement
may be executed in multiple counterparts, each of which shall be
deemed to be an original, and all such counterparts shall
constitute one instrument, and signatures transmitted by facsimile
or electronic scan shall be effective.
[Signature Pages Follow]
-6-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, this Agreement has
been duly executed and is effective as of the Effective
Date.
SLG:
SUPER LEAGUE GAMING, INC.
Title:
CEO
Name:
Ann Hand
[Signature Page to Master Agreement]
-7-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
VMN:
VIACOM
MEDIA NETWORKS, a division of VIACOM INTERNATIONAL
INC.
By:
/s/ Alexander J. Berkett
Title:
Senior Vice President, Corporate
Development
Name:
Alexander J. Berkett
[Signature Page to Master Agreement]
-8-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Appendix A
[*****]
-9-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Appendix B
Form of Master Joint Promotion Agreement
[attached]
-10-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
MASTER JOINT PROMOTION AGREEMENT
This
Joint Promotion agreement (the “Agreement”), effective as of June
9, 2017 (the “Effective
Date”), by and between Super League Gaming, Inc.
(“Partner”), a
Delaware corporation, having its principal place of business at
2906 Colorado Ave., Santa Monica, CA 90404 and Viacom Media
Networks, a division of Viacom International Inc.
(“VMN”), a
Delaware corporation, having its principal place of business at
1515 Broadway, New York, NY 10036.
WHEREAS, Partner
operates recreational leagues for gamers of all ages to compete,
socialize and play video games in public spaces worldwide
(“Partner
Services”) and VMN owns and operates a basic cable
children’s programming service known as Nickelodeon
(“Nickelodeon”);
and
WHEREAS, Partner
desires to enter into a master joint promotion agreement with VMN
whereby VMN’s Nickelodeon Group business shall be the Anchor
Sponsor (as defined below) of all of Partner’s child directed
products and services that are available for sponsorship (the
“Promotion(s)”),
including without limitation all live and online recreational
league competitions conducted by Partner for kids under the age of
16 (the “Events”).
NOW,
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
a.
General. (i) Subject to the
terms and conditions of this Agreement, and as more fully described
in one or more statements of work (each, a “Statement of Work”), each of which
shall be substantially in the form attached hereto as Exhibit A, the Nickelodeon
Group of VMN shall be the Anchor Sponsor for all Partner Events
throughout December 31, 2018 (the “Exclusive Anchor Sponsorship
Period”). As “Anchor Sponsor”, the Nickelodeon
Group shall have all of the rights of a lead sponsor, including
without limitation:
●
Placement of
Nickelodeon’s name and logo as the most prominent Event
sponsor;
●
Most prominent and
unique elements among any other sponsor for any given
Promotion;
●
Right of first
refusal to provide prizing to Event participants;
●
Right to create
derivative content from sponsored Events to exploit perpetually in
all media;
●
Exclusive marketing
rights as Partner’s “Official Anchor Sponsor” for
use in promotional creative to run in all media, including linear,
digital and social media relating to Events;
●
The right to issue
press releases discussing VMN’s role as the “Official
Anchor Sponsor” of Partner’s Events;
●
Inclusion of
Nickelodeon’s name and logo in all promotional, advertising,
marketing, publicity and display materials or content created by
Partner (or by a third party on behalf of Partner) to be used in
connection with the Promotions; and
●
Nickelodeon logo
placement and promotional videos (to be most prominent among Event
sponsors) on Partner’s website and at Events on-screen and on
theater signage as indicated by VMN, including by way of example:
welcome screens, in-game screens, end screens, posters, pull-up
banners, seat covers, Action Squad tee shirts,
step-and-repeat.
In
connection therewith, the parties shall provide each other with
certain services (“Services”) in accordance with the
terms and conditions set forth each Statement of Work.
(ii)
For the period September 1, 2018 through September 30, 2018, VMN
shall have the right of first negotiation to be the Anchor Sponsor
for Partner’s child directed Events relating to the twelve
month period commencing on January 1, 2019. Partner shall offer
such sponsorships to VMN, upon terms to be negotiated between
Partner and VMN acting in good faith, during the thirty (30) day
negotiation period concluding on September 30, 2018 (the
“Sponsorship Negotiation
Period”). If the parties cannot reach an agreement in
the Sponsorship Negotiation Period, then Partner shall be free to
offer the rights to any third party;
-11-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
b. Statements
of Work. Upon mutual execution by the parties, each
Statement of Work shall be effective, incorporated into this
Agreement and subject to all the terms and conditions hereof. Each
Statement of Work shall be dated and consecutively numbered for
identification, and at a minimum, contain the following: (a) a
description of any Services to be performed and any Deliverables to
be provided; (b) the specifications for any Services and/or
Deliverables (“Specifications”); (c) milestone
schedules for performance and delivery of any Services and/or
Deliverables; (d) Fees payable by either party with respect to the
Services and/or Deliverables; (e) the term of the Statement of Work
and (f) any additional information, terms and conditions that may
be agreed between the parties, including, without limitation, any
terms necessary to perform the Services, provide the Deliverables
and/or evaluate Partner’s compliance with the terms of any
Statement of Work. In the event of a dispute between the terms of
this Agreement and any Statement of Work, the terms of this
Agreement shall prevail, except to the extent that such provision
in a Statement of Work makes express reference to the specific
provision of the Agreement to which it supersedes. Any
modifications to a Statement of Work shall be set forth in a
written amendment, duly executed by the parties, setting forth such
modifications and any impact such modifications may have on
performance of Services, provision of Deliverables, Fees payable
thereunder and/or any other terms and conditions of the Statement
of Work.
c.
Territory and Promotion
Elements. Unless otherwise specified in a Statement of Work,
each Promotion shall be conducted within the United States, its
territories and possessions, including Puerto Rico (the
“Licensed
Territory”) during the Term (as defined below), and
shall consist of the elements specified in each such Statement of
Work. As Anchor Sponsor for any given Event, VMN shall be
responsible for the cost of any giveaways, prizing and marketing
materials that it chooses to provide at its sole
discretion.
a.
VMN hereby grants
Partner the non-exclusive, royalty-free, non-transferable, limited,
revocable right to use the Nickelodeon name and logos
(collectively, the “VMN
Marks”) during the Term in the Licensed Territory
solely in connection with the Promotions on the terms and
conditions set forth herein, including without limitation,
VMN’s approval rights set forth in Section 7(a) below and the
marks usage guidelines as set forth in Exhibit B.
b.
Partner hereby
grants VMN the non-exclusive, royalty-free, non-transferable,
limited, revocable right to use Partner’s name and logo and
the names and images of the Partner Services, including without
limitation, any third party names, logos and trademarks associated
therewith, which must be provided to VMN free and clear for use as
contemplated herein (which third party content shall include the
Minecraft name, logo and trademarks associated with the Partner
Services) (collectively, the “Partner Marks”) during the Term in
the Licensed Territory solely in connection with the Promotions, on
the terms and conditions set forth herein, including, without
limitation, Partner’s approval rights set forth in
Section 7(b) below
and the marks usage guidelines as set forth in Exhibit B.
c.
The VMN Marks
together with the Partner Marks may collectively be referenced
herein as the “Marks.”
d.
Each party may
exercise the rights granted above directly or through its
affiliates, contractors or agents, subject to the terms and
conditions of this Agreement.
e.
Neither party may
register an internet domain name that includes a Mark of the other
party or the other party’s affiliates without the prior
written consent of such other party.
-12-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
f.
Notwithstanding the
foregoing, neither party may manufacture, produce or distribute a
tangible product, item or article of consumption that is branded or
co-branded with a Mark of the other party (collectively, the
“Promotional
Products”) except with the express written approval of
the other party and subject to the review and approval rights as
set forth herein.
g.
Each party
recognizes the great value of the publicity and goodwill associated
with the Marks of the other, and acknowledges that such goodwill is
exclusively that of the other party and inures solely to the
benefit of the other party.
a.
Term. The Term shall mean a
period of time commencing on the Effective Date and ending on
December 31, 2018, unless earlier terminated in accordance with the
terms and conditions set forth herein. Any obligations hereunder
which remain following such period shall survive the expiration of
this Agreement. The parties' representations, warranties and
indemnification obligations shall survive the termination of this
Agreement. Notwithstanding the expiration or termination of this
Agreement or any provision hereof to the contrary, unless otherwise
requested by VMN in writing, the terms and conditions of this
Agreement shall continue in full force and effect with respect to
each Statement of Work that has not been completed, terminated or
expired, until such time that all of the Services to be performed
and the parties’ obligations related thereto as set forth in
the Statement of Work involved have been fully completed, delivered
or performed in accordance with the applicable terms and conditions
contained therein and/or such Statement of Work has been
terminated.
b.
Termination for Material
Breach. Either party shall have the right to terminate this
Agreement or any Statement of Work, in whole or in part, if the
other party is in material breach of this Agreement or Statement of
Work, as applicable, and fails to cure such material breach within
30 days following written notice of such material
breach.
c. Termination
for Convenience, Change of Control or Purported Assignment.
VMN shall have the right to terminate this Agreement and/or any
Statement of Work, in whole or in part, hereunder: (a) for any
reason without further obligation or liability of any kind and (b)
immediately upon notice to Partner in the event Partner undergoes
or effectuates (i) a change in control where control is (y)
acquired, directly or indirectly, in a single transaction or series
of related transactions, or all or substantially all of
Partner’s assets are acquired, by any entity, or Partner is
merged with or into another entity to form a new entity and (z) the
successor in interest that results from the change of control (A)
is a competitor of VMN as set forth in Section 7.1 of that certain
Master Agreement dated even date herewith by and between the
parties, (B) is not, in VMN’s reasonable judgment, as
creditworthy as Partner or (C) does not have capitalization and/or
funding sources at least as equal to or greater than that of
Partner immediately prior to the effective date of any such change
of control or (ii) a purported assignment by Partner of
Partner’s rights and obligations under this Agreement in
breach of Section
17(e).
d. Termination
for Insolvency. Either party shall have the right to
terminate this Agreement and/or any Statement of Work immediately
upon written notice in the event the other party: (i) admits in
writing its inability to pay its debts as they become due, fails to
satisfy any judgment against it, or otherwise ceases operations of
its business in the ordinary course, (ii) is adjudicated bankrupt
or becomes insolvent, (iii) winds up or liquidates its business
voluntarily or otherwise, (iv) applies for, consents to or suffers
the appointment of, or the taking of possession of by, a receiver,
custodian, assignee, trustee, liquidator or similar fiduciary of
itself or of all or any substantial portion of its assets, (v)
makes a general assignment for the benefit of creditors, (vi)
commences a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (vii) files a petition
seeking to take advantage of any other law providing for the relief
of debtors, (viii) acquiesces to, or fails to have dismissed,
within 30 days, any petition filed against it in any involuntary
case pursuant to such bankruptcy laws, and/or (ix) takes any action
for the purpose of effecting any of the foregoing.
-13-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
e. Effect
of Termination. Upon expiration or termination of this
Agreement or any Statement of Work for any reason or at any earlier
time upon VMN’s request: (a) Partner shall return to VMN (or
destroy at VMN’s request) all copies of VMN’s
Confidential Information in Partner’s possession or control,
and (b) except as otherwise set forth herein, the rights and
obligations of both parties shall cease and any licenses granted by
either party to the other herein shall terminate and be of no
further force or effect.
Partner
acknowledges that VMN is entering into this Agreement in
consideration of the promotional value to be secured by VMN for the
Promotions.
5.
Partner’s Responsibilities
Partner
shall be responsible for the following in connection with the
Promotions at Partner’s sole cost and expense:
a.
Supplying VMN with
all Promotion-related creative, Promotional Products and any other
materials in connection with the Promotions which shall bear the
VMN Marks in order to allow VMN to exercise its approval rights as
set forth herein;
b.
Provide VMN with
input and feedback regarding VMN’s usage of the Partner Marks
in accordance with the terms set forth herein;
c.
Providing VMN with
any Promotion elements which incorporate the VMN Marks in order to
allow VMN to exercise its approval rights as set forth
herein.
6.
VMN's Responsibilities
VMN
shall be responsible for the following in connection with the
Promotions at VMN’s sole cost and expense:
a.
Supplying Partner
with all Promotion-related creative and any other materials in
connection with the Promotions which shall bear the Partner Marks
in order to allow Partner to exercise its approval rights as set
forth herein;
b.
Provide Partner
with input and feedback regarding Partner’s usage of the VMN
Marks in accordance with the terms set forth herein;
-14-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
a.
The manner in which
the VMN Marks may appear, if at all, on the Promotional Products
and any and all promotional, advertising, marketing, publicity and
display materials or content created by Partner (or by a third
party on behalf of Partner) to be used in connection with the
Promotions (each a “Partner
Use”, collectively the “Partner Uses”) shall be subject to
VMN's prior written approval in each case and for each proposed
use. Prior to the manufacture or production of any of the
foregoing, Partner shall provide VMN with not fewer than three (3)
samples of each such proposed Partner Use. Within five (5) business
days after its receipt of the foregoing, VMN (or its designee)
shall advise Partner, in writing, of its approval or disapproval,
along with corrective comments, of such proposed Partner Use and no
item shall be deemed approved by VMN unless such approval is given
in writing by VMN. Failure to approve within the timeframe set
forth above shall be deemed disapproval. If any such proposed
Partner Use is disapproved by VMN, Partner shall correct and
resubmit such material or item for VMN’s subsequent review
and approval. Once a sample has been approved pursuant to this
paragraph, Partner shall not depart therefrom in any material
respect without the prior written approval of VMN. In addition,
approval by VMN and/or by any other parties designated by VMN shall
not relieve Partner of any of its obligations or warranties
hereunder.
b.
The manner in which
the Partner Marks may appear, if at all, on the Promotional
Products and any and all promotional, advertising, marketing,
publicity and display materials or content created by VMN (or a
third party on behalf of VMN) to be used in connection with the
Promotions (each a “VMN
Use”, collectively the “VMN Uses”) shall be subject to
Partner’s prior written approval in each case and for each
proposed use. Prior to the manufacture or production of any of the
foregoing, VMN shall provide Partner with not fewer than three (3)
samples of each such proposed VMN Use. Within five (5) business
days after its receipt of the foregoing, Partner (or its designee)
shall advise VMN, in writing, of its approval or disapproval, along
with corrective comments, of such proposed VMN Use and no item
shall be deemed approved by Partner unless such approval is given
in writing by Partner. Failure to approve within the timeframe set
forth above shall be deemed a disapproval. If any such proposed VMN
Use is disapproved by Partner, VMN shall correct and resubmit such
material or item for Partner’s subsequent review and
approval. Once a sample has been approved pursuant to this
paragraph, VMN shall not depart therefrom in any material respect
without the prior written approval of Partner. In addition,
approval by Partner and/or by any other parties designated by
Partner shall not relieve VMN of any of its obligations or
warranties hereunder.
8.
Intellectual Property Notices
a.
Partner shall
display or print the copyright notices set forth in Exhibit C attached hereto and
made a part hereof, on any and all advertisement, publicity and
promotional releases concerning the Promotions, as well as any
Promotional Product or other material produced in connection with
the Promotions. No advertisement, publicity or promotional release,
Promotional Product, or other material produced in connection with
the Promotions upon which such copyright notices are printed shall
contain any other copyright notice relating to the VMN Marks unless
VMN has given Partner prior written consent thereto.
b.
Partner shall
display or print in a legible manner the trademark and service mark
notices set forth in Exhibit C in proximity to the
VMN Marks wherever used, including without limitation, on
advertisement, publicity and promotional releases concerning the
Promotions.
c.
VMN shall display
or print in a legible manner the trademark and service mark notices
set forth in Exhibit
C in proximity to the Partner Marks wherever used,
including, without limitation, on advertisements, publicity, and
promotional releases concerning the Promotions.
-15-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
a.
Partner
acknowledges and agrees that: (i) all copyrights, trademarks,
service marks and other intellectual property rights relating to
the VMN Marks (including with respect to uses approved under
Section 7 and
referred to in Section
8 above) in the name of and/or owned by VMN shall be and
remain the sole and exclusive property of VMN; (ii) Partner shall
not at any time acquire or claim any right, title or interest of
any nature whatsoever in any such copyright, trademark, service
mark or other intellectual property right relating to the VMN Marks
by virtue of this Agreement, any Statement of Work, or
Partner’s use thereof in connection with the Promotions, and
shall not seek to obtain any registration therefor anywhere; and
(iii) any right, title or interest in or relating to any copyright,
trademark, service mark or other intellectual property right
relating to the VMN Marks which comes into existence during the
Term hereof as a result of the exercise by Partner of any right
granted to it hereunder shall immediately and automatically vest in
VMN, and for that purpose Partner hereby irrevocably assigns and
transfers any such right, title and interest to VMN without
reservation of rights. To the fullest extent permitted by law,
Partner agrees never to contest or assist others to contest the
validity or enforceability of any VMN Marks and third party
copyrights, trademarks and service marks relating to the VMN
Marks.
Partner
further acknowledges and agrees that: (i) all Materials (as defined
in this subsection) including, without limitation, art work,
animations, graphics, designs, ideas, plans, creative concepts and
elements conceived, prepared, created or furnished or caused to be
conceived, prepared, created or furnished in connection with the
Promotions, excluding Partner’s Marks, that come into
existence during the Term (all of the foregoing collectively, the
“Materials”, and
one of them the “Material”), shall be owned solely,
exclusively and in perpetuity by VMN from the moment such Materials
come into existence and that VMN therefore owns all of the rights,
title and interest comprised in the copyright and other
intellectual property rights in and to the Materials; (ii) Partner
shall not at any time acquire or claim any right, title or interest
of any nature whatsoever in the Materials by virtue of this
Agreement, any Statement of Work, or Partner’s creation or
use thereof in connection with the Promotions; and (iii) Partner
shall not seek any copyright, trademark or other intellectual
property right registration for the Materials. Partner, for itself,
its affiliates and any third party participating in the creation or
development of Materials, hereby irrevocably assigns and transfers
to VMN all right, title and interest in and to the Materials,
without reservation of rights. To the fullest extent permitted by
law, Partner agrees never to contest or assist others to contest
VMN’s rights or interests in the Materials.
b.
VMN acknowledges
and agrees that: (i) all copyrights, trademarks, service marks and
other intellectual property rights relating to the Partner Marks
(including with respect to uses approved under Section 7 and referred to in
Section 8 above) in
the name of and/or owned by Partner shall be and remain the sole
and exclusive property of Partner; (ii) VMN shall not at any time
acquire or claim any right, title or interest of any nature
whatsoever in any such copyright, trademark, service mark or other
intellectual property right relating to the Partner Marks by virtue
of this Agreement, any Statement of Work, or of VMN’s use
thereof in connection with the Promotions, and shall not seek to
obtain any registration therefor anywhere; and (iii) any right,
title or interest in or relating to any copyright, trademark,
service mark or other intellectual property right relating to the
Partner Marks which comes into existence during the Term hereof as
a result of the exercise by VMN of any right granted to it
hereunder shall immediately and automatically vest in Partner, and
for that purpose VMN hereby irrevocably assigns and transfers any
such right, title and interest to Partner without reservation of
rights. To the fullest extent permitted by law, VMN agrees never to
contest or assist others to contest the validity or enforceability
of any Partner Marks and third party copyrights, trademarks and
service marks relating to the Partner Marks.
10.
Representations and Warranties
a.
Each party hereto
represents and warrants to the other party as follows: (i) it is
authorized to enter into this Agreement; (ii) the execution and
performance of this Agreement will not conflict with or result in a
material breach of the terms of any other agreement to which it is
a party; (iii) all obligations undertaken by it hereunder and all
materials provided, produced or supplied by it or on its behalf in
connection with the Promotions will comply with all federal, state
and local laws and regulations including, without limitation, the
FTC Endorsement and Testimonial Guidelines, the FTC .com Disclosure
Guidelines and COPPA (as defined in Section 11(a)below) and any
applicable laws of other countries, and will not violate or
infringe upon the rights of any person, estate and/or entity; and
(iv) each of its products (including Promotional Products),
services (including Partner Services), redemptions and/or
fulfillments relating to the Promotions, this Agreement, and/or any
Statement of Work, if any, shall comply in all respects with this
Agreement, such Statement of Work, and all applicable federal,
state and local laws and regulations and any applicable laws of
other countries.
-16-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
b.
VMN further
represents and warrants that it owns the VMN Marks and has sole,
exclusive and full power to license and grant to Partner the rights
and interests provided herein.
c.
Partner further
represents and warrants that: (i) it owns or otherwise has the
rights to exploit the Partner Marks as contemplated herein and has
sole, exclusive and full power to license and grant to VMN the
rights and interests provided herein; and (ii) in the event that
Partner employs, invites or otherwise engages any individual(s) to
attend and/or participate in any Promotion-related event or
activity including, without limitation, production shoots or
on-ground activations, Partner will have conducted a criminal
record check (covering the seven [7] year period prior to hire or
the date such background check is conducted, as applicable) on such
individual(s) and confirm that such report did not state that such
individual(s) had been convicted of a criminal offense involving a
minor or required to report or register pursuant to Cal. Penal
Code §§290-294, N.Y. Correction Law §168, or
any similar statute, for a crime related to a sexual offense
against a minor.
a. The parties
acknowledge that the Promotions may entail Partner advertising on,
or referring potential users to, VMN’s Nickelodeon-branded
digital properties, websites, games and/or mobile applications
(each a “Nick
Property”, collectively, the “Nick Properties”). In such
situations, Partner may have provided to VMN certain software and
other intellectual property (including, without limitation, in-game
advertising, hyperlinks, plug-ins, software development kits,
application programming interfaces and the like) for use in
connection with the Nick Properties in support of the Promotions
(the “Embedded
IP”). As the functionality of the Embedded IP may
permit Partner and other third parties to collect personal
information (as defined the Children’s Online Privacy
Protection Act (and the rules promulgated by the Federal Trade
Commission thereunder) (“COPPA”)) (such information,
“User
Information”) from or about users of the Nick
Properties, Partner acknowledges and understands that: (i) the Nick
Properties may be targeted towards or accessed by children below
the age of thirteen (13) years old; (ii) the Embedded IP, as used
in connection with the Nick Properties, may be used to collect User
Information from or about children below the age of thirteen (13)
years old; and, (iii) the collection, storage, maintenance,
transmission, dissemination, disclosure and use of User Information
from or about children below the age of thirteen (13) years old are
subject to strict legal and regulatory protection and
scrutiny.
b. Partner represents,
warrants and covenants, as applicable, to or with VMN that: (i) the
collection, storage, maintenance, transmission, dissemination,
disclosure and use of User Information which is obtained from or
about users of any Nick Property and/or the attendees of any Events
(including, in particular, such User Information relating to
children under the age of thirteen [13]) do and will continue to
comply strictly with all applicable laws, rules and regulations and
the highest industry standards, including, without limitation, the
CAN-SPAM Act of 2003, COPPA, the standards and guideline of the
Children’s Advertising Review Unit of the National
Advertising Division of the Better Business Bureau
(“CARU”), and
any other reasonable standards and guidelines communicated by VMN
to the Partner from time to time; (ii) Partner will provide all
legally required notices (with such notices being clearly and
understandably written, complete and containing no unrelated,
confusing, or contradictory matter) and obtain verifiable parental
consent (as defined in COPPA), to the extent required pursuant to
COPPA, prior to the collection, storage, maintenance, transmission,
dissemination, disclosure or use of User Information from or about
children under the age of thirteen (13) years old obtained during
or in connection with the Events, through the Embedded IP used in
connection with any Nick Property or otherwise collected by Partner
or third parties authorized by Partner from or about attendees of
the Events and/or users of any Nick Property; (iii) Partner will
only collect, store, maintain, transmit, disseminate, disclose
and/or use User Information as required for it to fulfill the
Partner’s obligations to VMN pursuant to its commercial
relationship with VMN or as permitted pursuant to its written
agreement with a handwritten signature by authorized
representatives of VMN and Partner; (iv) Partner has established
protocols for ensuring and will maintain, in accordance with all
applicable laws, rules and regulations and the highest industry
standards, the confidentiality, security, and integrity of all User
Information obtained at and in connection with all Events and via
the Embedded IP used in connection with any Nick
Property or otherwise
collected by Partner or third parties authorized by Partner from or
about users of any Nick Property; and, (v) without derogating from
the generality of the foregoing, Partner does not and will not
engage in any unfair or deceptive acts or practices in connection
with the collection, storage, maintenance, transmission,
dissemination, use and/or disclosure of User Information obtained
at or in connection with the Events, through the Embedded IP or
otherwise relating to attendees of the Events or users of any Nick
Property.
c. Partner will,
immediately upon VMN’s request: (i) suspend any and all
direct or indirect collection of User Information by the Embedded
IP used in connection with the Nick Properties or otherwise
relating to users of the Nick Properties; (ii) disable any
functionality of the Embedded IP that VMN identifies as being in
violation of any applicable law, rule, regulation or industry
standard, including, without limitation, the CAN-SPAM Act of 2003,
COPPA, the standards and guidelines of CARU, and/or any other
reasonable standards and guidelines communicated by VMN to Partner
from time to time; (iii) provide to VMN all User Information
collected via the Embedded IP used in connection with the Nick
Properties or otherwise collected by Partner or third parties
authorized by Partner from or about users of the Nick Properties;
(iv) delete or destroy all User Information collected via the
Embedded IP used in connection with the Nick Properties or
otherwise collected by Partner or third parties authorized by
Partner from or about users of the Nick Properties; and, (v)
otherwise cooperate with all reasonable requests by VMN relating to
the Embedded IP used in connection with the Nick Properties, the
User Information collected thereby and the User Information
relating to users of the Nick Properties otherwise collected by
Partner or third parties authorized by Partner.
-17-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
a.
VMN shall at all
times defend, indemnify and hold Partner, its parent, subsidiaries,
affiliated entities, and the respective officers, directors,
agencies and employees of each of the foregoing harmless from and
against any and all liability, costs, loss or expense it or they
may incur or be subjected to by reason of any claim or suit arising
out of or relating to: (i) any breach of its representations,
warranties and/or undertakings hereunder; (ii) VMN's performance of
its obligations as set forth in this Agreement and/or any Statement
of Work; (iii) any actual or alleged failure by VMN to conform to
or comply with the respective laws and regulations applicable to
its obligations herein; (iv) any other agreement made by VMN to
fulfill its obligations herein; (v) the operation of any of its
websites with respect to the Promotions; or (vi) the use of the VMN
Marks in accordance with this Agreement and/or any Statement of
Work, provided that Partner shall give prompt written notice,
cooperation and assistance to VMN with respect to any such claim or
suit, and provided further that VMN shall have the option to
undertake and conduct the defense of any suit so brought against
VMN. Partner’s review and approval of any elements of the
Promotions furnished by VMN shall not constitute a waiver by
Partner of VMN’s indemnity hereunder.
b.
Partner shall at
all times defend, indemnify and hold VMN, its parent, subsidiaries,
affiliated entities, and the respective officers, directors,
agencies and employees of each of the foregoing harmless from and
against any and all liability, costs, loss or expense it or they
may incur or be subjected to by reason of any claim or suit arising
out of or relating to: (i) any breach of its representations,
warranties and/or undertakings hereunder; (ii) Partner’s
performance of its obligations as set forth in this Agreement
and/or any Statement of Work; (iii) any actual or alleged failure
by Partner to conform to or comply with the respective laws and
regulations applicable to its obligations herein; (iv) any other
agreement made by Partner to fulfill its obligations herein; (v)
any product liability claim relating to the design, manufacture and
distribution of the products manufactured and distributed by
Partner; (vi) any defective or dangerous materials produced,
manufactured or distributed by Partner that may in any way present
an unreasonable risk to users or consumers; (vii) any collection,
storage, maintenance, transmission, dissemination, disclosure or
use of User Information collected by Partner, but specifically
excluding any such claim or action to the extent based upon any
unauthorized act or omission of VMN, its employees, contractors,
representatives or agents; (viii) the negligence or willful
misconduct of any of Partner’s employees, agents and/or
invitees who attend or participate in any Promotion-related event
or activity; or (ix) the use of the Partner Marks in accordance
with this Agreement and/or any Statement of Work, provided that VMN
shall give prompt written notice, cooperation and assistance to
Partner with respect to any such claim or suit, and provided
further that Partner shall have the option to undertake and conduct
the defense of any suit brought against Partner. VMN’s review
and approval of any elements of the Promotions furnished by Partner
shall not constitute a waiver by VMN of Partner’s indemnity
hereunder.
c.
EXCEPT FOR EACH
PARTY’S INDEMNIFICATION OBLIGATIONS HEREIN, ANY DAMAGES
RESULTING FROM ANY BREACH OF EITHER PARTY’S CONFIDENTIALITY
OBLIGATIONS HEREIN, PARTNER’S BREACH OF SECTION 11, ANY
DAMAGES RESULTING FROM A PARTY’S FRAUD, WILLFUL ACTS, OR
INTENTIONAL MISCONDUCT, AND/OR ANY DAMAGES RESULTING FROM PERSONAL
INJURY OR PROPERTY DAMAGE (COLLECTIVELY, THE “CARVE-OUT CLAIMS”), IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES (WHICH FOR
THE PURPOSES OF CLARITY DOES NOT INCLUDE AD REVENUES) IN ANY MANNER
IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, REGARDLESS OF
THE FORM OF ACTION OR THE BASIS OF THE CLAIM OR WHETHER OR NOT SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT
FOR AMOUNTS PAYABLE DUE TO CARVE-OUT CLAIMS, EACH PARTY’S
AGGREGATE, CUMULATIVE LIABILITY ARISING OUT OF OR RELATED TO THIS
AGREEMENT SHALL NOT EXCEED TWO MILLION DOLLARS.
a.
VMN agrees to carry
and maintain at its own expense in full force and effect at all
times during the Term comprehensive general liability insurance
with a limit of liability of not less than Five Million Dollars
($5,000,000.00) per occurrence and Five Million Dollars
($5,000,000.00) in the aggregate. At Partner’s request, VMN
shall provide Partner with a certificate of insurance attesting to
such coverage.
b.
Partner agrees to
carry and maintain at its own expense in full force and effect at
all times during the Term comprehensive general liability insurance
with a limit of liability of not less than One Million Dollars
($1,000,000.00) per occurrence and Two Million Dollars
($2,000,000.00) in the aggregate. At VMN's request, Partner shall
provide VMN with a certificate of insurance attesting to such
coverage.
-18-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
c. Partner shall
procure and maintain at its own expense in full force and effect
standard producer's liability (errors and omissions) insurance
issued by a nationally recognized insurance carrier acceptable to
VMN covering the Promotions with minimum limits of One Million
Dollars ($1,000,000.00) for any claim arising out of a single
occurrence and Two Million Dollars ($2,000,000.00) for all claims
in the aggregate. Such errors and omissions insurance:
(i)
shall be written on
either (x) an occurrence basis, remaining in full force and effect
for three (3) years from commencement of the Promotions
(“E&O
Term”), or (y) a claims-made basis, covering any
claims made at any time during the E & O Term;
(ii)
shall provide
coverage for the title (including supplying the insurance company
with the title search report);
(iii)
may not be canceled
without thirty (30) days’ prior written notice to
VMN;
(iv)
shall carry a
deductible in an amount subject to VMN’s prior written
approval;
(v)
shall contain the
customary coverage and shall not contain any unusual exclusions,
exceptions or endorsements; and
(vi)
shall name, as
additional insureds, Viacom Media Networks, Viacom and their
respective subsidiaries and related companies, its and their
licensees and affiliated entities, any officers, directors, agents
and employees of each of the foregoing.
c.
The insurance
coverage required pursuant to this paragraph shall include
contractual liability coverage which specifically insures the hold
harmless and indemnification provisions set forth in this
Agreement; will be secured and maintained under an occurrence form
policy; will be placed with an insurer of recognized responsibility
with an “A-“ rating or better by A.M. best Company or
Standard & Poor’s; will name the other party and its
parent, subsidiary and affiliated entities, its and their licensees
and the respective officers, directors, employees and agents of
each of the foregoing as additional insureds; and will provide for
at least thirty (30) days advance written notice to the other party
in the event of cancellation or modification thereof.
No
failure or omission by a party hereto in the performance of any
obligation of this Agreement shall be deemed a breach of this
Agreement nor shall it create any liability, to the extent the same
arises from any cause or causes beyond the reasonable control of
the party, including but not limited to the following, which, for
the purpose of this Agreement, shall be regarded as beyond the
control of the party in question: acts of God, acts or omissions of
any government, any rules, regulations, or orders issued by any
governmental authority or any officer, department, agency, or
instrumentality thereof, fire, storm, flood, earthquake, accident,
war, rebellion, insurrection, riot, invasion, terrorism, strikes
and lockouts.
If any
party anticipates that any circumstances beyond its reasonable
control may occur or is affected by any such circumstances, then
that party shall promptly furnish written notice of such
circumstances to the other party, and shall take all reasonable
steps to carry out the terms of the Agreement as soon as reasonably
possible, subject to delays as may be caused by such an event. In
the event that these circumstances take place, and shall continue
for a period of fifteen (15) or more days, the other party shall
have the right to terminate that portion of the Agreement that has
not been performed and appropriate settlements and adjustments will
be made.
Any notices required to be given under the provisions of this
Agreement shall be in writing and shall be deemed to have been duly
served if hand delivered (including, without limitation, via
messenger or overnight delivery service) or sent by facsimile, or
within the United States and Canada by prepaid first-class
registered mail, or outside the United States and Canada by prepaid
registered airmail, correctly addressed to the relevant
party’s address as specified in this Agreement or at such
other address as either party may hereafter designate from time to
time in accordance with this paragraph, and any notice so given
shall be deemed to have been served:
-19-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(a)
If
hand delivered, at the time of delivery (subject in the case of
messenger or overnight delivery service to prove by the sender that
it holds a proof of receipt signed by addressee indicating
delivery).
(b)
If
sent by facsimile or other print-out communication mechanisms,
within eight (8) hours of transmission if during business hours at
its destination, or within the first eight (8) hours of the next
business day following the transmission if such transmission is not
within business hours but subject, in the case of facsimile and
other print-out communication mechanisms, to prove by the sender
that it holds a transmission report indicating uninterrupted
transmission to the addressee, and to dispatch of the notice by
prepaid mail as herein provided on the same day as such
transmission (or the next day if notice is transmitted outside post
office hours).
(c)
If
sent by prepaid mail as aforesaid, within three (3) business days
of mailing (exclusive of the hours of Sunday) if mailed to an
address within the country of mailing, or within seven (7) days of
mailing if mailed to an address outside the country of
mailing.
All notices hereunder shall be sent in the same manner
to:
i.
To
Partner: Super
League Gaming, Inc.
2906
Colorado Ave
Santa
Monica, CA 90404
Attn:
Anne Gailliot, Chief of Staff
415-378-0223
anneg@superleague.com
ii.
To VMN:
Viacom
Media Networks
203
W Olive Ave., Floor 5
Burbank,
CA 91502
Attn:
Jaime Dictenberg, SVP, Content Positioning &
Planning
212-846-3376
jaime.dictenberg@nick.com
a.
Except as may be
required by any applicable law, government order or regulation, or
by order or decree of any court of competent jurisdiction, no party
shall, without the prior written consent of the other party,
publicly divulge or announce, or in any manner disclose to any
unrelated third party, or use for any purpose not relating to this
Agreement, any information revealed to it by the other party or the
affiliates of the other party pursuant hereto, or any of the
specific terms and conditions of this Agreement, and each party
shall safeguard such information from unauthorized use or disclose
using at least the same level of efforts that it uses to protect
its own confidential information (provided such efforts are
reasonable and based on accepted industry practices). Each party
may disclose confidential information of the other party to
affiliates, contractors, advisors and agents for purposes relating
to this Agreement, and to auditors, provided such recipients are
bound to obligations or duties of confidentiality that apply to
such information.
-20-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
b.
Notwithstanding the
foregoing, with regard to obligations of nondisclosure or
limitations as to use, each party shall have no liability with
respect to the disclosure and/or use of any information of the
other which such party can establish: (i) is or becomes publicly
known without breach of this Agreement; (ii) is known to such
party, without any obligation of confidentiality, prior to
disclosure of such information by the other party; (iii) was
received by such party from a third party source having the right
to disclose such information; or (iv) was independently developed
by such party without reference to the confidential information of
the other party.
17.
Additional Provisions
a.
Consumer Complaints
- VMN and Partner shall cooperate with each other in a reasonable
manner to appropriately resolve any consumer complaints that may
arise from the Promotions. Each party shall, when necessary or
appropriate or when reasonably requested by the other party,
undertake a factual investigation of consumer complaints arising
out of its products or services. Any consumer complaints that are
principally directed to any other party’s products or
services shall be immediately forwarded to such other party for
response. Each party shall be responsible for responding to
consumer complaints directed at its respective product or
service.
b.
Adverse Publicity -
If any product or service of a party to this Agreement which is
included in a Promotion shall be the subject of adverse publicity,
including but without limitation, contamination of the product,
criminal or otherwise, or market withdrawal or a recall, which in
the reasonable judgment of the other party is or may be detrimental
to the intended purpose of this joint promotion or to such other
party’s reputation or goodwill, then such other party may
elect to terminate those aspects of the Promotion which it is
reasonably feasible to terminate, and thereafter no party shall
have any further obligation to the other party with respect to
those aspects of the Promotion under this Agreement.
Notwithstanding the foregoing, it is agreed that the party causing
the termination shall remain financially liable for its share of
all costs committed to pursuant to this Agreement as of the date
that said party’s participation is wholly or partially
eliminated.
c.
Waiver - No waiver
by any party, whether express or implied, of any provision of this
Agreement shall constitute a continuing waiver of such provision or
a waiver of any other provision of this Agreement. No waiver by any
party, whether express or implied, of any breach or default by the
other parties shall constitute a waiver of any other breach or
default of the same or any other provision of this
Agreement.
d.
Relationship of the
Parties - Nothing herein contained shall be so construed as to
constitute the parties as principal or agent, employer and
employee, partners, or joint venturers nor shall any similar
relationship be deemed to exist among the parties. No party shall
have any power to obligate or bind the other parties, except as
specifically provided herein.
e.
Assignability -
This Agreement may not be assigned by any party, by operation of
the law or otherwise, without the prior written consent of the
other parties; provided, however, any party may assign this
Agreement to any parent, subsidiary or affiliated company or to any
entity acquiring all or substantially all of the assets of such
party (including by merger) without the prior written consent of
the other parties.
-21-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
f.
Construction/Headings
- The headings contained herein are for convenient reference only.
They shall not be used in any way to govern, limit, modify or
construe this Agreement and shall not be given any legal effect.
This Agreement shall be construed as if it were drafted jointly by
the parties. The word “including” shall be construed to
mean “including without limitation.”
g.
Governing Law -
This Agreement and all matters or issues collateral thereto shall
be governed by and construed in accordance with the laws of the
State of New York applicable to contracts executed and performed
entirely therein. Each of the parties hereby consents to the
exclusive jurisdiction of the courts of the State of New York in
the City and County of New York or the federal courts of the United
States for the Southern District of New York located in the City
and County of New York in connection with any lawsuit, action or
proceeding arising out of or related to this Agreement. Each party
hereby irrevocably and unconditionally: (i) waives any objection
which it might have now or hereafter to the jurisdiction and venue
of such courts in any such litigation, action or proceeding, (ii)
submits to the personal jurisdiction of any such court in any such
litigation, action or proceeding, and (iii) waives any claim or
defense of inconvenient forum with respect thereto. Partner hereby
consents to service of process by registered mail, return receipt
requested, at Partner’s address stated herein and expressly
waives the benefit of any contrary provision of foreign
law.
h.
Severability
– If any term of this Agreement is held to be invalid or
unenforceable, such holding will not affect the validity or
enforceability of any other term hereto.
i. Survival
- Notwithstanding termination or expiration of this Agreement, for
any reason whatsoever, the conditions and provisions of this
Agreement that are intended to continue to survive, shall continue
and survive, including, but not limited to, Sections 9, 10, 12, 15, 16, and
17.
j.
No Third Party
Beneficiaries – Except for express references to Affiliates,
no person other than the parties shall be considered a third party
beneficiary of this Agreement or otherwise entitled to any rights
or remedies under this Agreement.
k.
Entire Agreement -
This Agreement, including its attachments and exhibits, constitutes
the whole and complete agreement between the parties with respect
to the subject matters hereof and no prior oral or written
agreement with respect to the subject matter hereof (including any
letters of intent and similar documents) shall be deemed a part of
or a modification of this Agreement. This Agreement can only be
modified by a written agreement between the parties executed after
the effective date hereof.
l.
Counterparts
– This Agreement may be executed in counterparts (which may
be transmitted via facsimile, email or other electronic
transmission method), each of which shall be deemed an original,
and all of which shall constitute the same instrument.
[Signature Pages to Follow]
-22-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
By
their execution below, the parties hereto have agreed to all the
terms and conditions of this Agreement.
Super League Gaming,
Inc.
Viacom Media Networks, a division
of
Viacom
International Inc.
By: /s/ Ann
Hand
By: /s/ Mathew Evans
Name:
Ann
Hand
Name:
Mathew Evans
Title:
CEO
Title:
EVP Digital Kids & Family Group
-23-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Exhibit A
FORM STATEMENT OF WORK
This
Statement of Work (this “SOW”) is effective as of the date
above (the “SOW Effective
Date”) and is issued in accordance with the Master
Joint Promotion Agreement dated May 23, 2017 (the
“Agreement”) by
and between Viacom Media Networks, a division of Viacom
International Inc. (“VMN”) and Super League Gaming,
Inc. (“Partner”). Any capitalized term
not otherwise defined herein shall have the meaning ascribed in the
Agreement.
[TO BE
FILLED IN]
2.
Promotion Description. The
parties shall perform the following Services in connection with
this SOW (the “SOW
Services”):
VMN’s
Nickelodeon Group shall be the Anchor Sponsor for the following
Partner Event: [ ].
-24-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
The
Promotion shall consist of the following elements:
3.
Deliverables and Milestone
Schedule.
The
parties will design, create, develop, produce and deliver each of
the following deliverables (“SOW Deliverables”) for the
Promotion in accordance with the specifications and delivery dates
set forth herein (which dates may change from time to time pursuant
to mutual written consent (email is sufficient)):
Deliverable
|
Responsible Party
|
Description
|
Due Date
|
|
|
|
|
|
|
|
|
The
term of this SOW shall commence as of the SOW Effective Date and
expire [on ______________][upon acceptance by VMN of all
Deliverables hereunder], unless earlier terminated in accordance
with the Agreement.
[TO BE
FILLED IN]
IN
WITNESS WHEREOF, the parties have executed this Statement of Work
as of the SOW Effective Date listed above.
VIACOM
MEDIA NETWORKS, a division of
VIACOM
INTERNATIONAL INC.
|
|
SUPER LEAGUE GAMING, INC.
|
|
|
|
|
|
By:
|
|
|
By:
|
|
Name:
|
[___]
|
|
Name:
|
[___]
|
|
[Type
or Print]
|
|
|
[Type
or Print]
|
Title:
|
[___]
|
|
Title:
|
[___]
|
-25-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Exhibit B
VMN Marks Guidelines:
Partner agrees that: (a) it shall use the VMN Marks solely in
connection with the Promotions and in accordance with all of the
terms and conditions set forth herein; (b) the VMN Marks shall be
used in the exact form provided by VMN; (c) it shall not make or
permit the making of any copies of the VMN Marks, in whole or in
part except as reasonably required for the purposes herein
specified; (d) it shall not have the right to authorize others to
use the VMN Marks; (e) its use of the VMN Marks shall include all
standard proprietary notices prescribed by VMN; (f) its use of the
VMN Marks shall conform to quality standards which are consistent
with the high level of past practices for the use of the VMN Marks;
and, (g) all use of any materials incorporating the VMN Marks by
Partner shall be subject to VMN’s prior approval. All right,
title and interest in and to the VMN Marks, including all
associated goodwill, or in any copyright or other proprietary right
now existing or hereafter created pursuant to this Agreement, shall
remain vested in VMN subject to the rights of use granted in this
Agreement.
Partner shall promptly notify VMN of any apparently unauthorized
use or infringement by third parties of any rights granted to
Partner herein, and will cooperate fully in any action at law or in
equity undertaken by VMN with respect to such unauthorized use or
infringement.
Partner shall not institute any suit or take any action in
connection with any apparently unauthorized use or infringement
without first obtaining VMN’s prior written consent to do so,
and VMN shall have the sole right and discretion to determine
whether or not any action shall be taken on account of any such
unauthorized uses or infringements.
Partner Marks Guidelines:
VMN agrees that: (a) it shall use the Partner Marks solely in
connection with the Promotions and in accordance with all of the
terms and conditions set forth herein; (b) the Partner Marks shall
be used in the exact form provided by Partner; (c) it shall not
make or permit the making of any copies of the Partner Marks, in
whole or in part except as reasonably required for the purposes
herein specified; (d) it shall not have the right to authorize
others to use the Partner Marks; (e) its use of the Partner Marks
shall include all standard proprietary notices prescribed by
Partner; (f) its use of the Partner Marks shall conform to quality
standards which are consistent with the high level of past
practices for the use of the Partner Marks; and, (g) all use of any
materials incorporating the Partner Marks by VMN shall be subject
to Partner’s, prior approval. All right, title and interest
in and to the Partner Marks, including all associated goodwill, or
in any copyright or other proprietary right now existing or
hereafter created pursuant to this Agreement, shall remain vested
in Partner subject to the rights of use granted in this
Agreement.
VMN shall promptly notify Partner of any apparently unauthorized
use or infringement by third parties of any rights granted to VMN
herein, and will cooperate fully in any action at law or in equity
undertaken by Partner with respect to such unauthorized use or
infringement.
VMN shall not institute any suit or take any action in connection
with any apparently unauthorized use or infringement without first
obtaining Partner’s prior written consent to do so, and
Partner shall have the sole right and discretion to determine
whether or not any action shall be taken on account of any such
unauthorized uses or infringements.
-26-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Exhibit C
VMN Copyright
Notice:
© 2017 VIACOM
INTERNATIONAL INC. All Rights Reserved.
VMN Trademark
Notices:
Partner shall
include the following trademark symbol on all uses of the
Nickelodeon name and logo:
“Nickelodeon®”.
Partner
shall include the following trademark notice in proximity to all
uses of the Nickelodeon name and logo:
“Nickelodeon
and all related titles, characters and logos are trademarks of
Viacom International Inc.”
Partner Copyright
Notice:
SLG® is a
registered trademark of Super League Gaming, Inc.
Mojang
© 2009-2017. “Minecraft” is a trademark of Mojang
Synergies AB
-27-
***** SUPER LEAGUE GAMING, INC. HAS REQUESTED THAT THE OMITTED
PORTIONS OF THIS DOCUMENT, WHICH ARE INDICATED BY [*****], BE
AFFORDED CONFIDENTIAL TREATMENT. SUPER LEAGUE GAMING, INC. HAS
SEPARATELY FILED THE OMITTED PORTIONS OF THE DOCUMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION.