We have entered into a Sales Agreement (the
“ATM Agreement”) with Virtu Americas LLC (“Virtu Americas”), relating to the sale of our Class A Common
Stock, $0.0001 par value (“Class A Common Stock”) and 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock,
$0.0001 par value (“Series A Preferred Stock”). In accordance with the terms of the ATM Agreement, under this prospectus
supplement we may offer and sell, from time to time, shares of Class A Common Stock and shares of Series A Preferred Stock having an
aggregate offering price of up to $100,000,000, through Virtu Americas, acting as our sales agent. Sales of Class A Common Stock
and/or Series A Preferred Stock, if any, under this prospectus supplement will be made by any method permitted that is deemed an
“at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (“Securities
Act”). Virtu Americas is not required to sell any specific amount but will act as our sales agent using commercially
reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Virtu Americas and us,
provided that sales of Series A Preferred Stock, if any, will be made at all times at offering prices not lower than $25.00 per
share. There is no arrangement for funds to be received in any escrow, trust or similar arrangement.
The compensation to Virtu Americas for the
sales of Class A Common Stock and Series A Preferred Stock sold under the ATM Agreement will be up to 3% of the gross proceeds that
we receive from the sales. We also agreed to reimburse Virtu Americas for its legal expenses of $50,000 in connection with entering
into the sales agreement, plus (i) $2,500 upon the filing of certain financial information, including the Company’s annual and
quarterly reports and the filing of certain post-effective amendments to the registration statement of which this prospectus
supplement forms a part, and (ii) up to $15,000 in connection with the filing of any prospectus supplement. See “Plan
of Distribution” beginning on page S-31 for additional information regarding the compensation to be paid to Virtu
Americas. In connection with the sale of the Class A Common Stock and Series A Preferred Stock on our behalf, Virtu Americas will be
deemed to be an underwriter within the meaning of the Securities Act and the compensation of Virtu Americas will be deemed to be
underwriting commissions or discounts. We have also agreed to provide indemnification and contribution to Virtu Americas with
respect to certain liabilities, including liabilities under the Securities Act.
Our Class A Common Stock and Series A Preferred
Stock are listed for trading on the Nasdaq Global Market under the symbols “CSSE” and “CSSEP,” respectively. The
last reported sale price for our Class A Common Stock on December 22, 2021, was $14.86 per share and the last reported sales price for
our Series A Preferred Stock on December 22, 2021 was $26.79 per share.
Dividends on the Series A Preferred Stock offered
hereby are cumulative from the first day of the calendar month in which they are issued and will be payable on the fifteenth day of each
calendar month, when, as and if declared by our board of directors. Dividends will be payable out of amounts legally available therefor
at a rate equal to 9.75% per annum per $25.00 of stated liquidation preference per share, or $2.4375 per share of Series A Preferred Stock
per year.
Commencing on June 27, 2023, we may redeem, at
our option, the Series A Preferred Stock, in whole or in part, at a cash redemption price equal to $25.00 per share, plus any accumulated
and unpaid dividends thereon to, but not including, the redemption date. Prior to June 27, 2023, upon a Change of Control, as defined
in on page S-11 of this prospectus supplement, we may redeem, at our option, the Series A Preferred Stock, in whole or part, at a cash
redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including the redemption date. The
Series A Preferred Stock has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be
convertible into or exchangeable for any of our other securities.
Holders of the Series A Preferred Stock generally
will have no voting rights except for certain limited voting rights in circumstances where dividends payable on the outstanding Series
A Preferred Stock are in arrears for eighteen or more consecutive or nonconsecutive monthly dividend periods.
We are an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company reporting
requirements for this prospectus supplement and future filings.
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying
base prospectus are part of a registration statement on Form S-3 (Registration No. 333-257057) that we filed with the Securities and Exchange
Commission (“SEC”) using a “shelf” registration process. Under this “shelf” registration process,
we may, from time to time, sell or issue any of the combination of securities described in the accompanying base prospectus in one or
more offerings with a maximum aggregate offering price of up to $1,000,000,000. The accompanying base prospectus provides you with a general
description of us and the securities we may offer, some of which do not apply to this offering. Each time we sell securities, we provide
a prospectus supplement that contains specific information about the terms of that offering. A prospectus supplement may also add, update,
or change information contained in the accompanying base prospectus.
This prospectus supplement relates to the offering
of our Class A Common Stock and Series A Preferred Stock. To the extent there is a conflict between the information contained in this
prospectus supplement and the accompanying base prospectus, you should rely on the information in this prospectus supplement. This prospectus
supplement, the accompanying base prospectus, and the documents we incorporate by reference herein and therein include important information
about us and our Class A Common Stock and Series A Preferred Stock and other information you should know before investing. You should
read both this prospectus supplement and the accompanying base prospectus, together with the additional information described below under
the heading “Where You Can Find More Information.”
You should rely only on the information contained
in or incorporated by reference in this prospectus supplement and the accompanying base prospectus. We have not, and Virtu Americas has
not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you
should not rely on it. We are not, and Virtu Americas, is not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted or in which the person making that offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make an offer or solicitation. You should assume that the information appearing in this prospectus supplement, the accompanying
base prospectus, and the documents incorporated by reference herein and therein is accurate only as of the date of those respective documents.
Our business, financial condition, results of operations and prospects may have changed since those dates. You should carefully read this
entire prospectus supplement and the accompanying base prospectus, including the information included and referred to under “Risk
Factors” below, the information incorporated by reference in this prospectus supplement and in the accompanying base prospectus,
and the financial statements and the other information incorporated by reference in the accompanying base prospectus, before making an
investment decision.
CERTAIN CORPORATE INFORMATION AND DEFINITIONS
Our company, Chicken Soup for the Soul Entertainment, Inc.,
is referred to in this prospectus supplement as “CSSE,” the Company,” or “we” or similar pronouns.
References to:
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“CSS Productions” means Chicken Soup for the Soul Productions, LLC, our immediate parent;
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“CSS” means Chicken Soup for the Soul, LLC, our intermediate parent company;
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“CSS Holdings” means Chicken
Soup for the Soul Holdings, LLC, the parent company of CSS and our ultimate parent company;
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“Screen Media” means Screen Media Ventures, LLC, a wholly owned subsidiary of CSSE;
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“A Plus” means A Sharp Inc. (d/b/a Plus), a wholly owned
subsidiary of CSSE;
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“Pivotshare” means Pivotshare, Inc., a wholly owned subsidiary of CSSE;
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“Crackle Plus” means Crackle Plus, LLC, a wholly
owned subsidiary of CSSE which was originally formed by CSSE and CPE Holdings, Inc. (an affiliate of Sony Pictures Television
Inc.);
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“Landmark Studio Group” means Landmark Studio Group, a majority owned subsidiary of CSSE;
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“Halcyon Television” means Halcyon Television LLC, a wholly owned subsidiarity of CSSE;
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“Halcyon Studios” mean Halcyon Studios LLC, a majority owned subsidiary of Halcyon Television; and
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“CSS AVOD” means CSS AVOD Inc., a majority owned subsidiary of CSSE.
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We and our subsidiaries and affiliates have proprietary rights to the
trademarks and trade names used herein, including, among others, Chicken Soup for the Soul®, Crackle®, Popcornflix.com®, Popcornflix
Kids®, Truli®, and FrightPix®. Solely as a matter of convenience, trademarks and trade names referred to herein may or may
not be accompanied with the marks of “TM” or “®”, however, the absence of such marks is not intended to indicate
that the Company or its affiliates or subsidiaries will not assert, to the fullest extent possible under applicable law, their respective
rights to such trademarks and trade names.
NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements contained in or incorporated by reference in this
prospectus supplement and the accompanying prospectus that are not historical facts contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future
results, performance or achievement expressed or implied by such forward-looking statements. The words “believe”, “demonstrate”,
“intend”, “may”, “would”, “could”, “should”, “will”, “continue”,
“plan”, “expect”, “estimate”, “anticipate”, “likely”, “seek” and
similar expressions identify forward-looking statements. These statements are based on assumptions and assessments made by our management
in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we
believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited
to the “Risk Factors” of this prospectus supplement, the accompanying prospectus, and our Annual Report on Form 10-K for the year ended December 31, 2020 and in our quarterly or other periodic reports, which are incorporated by reference in this
prospectus supplement and accompanying prospectus.
Given these risks and uncertainties, investors should not place undue
reliance on forward-looking statements as a prediction of actual results. Forward-looking statements contained in or incorporated by reference
in this prospectus supplement and the accompanying prospectus present our views only as of the date of the applicable document containing
such forward-looking statements. We do not assume any obligation, and do not intend to, update any forward-looking statement except as
required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety
by these cautionary statements.
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights certain information about us and this offering.
Because it is a summary, it does not contain all of the information that you should consider before investing. Before investing in our
common stock, you should read this entire prospectus supplement and the accompanying prospectus carefully, including the “Risk Factors,”
and the financial statements and accompanying notes and other information included and incorporated by reference in this prospectus supplement
and the accompanying prospectus.
Overview
Chicken Soup for the Soul Entertainment, Inc.
is a leading streaming video-on-demand (VOD) company. We operate Crackle Plus, a portfolio of ad-supported and subscription-based VOD
streaming services, as well as Screen Media, a worldwide distributor of films and television series and Chicken Soup for the Soul Television
Group, which is comprised of our production entities for films and television series.
Crackle Plus is comprised of unique networks,
each delivering popular and original premium content focused on different themes such as family, kids, horror and comedy. Crackle Plus
brands include Crackle, among the most watched ad-supported independent VOD networks, Popcornflix, Popcornflix Kids, Truli, Pivotshare,
Españolflix and FrightPix. As of September 30, 2021, Crackle Plus served more than 32 million monthly active visitors through many
distribution platforms including Roku, Amazon Fire, Vizio and others. These visitors viewed content produced through our various television
production affiliates, acquired by Screen Media, or licensed from Sony Pictures Television (SPT), Lionsgate, Paramount, Fox, Warner Brothers
and more than 100 other production and distribution companies. For the period ended September 30, 2021, viewers of Crackle Plus networks
have access to approximately 6,200 films and 33,000 episodes of licensed or company-owned original or exclusive programming.
Screen Media manages one of the industry’s
largest independently owned television and film libraries consisting of approximately 9,000 feature films and 34,000 episodes of television
programming. Screen Media also acquires between approximately 10 and 20 new films each year. Screen Media provides content for the Crackle
Plus portfolio and also distributes its library to other exhibitors and third-party networks to generate additional revenue and operating
cash flow. Halcyon Television, our company’s new subsidiary, manages the extensive film and television library recently acquired
from Sonar Entertainment. This library is distributed by Screen Media. The library contains more than 1,000 titles, and 4,000 hours of
programming, ranging from classics, including The Little Rascals, Laurel & Hardy and Blondie (produced by Hal Roach
Studios), to acclaimed epic event mini-series such as Lonesome Dove and Dinotopia. Our Halcyon library titles have received
446 Emmy Award nominations, 105 Emmy Awards and 15 Golden Globe Awards.
Chicken Soup for the Soul Television Group
houses our film and television production activities, which are performed through a number of affiliates including Landmark Studio
Group, Chicken Soup for the Soul Studios, the recently acquired Locomotive Global and Halcyon Studios, which was formed in
conjunction with our acquisition of Sonar Entertainment and develops, produces, finances and distributes shows such as The
Shannara Chronicles (MTV/Netflix), Taboo (BBC/FX), The Son (AMC), Mr. Mercedes (DirecTV), Das Boot
(Sky Europe), Hunters (Amazon Prime), Alien Xmas (Netflix) and Mysterious Benedict Society (Disney+). Halcyon
Studios, will continue developing and producing current and future high-caliber content for our company for all platforms across a
broad spectrum in the U.S. and internationally.
Collectively, Screen Media and Chicken Soup for
the Soul Television Group enable us to acquire, produce, co-produce and distribute content, including our original and exclusive content,
all in support of our streaming services. We believe that we are the only independent ad-supported video-on-demand (AVOD) business with
the proven capability to acquire, create and distribute original programming and that we have one of the largest libraries of valuable
company-owned and third-party content. We believe this differentiation is important at a time of a major shift in consumer viewing habits
as the growth in both availability and quality of high-speed broadband enables consumers to consume video content at any time on any
device.
Recent Developments
In April 2021, we entered into an asset purchase agreement (“Asset
Purchase Agreement”) by and among our company, Halcyon Television, and with respect to certain provisions, Parkside Entertainment
Inc., a Canadian company (“Parkside” and, collectively with us and Halcyon Television, the “CSSE Buyer”), on the
one hand, and Sonar Entertainment Inc. (“SEI”) and the direct and indirect subsidiaries of SEI identified in the Asset Purchase
Agreement (collectively, “Sonar”), on the other hand. On May 21, 2021, pursuant to the Asset Purchase Agreement, the
CSSE Buyer purchased the principal assets of Sonar. Parkside separately purchased the outstanding equity of Sonar Canada Inc.
Sonar is an award-winning independent television studio that owns,
develops, produces, finances and distributes content for global audiences. Sonar, headquartered in Los Angeles with operations in Toronto
and London, has produced television series such as Hunters, Taboo, Alien Xmas, The Mysterious
Benedict Society, Saints, Manson, Lonesome Dove, and Dinotopia. The projects have shown strong market appeal
and star well-known talent such as Al Pacino, Ridley Scott, Pierce Brosnan, and more. Sonar has projects in the development pipeline that
are scheduled to begin production this year, with anticipated distribution on networks such as Hulu, Fox, Amazon Prime Video, FX, and
BBC ONE.
We believe that our acquisition of the Sonar assets accelerates our
strategy to build the leading independent AVOD streaming service in four key ways:
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expanding our original television content development pipeline;
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improving margins by increasing our IP rights ownership;
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accelerating our ability to launch the Chicken Soup for the Soul branded AVOD network; and
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providing a faster path to growing our international television production and distribution activities.
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Please see the unaudited pro forma financial statements
on page S-21 relating to our acquisition of the assets of Sonar.
In November 2021, believing
that our current stock price does not reflect the enterprise value of our company or our recent or planned growth, we announced a
share repurchase program under which we may purchaser from time to time in market or private transactions up to an aggregate of $10
million of our publicly traded Class A common stock. In December 2021, we increased our share repurchase program to $20 million. We believe
that the ability to make such repurchases enables us to enhance stockholder value as and when market prices dictate and that the use
of any of our capital resources for any such repurchase would have no effect on our ability to adhere to our growth
strategies.
Corporate Information
We are a Delaware corporation formed on May 4, 2016. CSS Productions,
our predecessor and immediate parent company, was formed in December 2014 by CSS, and initiated operations in January 2015.
We were formed to create a discrete entity focused on video content opportunities using the Brand. In May 2016, pursuant to the terms
of the contribution agreement among CSS, CSS Productions and the Company, all video content assets owned by CSS, CSS Productions and their
CSS subsidiaries were transferred to the Company in consideration for its issuance to CSS Productions of 8,600,568 shares of the Company’s
Class B common stock. Thereafter, CSS Productions’ operating activities ceased, and the Company continued the business operations
of producing and distributing the video content.
Our address is 132 East Putnam
Avenue, Floor 2W, Cos Cob, CT 06807. Our telephone number is (855) 398-0443, and our website address is https://www.cssentertainment.com.
The information contained on, or that can be accessed through, our website is not part of this prospectus supplement.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in
the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As long as we are an emerging growth company, we are
eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies. These include, but are not limited to:
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Not being required to comply with the auditor attestation requirements
in the assessment of our internal control over financial reporting;
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Not being required to comply with any requirement that may be
adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors’
report providing additional information about the audit and the financial statements;
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Reduced disclosure obligations regarding executive compensation; and
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Exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
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We may remain an “emerging growth company” until as late
as December 31, 2022, the fiscal year-end following the fifth anniversary of the completion of our initial public offering, though
we may cease to be an emerging growth company earlier under certain circumstances, including if (a) we have more than $1 billion
in annual gross revenue in any fiscal year, (b) the market value of our common stock that is held by non-affiliates exceeds $700
million as of any June 30 or (c) we issue more than $1 billion of non-convertible debt over a three-year period.
Summary Risk Factors
Investing in our securities involves significant risks. Please read
the information contained in or incorporated by reference under the heading “Risk Factors” beginning on page S-11 of this prospectus
supplement and page 19 of the attached Prospectus dated June 24, 2021, under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020, and in our Quarterly Report for the nine months ended September 30, 2021,
and under similar headings in other documents filed after the date hereof and incorporated
by reference into this prospectus supplement and the accompanying prospectus. These risks include:
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We have and may continue to incur losses in the operation of our business.
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We may not be able to generate sufficient cash to service our
debt, dividend and other obligations or our ability to service our dividends could be adversely effected or prohibited upon defaults
under our current or future indebtedness.
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Difficult conditions in the economy generally and our industry
specifically resulting from the COVID-19 pandemic may cause interruptions in our operations, a slow-down in the production or
acquisition of new content, and changes in demand for our products and services, which may have a material adverse effect on our
business operations and financial condition.
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Competition could have a material adverse effect on our
business, financial condition and results of operations.
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Interruptions in our ability to provide our video on demand products
and our service to our customers could damage our reputation, which could have a material adverse effect on us.
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The occurrence of cyber-incidents, or a deficiency in our
cybersecurity or in those of any of our third party service providers, could negatively impact our business by causing a disruption
to our operations, a compromise or corruption of our confidential information or damage to our business relationships or reputation,
all of which could negatively impact our business and results of operations.
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The loss of key personnel, including our executive officers, could have a material adverse effect on us.
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Our inability to recruit or retain qualified personnel or maintain
access to key third-party service providers and software developers, could have a material adverse effect on us.
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The market price and trading volume of our securities may be volatile.
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We are required to make continuing payments to our affiliates,
which may reduce our cash flow and profits. Additionally, conflicts of interest may arise between us and our affiliated companies and
we have waived rights for monetary damages in the event of such conflicts.
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THE OFFERING
The following summary contains basic terms about this offering and
the Series A Preferred Stock and is not intended to be complete. It may not contain all of the information that is important to you. For
a more complete description of the terms of the Series A Preferred Stock, see “Description of the Series A Preferred Stock.”
Issuer
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Chicken Soup for the Soul Entertainment, Inc.
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Securities Offered
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Shares of Class A Common Stock and Series A Preferred Stock having
aggregate gross sales proceeds of up to $100,000,000.
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Manner of Offering
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We have entered into a Sales Agreement with Virtu
Americas, relating to the sale of our Class A Common Stock and Series A Preferred Stock. In accordance with the terms of the ATM Agreement,
under this prospectus supplement we may offer and sell, from time to time, shares of Class A Common Stock and Series A Preferred Stock
having an aggregate offering price of up to $100,000,000 through Virtu Americas, acting as our sales agent, provided that we will not
sell our Series A Preferred Stock at offering prices lower than $25.00 per share. Sales of Class A Common Stock and Series A Preferred
Stock, if any, under this prospectus supplement will be made by any method permitted that is deemed an “at the market offering”
as defined in Rule 415 under the Securities Act of 1933, as amended. See the section titled “Plan of Distribution”
on page S-31 of this prospectus supplement.
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Use of Proceeds
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We intend to use the net proceeds from the sale of Class A Common Stock and Series A Preferred Stock by us in this offering for working capital and other general corporate purposes including mergers and acquisitions, debt repayments, dividends, and share repurchases. Pending the application of such proceeds, we expect to invest the proceeds in short-term, interest bearing, investment-grade marketable securities or money market obligations.
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Risk Factors
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See the section titled “Risk Factors” beginning
on page S-11 and the other risks described in our base prospectus and the annual and quarterly reports referred to therein for a discussion
of factors you should consider carefully before deciding to invest in our Class A Common Stock and/or Series A Preferred Stock.
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Dividends on Series A Preferred Stock
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Holders of the Series A Preferred Stock will be
entitled to receive cumulative cash dividends at a rate of 9.75% per annum of the $25.00 per share liquidation preference (equivalent
to $2.4375 per annum per share).
The record date for the payment of dividends on
our Series A Preferred Stock is the close of business on the last day of the calendar month, whether or not a business day, immediately
preceding the month in which the applicable dividends will be paid (each, a “dividend record date”). The shares of Series
A Preferred Stock offered hereby will be credited as having accrued dividends since the first day of the calendar month in which they
are issued.
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Dividends will be payable monthly on the 15th
day of each month (each, a “dividend payment date”), provided that if any dividend payment date is not a business day, then
the dividend that would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day without
adjustment in the amount of the dividend. For example, if shares of Series A Preferred Stock are purchased on May 11, the first dividend
record date with respect to these shares is May 31 and the first dividend payable thereon will be paid on June 15 with respect to the
full calendar month of May (e.g. May 1 through and including May 31).
Any dividend payable on the Series A Preferred
Stock, including dividends payable for any partial dividend period, will be computed on the basis of a 360-day year consisting of twelve
30-day months.
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No Maturity, Sinking Fund, or Mandatory Redemption of Series A Preferred Stock
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The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares of the Series A Preferred Stock will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem the Series A Preferred Stock.
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Optional Redemption of Series A Preferred Stock
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The Series A Preferred Stock is not redeemable by us prior to June 27, 2023, except as described below. On and after such date, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date. Please see the section of the base prospectus entitled “Description of Capital Stock — Series A Preferred Stock — Redemption — Optional Redemption.”
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Special Optional Redemption of Series A Preferred Stock
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Prior to June 27, 2023, upon the occurrence of a Change of Control, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date.
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A “Change of Control” is deemed to occur when the following have occurred and are continuing: (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) (other than William J. Rouhana, Jr., the chairman of our board of directors and our principal shareholder, any member of his immediate family, and any “person” or “group” under Section 13(d)(3) of the Exchange Act, that is controlled by Mr. Rouhana or any member of his immediate family, any beneficiary of the estate of Mr. Rouhana, or any trust, partnership, corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and (ii) following the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American, or Nasdaq, or listed or quoted on an exchange or quotation system that is a successor thereto.
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Liquidation Preference of Series A Preferred Stock
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If we liquidate, dissolve or wind up, holders of the Series A Preferred Stock will have the right to receive $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the date of payment, before any payment is made to the holders of our common stock. Please see the section of the base prospectus entitled “Description of Capital Stock--Series A Preferred Stock—Liquidation Preference.”
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Ranking of Series A Preferred Stock
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The Series A Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, (a) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred to in clauses (b) and (c); (b) on a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; (c) junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; and (d) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. Please see the section of the base prospectus entitled “Description of Capital Stock—Series A Preferred Stock–Ranking.”
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Limited Voting Rights of Series A Preferred Stock
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Holders of Series A Preferred Stock will generally
have no voting rights. However, if we do not pay dividends on the Series A Preferred Stock for eighteen or more monthly dividend periods
(whether or not consecutive), the holders of the Series A Preferred Stock (voting separately as a class with the holders of all other
classes or series of our preferred stock we may issue upon which like voting rights have been conferred and are exercisable and which
are entitled to vote as a class with the Series A Preferred Stock in the election referred to below) will be entitled to vote for the
election of two additional directors to serve on our board of directors until we pay, or declare and set aside funds for the payment of,
all dividends that we owe on the Series A Preferred Stock, subject to certain limitations described in the section of the base prospectus
entitled “Description of Capital Stock—Series A Preferred Stock—Voting Rights.”
In addition, the affirmative vote of the holders
of at least 66.67% of the outstanding shares of Series A Preferred Stock (voting together as a class with all other series of parity preferred
stock we may issue upon which like voting rights have been conferred and are exercisable) is required at any time for us to (i) authorize
or issue any class or series of our capital stock ranking senior to the Series A Preferred Stock with respect to the payment of dividends
or the distribution of assets on liquidation, dissolution or winding up or (ii) to amend any provision of our certificate of incorporation
so as to materially and adversely affect any rights of the Series A Preferred Stock or to take certain other actions. Please see the section
of the base prospectus entitled “Description of Capital Stock—Series A Preferred Stock—Voting Rights.”
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|
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Information Rights of Series A Preferred Stock
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During any period in which we are not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series A Preferred Stock are outstanding, we will use our best efforts to (i) transmit by mail (or otherwise provided by permissible means under the Exchange Act) to all holders of Series A Preferred Stock, as their names and addresses appear on our record books and without cost to such holders, copies of the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request, supply copies of such reports to any holders or prospective holder of Series A Preferred Stock, subject to certain exceptions described in this prospectus supplement. We will use our best efforts to mail (or otherwise provide) the information to the holders of the Series A Preferred Stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have been required to be filed with the SEC, if we were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which we would be required to file such periodic reports if we were a “non-accelerated filer” within the meaning of the Exchange Act.
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Nasdaq Global Market Symbols
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Class A Common Stock: CSSE
Series A Preferred Stock: CSSEP
|
Rating of Series A Preferred Stock
|
Egan-Jones Rating Co.: BBB(-)
A securities rating reflects only the view of
a rating agency and is not a recommendation to buy, sell, or hold the Series A Preferred Stock. Any rating may be subject to revision
upward or downward or withdrawal at any time by a rating agency if such rating agency decides that circumstances warrant that change.
Each rating should be evaluated independently of any other rating. No report of any rating agency is being incorporated herein by reference.
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Transfer Agent
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Continental Stock Transfer & Trust Co. is the registrar and transfer agent of our Class A Common Stock and the registrar, transfer agent, and dividend and redemption price disbursing agent in respect of the Series A Preferred Stock.
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RISK FACTORS
Any investment in our securities involves
a high degree of risk. Potential investors are urged to read and consider the risks and uncertainties relating to an investment in the
Company as set forth in this prospectus supplement and accompanying prospectus, and in the documents we incorporate by reference herein
and therein. Potential investors also should read and consider the risks and uncertainties discussed under the item “Risk Factors”
in our annual report on Form 10-K for the year ended December 31, 2020, and our subsequent quarterly reports on Form 10-Q, all of which
are incorporated herein by reference, and may be amended, supplemented, or superseded from time to time by other reports we file with
the SEC in the future. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect
our business and results of operations. If any of these risks actually occur, our business, financial condition, or results of operations
could be seriously harmed. In that event, the market price for our securities could decline and you may lose all or part of your investment.
Risks Relating to COVID-19
Our business, results of operations, and
financial condition may be impacted by the recent coronavirus (COVID-19) outbreak.
The
global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and
economic disruption. In response to government mandates, health care advisories and otherwise responding to employee and vendor concerns,
we have altered certain aspects of our operations. Our workforce has had to spend a significant amount of time working from home, which
could impact their productivity and our ability to exercise proper internal controls in our operations. From time to time select productions
have been paused, as have productions of third-parties who supply us with content. Other partners have similarly had their
operations altered or temporarily suspended, including those partners that we use for our operations as well as development, production
and post-production of content. To the extent the resulting economic disruption is severe, we could see some vendors go out of business,
resulting in supply constraints and increased costs or delays to our productions. Such production pauses may cause us temporarily to
have less new content available on our service in subsequent quarters, which could negatively impact consumer demand for and user retention
to our service. Temporary production pauses or permanent shutdowns in production could result in content asset impairments or other charges
and will change the timing and amount of cash outflows associated with production activity.
The full extent to which the COVID-19 pandemic
and the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that we
may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’
actions that have been and continue to be taken in response to the pandemic; the availability and cost to access the capital markets;
the effect on our customers and customer demand for our services; disruptions or restrictions on our employees’ ability to work
and travel; our ability to hire and retain qualified personnel as a result of increased competition for such personnel; our ability to
access resources, including technology related resources needed for maintenance, modification, and improvement of our platforms, in the
face of supply scarcity and supply pipeline delays; interruptions or restrictions related to the provision of streaming services over
the internet, including impacts on content delivery networks and streaming quality; and any stoppages, disruptions or increased costs
associated with our development, production, post-production, marketing and distribution of original programming. Furthermore, given increased
government expenditures associated with their COVID-19 response, we could see increased government obligations which could negatively
impact our results of operations. If we need to access the capital markets, there can be no assurance that financing may be available
on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions
that alter our business operations, including content production, as may be required by federal, state, local or foreign authorities,
or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential
effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors,
or on our financial results.
These results, as well as those of other metrics
such as revenues, operating margins, net income and other financial and operating data, may not be indicative of results for future periods.
Our increase in user additions may reflect the acceleration of growth that we would have seen in subsequent periods, and user growth may
slow or reverse, due to slower acquisition and/or higher cancellations, as government and other restrictions are relaxed. In addition
to the potential direct impacts to our business, the global economy is likely to be significantly weakened as a result of the actions
taken in response to COVID-19. To the extent that such a weakened global economy impacts advertisers’ ability or willingness to
pay for advertisements on our service or vendors’ ability to provide services to us, we could see our business and results of operations
negatively impacted. In addition, a weakened global economy could impact our ability to collect our outstanding accounts receivable which
would have a negative impact on our results of operations.
Risks Related to this Offering
It is not possible to predict the actual
number of shares of Class A Common Stock and/or Series A Preferred Stock we will sell under the ATM Agreement, or the gross proceeds resulting
from those sales.
Subject to certain limitations in the ATM Agreement
and compliance with applicable law, we have the discretion to deliver a placement notice to Virtu Americas at any time throughout the
term of the ATM Agreement. The number of shares of Class A Common Stock or Series A Preferred Stock that are sold through Virtu Americas
will fluctuate based on a number of factors, including the market price of the Class A Common Stock and Series A Preferred Stock during
the sales period, the limits we set with Virtu Americas in any applicable placement notice, and the demand for our Class A Common Stock
and Series A Preferred Stock during the sales period. Because the price per share of each share sold will fluctuate during the sales period,
it is not possible to predict the number of shares that will be sold or the gross proceeds we will raise in connection with those sales.
The
Class A Common Stock and Series A Preferred Stock offered hereby will be sold in “at the market offerings” and investors who
buy shares at different times will likely pay different prices.
Investors who purchase Class A Common Stock and/or
Series A Preferred Stock in this offering at different times will likely pay different prices, and so may experience different levels
of dilution and different outcomes in their investment results. We will have discretion, subject to market demand, to vary the timing,
prices, and numbers of shares sold in this offering. In addition, while the ATM Agreement provides a minimum offering price of $25.00
per share of our Series A Preferred Stock offered hereby, there is no minimum price of our Class A Common Stock offered hereby and there
is no maximum sales price for shares of Class A Common Stock or Series A Preferred Stock to be sold in this offering. Investors may experience
a decline in the value of shares that they purchase in this offering as a result of sales made at prices lower than the prices they paid.
You may experience immediate dilution in
the net tangible book value per share of Class A Common Stock or Series A Preferred Stock that you purchase.
The price per share of Class A Common Stock or
the Series A Preferred Stock offered hereunder may be higher than the net tangible book value per share of Class A Common Stock or Series
A Preferred Stock prior to this offering. Assuming that an aggregate of 6,729,475 shares of Class A Common Stock are sold at a price of
$14.86 per share, which was the closing sale price of our Class A Common Stock on the Nasdaq Global Market on December 22, 2021, for aggregate
gross proceeds of $100,000,000 in this offering, and after deducting commissions and estimated aggregate offering expenses payable by
us, you will suffer immediate dilution of $8.34 per share, representing the difference between the as adjusted net tangible book value
per share of Class A Common Stock on September 30, 2021, after giving effect to this offering and the assumed offering price. Assuming
that an aggregate of 4,000,000 shares of Series A Preferred Stock are sold at a price of $25.00 per share, which is the minimum offering
price for the Series A Preferred Stock under the ATM Agreement, for aggregate gross proceeds of $100,000,000 in this offering, and after
deducting commissions and estimated aggregate offering expenses payable by us, you will suffer immediate dilution of $5.44 per share,
representing the difference between the as adjusted net tangible book value per share of Series A Preferred Stock on September 30, 2021,
after giving effect to this offering and the assumed offering price.
We will have broad discretion in using the
proceeds of this offering, and we may not effectively spend the proceeds.
We will use the net proceeds of this offering
for working capital and general corporate purposes to support our growth, to pay dividends on our outstanding Series A Preferred Stock,
and may, and in our discretion and subject to any applicable financing agreements, use a portion of the net proceeds for acquisitions,
dividends on our common stock, and the repurchase of outstanding Class A Common Stock in open market transactions in compliance with Rule
10b-18 and private transactions. We have not allocated any specific portion of the net proceeds to any particular purpose, and our management
will have the discretion to allocate the proceeds as it determines. We will have significant flexibility and broad discretion in applying
the net proceeds of this offering, and we may not apply these proceeds effectively. Our management might not be able to yield a significant
return, if any, on any investment of these net proceeds, and you will not have the opportunity to influence our decisions on how to use
our net proceeds from this offering.
Risks Related to our Capital Stock
Our chairman and chief executive officer
effectively controls the Company.
We have two classes of common stock — Class
A Common Stock, each share of which entitles the holder thereof to one vote on any matter submitted to our stockholders, and Class B Common
Stock, each share of which entitles the holder thereof to ten votes on any matter submitted to our stockholders. Our chairman and chief
executive officer, William J. Rouhana, Jr., has control over the vast majority of all the outstanding voting power as represented by our
outstanding Class B and Class A Common Stock and effectively controls the Company. Further, our bylaws provide that any member of our
board may be removed with or without cause by the majority of our outstanding voting power, thus Mr. Rouhana exerts significant control
over our board. This concentration of ownership and decision making may make it more difficult for other stockholders to effect substantial
changes in the Company and may also have the effect of delaying, preventing or expediting, as the case may be, a change in control of
the Company.
Future sales of substantial
amounts of our Class A Common Stock or Series A Preferred Stock, or the possibility that such sales might occur, could adversely affect
the market price of our Class A Common Stock or Series A Preferred Stock, respectively.
We cannot
predict the effect, if any, that future issuances or sales of securities, including sales of our Class A Common Stock and Series A
Preferred Stock pursuant to the ATM Agreement, will have on the market price of our securities. Our certificate of
incorporation authorizes the issuance of up to 70 million shares of Class A Common Stock, 20 million shares of Class B Common Stock,
and 10,000,000 shares of preferred stock, of which 4,300,000 shares have been designated Series A Preferred Stock (which we may
increase in our discretion). As of the date of this prospectus supplement, we have 61,035,670 authorized but unissued shares of our
Class A Common Stock remaining available for issuance, 12,345,506 authorized but unissued shares of our Class B Common Stock
remaining available for issuance and 6,301,682 authorized but unissued shares of our preferred stock remaining available for
issuance. We have outstanding Class W warrants to purchase up to an aggregate of 526,362 shares of Class A Common Stock and Class Z
warrants to purchase up to an aggregate of 123,109 shares of Class A Common Stock, as well as warrants issued in connection with our
acquisition of the assets of Crackle in March 2019 to acquire up to an aggregate of 4,000,000 shares of Class A common stock. We also
have outstanding options to purchase an aggregate of 1,356,599 shares of our Class A common stock under our 2017 performance equity
plan. Issuances or sales of substantial amounts of our securities, or the perception that such
issuances might occur, could negatively impact the market price of our securities.
The market for our securities may not provide
investors with adequate liquidity.
Liquidity of the market for the Class A Common
Stock and Series A Preferred Stock depends on a number of factors, including prevailing interest rates, our financial condition and operating
results, the number of holders of such securities, the market for similar securities and the interest of securities dealers in making
a market in the securities. We cannot predict the extent to which investor interest in the Company will maintain a trading market in our
Class A Common Stock or Series A Preferred Stock, or how liquid that market will be. If an active market is not maintained, investors
may have difficulty selling shares of our Class A Common Stock and Series A Preferred Stock.
We may redeem the Series A Preferred Stock.
On or after June 27, 2023, we may, at our option,
redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time. Also, upon the occurrence of a Change of Control
prior to June 27, 2023, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first
date on which such Change of Control occurred. We may have an incentive to redeem the Series A Preferred Stock voluntarily if market conditions
allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend rate on the Series A Preferred Stock.
If we redeem the Series A Preferred Stock, then from and after the redemption date, dividends will cease to accrue on shares of Series
A Preferred Stock, the shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights as a holder of those shares
will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.
We currently do not plan to pay any dividends
on our common stock.
The payment of cash dividends on our common stock
in the future will be dependent upon our revenue and earnings, if any, capital requirements and general financial condition, our obligation
to pay dividends on our Series A Preferred Stock, as well as the limitations on dividends and distributions that exist under our lending
agreement, the laws and regulations of the State of Delaware and will be within the discretion of our board of directors. As a result,
any gain you may realize on our common stock (including shares of common stock obtained upon exercise of our warrants) may result solely
from the appreciation of such shares.
We may not be able to pay dividends on the
Series A Preferred Stock if we fall out of compliance with our loan covenants and are prohibited by our bank lender from paying dividends.
Our credit facilities that we enter into
from time to time may require us to maintain a minimum debt service coverage ratio. Related to this obligation, credit facilities
may contain negative covenants that restrict our ability to make dividend payments and other distributions and payments to
stockholders and certain other people if such payments, distributions or expenditures would result in an event of default under the
credit facility or any other indebtedness, or would exceed our net earnings in excess of our debt service obligations. We cannot
assure you that we will be able to meet all covenants in our credit facilities in the future, or that we will not be prevented from
paying dividends on the Series A Preferred Stock due to a future failure to comply with such covenants.
We must adhere to prescribed legal requirements
and have sufficient cash in order to be able to pay dividends on our Series A Preferred Stock.
In accordance with Section 170 of the Delaware
General Corporation Law, we may only declare and pay cash dividends on the Series A Preferred Stock if we have either net profits during
the fiscal year in which the dividend is declared and/or the preceding fiscal year, or a “surplus”, meaning the excess, if
any, of our net assets (total assets less total liabilities) over our capital. We can provide no assurance that we will satisfy such requirements
in any given year. Further, even if we have the legal ability to declare a dividend, we may not have sufficient cash to pay dividends
on the Series A Preferred Stock. Our ability to pay dividends may be impaired if any of the risks described herein actually occur. Also,
payment of our dividends depends upon our financial condition and other factors as our board of directors may deem relevant from time
to time. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be
available to us in an amount sufficient to enable us to pay dividends on the Series A Preferred Stock.
A holder of Series A Preferred Stock has
extremely limited voting rights.
The voting rights for a holder of Series A Preferred
Stock are limited. Our shares of Class A Common Stock and Class B Common Stock vote together as a single class and are the only class
of our securities that carry full voting rights. Mr. Rouhana, our chairman of the board and chief executive officer, beneficially owns
the vast majority of the voting power of our outstanding common stock. As a result, Mr. Rouhana exercises a significant level of control
over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, and
approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of the
Company or changes in management and will make the approval of certain transactions difficult or impossible without his support, which
in turn could reduce the price of our Series A Preferred Stock.
Voting rights for holders of the Series A Preferred
Stock exist primarily with respect to the ability to elect, voting together with the holders of any other series of our preferred stock
having similar voting rights, two additional directors to our board of directors, subject to limitations described in the section of the
base prospectus entitled “Description of Capital Stock—Series A Preferred Stock—Voting Rights,” in the
event that eighteen monthly dividends (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and with respect
to voting on amendments to our certificate of incorporation, including the certificate of designations relating to the Series A Preferred
Stock, that materially and adversely affect the rights of the holders of Series A Preferred Stock or authorize, increase or create additional
classes or series of our capital stock that are senior to the Series A Preferred Stock. Other than the limited circumstances described
in the base prospectus and except to the extent required by law, holders of Series A Preferred Stock do not have any voting rights. Please
see the section of the base prospectus entitled “Description of Capital Stock—Series A Preferred Stock—Voting Rights.”
The market price of the Class A Common Stock
and the market price of the Series A Preferred Stock could be substantially affected by various factors.
The market price of the securities offered in
this prospectus supplement could be subject to wide fluctuations in response to numerous factors. The price of the Class A Common Stock
and Series A Preferred Stock that will prevail in the market after this offering may be higher or lower than the offering price depending
on many factors, some of which are beyond our control and may not be directly related to our operating performance.
These factors include, but are not limited to,
the following:
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·
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prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock;
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|
·
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trading prices of similar securities;
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·
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our history of timely dividend payments;
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·
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the annual yield from dividends on the Series A Preferred Stock as compared to yields on other financial instruments;
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·
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general economic and financial market conditions;
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·
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government action or regulation;
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·
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the financial condition, performance and prospects of us and our competitors;
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·
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changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry;
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·
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our issuance of additional preferred equity or debt securities; and
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·
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actual or anticipated variations in quarterly operating results of us and our competitors.
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As a result of these and other
factors, investors who purchase the Class A Common Stock or Series A Preferred Stock in this offering may experience a decrease, which
could be substantial and rapid, in the market price of the securities purchased, including decreases unrelated to our operating performance
or prospects.
The Series A Preferred Stock ranks junior
to all our indebtedness and other liabilities.
In the event of our bankruptcy, liquidation, dissolution
or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all our indebtedness
and other liabilities have been paid. The rights of holders of the Series A Preferred Stock to participate in the distribution of our
assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may
issue that ranks senior to the Series A Preferred Stock. Also, the Series A Preferred Stock effectively ranks junior to all existing and
future indebtedness and to the indebtedness and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing
subsidiaries are, and future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect
of dividends due on the Series A Preferred Stock.
We have incurred and may in the future incur substantial
amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. As of the date of this prospectus supplement,
our total liabilities (excluding contingent consideration) equaled approximately $163.2 million. If we are forced to liquidate our assets
to pay our creditors, we may not have sufficient assets to pay amounts due on any or all the Series A Preferred Stock then outstanding.
Market interest rates may materially and
adversely affect the value of the Series A Preferred Stock.
One of the factors that will influence the price
of the Series A Preferred Stock is the dividend yield on the Series A Preferred Stock (as a percentage of the market price of the Series
A Preferred Stock) relative to market interest rates. Increases in market interest rates may lead prospective purchasers of the Series
A Preferred Stock to expect a higher dividend yield (and higher interest rates would likely increase our borrowing costs and potentially
decrease funds available for dividend payments). Thus, higher market interest rates could cause the market price of the Series A Preferred
Stock to materially decrease.
Holders of the Series A Preferred Stock
may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified
dividend income.”
Distributions paid to corporate U.S. holders of
the Series A Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders
of the Series A Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,”
only if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Additionally, we may
not have sufficient current earnings and profits during future fiscal years for the distributions on the Series A Preferred Stock to qualify
as dividends for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to
use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”
If any distributions on the Series A Preferred Stock with respect to any fiscal year are not eligible for the dividends-received deduction
or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings
and profits, it is possible that the market value of the Series A Preferred Stock might decline.
A reduction in the credit rating of our
Series A Preferred Stock could adversely affect the pricing and liquidity of such stock.
Any downward revision or withdrawal of the credit
rating on our Series A Preferred Stock could materially adversely affect market confidence in such stock and could cause material decreases
in the market price of such stock and could diminish market liquidity. Egan-Jones has initially rated our Series A Preferred Stock as
BBB(-). Neither Egan-Jones nor any other agency is under any obligation to maintain any rating assigned to our Series A Preferred Stock
and such rating could be revised downward or withdrawn at any time for reasons of general market changes or changes in our financial condition
or for no reason at all.
The Series A Preferred Stock is not convertible
into Class A Common Stock, including in the event of a Change of Control, and investors will not realize a corresponding upside if the
price of the Class A Common Stock increases.
The Series A Preferred Stock is not convertible
into shares of Class A Common Stock and earns dividends at a fixed rate. Accordingly, an increase in market price of our Class A Common
Stock will not necessarily result in an increase in the market price of our Series A Preferred Stock. The market value of the Series A
Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial paper and other investment alternatives
and our actual and perceived ability to pay dividends on, and in the event of dissolution satisfy the liquidation preference with respect
to, the Series A Preferred Stock.
PUBLIC MARKET FOR OUR SECURITIES
Our Class A Common Stock has been trading on the
Nasdaq Global Market under the symbol “CSSE” since July 26, 2017. Our Series A Preferred Stock has been trading on the Nasdaq
Global Market under the symbol “CSSEP” since June 27, 2018.
USE OF PROCEEDS
We intend to use the net proceeds from the sale
of Class A Common Stock and Series A Preferred Stock by us in this offering for working capital and other general corporate purposes including
mergers and acquisitions, debt repayments, dividends, and share repurchases. Pending the application of such proceeds, we expect to invest
the proceeds in short-term, interest bearing, investment-grade marketable securities or money market obligations.
CAPITALIZATION
The following table sets forth our capitalization
as of September 30, 2021 on an actual basis and on an as adjusted basis after giving effect to the sale by us of an aggregate of (i) 6,729,475
shares of Class A Common Stock offered hereby at an offering price of $14.86 per share, which was the closing price of our Class A Common
Stock on the Nasdaq Global Market on December 22, 2021, or (ii) 3,732,736 shares of Series A Preferred Stock offered hereby at an offering
price of $25.00 per share, and in each case after deducting estimated offering expenses payable by us.
You should read this table together with our financial
statements and the related notes thereto, as well as “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and the other financial information, incorporated by reference in this prospectus supplement or the accompanying
base prospectus from our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the nine months ended September 30, 2021.
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|
September 30, 2021
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
As Adjusted
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
Series A Preferred (1)
|
|
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Class A Common (2)
|
|
Series A 9.75% cumulative redeemable perpetual preferred stock, $.0001
par value, liquidation preference of $25.00 per share, 10,000,000 shares authorized; 3,698,318 and adjusted 7,432,448 shares issued and
outstanding, respectively, redemption value of $92,457,950 and adjusted $185,811,199, respectively
|
|
|
370
|
|
|
|
770
|
|
|
|
370
|
|
Class A Common Stock, $.0001 par value, 70,000,000 shares authorized;
8,797,883 shares issued and 8,723,648 shares outstanding, and adjusted 15,482,375 shares issued and 15,408,140 shares outstanding, respectively
|
|
|
881
|
|
|
|
881
|
|
|
|
1,554
|
|
Class B Common Stock, $.0001 par value, 20,000,000 shares authorized; 7,654,506 shares issued and outstanding, respectively
|
|
|
766
|
|
|
|
766
|
|
|
|
766
|
|
Additional paid-in capital
|
|
|
238,708,111
|
|
|
|
338,707,711
|
|
|
|
338,707,438
|
|
Retained deficit
|
|
|
(114,056,757
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)
|
|
|
(114,056,757
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)
|
|
|
(114,056,757
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)
|
Class A Common Stock held in
treasury, at cost (74,235 shares)
|
|
|
(632,729
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)
|
|
|
(632,729
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)
|
|
|
(632,729
|
)
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Total stockholders’ equity
|
|
$
|
124,020,642
|
|
|
$
|
224,020,642
|
|
|
$
|
224,020,642
|
|
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(1)
|
Reflects the sale of the full amount of securities offered under this
prospectus supplement as shares of our Series A Preferred Stock, or 4,00,000 shares of Series A Preferred Stock at an offering price of
$25.00 per share (the minimum offering price at which the shares of Series A Preferred Stock may be sold is $25.00 per share), for aggregate
gross proceeds of $100,000,000.
|
|
(2)
|
Reflects the sale of the full amount of securities offered under this
prospectus supplement as shares of our Class A Common Stock, or 6,729,475 shares of Class A Common Stock at an offering price of $14.86
per share (last sale market price on December 22, 2021), for aggregate gross proceeds of approximately $100,000,000.
|
The table above is based on:
|
●
|
8,723,648 shares of Class A Common Stock outstanding as of September
30, 2021, and excludes, as of such date:
|
|
|
|
|
o
|
1,342,989 shares of Class A Common Stock reserved for issuance pursuant to outstanding options and stock awards under our 2017 stock incentive plan (“2017 Plan”);
|
|
|
|
|
o
|
an additional 715,069 shares of Class A Common Stock available for
issuance under the 2017 Plan;
|
|
|
|
|
o
|
527,212 shares of Class A Common Stock underlying our outstanding Class W warrants with an exercise price of $7.50 per share, 123,445 shares of Class A Common Stock underlying our Class Z warrants with an exercise price of $12.00 per share, 800,000 shares of Class A Common Stock underlying our outstanding Class I Warrants with an exercise price of $8.13 per share, 1,200,000 shares of Class A Common Stock underlying our Class II Warrants with an exercise price of $9.67 per share, 380,000 shares of Class A Common Stock underlying our Class III-A Warrants with an exercise price of $11.61 per share, and 1,620,000 shares of Class A Common Stock underlying our Class III-B Warrants with an exercise price of $11.61 per share.
|
|
|
|
|
●
|
7,654,506 shares of Class B Common Stock outstanding as of September 30, 2021; and
|
|
|
|
|
●
|
3,698,318
shares of Series A Preferred Stock outstanding as of September 30, 2021.
|
|
|
|
|
|
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
On May 21, 2021, the Company consummated its acquisition
of the principal assets of Sonar Entertainment, Inc. (“SEI”) and certain of the direct and indirect subsidiaries of SEI (collectively,
“Sonar”), pursuant to the terms of asset purchase agreement (“APA”), dated as of April 8, 2021, by and among the
Company, Halcyon Television LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Halcyon”),
and with respect to certain provisions, Parkside Entertainment Inc., a Canadian company (“Parkside” and, collectively with
the Company and Halcyon, the “CSSE Buyer”), on the one hand, and Sonar, on the other hand.
The following unaudited pro forma condensed combined financial information
was prepared using the acquisition method of accounting (ASC 805 “Business Combinations”), with the Company considered the
acquirer of SEI.
We are providing this unaudited pro forma condensed combined statement
of operations of the Company for the nine months ended September 30, 2021 in accordance with Article 11 of Regulation S-X as an update
to the unaudited condensed combined statements of operations of the Company for the quarter ended March 31, 2021, which were included
in Exhibit 99.2 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission (“SEC”) on June 11,
2021. This updated unaudited pro forma condensed combined statement of operations shows the pro forma effect of the SEI transaction for
the nine months ended September 30, 2021, as if the transaction had been completed on January 1, 2020, consistent with the initial unaudited
pro forma condensed combined statements of operations previously filed.
The unaudited pro forma condensed combined financial information included
herein presents the combination of the historical consolidated statement of operations of the Company and statement of operations of SEI
adjusted to give effect to events and circumstances that are (i) directly attributable to the acquisition, (ii) factually supportable
and (iii) expected to have a continuing impact on the combined company’s results.
The unaudited pro forma condensed combined financial information should
be read in conjunction with the Company’s unaudited historical consolidated financial statements as of and for the nine months ended
September 30, 2021, which were filed with the SEC as part of our Quarterly Report on Form 10-Q filed on November 8, 2021, and the audited
historical financial statements as of and for the years ended December 31, 2021 and 2020 of SEI, which were filed with the SEC as Exhibit
99.1 to the Current Report on Form 8-K/A filed on June 11, 2021.
In management’s opinion, all adjustments necessary to reflect
the significant effects of the SEI transaction have been made. These combined financial statements are based on assumptions and estimates
considered appropriate by our management; however, they are unaudited and are not necessarily, and should not be assumed to be, an indication
of our financial position or results of operations that would have been achieved had the acquisitions been completed as of the dates indicated
or that may be achieved in the future.
The unaudited pro forma condensed combined financial information is
being provided for illustrative purposes only and does not purport to represent what the actual results of operations of SEI would have
been had the SEI Transaction occurred on the date assumed or any other date, nor is it necessarily indicative of SEI’s future results
of operations for any future period or as of any future date. The unaudited pro forma condensed combined financial information is based
upon currently available information and estimates and assumptions that the Company’s management believes are reasonable as of the
date hereof. Any of the factors underlying these estimates and assumptions may change or prove to be materially different.
Chicken Soup for the Soul Entertainment, Inc.
Pro Forma Condensed Combined Statement of Operations
For The Nine Months Ended September 30, 2021
(unaudited)
|
|
|
|
|
|
|
|
Transaction
|
|
|
|
|
|
|
|
CSSE (1)
|
|
SEI (2) (3)
|
|
SEI (4)
|
|
Accounting
|
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
Historical
|
|
Historical
|
|
Adjustments
|
|
Notes
|
|
Combined
|
|
Net revenue
|
|
$
|
74,428,631
|
|
$
|
4,999,708
|
|
$
|
953,686
|
|
$
|
|
|
|
|
$
|
80,382,025
|
|
Cost of revenue
|
|
|
54,533,027
|
|
|
3,638,690
|
|
|
543,812
|
|
|
|
|
|
|
|
58,715,529
|
|
Gross profit
|
|
|
19,895,604
|
|
|
1,361,018
|
|
|
409,874
|
|
|
|
|
|
|
|
21,666,496
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
35,237,480
|
|
|
2,509,614
|
|
|
3,786,458
|
|
|
(196,902
|
)
|
A
|
|
|
41,336,650
|
|
Amortization and depreciation
|
|
|
4,114,355
|
|
|
|
|
|
|
|
|
500,000
|
|
B
|
|
|
4,614,355
|
|
Management and license fees
|
|
|
7,442,863
|
|
|
|
|
|
|
|
|
595,340
|
|
C
|
|
|
8,038,203
|
|
Total operating expenses
|
|
|
46,794,698
|
|
|
2,509,614
|
|
|
3,786,458
|
|
|
898,438
|
|
|
|
|
53,989,208
|
|
Operating loss
|
|
|
(26,899,094
|
)
|
|
(1,148,596
|
)
|
|
(3,376,584
|
)
|
|
(898,438
|
)
|
|
|
|
(32,322,712
|
)
|
Interest expense
|
|
|
3,533,940
|
|
|
17,852,343
|
|
|
10,201,658
|
|
|
(27,718,673
|
)
|
D
|
|
|
3,869,268
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Acquisition-related costs
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Other non-operating income, net
|
|
|
(247,037
|
)
|
|
(340
|
)
|
|
(9,556
|
)
|
|
9,896
|
|
E
|
|
|
(247,037
|
)
|
Loss before income taxes and preferred dividends
|
|
|
(30,185,997
|
)
|
|
(19,000,599
|
)
|
|
(13,568,686
|
)
|
|
26,810,339
|
|
|
|
|
(35,944,943
|
)
|
Provision for income taxes
|
|
|
59,000
|
|
|
6,047
|
|
|
5,027
|
|
|
—
|
|
|
|
|
70,074
|
|
Net loss before noncontrolling interests and preferred dividends
|
|
|
(30,244,997
|
)
|
|
(19,006,646
|
)
|
|
(13,573,713
|
)
|
|
26,810,339
|
|
|
|
|
(36,015,017
|
)
|
Net income (loss) attributable to noncontrolling interests
|
|
|
9,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,085
|
|
Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.
|
|
|
(30,254,082
|
)
|
|
(19,006,646
|
)
|
|
(13,573,713
|
)
|
|
26,810,339
|
|
|
|
|
(36,024,102
|
)
|
Less: preferred dividends
|
|
|
6,760,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,760,155
|
|
Net loss available to common stockholders
|
|
$
|
(37,014,237
|
)
|
$
|
(19,006,646
|
)
|
$
|
(13,573,713
|
)
|
$
|
26,810,339
|
|
|
|
$
|
(42,784,257
|
)
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(2.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2.93
|
)
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
14,622,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,622,787
|
|
(1)
|
The Company’s financial
information presented is as filed in our unaudited Quarterly Report on Form 10-Q for the
nine months ended September 30, 2021 filed on November 8, 2021, which includes SEI financial
information from the date of acquisition beginning May 22, 2021 through September 30, 2021.
|
(2)
|
SEI financial information
presented is for the period from January 1, 2021 to March 31, 2021 as filed on Form 8-K/A,
on June 11, 2021.
|
(3)
|
Certain reclassifications
were made to conform to CSSE’s financial statement presentation.
|
(4)
|
SEI financial information
presented is for the period from April 1, 2021 to May 21, 2021.
|
See accompanying notes to unaudited pro forma
condensed combined information.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
Note 1 – Unaudited Pro Forma Condensed
Combined Statement of Operations Adjustments for the Nine Months Ended September 30, 2021
Adjustments included in the column under the heading
“Transaction Adjustments” in the Unaudited Condensed Combined Statement of Operations for the nine months ended September
30, 2021, which assume the transaction occurred as of January 1, 2020 consist of the following:
A
|
Represents adjustment to eliminate historical nonrecurring Sonar Entertainment costs included on the financial statements of the company not directly attributable to the transaction including professional, legal and other overhead expenses.
|
|
$
|
(196,902)
|
|
B
|
Represents adjustment to record valued acquisition related Intangible Asset amortization over the useful life of the intangible assets for the period presented on a straight-line basis.
|
|
$
|
500,000
|
|
C
|
Represents adjustment to record additional management and license fees to be owed to affiliated company based on revenues earned under existing management & licensing agreements.
|
|
$
|
595,340
|
|
D
|
Represents adjustment to eliminate interest expense related to Sonar Entertainment debt facilities, as the debt was not assumed as part of the business combination.
|
|
$
|
(28,054,001)
|
|
|
Represents adjustment to record interest expense on the revolving loan agreement entered by the Company directly related to the acquisition of Sonar Entertainment.
|
|
|
335,328
|
|
|
|
|
$
|
(27,718,673
|
)
|
|
|
|
|
|
|
E
|
Represents adjustment to eliminate Sonar Entertainment non-operating income not applicable to the transaction and ongoing business.
|
|
$
|
9,896
|
|
DESCRIPTION OF SECURITIES
Authorized Capital Stock
We are authorized to issue 70,000,000 shares of
Class A Common Stock, 20,000,000 shares of Class B Common Stock, and 10,000,000 shares of preferred stock, of which 4,300,000 has been
designated as Series A Preferred Stock (which we may increase at any time in our discretion).
Common Stock
Holders of shares of Class A Common Stock and
Class B Common Stock have substantially identical rights, except that holders of shares of Class A Common Stock are entitled to one vote
per share and holders of shares of Class B Common Stock are entitled to ten votes per share. Holders of shares of Class A Common Stock
and Class B Common Stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders,
unless otherwise required by law or our charter. There is no cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the voting power voting for the election of directors can elect all of the directors.
Shares of Class A Common Stock and Class B Common
Stock are treated equally, identically and ratably, on a per share basis, with respect to any dividends or distributions as may be declared
and paid from time to time by the board of directors out of any assets legally available therefor. Our common stock is not entitled to
preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
The outstanding shares of Class B Common Stock
are convertible at any time as follows: (a) at the option of the holder, a share of Class B Common Stock may be converted at any time
into one share of Class A Common Stock or (b) upon the election of the holders of a majority of the then outstanding shares of Class B
Common Stock, all outstanding shares of Class B Common Stock may be converted into shares of Class A Common Stock. Once converted into
Class A Common Stock, the Class B Common Stock will not be reissued.
Series A Preferred Stock
Credit Rating
Our Series A Preferred Stock has been rated BBB(-)
by Egan-Jones Rating Co., a Nationally Recognized Statistical Rating Organization (“NRSRO”). The Series A Preferred Stock
has not been rated by any other NRSRO or other agency. A securities rating reflects only the view of a rating agency and is not a recommendation
to buy, sell, or hold the Series A Preferred Stock. Any rating may be subject to revision upward or downward or withdrawal at any time
by a rating agency if such rating agency decides that circumstances warrant that change. Each rating should be evaluated independently
of any other rating. No report of any rating agency is being incorporated herein by reference.
The credit ratings assigned by Egan-Jones are
based, in varying degrees, on the following considerations:
|
·
|
Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
|
|
·
|
Nature of and provisions of the obligation; and
|
|
·
|
Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.
|
Credit ratings assigned by Egan-Jones are expressed
in terms of default risk. The rating scale utilized by Egan-Jones is as follows:
|
·
|
AAA — An obligation rated “AAA” has the highest rating assigned by Egan-Jones. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
|
|
·
|
AA — An obligation rated “AA” differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
|
|
·
|
A — An obligation rated “A” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong
|
|
·
|
BBB — An obligation rated “BBB” exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
|
|
·
|
BB, B, CCC, CC, and C — Obligations rated “BB”, “B”, “CCC”, “CC”, and “C” are regarded as having significant speculative characteristics. “BB” indicates the least degree of speculation and “C” the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
|
|
·
|
D — An obligation rated “D” is in payment default. The “D” rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Egan-Jones believes that such payments will be made during such grace period. The “D” rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
|
|
·
|
Plus (+) or minus (-) — The ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
|
No Maturity, Sinking Fund or Mandatory Redemption
The Series A Preferred Stock has no stated maturity
and will not be subject to any sinking fund or mandatory redemption. Shares of the Series A Preferred Stock will remain outstanding indefinitely
unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem the Series A Preferred Stock.
Ranking
The Series A Preferred Stock ranks, with respect
to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up:
|
·
|
senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred to in the next two bullet points below;
|
|
·
|
on a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up;
|
|
·
|
junior to all equity securities issued by us with terms specifically providing for ranking senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (please see the section entitled “Voting Rights” below); and
|
|
·
|
effectively junior to all our existing and future indebtedness (including indebtedness convertible to our common stock or preferred stock) and to any indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries.
|
Dividends
Holders of shares of the Series A Preferred Stock
are entitled to receive, when, as and if declared by our board of directors, out of funds of the Company legally available for the payment
of dividends, cumulative cash dividends at the rate of 9.75% of the $25.00 per share liquidation preference per annum (equivalent to $2.4375
per annum per share). Dividends on the Series A Preferred Stock shall be payable monthly on the 15th day of each month; provided that
if any dividend payment date is not a business day, as defined in the certificate of designations, then the dividend that would otherwise
have been payable on that dividend payment date may be paid on the next succeeding business day and no interest, additional dividends
or other sums will accrue on the amount so payable for the period from and after that dividend payment date to that next succeeding business
day. Any dividend payable on the Series A Preferred Stock, including dividends payable for any partial dividend period, will be computed
on the basis of a 360-day year consisting of twelve 30-day months; however, the shares of Series A Preferred Stock offered hereby will
be credited as having accrued dividends since the first day of the calendar month in which they are issued. Dividends will be payable
to holders of record as they appear in our stock records for the Series A Preferred Stock at the close of business on the applicable record
date, which shall be the last day of the calendar month, whether or not a business day, immediately preceding the month in which the applicable
dividend payment date falls. As a result, holders of shares of Series A Preferred Stock will not be entitled to receive dividends on a
dividend payment date if such shares were not issued and outstanding on the applicable dividend record date.
No dividends on shares of Series A Preferred Stock
shall be authorized by our board of directors or paid or set apart for payment by us at any time when the terms and provisions of any
agreement of ours, including any agreement relating to our indebtedness, prohibit the authorization, payment or setting apart for payment
thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach of the agreement or
a default under the agreement, or if the authorization, payment or setting apart for payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the
Series A Preferred Stock will accrue whether or not we have earnings, whether or not there are funds legally available for the payment
of those dividends and whether or not those dividends are declared by our board of directors. No interest, or sum in lieu of interest,
will be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may be in arrears, and holders of
the Series A Preferred Stock will not be entitled to any dividends in excess of full cumulative dividends described above. Any dividend
payment made on the Series A Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect
to those shares.
Future distributions on our common stock and preferred
stock, including the Series A Preferred Stock, will be at the discretion of our board of directors and will depend on, among other things,
our results of operations, cash flow from operations, financial condition and capital requirements, any debt service requirements and
any other factors our board of directors deems relevant. Accordingly, we cannot guarantee that we will be able to make cash distributions
on our preferred stock or what the actual distributions will be for any future period.
Unless full cumulative dividends on all shares
of Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof
has been or contemporaneously is set apart for payment for all past dividend periods, no dividends (other than in shares of common stock
or in shares of any series of preferred stock that we may issue ranking junior to the Series A Preferred Stock as to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up) shall be declared or paid or set aside for payment upon shares
of our common stock or preferred stock that we may issue ranking junior to, or on a parity with, the Series A Preferred Stock as to the
payment of dividends or the distribution of assets upon liquidation, dissolution or winding up. Nor shall any other distribution be declared
or made upon shares of our common stock or preferred stock that we may issue ranking junior to, or on a parity with, the Series A Preferred
Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up. Also, any shares of our
common stock or preferred stock that we may issue ranking junior to or on a parity with the Series A Preferred Stock as to the payment
of dividends or the distribution of assets upon liquidation, dissolution or winding up shall not be redeemed, purchased or otherwise acquired
for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any such shares) by us (except
by conversion into or exchange for our other capital stock that we may issue ranking junior to the Series A Preferred Stock as to the
payment of dividends and the distribution of assets upon liquidation, dissolution or winding up).
When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and the shares of any other series of preferred
stock that we may issue ranking on a parity as to the payment of dividends with the Series A Preferred Stock, all dividends declared upon
the Series A Preferred Stock and any other series of preferred stock that we may issue ranking on a parity as to the payment of dividends
with the Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Preferred
Stock and such other series of preferred stock that we may issue shall in all cases bear to each other the same ratio that accrued dividends
per share on the Series A Preferred Stock and such other series of preferred stock that we may issue (which shall not include any accrual
in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to each other.
No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred
Stock that may be in arrears.
Liquidation Preference
In the event of our voluntary or involuntary liquidation,
dissolution or winding up, the holders of shares of Series A Preferred Stock will be entitled to be paid out of the assets we have legally
available for distribution to our shareholders, subject to the preferential rights of the holders of any class or series of our capital
stock we may issue ranking senior to the Series A Preferred Stock with respect to the distribution of assets upon liquidation, dissolution
or winding up, a liquidation preference of $25.00 per share, plus an amount equal to any accumulated and unpaid dividends to, but not
including, the date of payment, before any distribution of assets is made to holders of our common stock or any other class or series
of our capital stock we may issue that ranks junior to the Series A Preferred Stock as to liquidation rights.
In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the amount of the liquidating distributions
on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of other classes or series of
our capital stock that we may issue ranking on a parity with the Series A Preferred Stock in the distribution of assets, then the holders
of the Series A Preferred Stock and all other such classes or series of capital stock shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
We will use commercially reasonable efforts to
provide written notice of any such liquidation, dissolution or winding up no fewer than 10 days prior to the payment date. After payment
of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Stock will have no right
or claim to any of our remaining assets. The consolidation or merger of us with or into any other corporation, trust or entity or of any
other entity with or into us, or the sale, lease, transfer or conveyance of all or substantially all of our property or business, shall
not be deemed a liquidation, dissolution or winding up of us (although such events may give rise to the special optional redemption to
the extent described below).
Optional Redemption
On and after June 27, 2023, we may, at our option,
upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Preferred Stock, in whole or in part, at any time
or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends thereon to,
but not including, the date fixed for redemption.
Special Optional Redemption
Upon the occurrence of a Change of Control, we
may, at our option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Preferred Stock, in whole or
in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share,
plus any accumulated and unpaid dividends thereon to, but not including, the redemption date.
A “Change of Control” is deemed to
occur when the following have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act (other than Mr. Rouhana, the chairman of our board of directors, our chief executive officer and our principal stockholder, any member of his immediate family, and any “person” or “group” under Section 13(d)(3) of the Exchange Act, that is controlled by Mr. Rouhana or any member of his immediate family, any beneficiary of the estate of Mr. Rouhana, or any trust, partnership, corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
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following the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American, or Nasdaq, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American, or Nasdaq.
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Redemption Procedures
In the event we elect to redeem Series A Preferred
Stock, the notice of redemption will be mailed to each holder of record of Series A Preferred Stock called for redemption at such holder’s
address as it appears on our stock transfer records, not less than 30 nor more than 60 days prior to the redemption date, and will state
the following:
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the number of shares of Series A Preferred Stock to be redeemed;
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the place or places where certificates (if any) for the Series A Preferred Stock are to be surrendered for payment of the redemption price;
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that dividends on the shares to be redeemed will cease to accumulate on the redemption date;
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whether such redemption is being made pursuant to the provisions described above under “—Optional Redemption” or “—Special Optional Redemption”; and
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if applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description of the transaction or transactions constituting such Change of Control.
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If less than all of the Series A Preferred Stock
held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series A Preferred
Stock held by such holder to be redeemed. No failure to give such notice or any defect thereto or in the mailing thereof shall affect
the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was
defective or not given.
Holders of Series A Preferred Stock to be redeemed
shall surrender the Series A Preferred Stock at the place designated in the notice of redemption and shall be entitled to the redemption
price and any accumulated and unpaid dividends payable upon the redemption following the surrender. If notice of redemption of any shares
of Series A Preferred Stock has been given and if we have irrevocably set aside the funds necessary for redemption in trust for the benefit
of the holders of the shares of Series A Preferred Stock so called for redemption, then from and after the redemption date (unless default
shall be made by us in providing for the payment of the redemption price plus accumulated and unpaid dividends, if any), dividends will
cease to accrue on those shares of Series A Preferred Stock, those shares of Series A Preferred Stock shall no longer be deemed outstanding
and all rights of the holders of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid
dividends, if any, payable upon redemption. If any redemption date is not a business day, then the redemption price and accumulated and
unpaid dividends, if any, payable upon redemption may be paid on the next business day and no interest, additional dividends or other
sums will accrue on the amount payable for the period from and after that redemption date to that next business day. If less than all
of the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro rata
(as nearly as may be practicable without creating fractional shares) or by any other equitable method we determine.
In connection with any redemption of Series A
Preferred Stock, we shall pay, in cash, any accumulated and unpaid dividends to, but not including, the redemption date, unless a redemption
date falls after a dividend record date and prior to the corresponding dividend payment date, in which case each holder of Series A Preferred
Stock at the close of business on such dividend record date shall be entitled to the dividend payable on such shares on the corresponding
dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as provided above, we will
make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of the Series A Preferred Stock to be redeemed.
No shares of Series A Preferred Stock shall be
redeemed unless full cumulative dividends on all shares of Series A Preferred Stock have been or contemporaneously are declared and paid
and all outstanding shares of Series A Preferred Stock are simultaneously redeemed. We shall not otherwise purchase or acquire directly
or indirectly any shares of Series A Preferred Stock (except by exchanging it for our capital stock ranking junior to the Series A Preferred
Stock as to the payment of dividends and distribution of assets upon liquidation, dissolution or winding up); provided, however, that
the foregoing shall not prevent the purchase or acquisition by us of shares of Series A Preferred Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock.
Subject to applicable law, we may purchase shares
of Series A Preferred Stock in the open market, by tender or by private agreement. Any shares of Series A Preferred Stock that we acquire
may be retired and reclassified as authorized but unissued shares of preferred stock, without designation as to class or series, and may
thereafter be reissued as any class or series of preferred stock.
Voting Rights
Holders of the Series A Preferred Stock do not
have any voting rights, except as set forth below or as otherwise required by law.
On each matter on which holders of Series A Preferred
Stock are entitled to vote, each share of Series A Preferred Stock will be entitled to one vote. In instances described below where holders
of Series A Preferred Stock vote with holders of any other class or series of our preferred stock as a single class on any matter, the
Series A Preferred Stock and the shares of each such other class or series will have one vote for each $25.00 of liquidation preference
(excluding accumulated dividends) represented by their respective shares.
Whenever dividends on any shares of Series A Preferred
Stock are in arrears for eighteen or more monthly dividend periods, whether or not consecutive, the number of directors constituting our
board of directors will be automatically increased by two (if not already increased by two by reason of the election of directors by the
holders of any other class or series of our preferred stock we may issue upon which like voting rights have been conferred and are exercisable
and with which the Series A Preferred Stock is entitled to vote as a class with respect to the election of those two directors) and the
holders of Series A Preferred Stock (voting separately as a class with all other classes or series of preferred stock we may issue upon
which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred
Stock in the election of those two directors) will be entitled to vote for the election of those two additional directors (the “preferred
stock directors”) at a special meeting called by us at the request of the holders of record of at least 25% of the outstanding shares
of Series A Preferred Stock or by the holders of any other class or series of preferred stock upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of those two
preferred stock directors (unless the request is received less than 90 days before the date fixed for the next annual or special meeting
of shareholders, in which case, such vote will be held at the earlier of the next annual or special meeting of shareholders), and at each
subsequent annual meeting until all dividends accumulated on the Series A Preferred Stock for all past dividend periods and the then current
dividend period have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In that case, the
right of holders of the Series A Preferred Stock to elect any directors will cease and, unless there are other classes or series of our
preferred stock upon which like voting rights have been conferred and are exercisable, any preferred stock directors elected by holders
of the Series A Preferred Stock shall immediately resign and the number of directors constituting the board of directors shall be reduced
accordingly. In no event shall the holders of Series A Preferred Stock be entitled under these voting rights to elect a preferred stock
director that would cause us to fail to satisfy a requirement relating to director independence of any national securities exchange or
quotation system on which any class or series of our capital stock is listed or quoted. For the avoidance of doubt, in no event shall
the total number of preferred stock directors elected by holders of the Series A Preferred Stock (voting separately as a class with all
other classes or series of preferred stock we may issue upon which like voting rights have been conferred and are exercisable and which
are entitled to vote as a class with the Series A Preferred Stock in the election of such directors) under these voting rights exceed
two. Any person nominated to serve as a director of the Company under the foregoing terms shall be reasonably acceptable to the Company.
If a special meeting is not called by us within
30 days after request from the holders of Series A Preferred Stock as described above, then the holders of record of at least 25% of the
outstanding Series A Preferred Stock may designate a holder to call the meeting at our expense.
If, at any time when the voting rights conferred
upon the Series A Preferred Stock are exercisable, any vacancy in the office of a preferred stock director shall occur, then such vacancy
may be filled only by a written consent of the remaining preferred stock director, or if none remains in office, by vote of the holders
of record of the outstanding Series A Preferred Stock and any other classes or series of preferred stock upon which like voting rights
have been conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of
the preferred stock directors. Any preferred stock director elected or appointed may be removed only by the affirmative vote of holders
of the outstanding Series A Preferred Stock and any other classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable and which classes or series of preferred stock are entitled to vote as a class with the Series A Preferred
Stock in the election of the preferred stock directors, such removal to be effected by the affirmative vote of a majority of the votes
entitled to be cast by the holders of the outstanding Series A Preferred Stock and any such other classes or series of preferred stock,
and may not be removed by the holders of the common stock.
So long as any shares of Series A Preferred Stock
remain outstanding, we will not, without the affirmative vote or consent of the holders of at least 66.67% of the votes entitled to be
cast by the holders of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting
(voting together as a class with all other series of parity preferred stock that we may issue upon which like voting rights have been
conferred and are exercisable), (a) authorize or create, or increase the authorized or issued amount of, any class or series of capital
stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any of our authorized capital stock into such shares, or create, authorize or issue any obligation
or security convertible into or evidencing the right to purchase any such shares; or (b) unless redeeming all Series A Preferred Stock
in connection with such action, amend, alter, repeal or replace our certificate of incorporation, including by way of a merger, consolidation
or otherwise in which we may or may not be the surviving entity, so as to materially and adversely affect and deprive holders of Series
A Preferred Stock of any right, preference, privilege or voting power of the Series A Preferred Stock (each, an “Event”).
An increase in the amount of the authorized preferred stock, including the Series A Preferred Stock, or the creation or issuance of any
additional Series A Preferred Stock or other series of preferred stock that we may issue, or any increase in the amount of authorized
shares of such series, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed an Event and will not require us to obtain
66.67% of the votes entitled to be cast by the holders of the Series A Preferred Stock and all such other similarly affected series, outstanding
at the time (voting together as a class).
The foregoing voting provisions will not apply
if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be affected, all outstanding
shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have
been deposited in trust to affect such redemption.
Except as expressly stated in the certificate
of designations or as may be required by applicable law, the Series A Preferred Stock do not have any relative, participating, optional
or other special voting rights or powers and the consent of the holders thereof shall not be required for the taking of any corporate
action.
No Conversion Rights
The Series A Preferred Stock is not convertible
into our common stock or any other security.
No Preemptive Rights
No holders of the Series A Preferred Stock will,
as holders of Series A Preferred Stock, have any preemptive rights to purchase or subscribe for our common stock or any other security.
PLAN OF DISTRIBUTION
We have entered into
a sales agreement with Virtu Americas, Inc., or Virtu Americas, under which we may issue and
sell shares of our Class A Common Stock and Series A Preferred Stock and having aggregate gross sales proceeds of up to $100,000,000
from time to time through or to Virtu Americas, as sales agent or principal. The minimum offering price at which the shares of Series
A Preferred Stock may be sold is $25.00 per share. Virtu Americas may sell the Class A Common Stock and Series A Preferred Stock by any
method that is deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act.
Each time we wish to
issue and sell Class A Common Stock and/or Series A Preferred Stock under the sales agreement, we will notify Virtu Americas of the number
or dollar value of shares of Class A Common Stock and/or Series A Preferred Stock to be issued, the dates on which such sales are anticipated
to be made, and any minimum price below which sales shares of Class A Common Stock and/or Series A Preferred Stock may not be made. Once
we have so instructed Virtu Americas, unless Virtu Americas declines to accept the terms of such notice, Virtu Americas has agreed to
use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such shares up to the amount specified
on such terms. The obligations of Virtu Americas under the sales agreement to sell our Class A Common Stock and Series A Preferred Stock
are subject to a number of customary conditions that we must meet.
Settlement for shares
of our Class A Common Stock and Series A Preferred Stock will occur on the second trading day following the date on which the sale was
made. Sales of our Class A Common Stock and Series A Preferred Stock as contemplated in this prospectus supplement will be settled through
the facilities of The Depository Trust Company or by such other means as we and Virtu Americas may agree upon. There is no arrangement
for funds to be received in an escrow, trust or similar arrangement.
We will pay Virtu Americas
a commission of up to 3% of the gross proceeds from each sale. We also agreed to reimburse Virtu Americas for its legal expenses of $50,000
in connection with entering into the sales agreement, plus (i) $2,500 upon the filing of certain financial information, including the
Company’s annual and quarterly reports and the filing of certain post-effective amendments to the registration statement of which
this prospectus supplement forms a part, and (ii) up to $15,000 in connection with the filing of any prospectus supplement. Because there
is no minimum offering amount required as a condition to close this offering, the actual total public offering amount, commissions and
proceeds to us, if any, are not determinable at this time. In connection with the sale of the Class A Common Stock and Series A Preferred
Stock on our behalf, Virtu Americas will be deemed to be an “underwriter” within the meaning of the Securities Act as amended,
and the compensation of Virtu Americas will be deemed to be underwriting commissions or discounts. We have agreed to provide indemnification
and contribution to Virtu Americas with respect to certain civil liabilities, including liabilities under the Securities Act. We estimate
that the total expenses for the offering, excluding compensation payable to Virtu Americas and expense reimbursement under the terms
of the sales agreement, will be up to approximately $150,000.
The offering of our Class
A Common Stock and Series A Preferred Stock pursuant to the sales agreement will terminate upon the termination of the sales agreement
as described therein. We and Virtu Americas may each terminate the sales agreement at any time upon ten days’ prior notice.
This summary of the material
provisions of the sales agreement does not purport to be a complete statement of its terms and conditions. A copy of the sales agreement
is filed with the SEC and is incorporated by reference into the registration statement of which this prospectus supplement is a part.
See “Where You Can Find More Information” below.
To the extent required
by Regulation M under the Exchange Act, Virtu Americas will not engage in any market making activities involving our common stock while
the offering is ongoing under this prospectus.
Virtu Americas and its
affiliates have in the past and may in the future provide various investment banking and/or other financial services for us and/or our
affiliates, for which services they may in the future receive customary fees.
In addition, the sales
agreement provides that we will not (i) take any action designed to cause or result in, or that constitutes or would reasonably be
expected to constitute, the stabilization or manipulation of the price of any of our securities to facilitate the sale or resale of common
stock, or (ii) sell, bid for, or purchase common stock in violation of Regulation M, or pay anyone any compensation for soliciting
purchases of the common stock under the sales agreement other than Virtu Americas.
CERTAIN
U.S. FEDERAL TAX CONSIDERATIONS
The following general
discussion summarizes certain U.S. federal income tax considerations that may be applicable to “U.S. holders” and “Non-U.S.
holders” (each as defined below) with respect to the initial purchase, ownership and disposition of shares of the Class A Common
Stock and Series A Preferred Stock offered by this prospectus. This discussion only applies to purchasers who purchase and hold the shares
of Class A Common Stock or Series A Preferred Stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the “Code”) (generally property held for investment). This discussion does not describe all of the tax
consequences that may be relevant to each purchaser or holder of the Class A Common Stock or Series A Preferred Stock in light of his,
her, or its particular circumstances.
This discussion is based
upon provisions of the Code, U.S. Treasury regulations, rulings and judicial decisions as of the date hereof. These authorities may change,
perhaps retroactively, which could result in U.S. federal income tax consequences different from those summarized below. This discussion
does not address all aspects of U.S. federal income taxation (such as the alternative minimum tax) and does not describe any foreign,
state, local or other tax considerations that may be relevant to a purchaser or holder of the Class A Common Stock or Series A Preferred
Stock in light of their particular circumstances. In addition, this discussion does not describe the U.S. federal income tax consequences
applicable to a purchaser or a holder of the Class A Common Stock or Series A Preferred Stock who is subject to special treatment under
U.S. federal income tax laws (including, a corporation that accumulates earnings to avoid U.S. federal income tax, a pass-through entity
or an investor in a pass-through entity, a tax-exempt entity, pension or other employee benefit plans, financial institutions or broker-dealers,
persons holding the Class A Common Stock or Series A Preferred Stock as part of a hedging or conversion transaction or straddle, a person
subject to the alternative minimum tax, an insurance company, former U.S. citizens or former long-term U.S. residents). We cannot assure
you that a change in law will not significantly alter the tax considerations that we describe in this discussion.
If a partnership (or
any other entity treated as a partnership for U.S. federal income tax purposes) holds the Class A Common Stock or Series A Preferred Stock,
the U.S. federal income tax treatment of a partner of that partnership generally will depend upon the status of the partner and the activities
of the partnership. If you are a partnership or a partner of a partnership holding the Class A Common Stock or Series A Preferred Stock,
you should consult your tax advisors as to the particular U.S. federal income tax consequences of acquiring, holding and disposing of
the Class A Common Stock or Series A Preferred Stock.
You should consult your
own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of these securities, as
well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of
changes in U.S. federal or other tax laws.
U.S.
Holders
Subject
to the qualifications set forth above, the following discussion summarizes certain U.S. federal income tax considerations that may relate
to the purchase, ownership and disposition of the Class A Common Stock or Series A Preferred Stock by “U.S. holders.” You
are a “U.S. holder” if you are a beneficial owner of Class A Common Stock or Series A Preferred Stock and you are for U.S.
federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust if it (i) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
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Distributions in
General
If distributions are
made with respect to the Class A Common Stock or Series A Preferred Stock, as applicable, such distributions will be treated as dividends
to the extent of our current or accumulated earnings and profits as determined under the Code. Any portion of a distribution that exceeds
such earnings and profits will first be applied to reduce a U.S. holder’s tax basis in the Class A Common Stock or Series A Preferred
Stock, as applicable, on a share-by-share basis, and the excess will be treated as gain from the disposition of the Class A Common Stock
or Series A Preferred Stock, the tax treatment of which is discussed below under “Certain U.S. Federal Income Tax Considerations
– U.S. Holders: Disposition of Class A Common Stock or Series A Preferred Stock, Including Redemptions.”
Under current law, dividends
received by individual holders of the Class A Common Stock or Series A Preferred Stock will be subject to a reduced maximum tax rate of
20% if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes. Individual shareholders
should consult their own tax advisors regarding the implications of these rules in light of their particular circumstances.
Dividends received by
corporate shareholders generally will be eligible for the dividends-received deduction. Each domestic corporate holder of the Class A
Common Stock or Series A Preferred Stock is urged to consult with its tax advisors with respect to the eligibility for and the amount
of any dividends received deduction and the application of Code Section 1059 to any dividends it may receive on the Class A Common Stock
or Series A Preferred Stock.
Constructive Distributions
on Series A Preferred Stock
A distribution by a corporation
of its stock may be deemed made with respect to its preferred stock in certain circumstances, even when no distribution of cash or property
occurs, and such a deemed distribution is treated as a distribution of property to which Section 301 of the Code applies. If a corporation
issues preferred stock that may be redeemed at a price higher than its issue price, the excess (a “redemption premium”) is
treated under certain circumstances as a constructive distribution (or series of constructive distributions) of additional preferred stock.
The constructive distribution of property equal to the redemption premium would accrue without regard to the holder’s method of
accounting for U.S. federal income tax purposes at a constant yield determined under principles similar to the determination of original
issue discount (“OID”) pursuant to Treasury regulations under Sections 1271 through 1275 of the Code (the “OID Rules”).
The constructive distributions of property would be treated for U.S. federal income tax purposes as actual distributions of the Series
A Preferred Stock that would constitute a dividend, return of capital or capital gain to the holder of the stock in the same manner as
cash distributions described under “Certain U.S. Federal Income Tax Considerations - U.S. Holders: Distributions in General.”
The application of principles similar to those applicable to debt instruments with OID to a redemption premium for the Series A Preferred
Stock is uncertain.
We have the right to
call the Series A Preferred Stock for redemption on or after June 27, 2023 (the “call option”), and have the option to redeem
the Series A Preferred Stock upon any Change of Control (the “contingent call option”). The stated redemption price of the
Series A Preferred Stock upon any redemption pursuant to our call option or contingent call option is equal to $25.00 per share, plus
any accrued and unpaid dividends and is payable in cash.
If the redemption price
of the Series A Preferred Stock exceeds the issue price of the Series A Preferred Stock upon any redemption pursuant to our call option
or contingent call option, the excess will be treated as a redemption premium that may result in certain circumstances in a constructive
distribution or series of constructive distributions to U.S. holders of additional Series A Preferred Stock. Assuming that the issue price
of the Series A Preferred Stock is determined under principles similar to the OID Rules, the issue price for the Series A Preferred Stock
should be the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of the Series A Preferred
Stock is sold.
A redemption premium
for the Series A Preferred Stock should not result in constructive distributions to U.S. holders of the Series A Preferred Stock if the
redemption premium is less than a de minimis amount as determined under principles similar to the OID Rules. A redemption premium for
the Series A Preferred Stock should be considered de minimis if such premium is less than 0.0025 of the Series A Preferred Stock’s
liquidation value of $25.00 at maturity, multiplied by the number of complete years to maturity. Because the determination under the OID
Rules of a maturity date for the Series A Preferred Stock is unclear, the remainder of this discussion assumes that the Series A Preferred
Stock is issued with a redemption premium greater than a de minimis amount.
The call option should
not require constructive distributions of the redemption premium, if based on all of the facts and circumstances as of the issue date,
a redemption pursuant to the call option is not more likely than not to occur. The Treasury regulations provide that an issuer’s
right to redeem will not be treated as more likely than not to occur if: (i) the issuer and the holder of the stock are not related within
the meaning of Section 267(b) or Section 707(b) of the Code (substituting “20%” for the phrase “50%”); (ii) there
are no plans, arrangements, or agreements that effectively require or are intended to compel the issuer to redeem the stock; and (iii)
exercise of the right to redeem would not reduce the yield on the stock determined using principles applicable to the determination of
OID under the OID Rules. The fact that a redemption right is not within the safe harbor described in the preceding sentence does not mean
that an issuer’s right to redeem is more likely than not to occur and the issuer’s right to redeem must still be tested under
all the facts and circumstances to determine if it is more likely than not to occur. We do not believe that a redemption pursuant to the
call option should be treated as more likely than not to occur under the foregoing test. Accordingly, no U.S. holder of the Series A Preferred
Stock should be required to recognize constructive distributions of the redemption premium because of our call option.
Prospective holders of
the Series A Preferred Stock should consult their own tax advisors regarding the potential implications of the constructive distribution
rules.
Disposition
of Class A Common Stock or Series A Preferred Stock, Including Redemptions
Upon any sale, exchange,
redemption (except as otherwise discussed herein) or other disposition of the Class A Common Stock or Series A Preferred Stock, a U.S.
holder will generally recognize capital gain or loss equal to the difference between the amount realized by the U.S. holder and the U.S.
holder’s adjusted tax basis in the Class A Common Stock or Series A Preferred Stock, as applicable. Such capital gain or loss will
be long-term capital gain or loss if the U.S. holder’s holding period for the Class A Common Stock or Series A Preferred Stock is
longer than one year. A U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting rules for capital
gains and losses. Certain limitations exist on the deduction of capital losses by both corporate and non-corporate taxpayers.
A redemption of your
Class A Common Stock or Series A Preferred Stock for cash will be treated as a sale or exchange if it (1) results in a “complete
termination” of your interest in our stock, (2) is not “essentially equivalent to a dividend” with respect to you, or
(3) is “substantially disproportionate” with respect to you, each within the meaning of Section 302(b) of the Code. In determining
whether any of these tests have been met, stock considered to be owned by you by reason of certain constructive ownership rules (such
as stock owned (actually and in some cases constructively) by certain related individuals and entities and shares you have the right to
acquire by exercise of an option or by conversion or exchange of a security), as well as shares actually owned by you, must generally
be taken into account. If you do not own (actually or constructively) any additional Class A Common Stock or Series A Preferred Stock,
or own only an insubstantial percentage of our stock, and do not participate in our control or management, a redemption of your Class
A Common Stock or Series A Preferred Stock will generally qualify for sale or exchange treatment. Otherwise, the redemption may be taxable
as a dividend to the extent of our current or accumulated earnings and profits as discussed above with respect to distributions generally.
Because the determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to any
particular U.S. holder depends upon the facts and circumstances at the time that the determination must be made, prospective U.S. holders
are advised to consult their own tax advisors regarding the tax treatment of a redemption. If a redemption of Class A Common Stock or
Series A Preferred Stock is treated as an exchange, it will be taxable as described in the preceding paragraph. If a redemption is treated
as a distribution, the entire amount received will be treated as a distribution and will be taxable as described under the caption “—Distributions
in General” above.
Additional
Medicare Contribution Tax
An additional tax of
3.8% generally will be imposed on the “net investment income” of U.S. holders who meet certain requirements and are individuals,
estates or certain trusts. Among other items, “net investment income” generally includes gross income from dividends and net
gain attributable to the disposition of certain property, such as shares of our Class A Common Stock or Series A Preferred Stock. In the
case of individuals, this tax will only apply to the lesser of (i) the individual’s “net investment income” or (ii)
the excess of such individual's modified adjusted gross income over $200,000 ($250,000 for married couples filing a joint return and surviving
spouses, and $125,000 for married individuals filing a separate return). U.S. holders should consult their tax advisors regarding the
possible applicability of this additional tax in their particular circumstances.
Information
Reporting and Backup Withholding
Information reporting
and backup withholding may apply with respect to payments of dividends on the Class A Common Stock or Series A Preferred Stock and to
certain payments of proceeds on the sale or other disposition of the Class A Common Stock or Series A Preferred Stock. Certain non-corporate
U.S. holders may be subject to U.S. backup withholding (currently at a rate of 24%) on payments of dividends on the Class A Common Stock
or Series A Preferred Stock and certain payments of proceeds on the sale or other disposition of the Class A Common Stock or Series A
Preferred Stock unless the beneficial owner thereof furnishes the payor or its agent with a taxpayer identification number, certified
under penalties of perjury, and certain other information, or otherwise establishes, in the manner prescribed by law, an exemption from
backup withholding. U.S. backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules may
be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, which may entitle the U.S. holder
to a refund, provided the U.S. holder timely furnishes the required information to the Internal Revenue Service.
Non-U.S.
Holders
Subject to the qualifications
set forth above, the following discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition
of the Class A Common Stock and Series A Preferred Stock by certain “Non-U.S. holders.” You are a “Non-U.S. holder”
if you are a beneficial owner of the Class A Common Stock or Series A Preferred Stock and you are not a “U.S. holder.”
Distributions
on the Class A Common Stock or Series A Preferred Stock
If distributions of cash
or property are made with respect to the Class A Common Stock or Series A Preferred Stock, as applicable, such distributions will be treated
as dividends to the extent of our current and accumulated earnings and profits as determined under the Code and may be subject to withholding
as discussed below. Any portion of a distribution that exceeds our current and accumulated earnings and profits will first be applied
to reduce the Non-U.S. holder’s basis in the Class A Common Stock or Series A Preferred Stock, as applicable, and, to the extent
such portion exceeds the Non-U.S. holder’s basis, the excess will be treated as gain from the disposition of the Class A Common
Stock or Series A Preferred Stock, the tax treatment of which is discussed below under “Certain U.S. Federal Income Tax Considerations
— Non-U.S. Holders: Disposition of Class A Common Stock or Series A Preferred Stock, Including Redemptions.” In addition,
if we are a U.S. real property holding corporation, i.e. a “USRPHC,” and any distribution exceeds our current and accumulated
earnings and profits, we will need to choose to satisfy our withholding requirements either by treating the entire distribution as a dividend,
subject to the withholding rules in the following paragraph (and withhold at a minimum rate of 30% or such lower rate as may be specified
by an applicable income tax treaty for distributions from a USRPHC), or by treating only the amount of the distribution equal to our reasonable
estimate of our current and accumulated earnings and profits as a dividend, subject to the withholding rules in the following paragraph,
with the excess portion of the distribution subject to withholding at a rate of 15% or such lower rate as may be specified by an applicable
income tax treaty as if such excess were the result of a sale of shares in a USRPHC (discussed below under “Certain U.S. Federal
Income Tax Considerations — Non-U.S. Holders: Disposition of Class A Common Stock or Series A Preferred Stock, Including Redemptions”),
with a credit generally allowed against the Non-U.S. holder’s U.S. federal income tax liability in an amount equal to the amount
withheld from such excess.
Dividends paid to a Non-U.S.
holder of the Class A Common Stock or Series A Preferred Stock will be subject to withholding of U.S. federal income tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the
conduct of a trade or business by the Non-U.S. holder within the United States (and, where a tax treaty applies, are attributable to a
permanent establishment maintained by the Non-U.S. holder in the United States) are not subject to the withholding tax, provided that
certain certification and disclosure requirements are satisfied including completing Internal Revenue Service Form W-8ECI (or other applicable
form). Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. holder
were a United States person as defined under the Code, unless an applicable income tax treaty provides otherwise. Any such effectively
connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty. A Non-U.S. holder of the Class A Common Stock or Series A Preferred
Stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will
be required to (i) complete Internal Revenue Service Form W-8BEN or Form W-8BEN-E (or other applicable form) and certify under penalty
of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits, or (ii) if the
Class A Common Stock or Series A Preferred Stock is held through certain foreign intermediaries, satisfy the relevant certification requirements
of applicable Treasury regulations. A Non-U.S. holder of the Class A Common Stock or Series A Preferred Stock eligible for a reduced rate
of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate
claim for refund with the Internal Revenue Service.
Disposition
of Class A Common Stock or Series A Preferred Stock, Including Redemptions
Any gain realized by
a Non-U.S. holder on the disposition of the Class A Common Stock or Series A Preferred Stock will not be subject to U.S. federal income
or withholding tax unless:
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the gain is effectively connected with a trade or business of the Non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the Non-U.S. holder in the United States);
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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 disposition, and certain other conditions are met; or
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we are or have been a USRPHC for U.S. federal income tax purposes, as such term is defined in Section 897(c) of the Code, and such Non-U.S. holder owned directly or pursuant to attribution rules at any time during the five-year period ending on the date of disposition more than 5% of the Class A Common Stock or Series A Preferred Stock. This assumes that the Class A Common Stock or Series A Preferred Stock is regularly traded on an established securities market, within the meaning of Section 897(c)(3) of the Code.
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A Non-U.S. holder described
in the first bullet point immediately above will generally be subject to tax on the net gain derived from the sale under regular U.S.
federal income tax rates in the same manner as if the Non-U.S. holder were a United States person as defined under the Code, and if it
is a corporation, may also be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such
lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. holder described in the second bullet point
immediately above will be subject to a flat 30% tax (or at such reduced rate as may be provided by an applicable treaty) on the gain derived
from the sale, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United
States. A Non-U.S. holder described in the third bullet point above will be subject to U.S. federal income tax under regular U.S. federal
income tax rates with respect to the gain recognized in the same manner as if the Non-U.S. holder were a United States person as defined
under the Code. If a Non-U.S. holder is subject to U.S. federal income tax on any sale, exchange, redemption (except as discussed below),
or other disposition of the Class A Common Stock or Series A Preferred Stock, such a Non-U.S. holder will recognize capital gain or loss
equal to the difference between the amount realized by the Non-U.S. holder and the Non-U.S. holder’s adjusted tax basis in the Class
A Common Stock or Series A Preferred Stock. Such capital gain or loss will be long-term capital gain or loss if the Non-U.S. holder’s
holding period for the Class A Common Stock or Series A Preferred Stock is longer than one year. A Non-U.S. holder should consult its
own tax advisors with respect to applicable tax rates and netting rules for capital gains and losses. Certain limitations exist on the
deduction of capital losses by both corporate and non-corporate taxpayers. The receipt of any redemption proceeds attributable to any
accrued but unpaid dividends on the Class A Common Stock or Series A Preferred Stock generally will be subject to the rules discussed
above in “Certain U.S. Federal Income Tax Considerations — Non-U.S. Holders: Distributions on the Class A Common Stock or
Series A Preferred Stock.” A payment made in redemption of the Class A Common Stock or Series A Preferred Stock may be treated as
a dividend, rather than as payment in exchange for the Class A Common Stock or Series A Preferred Stock, in the same circumstances discussed
above under “Certain U.S. Federal Income Tax Considerations — U.S. Holders: Disposition of Class A Common Stock or Series
A Preferred Stock, Including Redemptions.” Each Non-U.S. holder of the Class A Common Stock or Series A Preferred Stock should consult
its own tax advisors to determine whether a payment made in redemption of the Class A Common Stock or Series A Preferred Stock will be
treated as a dividend or as payment in exchange for the Class A Common Stock or Series A Preferred Stock.
Information reporting
and backup withholding
We must report annually
to the Internal Revenue Service and to each Non-U.S. holder the amount of dividends paid to such Non-U.S. holder and the tax withheld
with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends
and withholding may also be made available to the tax authorities in the country in which the Non-U.S. holder resides or is established
under the provisions of an applicable income tax treaty. A Non-U.S. holder will not be subject to backup withholding on dividends paid
to such Non-U.S. holder as long as such Non-U.S. holder certifies under penalty of perjury that it is a Non-U.S. holder (and the applicable
withholding agent does not have actual knowledge or reason to know that such Non-U.S. holder is a United States person as defined under
the Code), or such Non-U.S. holder otherwise establishes an exemption. Depending on the circumstances, information reporting and backup
withholding may apply to the proceeds received from a sale or other disposition of the Class A Common Stock or Series A Preferred Stock
unless the beneficial owner certifies under penalty of perjury that it is a Non-U.S. holder (and the applicable withholding agent does
not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner
otherwise establishes an exemption. U.S. backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding
rules may be allowed as a refund or a credit against a Non-U.S. holder’s U.S. federal income tax liability provided the required
information is timely furnished to the Internal Revenue Service.
Foreign
Account Tax Compliance Act
Sections 1471 through
1474 of the Code (provisions which are commonly referred to as “FATCA”), generally impose a 30% withholding tax on certain
types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may
be imposed on dividends on Class A Common Stock or Series A Preferred Stock, to: (i) a foreign financial institution (as that term is
defined in Section 1471(d)(4) of the Code) unless that foreign financial institution enters into an agreement with the U.S. Treasury Department
to collect and disclose information regarding U.S. account holders of that foreign financial institution (including certain account holders
that are foreign entities that have U.S. owners) and satisfies other requirements; and (ii) specified other foreign entities unless such
an entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer identification number
of each substantial U.S. owner and such entity satisfies other specified requirements. While withholding under FATCA would have also applied
to payments of gross proceeds from the sale or other disposition of shares of our Class A Common Stock or Series A Preferred Stock on
or after January 1, 2019, recently proposed Treasury regulations eliminate FATCA withholding on payments of gross proceeds. The preamble
to these proposed regulations indicates that taxpayers may rely on them pending their finalization. Non-U.S. holders should consult their
own tax advisors regarding the application of FATCA to them and whether it may be relevant to their purchase, ownership and disposition
of Class A Common Stock or Series A Preferred Stock.
LEGAL MATTERS
The validity of the securities offered will
be passed on for us by our counsel, Graubard Miller, New York, New York. Duane Morris LLP, New York, New York, is acting as counsel
to the sales agent in connection with this offering.
EXPERTS
The consolidated financial statements of Chicken
Soup for the Soul Entertainment Inc. and subsidiaries as of December 31, 2020 and 2019, and for the years ended December 31, 2020 and
2019, have been incorporated by reference herein to the Annual Report on Form 10-K for the year ended December 31, 2020, in reliance
upon the report of Rosenfield and Company, PLLC, independent registered public accounting firm, which are incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Sonar Entertainment,
Inc. as of and for the years ended December 31, 2020 and 2019 incorporated by reference in this prospectus supplement have been audited
by Moss Adams LLP, independent auditors, as stated in their report (which expresses an unmodified opinion and includes an emphasis-of-matter
paragraph relating to going concern). Such financial statements of such firm have been incorporated by reference given upon their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange Commission. Our SEC filings are available to the public over the
Internet at the SEC’s web site at http://www.sec.gov.
We have filed with the SEC a registration statement
on Form S-3 under the Securities Act relating to the offering of the securities offered hereby. The registration statement, including
the attached exhibits, contains additional relevant information about us and our securities. This prospectus supplement does not contain
all of the information set forth in the registration statement. You can obtain a copy of the registration statement from the SEC at the
web address listed above.
The registration statement and our SEC filings,
including the documents referred to below under “Information Incorporated by Reference,” are also available on our
website, www.cssentertainment.com. We have not incorporated by reference into this prospectus supplement the information on our
website, and you should not consider it to be a part of this prospectus supplement.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference
the information we file with it, which means that we can disclose important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus supplement, and information that we file later with the
SEC will automatically update and supersede this information. This prospectus supplement incorporates by reference the documents listed
below, all filings we make under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the initial filing date of the registration
statement of which this prospectus supplement forms a part and prior to effectiveness of such registration statement, and all filings
we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after effectiveness of such registration statement and
prior to the sale of all of the shares offered hereby:
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our Current Reports on Form 8-K and Form
8-K/A, as applicable, filed on January
15, 2021, January 19, 2021, January
20, 2021, February 17, 2021, March
9, 2021, March 16, 2021, April
9, 2021, April 16, 2021, May
17, 2021, May 25, 2021, May
27, 2021, June 11, 2021, June
21, 2021, June 24, 2021, July
1, 2021. July 2, 2021, July
8, 2021, July 16, 2021, August
12, 2021, August 18,
2021, September 17,
2021, October 18,
2021, November 9,
2021, November 10,
2021, November 18,
2021 and December 17, 2021.
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Any statement contained in a document filed before
the date of this prospectus supplement and incorporated by reference herein shall be deemed to be modified or superseded for purposes
of this prospectus supplement to the extent that a statement contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement. Any
information that we file after the date of this prospectus supplement with the SEC will automatically update and supersede the information
contained in this prospectus supplement. Notwithstanding the foregoing, we are not incorporating any document or portion thereof or information
deemed to have been furnished and not filed in accordance with SEC rule.
We will provide you with a copy of any or all
of the information that has been incorporated by reference in this prospectus supplement, without charge, upon written or oral request
directed to Chicken Soup for the Soul Entertainment, Inc. 132 E. Putnam Ave., Floor 2W, Cos Cob, Connecticut 06807, telephone number (855)
398-0443. You may also access the documents incorporated by reference as described under “Where You Can Find More Information.”
Prospectus
$1,000,000,000
COMMON STOCK, PREFERRED STOCK, WARRANTS,
DEBT
SECURITIES AND UNITS (For Issuance)
and
1,798,956 shares of 9.75% Series A cumulative
redeemable
perpetual preferred stock
Offered by Selling Stockholder
We will offer and sell from time to time shares of common stock, shares
of preferred stock, warrants, debt securities and/or units comprised of one or more of the other classes of securities offered hereby,
at a maximum aggregate offering size not to exceed $1,000,000,000. The securities may be offered separately, together, or in series, and
in amounts, at prices and on other terms to be determined at the time of each offering. We will provide the specific terms of the securities
to be sold in a prospectus supplement.
We may sell the securities directly to investors, to or through underwriters
or dealers or through agents designated from time to time, among other methods. The prospectus supplement for each offering will describe
in detail the specific plan of distribution for the securities. The prospectus supplement also will set forth the price to the public
of such securities, any placement agent’s fees or underwriter’s discounts and commissions, and the net proceeds we expect
to receive from the sale of the securities.
This prospectus also covers an offering for resale by a selling
securityholder of up to 1,798,956 shares of our 9.75% Series A cumulative redeemable perpetual preferred stock
(“Series A preferred stock”) issued to the selling securityholder in connection with our repurchase of such
holder’s equity interest in Crackle Plus LLC and the reimbursement of certain expenses incurred by selling securityholder in
connection with the creation of Crackle Plus. All such shares of Series A preferred stock may be offered for resale or
otherwise disposed of by the selling securityholder as set forth under the caption “Selling Securityholder”
beginning on page 25 of this prospectus, including its pledgees, assignees, or successors-in-interest.
We will not receive any proceeds from the sale
or other disposition of the Series A preferred stock by the selling securityholder.
The selling securityholder may be deemed to be an “underwriter”
within the meaning of the Securities Act. We will pay the expenses of registering the holder’s shares of Series A preferred
stock for resale (including the selling stockholder’s legal fees, subject to an agreed cap), but all selling commissions and other
similar expenses incurred by the selling securityholder will be paid by the selling securityholder.
Our Class A common stock is listed for trading on the Nasdaq Global
Market under the symbol “CSSE,” our Series A Preferred Stock is listed for trading on the Nasdaq Global Market under
the symbol “CSSEP,” and our 9.50% Notes Due 2025 (“2025 Notes”) are listed for trading on the Nasdaq Global Market
under the symbol “CSSEN”. On June 9, 2021, the last reported sale prices of our Class A common stock, Series A
preferred stock and 2025 Notes were $33.41, $28.22 and $26.50, respectively.
In addition to our Class A common stock, we have outstanding Class B
common stock. Our Class B common stock is not publicly traded and it is controlled and beneficially owned by our chief executive
officer. Holders of shares of Class A common stock and Class B common stock have substantially identical rights, except that
holders of shares of Class A common stock are entitled to one vote per share and holders of shares of Class B common stock are
entitled to ten votes per share. Holders of shares of Class A common stock and Class B common stock vote together as a single
class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law or our
charter. Each share of Class B common stock may be converted into a share of Class A common stock at any time at the election
of the holder.
We are an “emerging growth company” as defined in the
Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company reporting requirements.
Investing in our securities involves a high degree of risk. See
“Risk Factors” on page 19 in this prospectus, any prospectus supplements, and in our annual report on Form 10-K
for the year ended December 31, 2020, for a discussion of information that should be considered in connection with an investment
in our securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation
to the contrary is a criminal offense.
The date of this prospectus is June 24,
2021
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission (“SEC”) using a “shelf” registration process. Under this shelf process,
we may, from time to time, sell or issue any of the combination of securities described in this prospectus in one or more offerings with
a maximum aggregate offering size of up to $1,000,000,000. In addition, the selling securityholder may sell, in one or more offerings
pursuant to this prospectus, up to an aggregate of 1,798,956 shares of our Series A preferred stock, as described in this prospectus.
This prospectus provides you with a general description of the securities
we or the selling securityholder may offer. Each time we sell securities off of the “shelf”, we will provide a prospectus
supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or
change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information in that prospectus supplement. You should read both this prospectus and any prospectus
supplement, together with the additional information described below under the heading “Where You Can Find More Information”
and “Information Incorporated by Reference.”
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement relating to a particular offering. We and the selling securityholder have not
authorized anyone to provide you with different information and, if provided, such information or representations must not be relied upon
as having been authorized by us or the selling securityholder. Neither this prospectus nor any prospectus supplement nor any related issuer
free writing prospectus shall constitute an offer to sell or a solicitation of an offer to buy offered securities in any jurisdiction
in which it is unlawful for such person to make such an offering or solicitation. This prospectus does not contain all of the information
included in the registration statement. For a more complete understanding of the offering of the securities, you should refer to the registration
statement, including its exhibits.
You should not assume that the information appearing in this prospectus
is accurate as of any date other than the date on the front cover of this prospectus. You should not assume that the information contained
in any prospectus supplement or in the documents incorporated by reference herein or therein is accurate as of any date other than the
respective dates of those documents. Our business, financial condition, results of operations, and prospects may have changed since that
date.
CERTAIN CORPORATE INFORMATION AND DEFINITIONS
Our company, Chicken Soup for the Soul Entertainment, Inc., is
referred to in this prospectus as “CSSE,” the Company,” or “we” or similar pronouns. References to:
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“CSS Productions” means Chicken Soup for the Soul Productions, LLC, our immediate parent;
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“CSS” means Chicken Soup for the Soul, LLC, our intermediate parent company;
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“CSS Holdings” means Chicken Soup for the Soul Holdings, LLC, the parent company of CSS and
our ultimate parent company;
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“Screen Media” means Screen Media Ventures, LLC, a wholly owned subsidiary of CSSE;
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“A Plus” means A Sharp Inc. (d/b/a A Plus), a wholly owned subsidiary of CSSE;
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“Pivotshare” means Pivotshare, Inc., a wholly owned subsidiary of CSSE;
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“Crackle Plus” means Crackle Plus, LLC, a wholly owned subsidiary of CSSE which was originally
formed by CSSE and CPE Holdings, Inc. (an affiliate of Sony Pictures Television Inc.);
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“Landmark Studio Group” means Landmark Studio Group, a majority owned subsidiary of CSSE;
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“Halcyon Television” means Halcyon Television LLC, a wholly owned subsidiarity of CSSE;
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“Halcyon Studios” mean Halcyon Studios LLC, a majority owned subsidiary of Halcyon Television:
and
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“CSS AVOD” means CSS AVOD Inc., a majority owned subsidiary of CSSE.
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We
and our subsidiaries and affiliates have proprietary rights to the trademarks and trade names used herein, including, among others, Chicken
Soup for the Soul®, Crackle®, Popcornflix.com®, Popcornflix Kids®, Truli®, and FrightPix®. Solely as a
matter of convenience, trademarks and trade names referred to herein may or may not be accompanied with the marks of “TM”
or “®”, however, the absence of such marks is not intended to indicate that the Company or its affiliates or subsidiaries
will not assert, to the fullest extent possible under applicable law, their respective rights to such trademarks and trade names.
PROSPECTUS SUMMARY
This summary description about us and our business highlights
selected information contained elsewhere in this prospectus or incorporated in this prospectus by reference. This summary does not
contain all of the information you should consider before deciding to invest in our securities. You should carefully read this
entire prospectus and any applicable prospectus supplement, including each of the documents incorporated herein or therein by
reference, before making an investment decision. Investors should carefully consider the information set forth under the caption
“Risk Factors” below and appearing elsewhere in our
annual report on Form 10-K for the year ended December 31, 2020, our quarterly report on Form 10-Q for the quarter ended March 31, 2021, and in those described in documents incorporated by reference herein filed by us from time to time, and those
described in any applicable prospectus supplement.
Overview
Chicken Soup for the Soul Entertainment, Inc. is a leading streaming
video-on-demand (VOD) company. We operate Crackle Plus, a portfolio of ad-supported and subscription-based VOD streaming services, as
well as Screen Media, Halcyon Television, and a number of affiliates that collectively enable us to acquire, produce, co-produce and distribute
content, including our original and exclusive content, all in support of our streaming services.
Crackle Plus is comprised of unique networks, each delivering popular
and original premium content focused on different themes such as family, kids, horror and comedy. Crackle Plus brands include Crackle,
among the most watched ad-supported independent VOD networks, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix and
FrightPix. As of March 31, 2021, Crackle Plus served more than 30 million monthly active visitors through many distribution platforms
including Roku, Amazon Fire, Vizio and others. These visitors viewed content produced through our various television production affiliates,
acquired by Screen Media, or licensed from Sony Pictures Television (SPT), Lionsgate, Paramount, Fox, Warner Brothers and more than 100
other production and distribution companies. For the period ended March 31, 2021, viewers of Crackle Plus networks have access to
more than 10,800 films and 22,000 episodes of licensed or company-owned original or exclusive programming. Additionally, the Company’s
original and exclusive programming made up approximately 18.4% of total ad impressions served in 2020.
Screen Media manages one of the industry’s largest independently
owned television and film libraries consisting of approximately 1,350 feature films and 275 episodes of television programming. Screen
Media also acquires between 10 and 20 new films each year. Screen Media provides content for the Crackle Plus portfolio and also distributes
its library to other exhibitors and third-party networks to generate additional revenue and operating cash flow.
Halcyon Television, our company’s new subsidiary, manages the
extensive film and television library recently acquired from Sonar Entertainment. This library is distributed by Screen Media. The library
contains more than 1,000 titles, and 4,000 hours of programming, ranging from classics, including The Little Rascals,
Laurel & Hardy and Blondie (produced by Hal Roach Studios), to acclaimed epic event mini-series such as Lonesome
Dove and Dinotopia. Our Halcyon library titles have received 446 Emmy Award nominations, 105 Emmy Awards and 15 Golden
Globe Awards. Halcyon Television, and its subsidiary, Halcyon Studios, are headed by David Ellender. Ellender and his team have
developed, produced, financed and distributed shows such as The Shannara Chronicles (MTV/Netflix), Taboo (BBC/FX), The
Son (AMC), Mr. Mercedes (DirecTV), Das Boot (Sky Europe), Hunters (Amazon Prime), Alien Xmas (Netflix)
and Mysterious Benedict Society (Disney+). Halcyon Studios, a subsidiary of Halcyon Television, will continue developing and producing
the current and future high-caliber content for all platforms across a broad spectrum in the U.S. and internationally.
Chicken Soup for the Soul’s various television production activities
are done through a number of affiliates including Landmark Studio Group, its Chicken Soup for the Soul Unscripted division, and APlus.com,
which produce or co-produce original content for Crackle Plus and, occasionally, for other third-party networks.
We believe that we are the only independent ad-supported
video-on-demand (AVOD) business with the proven capability to acquire, create and distribute original programming and that we have
one of the largest libraries of valuable company-owned and third-party content. We believe this differentiation is important at a
time of a major shift in consumer viewing habits as the growth in both availability and quality of high-speed broadband enables
consumers to consume video content at any time on any device.
Since our inception in January 2015, our business has grown
rapidly. For the three months ended March 31, 2021 and 2020, our net revenue was approximately $23.2 million and $13.2 million,
respectively. Our Adjusted EBITDA for the three months ended March 31, 2021 and 2020 was $4.6 million and $2.0 million,
respectively. For the full year 2020, our net revenue was $66.4 million, as compared to the full year 2019 net revenue of $55.4
million. This increase was primarily due to the strong performance of Screen Media and the full year inclusion of the Crackle Plus
network to our business (acquired May 2019). We had net losses of approximately $44.6 million in 2020, as compared to net
losses of $35.0 million in 2019. Our 2020 Adjusted EBITDA was approximately, $11.8 million, as compared to 2019 Adjusted EBITDA of
$6.0 million. As described below in “Use of Non-GAAP Financial Measure”, we use Adjusted EBITDA as an important metric
for the management of our business. We define Adjusted EBITDA as consolidated operating income (loss) adjusted to exclude interest, taxes,
depreciation, amortization (including tangible and intangible assets), acquisition-related costs, consulting fees related to
acquisitions, dividend payments, non-cash share-based compensation expense, and adjustments for other unusual and infrequent in
nature identified charges, including transition related expenses. Adjusted EBITDA is not an earnings measure recognized by U.S. GAAP
and does not have a standardized meaning prescribed by GAAP; accordingly, Adjusted EBITDA may not be comparable to similar measures
presented by other companies. We believe Adjusted EBITDA to be a meaningful indicator of our performance that management uses and
believes provides useful information to investors regarding our financial condition and results of operations. The most comparable
GAAP measure is operating income (loss).
According to industry projections, the U.S. market for AVOD network
revenue is expected to increase from $26.6 billion in 2020 to $53.5 billion in 2025. At the same time, advertising spending on linear
television networks is expected to decline as more viewers transition from pay television subscriptions to online video viewing. For these
reasons, interest in the AVOD business model is increasing, evidenced by traditional linear network operators increasingly seeking to
acquire or launch AVOD networks to maintain access to viewers making this transition. We believe AVOD networks will continue to grow rapidly,
particularly as consumers seek affordable programming alternatives to multiple SVOD offerings.
Our Strategy
In this environment we believe we are in a differentiated position.
We identified the trends favoring growth of AVOD networks in 2015 and began building our offering in 2017, including the development of
our original content production strategy. Our strategic objective is to build the premier ad-supported streaming network for both viewers
and advertisers. In pursuing this goal, we believe we have the advantage of being unencumbered by the competing strategic choices and
priorities of diversified media companies that own VOD networks and legacy linear television networks. We are singularly focused on building
leading VOD networks that feature a range of mass-appeal and thematic programming options with a focus on original and exclusive content,
and that employ innovation and data analytics to deliver more personalized viewing experiences and more engaging advertising. We are executing
on this strategy in three ways:
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Content – Cost-effectively grow our production business, our content library asset and our ownership
of content rights.
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o
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Original & Exclusive programming. Our “originals and exclusives” focus, supported
by our distribution and production business, is designed to distinguish our network brands among viewers. We are able to add to our existing
broad base of content without the significant capital outlay of a traditional television or film studio by producing new originals at
low cost through creative partnerships, such as our award-winning 2019 series Going from Broke, which recently completed production of
and started airing its second season.
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o
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Expanding production capacity. We believe we can continue to build an attractive and cost-effective
content development pipeline by expanding our production capacity through partnerships such as our majority owned subsidiary Landmark
Studio Group, our wholly owned subsidiary, Halcyon Television, and majority owned subsidiary, Halcyon Studios, and by partnering with
proven industry talent who prefer to work, at times, outside of the consolidated major studio industry, where, we believe it is increasingly
difficult for this talent to control the creative process and ownership rights to their intellectual property.
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Content acquisition and rights ownership. Through Screen Media, we will continue to acquire the
rights to additional exclusive content. This strategy will reduce our reliance on content licensing, which will lead to lower costs of
revenue and increased gross margin and provide us with wider distribution opportunities to generate additional revenue.
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Advertising – Utilize existing technology and data to deliver innovative advertising formats
and relevant ads that engage viewers.
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o
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Attractive audience. We believe we enjoy strong relationships with leading advertisers based on
our demographic reach, our sales approach and our commitment to premium content and innovative, engaging ad formats. Our networks offer
advertisers a desirable target audience: the average age of Crackle viewers is 33, compared to 58 for traditional broadcast networks,
and 54 for advertising-supported cable networks. We estimate that 32% of our viewers fall in the 18-34 age demographic.
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o
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Diverse sales channels. To reach these viewers we employ a diverse and targeted advertising sales
strategy, using multiple sales channels to provide us with optionality. Nearly 90% of our advertising revenues are derived from direct
sales and local reseller agreements, which we believe give us greater margin contribution and control over our advertising avails than
is possible with programmatic advertising.
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o
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Technology investment. As we grow our portfolio of networks, we are investing in the integration
of advertising platform technology stacks and the growth of our sales force. We are also testing new advertising formats and technologies
that drive user engagement and offer increased value to advertisers. For example, our “Jumbotron” format engages viewers immediately
upon their entry to the Crackle app through video and sound, with premium ad placement in our “Spotlight Channel”. Our “FreeView”
format offers viewers who select a title the option to watch one 30 to 60 second advertisement before starting the program, in exchange
for an extended advertisement-free experience. “FreeView” has been demonstrated to drive higher user engagement with the placed
advertisement and higher brand recall. As we execute on all of these initiatives, we believe we will be positioned to increase both overall
advertising sales and ad insertion rates, firmly establishing our AVOD networks as a compelling option for advertisers compared to traditional
linear broadcast or cable networks.
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Viewership – Grow distribution to gain new viewers and employ sophisticated data analytics to
deliver more compelling experiences.
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o
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Content and Distribution. We exploit our increasing, exclusive access to quality programming to
grow and retain viewers on our existing networks. To augment audience acquisition we have engaged in distribution arrangements with an
increasing number of media platforms including Roku, Amazon Fire, Vizio, Samsung , LG and others. In the Spring of 2021, for example,
our new distribution partnership with Vizio is starting to feature a “Crackle button” on a large number of new Vizio television
remote controls to increase Crackle awareness and guide viewers to our leading AVOD network.
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o
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New Genre-specific Networks. As we grow our content libraries, we are also continuously evaluating
opportunities to create new thematic networks that focus on certain genres and types of programming and we expect these networks to deliver
more targeted advertising opportunities to marketers. We are also actively evaluating opportunities to acquire additional AVOD networks
that can accelerate our path to even greater scale.
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o
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Personalized Viewer Experiences. As we grow viewership and as our networks progress, we are gathering
a growing amount of data on what our viewers watch and also how they engage with advertising. We are increasingly investing in capabilities
to manage and analyze our data with the goal of better personalizing viewer experiences and enabling targeted advertising. Over time,
by combining this effort with continued innovation in user interfaces, we may consolidate our general entertainment and themed AVOD offerings
into a single AVOD network with multiple channels, in a format similar to current subscription VOD networks.
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Operations
We own and operate Crackle Plus, one of the largest AVOD companies
in the United States, consisting of a portfolio of unique AVOD networks (including the widely visited AVOD network, Crackle), and a targeted
SVOD network. Through our Crackle Plus networks, consumers have access to our library of original and exclusive content. Our networks
are widely distributed across all digital platforms and can be watched on connected TVs, smartphones, tablets, gaming consoles and the
web. We generate advertising revenues primarily by serving video advertisements to our streaming viewers and, to a lesser extent, subscription
revenue from consumers. Our Crackle Plus networks include:
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Crackle – Crackle is a leading, free to use video entertainment network featuring full length movies,
TV shows and original programming. Crackle is routinely ranked among the most popular ad-supported general entertainment VOD networks.
We assumed control of the operations of Crackle in 2019 through our joint venture with SPT and acquired full control of the network in
January 2021.
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PopcornFlix – PopcornFlix has an extensive footprint with apps available on 11 platforms in the
U.S. and in 44 countries including the United Kingdom, Canada, Australia, Germany, France, and Singapore. Under the PopcornFlix brand,
we also operate a series of direct-to consumer advertising supported channels focused on various genres. PopcornFlix can be found on the
web, iPhones and iPads, Android products, Roku, Xbox, Amazon Fire, Apple TV, Chromecast and Samsung and Panasonic internet connected televisions,
among devices.
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FAST Networks – In 2020, we began to create linear free advertising supported streaming television
(“FAST”) networks for certain of the platforms we have AVOD networks on including Plex, Vizio , Samsung, Xumo and others.
We see these networks as a way to increase the ad impressions we generate with our content library as well as a way to efficiently market
the breadth of the content that is available on our AVOD networks. We expect to create more of these FAST networks in 2021.
|
We also sell advertising for other networks in
order to aggregate a greater number of ad impressions for our advertising customers. In 2020, these networks included Funimation and CrunchyRoll.
We recently entered into an agreement with Plex to sell ads on their behalf as well.
We also own and operate Screen Media, Halcyon Television, Halcyon Studios,
Landmark Studio Group, and a number of affiliates that collectively enable us to acquire, produce, co-produce and distribute content,
including our original and exclusive content, all in support of our streaming services.
The primary purpose of Screen Media
and our television production affiliates is to provide our Crackle Plus VOD networks with original and exclusive programming. In addition,
Screen Media’s ability to distribute acquired or company-produced films and television series enables us to further monetize programming
on a cost advantaged basis. Through our Screen Media subsidiary, we maintain license agreements to distribute our content across all
media, including theatrical, home video, pay-per-view, free, cable, pay television, VOD, mobile and new digital media platforms worldwide.
We own the copyright or long-term distribution rights to approximately 2,077 feature films and 2,100 television episodes, representing
one of the largest independently owned libraries of filmed entertainment in the world.
Through Screen Media, our cable and satellite VOD distribution agreements
include those with DirecTV, Cablevision (Altice USA), Verizon and In Demand (owned by Comcast, Charter and Time Warner Cable). Our Internet
VOD distribution agreements include those with Amazon, iTunes, Samsung, YouTube, Hulu, Xbox, Netflix, Sony, and Vudu, among others. We
also expanded our international distribution capabilities in 2020.
We produce content utilizing the Chicken Soup for the Soul brand, together
with our management’s industry experience and expertise, to generate revenue through the production and distribution of video content
with sponsors. Since we seek to have both the committed funding and contractually agreed upon production costs for our video content prior
to moving forward with a project, we have high visibility into the profitability of a particular project before committing to proceed
with such project. In addition, we take limited financial risk on developing our projects.
We operate a low-cost content production strategy by partnering with
brand sponsors, utilizing tax credits and pre-selling rights to various media companies in order to mitigate our financial risk on project
development. Doing so allows us to secure committed funding and production capabilities for our original video content prior to moving
forward with a project. This provides us with high visibility into the profitability of a particular project before committing to proceed
with such projects. Completed projects provide Crackle Plus with original content while providing the Company with additional distribution
revenue opportunities. As part of this strategy, Landmark Studio Group, which develops, produces, distributes and owns the intellectual
property it creates, is building a valuable library. The studio is independent, having the ability to sell its content to any network
or platform, while also developing and producing original content for Crackle Plus. Landmark Studio Group controls all worldwide rights
and distributes those rights exclusively through Screen Media.
Halcyon Television manages the extensive film and television library
recently acquired from Sonar Entertainment. Halcyon Studios develops and produces high-caliber content for all platforms across a broad
spectrum in the U.S. and internationally.
Recent Developments
On April 8, 2021, we entered into an asset purchase agreement
(“Asset Purchase Agreement”) by and among our company, Halcyon Television, and with respect to certain provisions, Parkside
Entertainment Inc., a Canadian company (“Parkside” and, collectively with us and Halcyon Television, the “CSSE Buyer”),
on the one hand, and Sonar Entertainment Inc. (“SEI”) and the direct and indirect subsidiaries of SEI identified in the Asset
Purchase Agreement (collectively, “Sonar”), on the other hand. On May 21, 2021, pursuant to the Asset Purchase Agreement,
the CSSE Buyer purchased the principal assets of Sonar. Parkside separately purchased the outstanding equity of Sonar Canada Inc.
Sonar is an award-winning independent television studio that owns,
develops, produces, finances and distributes content for global audiences. Sonar, headquartered in Los Angeles with operations in Toronto
and London, has produced television series such as Hunters, Taboo, Alien Xmas, The Mysterious Benedict Society,
Saints, Manson, Lonesome Dove, and Dinotopia. The projects have shown strong market appeal and star well-known talent such
as Al Pacino, Ridley Scott, Pierce Brosnan, and more. Sonar has projects in the development pipeline that are scheduled to begin production
this year, with anticipated distribution on networks such as Hulu, Fox, Amazon Prime Video, FX, and BBC ONE.
We believe that our acquisition of the Sonar assets accelerates our
strategy to build the leading independent AVOD streaming service in four key ways:
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expanding our original television content development pipeline;
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improving margins by increasing our IP rights ownership;
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accelerating our ability to launch the Chicken Soup for the Soul branded AVOD network; and
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providing a faster path to growing our international television production and distribution activities.
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Pursuant to the Asset Purchase Agreement, the
CSSE Buyer purchased assets from Sonar (the “Purchased Assets”), including all of Sonar’s existing video content libraries,
development slates, licenses and distribution contracts, and other assets related to Sonar’s businesses, including all of Sonar’s
copyrights, trademarks and accounts receivable (“Accounts Receivable”). The equity interests owned by Sonar Entertainment, Inc.
in its wholly owned subsidiary, Sonar Canada Inc. (“Sonar Canada”), were sold directly to Parkside. CSSE Buyer assumed only
the obligations of Sonar that relate to the ownership and operation of the Purchased Assets on and after the closing on May 21, 2021.
The Purchased Assets did not include certain assets of Sonar identified in the Asset Purchase Agreement as “Excluded Assets,”
including certain claims and actions, insurance policies, employment agreements and cash.
In consideration for the Purchased Assets, the
CSSE Buyer paid to Sonar an initial cash purchase price of $18,902,000 and from time to time will be required to pay additional purchase
price based on the performance of the Purchased Asset.. In addition, Parkside paid Sonar separate cash consideration for the Sonar Canada
Interests.
During the 18-month period following the closing,
the CSSE Buyer has the right (the “Buyout Option”), exercisable upon written notice to Sonar during such period, to buy out
all future entitlements (i.e., additional purchase price and other entitlements not yet due and payable to Sonar as of the date
of such notice) in exchange for a one-time payment to Sonar as prescribed by the APA.
In connection with the transaction, we formed
a new subsidiary, CSS AVOD Inc. (“CSS AVOD”), and issued shares (“CSS AVOD Shares”) of common stock, representing
5% of the after-issued equity of CSS AVOD, to MidCap Financial Trust (“MidCap”), the agent and lender of our Credit Agreement
(defined below). At any time during the three-year period immediately following the 18-month anniversary of the closing (such three-year
period, the “Put Election Period”), MidCap shall have the right upon 60 days’ prior written notice (“Put Notice”)
to CSSE to require CSSE to purchase such CSS AVOD Shares for $11.5 million (“Put Election”).
Certain of the Purchased Assets, including the
Current TV Contracts (as defined in the Asset Purchase Agreement) but not any other Project Assets related to the Current TV Projects
(as defined in the Asset Purchase Agreement) other than the Current TV Project entitled “Mr. Mercedes”, Library Accounts
Receivable (as defined in the Asset Purchase Agreement), and the contracts pursuant to which they are payable and the Library (as defined
in the Asset Purchase Agreement) and Project Assets related thereto (including any such assets owned by Sonar Canada or its subsidiaries)
and the proceeds of the foregoing (each as defined in the Asset Purchase Agreement), remain subject to certain liens in favor of MidCap
for itself and other lenders under a credit facility it has provided to Sonar. Midcap’s lien on the Library Accounts Receivable
shall terminate on the date that 100% of same has been collected and additional purchase price payments payable in respect thereof have
been paid by CSSE Buyer pursuant to the Asset Purchase Agreement. Midcap’s lien on the Library and Project Assets shall terminate
on the earlier of (a) if the Put Election is timely made, receipt by MidCap (or its assignee) of the put purchase price and (b) solely
if no Put Election has been made, 180 days following the 18-month anniversary of the closing.
CSSE Buyer has agreed that so long as Midcap’s
liens remain effective, CSSE Buyer shall abide by certain covenants, including maintaining the Library and using commercially reasonable
efforts to collect amounts due from third parties under the contracts comprising a part of the Purchased Assets.
On May 21, 2021, in connection with the closing
of the Sonar asset acquisition, we and certain of our subsidiaries (collectively referred to herein as the “Borrowers”) entered
into a credit, security and guaranty agreement (“Credit Agreement”) with MidCap as agent and a lender.
The Credit Agreement provides the Borrowers with
revolving loans in an aggregate principal amount not to exceed $20,000,000 (“Revolving Loan Commitment”) at any time outstanding
(the “Loans”). On the closing date, Borrowers made an initial draw down on the Loans of approximately $18.3 million. Under
certain circumstances, the Revolving Loan Commitment may be increased to $30 million. The availability under the Loans at any time is
subject to the Borrowing Base, which is equal to 85% of the Eligible Accounts (the accounts receivable of the Borrowers’ qualified
under the terms of the Credit Agreement) minus the sum of all Reserves.
The proceeds of the Loans were or will be used
by us for funding part of the Sonar asset acquisition. The Loans are secured by the Borrowers’ accounts receivable and the
contracts underlying such accounts receivable, and other related assets, but not intellectual property.
The Loans bear interest at the sum of the LIBOR
Rate plus 4% per annum. Interest on the Loans is payable in arrears on the first day of each month and on the maturity of the Loans.
The Borrowers shall pay a fee in an amount equal to (i) (A) the Revolving Loan Commitment minus (B) the average
daily balance of the sum of the outstanding Loans during the preceding month multiplied by (ii) 0.50% per annum. Such fee
is to be paid monthly in arrears on the first day of each month. The Borrowers shall also pay certain minimum balance fees, if applicable,
and collateral management, audit, and other fees, as prescribed by the Credit Agreement. Concurrently with the initial borrowing under
the Credit Agreement, the Borrowers paid to MidCap, as agent to the several lenders, a total of $241,449, including $41,449 for certain
diligence fees, and an origination fee of $200,000.
The Borrowers may borrow, repay and reborrow under
the Loans prior to the maturity date, subject to the terms, provisions and limitations set forth in the Credit Agreement. The Credit Agreement
and other loan documents contain customary representations and warranties and affirmative and negative covenants. Under the Credit Agreement,
Borrower is required to maintain minimum liquidity in the form of Borrowing Base availability or, as may be agreed by Agent, cash on hand
in an aggregate amount of not less than $6,000,000.
A description of the asset purchase and a summary
of the principal terms of the Asset Purchase Agreement is contained in our Current Reports on Form 8-K filed with the Commission
on April 9, 2021 (“April 2021 8-K”) and May 27, 2021 (“May 2021 8-K”), as amended on June 11,
2021. A copy of the Asset Purchase Agreement was filed as Exhibit 2.1 to the April 2021 8-K. A summary of the Credit Agreement
is contained in the May 2021 8-K and a copy of the Credit Agreement was filed as Exhibit 10.1 thereto.
The
results of operations of Sonar’s operations will be included in our consolidated statements of operations as of the closing of the
transactions. Required financial statements, including applicable pro forma financial statements related to the Sonar assets were
filed as part of the amendment to the May 2021 8-K on June 11, 2021.
The transaction was structured to ensure that Sonar Canada’s
operations will continue to meet applicable Canadian control regulatory requirements in relation to television and film production companies,
to the continued benefit of the Canadian ad film production industry.
Competition
We are in a highly competitive business. The market for streaming entertainment
is rapidly changing. We face competition from companies within the entertainment business and from alternative forms of leisure entertainment,
such as travel, sporting events, outdoor recreation, video games, the internet and other cultural and computer-related activities. We
compete for viewers and programming with much larger companies which have significant resources and brand recognition, including dominant
video on demand providers such as Netflix, HBO Max, Hulu, Amazon Prime Video, Disney Plus, Paramount Plus, Fox, and major film and television
studios. We also compete with numerous independent motion picture and television distribution and production companies, television networks,
pay television systems and online media platforms for viewers, subscribers, and the services of performing artists, producers and other
creative and technical personnel and production financing, all of which are essential to the success of our businesses.
In addition, our video content competes for media outlet and audience
acceptance with video content produced and distributed by other companies. As a result, the success of any of our video content is dependent
not only on the quality and acceptance of a particular production, but also on the quality and acceptance of other competing video content
available in the marketplace at or near the same time.
Given such competition, and our stage of development, we emphasize
a lower cost structure, risk mitigation, reliance on financial partnerships and innovative financial strategies. We rely on our flexibility
and agility as well as the entrepreneurial spirit of our employees, partners and affiliates, in order to provide creative, desirable video
content.
Intellectual Property
We are party to a license agreement (the “CSS License Agreement”)
with our parent company, CSS, through which we have been granted the perpetual, exclusive, worldwide license by CSS to exclusively exhibit,
produce and distribute video content using the Chicken Soup for the Soul brand and related content, such as stories published in the Chicken
Soup for the Soul books. Chicken Soup for the Soul and related names are trademarks owned by CSS. We have the proprietary rights (including
copyrights) in all company-produced content and believe the Brand provides a competitive advantage in attracting advertisers and entertainment
talent. As a result of the acquisitions of Screen Media, Pivotshare, Crackle, Sonar and other smaller libraries, companies and assets,
we now own copyrights or global long-term distribution rights and AVOD rights to approximately 11,300 films and 24,000 television episodes.
We rely on a combination of copyright, trademark, trade secret laws,
confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information and intellectual
property rights. Our ability to protect and enforce our intellectual property rights is subject to certain risks and from time to time
we encounter disputes over rights and obligations concerning intellectual property, which are described more fully in the section of our
annual report on Form 10-K for the year ended December 31, 2020 entitled “Risk Factors.”
Human Capital Management
At Chicken Soup for the Soul Entertainment, we aim to bring out the
best of our employees and consultants. We are committed to developing our employees and encourage and facilitate the development of our
employees through our People Operations department. We depend on a highly educated and skilled workforce. We seek to advance a diverse,
equitable and inclusive work environment for all employees. Our ability to attract, develop and retain the best talent, is critical for
us to execute our strategy and grow our businesses.
As of March 31, 2021, we had 108 direct employees. The services
of certain personnel, including our chairman and chief executive officer, vice chairman and chief strategy officer, our senior brand advisor
and director, and chief financial officer, among others, are provided to us under the Management Services Agreement dated May 12,
2016, between us and CSS (“CSS Management Agreement”). We also utilize many consultants in the ordinary course of our business
and hire additional personnel on a project-by-project basis. We believe that our employee and labor relations are good, and we are committed
to inclusion and strict policies and procedures to maintain a safe work environment. We have taken measures to protect our workforce in
response to the COVID-19 pandemic, including allowing employees to work from home when possible and implementing safety protocols to support
our employees required to work onsite.
We value our employees and invest in them and their communities. Recently,
we joined a growing group of companies working with Good Today to enable our employees to participate in supporting non-profit organizations
to support initiatives that have a positive global impact.
Corporate Information
We are a Delaware corporation formed on May 4, 2016. CSS Productions,
our predecessor and immediate parent company, was formed in December 2014 by CSS, and initiated operations in January 2015.
We were formed to create a discrete entity focused on video content opportunities using the Brand. In May 2016, pursuant to the terms
of the contribution agreement among CSS, CSS Productions and the Company, all video content assets owned by CSS, CSS Productions and their
CSS subsidiaries were transferred to the Company in consideration for its issuance to CSS Productions of 8,600,568 shares of the Company’s
Class B common stock. Thereafter, CSS Productions’ operating activities ceased, and the Company continued the business operations
of producing and distributing the video content.
Our
address is 132 East Putnam Avenue, Floor 2W, Cos Cob, CT 06807. Our telephone number is (855) 398-0443, and our website address is
https://www.cssentertainment.com. The information contained on, or that can be accessed through, our website is not part of this
prospectus.
Use of Non-GAAP Financial Measure
Our consolidated
financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S.
GAAP”). We use a non-GAAP financial measure to evaluate our results of operations and as a supplemental indicator of our
operating performance. The non-GAAP financial measure that we use is Adjusted EBITDA. Adjusted EBITDA (as defined below) is
considered a non-GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act of 1933, as
amended. Due to the significance of non-cash and non-recurring expenses recognized for the three months March 31, 2021 and 2020, and
the likelihood of material non-cash, non-recurring, and acquisition related expenses to occur in future periods, we believe that
this non-GAAP financial measure enhances the understanding of our historical and current financial results as well as provides
investors with measures used by management for the planning and forecasting of future periods, as well as for measuring performance
for compensation of executives and other members of management. Further, we believe that Adjusted EBITDA enables our board of
directors and management to analyze and evaluate financial and strategic planning decisions that will directly affect operating
decisions and investments. We believe this measure is an important indicator of our operational strength and performance of our
business because it provides a link between operational performance and operating income. It is also a primary measure used by
management in evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and
useful for investors because it allows investors to view performance in a manner similar to the method used by management. We
believe it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results
with other companies that have different capital structures or tax rates. In addition, we believe this measure is also among the
primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our
operating performance to other companies in our industry.
The presentation of Adjusted EBITDA should not be construed as an inference
that our future results will be unaffected by unusual, infrequent or non-recurring items or by non-cash items. This non-GAAP financial
measure should be considered in addition to, rather than as a substitute for, our actual operating results included in our condensed consolidated
financial statements.
We define Adjusted EBITDA as consolidated operating income (loss) adjusted
to exclude interest, taxes, depreciation, amortization (including tangible and intangible assets), acquisition-related costs, consulting
fees related to acquisitions, dividend payments, non-cash share-based compensation expense, and adjustments for other unusual and infrequent
in nature identified charges, including transition related expenses. Adjusted EBITDA is not an earnings measure recognized by U.S. GAAP
and does not have a standardized meaning prescribed by GAAP; accordingly, Adjusted EBITDA may not be comparable to similar measures presented
by other companies. We believe Adjusted EBITDA to be a meaningful indicator of our performance that management uses and believes provides
useful information to investors regarding our financial condition and results of operations. The most comparable GAAP measure is operating
income (loss).
Adjusted EBITDA has important limitations as an analytical tool, and
you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations
are:
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Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures
or contractual commitments;
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·
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Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs;
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·
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Adjusted EBITDA does not reflect the effects of preferred dividend payments, or the cash requirements
necessary to fund;
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·
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Although amortization and depreciation is a non-cash charge, the assets being depreciated will often have
to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such future replacements;
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·
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Adjusted EBITDA does not reflect the effects of the amortization of our film library, which include cash
and non-cash amortization of our initial film library investments, participation costs and theatrical release costs;
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·
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Adjusted EBITDA does not reflect the impact of stock-based compensation upon our results of operations;
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·
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Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary
to service interest or principal payments on our debt;
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·
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Adjusted EBITDA does not reflect our income tax expense (benefit) or the cash requirements to pay our
income taxes;
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·
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Adjusted EBITDA does not reflect the impact of acquisition related expenses; and the cash requirements
necessary;
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·
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Adjusted EBITDA does not reflect the impact of other non-recurring, infrequent in nature and unusual income
and expenses; and
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Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness
as a comparative measure.
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In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to
those eliminated in this presentation.
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Reconciliation of Historical GAAP Net Income as reported to Adjusted
EBITDA
The following tables present a reconciliation of Adjusted EBITDA to
net income, the most directly comparable GAAP measure, for the periods presented:
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Three Months Ended March 31,
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2021
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|
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2020
|
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Net loss available to common stockholders
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|
$
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(9,193,381
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)
|
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$
|
(11,427,380
|
)
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Preferred dividends
|
|
|
2,253,385
|
|
|
|
974,272
|
|
Provision for income taxes
|
|
|
14,000
|
|
|
|
49,000
|
|
Other taxes
|
|
|
84,493
|
|
|
|
53,411
|
|
Interest expense(a)
|
|
|
1,087,944
|
|
|
|
329,125
|
|
Film library and program rights amortization(b)
|
|
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6,928,667
|
|
|
|
2,494,832
|
|
Share-based compensation expense(c)
|
|
|
231,844
|
|
|
|
244,835
|
|
Acquisition-related costs(d)
|
|
|
—
|
|
|
|
98,926
|
|
Reserve for bad debt and video returns
|
|
|
694,212
|
|
|
|
1,721,595
|
|
Amortization and depreciation(e)
|
|
|
1,621,360
|
|
|
|
5,204,728
|
|
Other non-operating income, net(f)
|
|
|
(570
|
)
|
|
|
(6,438
|
)
|
Transitional expenses(g)
|
|
|
—
|
|
|
|
2,113,469
|
|
All other nonrecurring costs
|
|
|
840,050
|
|
|
|
186,948
|
|
Adjusted EBITDA
|
|
$
|
4,562,004
|
|
|
$
|
2,037,323
|
|
|
(a)
|
Includes amortization of deferred financing costs of $98,889 and $10,152 for the three months ended March 31,
2021 and 2020, respectively.
|
|
(b)
|
Represents amortization of our film library, which include cash and non-cash amortization of our film
library investments, participation costs and theatrical release costs as well as amortization for our acquired program rights.
|
|
(c)
|
Represents expense related to common stock equivalents issued to certain employees and officers under
our Long-Term Incentive Plan. In addition to common stock grants issued to employees, non-employee directors and third-party
consultants.
|
|
(d)
|
Represents aggregate transaction-related costs, including legal fees, accounting fees, investment advisory
fees and various consulting fees.
|
|
(e)
|
Includes depreciation and amortization of intangibles, property and equipment and amortization of technology
expenditures included in cost of revenue.
|
|
(f)
|
Other non-operating income is primarily comprised of interest income earned on cash deposits.
|
|
(g)
|
Represents transitional related expenses primarily associated with the Crackle Plus business combination
and our strategic shift related to our production business. Costs include non-recurring payroll, redundant non-recurring
technology costs and other transitional costs.
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss available to common stockholders
|
|
$
|
(44,552,353
|
)
|
|
$
|
(34,976,816
|
)
|
Preferred dividends
|
|
|
4,142,376
|
|
|
|
3,304,947
|
|
Provision for income taxes
|
|
|
99,000
|
|
|
|
585,000
|
|
Other taxes
|
|
|
312,600
|
|
|
|
460,205
|
|
Interest expense(a)
|
|
|
2,222,106
|
|
|
|
811,017
|
|
Film library and program rights amortization(b)
|
|
|
23,563,772
|
|
|
|
10,683,227
|
|
Share-based compensation expense(c)
|
|
|
1,131,515
|
|
|
|
1,061,926
|
|
Acquisition-related costs(d)
|
|
|
98,926
|
|
|
|
3,968,289
|
|
Expense for bad debt and video returns
|
|
|
3,384,584
|
|
|
|
2,669,699
|
|
Amortization and depreciation(e)
|
|
|
17,317,247
|
|
|
|
13,293,279
|
|
Other non-operating income, net(f)
|
|
|
(6,254,205
|
)
|
|
|
(40,191
|
)
|
Loss on extinguishment of debt
|
|
|
169,219
|
|
|
|
350,691
|
|
Impairment of content assets(g)
|
|
|
3,973,878
|
|
|
|
—
|
|
Transitional expenses(h)
|
|
|
4,353,345
|
|
|
|
3,505,855
|
|
All other nonrecurring costs
|
|
|
1,789,569
|
|
|
|
276,400
|
|
Adjusted EBITDA
|
|
$
|
11,751,579
|
|
|
$
|
5,953,528
|
|
|
(a).
|
Includes amortization of deferred financing costs of $131,790 and $82,400 for the years ended December 31,
2020 and 2019, respectively.
|
|
(b).
|
Represents amortization of our film library, which include cash and non-cash amortization of our initial
film library investments, participation costs and theatrical release costs as well as amortization for our acquired program rights.
|
|
(c).
|
Represents expense related to common stock equivalents issued to certain employees and officers under
our Long-Term Incentive Plan. In addition to common stock grants issued to employees, non-employee directors and third-party
consultants.
|
|
(d).
|
Represents aggregate acquisition-related costs, including legal fees, accounting fees, investment advisory
fees and various consulting fees.
|
|
(e).
|
Includes depreciation and amortization of intangibles, property and equipment and amortization of technology
expenditures included in cost of revenue.
|
|
(f).
|
Other non-operating income is primarily comprised of various extinguished liabilities as part of a
settlement, see Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 for further
detail.
|
|
(g).
|
Represents impairment charges related to our content assets, comprised of program and film library assets.
|
|
(h).
|
Represents transitional related expenses primarily associated with the Crackle Plus business combination
and our strategic shift related to its production business. Costs include non-recurring payroll, redundant non-recurring
technology costs and other transitional costs.
|
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As long as we are an emerging growth company, we are eligible
to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not
emerging growth companies. These include, but are not limited to:
|
·
|
Not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
|
|
·
|
Not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditors’ report providing additional information about the audit and the financial statements;
|
|
·
|
Reduced disclosure obligations regarding executive compensation; and
|
|
·
|
Exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
|
We may remain an “emerging growth company” until as late
as December 31, 2022, the fiscal year-end following the fifth anniversary of the completion of our initial public offering, though
we may cease to be an emerging growth company earlier under certain circumstances, including if (a) we have more than $1 billion
in annual gross revenue in any fiscal year, (b) the market value of our common stock that is held by non-affiliates exceeds $700
million as of any June 30 or (c) we issue more than $1 billion of non-convertible debt over a three-year period.
The Securities We May Offer
We may offer up to $1,000,000,000 of common stock, preferred stock,
warrants, debt securities and/or units comprised of one or more of the foregoing classes of securities, in one or more offerings and in
any combination. This prospectus provides you with a general description of the securities we may offer. A prospectus supplement, which
we will provide each time we offer securities, will describe the specific amounts, prices and terms of these securities.
Common Stock
We have two classes of common stock which are substantially identical,
except that the holders of Class A common stock are entitled to one vote for each share held of record on all matters to be voted
on by stockholders and the holders of Class B common stock are entitled to ten votes for each share. Subject to any preferential
rights of any outstanding preferred stock, holders of our Class A and Class B common stock are entitled to receive ratably the
dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. If there is a liquidation,
dissolution or winding up of our company, holders of our Class A and Class B common stock would be entitled to share ratably
in our net assets legally available for distribution to stockholders after the payment of all our debts and liabilities and any preferential
rights of any outstanding preferred stock. The Class A common stock is listed for trading on the Nasdaq Global Market under the symbol
“CSSE.”
Preferred Stock
We have one class of preferred stock outstanding,
our Series A preferred stock. The Series A preferred stock has been assigned a rating of “BBB(-)” by Egan-Jones
Ratings Co. See “Description of Capital Stock – Series A Preferred Stock—Credit Rating of our Series A
Preferred Stock”. The Series A preferred stock is listed for trading on the Nasdaq Global Market under the symbol “CSSEP.”
Commencing on June 27, 2023, we may redeem,
at our option, the Series A preferred stock, in whole or in part, at a cash redemption price equal to $25.00 per share, plus any
accumulated and unpaid dividends thereon to, but not including, the redemption date. Prior to June 27, 2023, upon a Change of Control,
as defined in this prospectus, we may redeem, at our option, the Series A preferred stock, in whole or part, at a cash redemption
price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including the redemption date. The Series A
preferred stock has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be convertible
into or exchangeable for any of our other securities. Holders of the Series A preferred stock generally will have no voting rights
except for certain limited voting rights in circumstances where dividends payable on the outstanding Series A preferred stock are
in arrears for eighteen or more consecutive or nonconsecutive monthly dividend periods. See “Description of Capital Stock –
Series A Preferred Stock” for more information.
We
will be restricted in our ability to issue or create any class or series of capital stock ranking senior to the Series A preferred
stock with respect to dividends or distributions, so long as the Series A preferred stock is outstanding, unless holders of at least
66.67% of the then outstanding Series A preferred stock consent to same. Subject to such limitations, our preferred stock
will have such designations, rights and preferences as may be determined from time to time by our board of directors, without stockholder
approval. We have summarized some of the general terms and provisions of the preferred stock that we may issue in “Description
of Capital Stock.” A prospectus supplement will describe the particular terms of any series of preferred stock offered from
time to time and may supplement or change the terms outlined below.
Warrants
We have outstanding:
|
·
|
527,212 Class W Warrants sold by us in private placements consummated prior to our initial public offering, each of which entitles the holder thereof to purchase one share of our Class A common stock for $7.50 through June 30, 2023;
|
|
·
|
123,445 Class Z Warrants sold by us in private placements consummated prior to our initial public offering, each of which entitles
the holder thereof to purchase one share of our Class A common stock for $12.00 through June 30, 2024;
|
|
·
|
Class I Warrant issued by us to CPEH in connection with the formation of Crackle Plus and our purchase of the assets of Crackle
from CPEH and certain affiliates thereof, which entitles the holder thereof to purchase 800,000 shares of our Class A common stock
for $8.13 per share through May 14, 2024;
|
|
·
|
Class II Warrant issued by us to CPEH in connection with the formation of Crackle Plus and our purchase of the assets of Crackle
from CPEH and certain affiliates thereof, which entitles the holder thereof to purchase 1,200,000 shares of our Class A common stock
for $9.67 per share through May 14, 2024;
|
|
·
|
Class III-A Warrant issued by us to CPEH in connection with the formation of Crackle Plus and our purchase of the assets of Crackle
from CPEH and certain affiliates thereof, which entitles the holder thereof to purchase 380,000 shares of our Class A common stock
for $11.61 per share through May 14, 2024; and
|
|
·
|
Class III-B Warrant issued by us to CPEH in connection with the formation of Crackle Plus and our purchase of the assets of Crackle
from CPEH and certain affiliates thereof, which entitles the holder thereof to purchase 1,620,000 shares of our Class A common stock
for $11.61 per share through May 14, 2024.
|
We may issue warrants for the purchase of common stock, preferred stock,
debt securities or any other class of security offered hereby. We have summarized some of the general terms and provisions of the warrants
that we may issue in “Description of Warrants.” A prospectus supplement will describe the particular terms of any warrants
offered from time to time and may supplement or change the terms outlined below. We anticipate listing our Class W Warrants and Class Z
Warrants on the OTC Markets in the relatively near term.
Debt Securities
On July 17, 2020, the Company completed an underwritten public
offering of $21,000,000 aggregate principal amount of its 9.50% Notes due 2025 (the “July Notes”), pursuant to an Underwriting
Agreement, dated as of July 13, 2020, between the Company and Ladenburg Thalmann & Co. Inc., as representative of the underwriters.
On August 5, 2020, the Company sold an additional $1,100,000 of July Notes pursuant to the partial exercise of the overallotment
option. The July Notes were issued under a base indenture and a supplemental indenture, each dated as of July 17, 2020 (the
“Base Indenture” and “Supplemental Indenture,” respectively, and together, the “Indenture”) between
the Company and U.S. Bank National Association, as trustee (the “Trustee”). The July Notes bear interest from July 17,
2020 at the rate of 9.50% per annum, payable every March 31, June 30, September 30, and December 31, and at maturity,
beginning September 30, 2020. The July Notes mature on July 31, 2025.
On December 22, 2020, the Company completed an underwritten public
offering of $9,387,750 aggregate principal amount of 9.50% Notes due 2025 (the “December Notes”, and together with the
July Notes, the “2025 Notes”) pursuant to an Underwriting Agreement, dated as of December 17, 2020, between the
Company and Ladenburg Thalmann & Co. Inc., as representative of the underwriters. On December 29, 2020, the Company sold
an additional $1,408,150 of December Notes pursuant to the underwriters’ partial exercise of the overallotment option. The
December Notes are a further issuance of, rank equally in right of payment with, and form a single series for all purposes under
the Indenture with the July Notes.
The 2025 Notes have been assigned a rating of BBB by Egan-Jones Ratings
Co. See “Description of our 202f Notes—Rating of the 2025 Notes”. The 2025 Notes are listed for trading on the
Nasdaq Global Market under the symbol “CSSEN.”
We may offer any combination of senior debt securities or subordinated
debt securities pursuant to the registration statement of which this prospectus forms a part. The subordinated debt securities generally
will be entitled to payment only after payment of our senior debt. Senior debt securities will be unsubordinated obligations and will
rank equal with all our other unsubordinated debt. We may issue the senior debt securities and the subordinated debt securities under
separate indentures between us, as issuer, and the trustee or trustees identified in a prospectus supplement. We have summarized some
of the general terms and provisions of the debt securities that we may issue in “Description of Debt Securities.” A
prospectus supplement will describe the particular terms of any debt securities offered from time to time and may supplement or change
the terms outlined below.
Units
We may issue units comprised of one or more of the other classes of
securities offered hereby in any combination. We have summarized some of the general terms and provisions of the units that we may issue
in “Description of Units.” A prospectus supplement will describe the particular terms of any units offered from time
to time and may supplement or change the terms outlined below.
Securities the Selling Securityholders May Offer
The selling securityholder may sell, in one or more offerings pursuant
to the registration statement of which this prospectus forms a part, up to an aggregate of 1,798,956 shares of our Series A preferred
stock issued to the selling securityholder in connection with our repurchase of such holder’s equity in Crackle Plus and the reimbursement
of certain expenses incurred by the selling securityholder in connection with the creation of Crackle Plus. We will not receive any proceeds
from the sale by the selling securityholder of such securities.
RISK FACTORS
Any investment in our securities involves a high degree of risk. Potential
investors are urged to read and consider the risks and uncertainties relating to an investment in our company set forth under “Risk
Factors” in the prospectus supplement relating to a particular offering, together with all of the other information contained
or incorporated by reference in the prospectus supplement or contained or incorporated by reference in this prospectus. Potential investors
also should read and consider the risks and uncertainties discussed under the item “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2020, and our subsequent quarterly reports on Form 10-Q and annual reports
on Form 10-K, all of which are incorporated herein by reference, and may be amended, supplemented or superseded from time to time
by other reports we file with the SEC in the future and any prospectus supplement related to a particular offering. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may also affect our business and results of operations. If
any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event,
the market price for our common stock could decline and you may lose all or part of your investment.
Risks Relating to Our Recent Acquisition of Assets from Sonar Entertainment
We may not be able to efficiently integrate the assets acquired
from Sonar Entertainment into our operations.
We need to integrate the film libraires, distribution arrangements
and other assets we acquired from Sonar Entertainment into our existing operations and across our platforms. These activities will require
some time and involve dedication of various resources of our company that would typically be dedicated to our existing operations. These
integration efforts may accordingly adversely affect our other operations to the extent such efforts take resources or attention away
from our other operations. We also may not realize the operational or financial gains from the Sonar Entertainment assets that we anticipated
when originally determining to acquire such assets.
We may have material financial obligations related to the purchase
of the Sonar Entertainment assets.
If we are required to repurchase the CSS AVOD
Shares upon a Put Election, we will be required to pay $11.5 million in cash for the repurchase of the 5% equity interest in CSS AVOD
issued in connection with the Sonar transaction. This obligation could place a material strain on our cash position, and could require
us to finance such payment through the issuance of debt or equity. Such financing resources may not be available to us at the time we
require it, or could require us to borrow capital, or issue equity to raise capital, on terms that are not favorable to us. In addition,
any issuance of equity could be dilutive to our then existing stockholders.
Certain of the assets we acquired from Sonar
Entertainment have first priority liens on them, which encumber such assets and places certain limitations on such assets.
Certain of the assets we acquired from Sonar Entertainment and the
related contracts and the proceeds of the foregoing remain subject to certain liens in favor of MidCap for itself and other lenders under
a credit facility it had previously provided to Sonar Entertainment. These liens will terminate upon our collection of the existing accounts
receivable of Sonar Entertainment. Under the terms of the asset purchase, we have agreed that, so long as Midcap’s liens remain
effective, we shall abide by certain covenants, including maintaining these assets and using commercially reasonable efforts to collect
amounts due from third parties under the contracts comprising part of such assets. In addition, in connection with the closing of the
Sonar Entertainment assets, we and certain of our subsidiaries entered into the Credit Agreement with MidCap, which also places liens
on our accounts receivables. Any event of default under the Credit Agreement that is not cured or waived could have a material adverse
effect on our company, our assets and operations.
Risks Relating to the Offering by the Selling Securityholders
Sales of substantial amounts of our Series A preferred stock
by the selling securityholder, or the perception that these sales could occur, could adversely affect the price of our securities.
The sale by the selling securityholder of a significant number of shares
of our Series A preferred stock, or the perception in the public markets that the selling securityholder may sell all or a portion
of such securities as a result of the registration of such shares hereunder, could have a material adverse effect on the market price
of our securities.
NOTE ON FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus and in the documents incorporated
by reference in this prospectus that are not purely historical are forward-looking statements. Forward-looking statements include, but
are not limited to, statements regarding expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any
statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continues,” “could,”
“estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,”
“potential,” “predicts,” “projects,” “should,” “would” and similar expressions
may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking
statements in this prospectus and in the documents incorporated by reference in this prospectus may include, for example, statements about
our:
|
·
|
operating income and margin;
|
|
·
|
liquidity, including cash flows from operations, available funds and access to financing sources;
|
|
·
|
our inability to pay dividends if we fall out of compliance with our loan covenants in the future and then are prohibited by our bank
lender from paying dividends;
|
|
·
|
user growth and the ability of our content offerings to achieve market acceptance;
|
|
·
|
success in retaining or recruiting, or changes required in, our officers, key employees or directors;
|
|
·
|
potential ability to obtain additional financing when and if needed, including use of the debt markets;
|
|
·
|
ability to protect our intellectual property;
|
|
·
|
ability to complete strategic acquisitions;
|
|
·
|
ability to manage growth and integrate acquired operations;
|
|
·
|
stock price volatility, potential liquidity and trading of our securities;
|
|
·
|
future regulatory changes;
|
|
·
|
actions by competitors;
|
|
·
|
our content and marketing investments, including investments in original programming;
|
|
·
|
downward revisions to, or withdrawals of, our credit ratings by third-party rating agencies;
|
|
·
|
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and
|
|
·
|
the time during which we will be an Emerging Growth Company (“EGC”) under the Jumpstart Our Business Startups Act of 2012,
or JOBS Act.
|
The forward-looking statements contained in this prospectus and in
the documents incorporated by reference in this prospectus are based on current expectations and beliefs concerning future developments
and their potential effects on us. There can be no assurance that future developments will be those that have been anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may
cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These
risks and uncertainties include, but are not limited to, those factors incorporated by reference or described in “Risk Factors.”
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary
in material respects from those projected in these forward-looking statements. We do not undertake any obligation to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable
securities laws.
BACKGROUND OF THE ISSUANCE OF SECURITIES TO
THE SELLING SECURITYHOLDER
On May 14, 2019 we consummated the creation of Crackle Plus, our
joint venture with Sony Pictures Television (“SPT”), as contemplated by that certain contribution agreement dated as of March 27,
2019 (the “Contribution Agreement”) by and among the Company, Crackle Plus, CPE Holdings, Inc., a Delaware corporation
and affiliate of SPT (“CPEH”), and Crackle, Inc., a Delaware corporation and wholly owned subsidiary of CPEH. The Contribution
Agreement provided, among other things, for the contribution by CPEH and its affiliates of certain assets of their Crackle branded advertising-based
video on demand streaming business and for the contribution by the Company of certain assets of their advertising-based and subscription-based
video on-demand business to Crackle Plus.
As partial consideration for assets contributed to Crackle Plus, the
selling securityholder received warrants to purchase (a) 800,000 shares of Class A common stock at an exercise price of $8.13
per share (“Class I Warrants”), (b) 1,200,000 shares of Class A common stock at an exercise price of $9.67
per share (“Class II Warrants”), (c) 380,000 shares of Class A common stock at an exercise price of $11.61
per share (“Class III-A Warrants”), and (d) 1,620,000 shares of Class A common stock at an exercise price of
$11.61 per share (“Class III-B Warrants”). We previously registered the resale of the Class A common stock underlying
the warrants issued to the selling securityholder as required by the terms of the registration rights agreement between us and the selling
securityholder in order to permit the selling securityholder to offer the shares for resale from time to time. All the warrants expire
on May 14, 2024 and are exercisable at any time and from time to time during such term.
Pursuant to the amended and restated limited liability company agreement
of Crackle Plus, dated as of March 27, 2019 (the “LLC Agreement”) among CSSE, Crackle Plus and CPE, CPEH had the right
to require the Company to purchase all, but not less than all, of CPEH’s interest in Crackle Plus (the “Put Option”).
The Put Option was exercised on December 14, 2020, as previously disclosed in our Current Report on Form 8-K filed with the
Securities Exchange Commission on December 15, 2020. Representatives of SPT were members of the Board of Directors of Crackle Plus
until the Put Option was exercised. As previously disclosed, we had the option to elect to pay cash in lieu of issuing the preferred stock.
We determined, in our sole discretion, to satisfy the Put Option entirely through the issuance of an aggregate of 1,600,000 shares of
Series A preferred stock. As a result of CPEH’s exercise of the Put Option, we now own 100% of the outstanding equity interests
of Crackle Plus.
In addition, pursuant to the Contribution Agreement, we issued CPEH
an aggregate of 198,956 shares of Series A preferred stock in lieu of cash reimbursement of certain expenses incurred by CPEH and
its affiliates in connection with the creation of Crackle Plus.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement,
the net proceeds from the sale of the securities offered hereby will be used for working capital and other general corporate purposes,
including mergers and acquisitions, debt repayments, dividends, and share repurchases. Any specific allocation of the net proceeds of
an offering of securities to a specific purpose will be determined at the time of a particular offering and will be described in the prospectus
supplement relating to such offering. Pending the application of such proceeds, we expect to invest the proceeds in short-term, interest
bearing, investment-grade marketable securities or money market obligations.
Up to 1,798,956 shares of Series A preferred stock issued to the
selling securityholder may be sold or otherwise disposed of for the account of the selling securityholder or its pledgees, assignees,
or successors-in-interest. We will not receive any of the proceeds from the sale or other disposition of the Series A preferred stock
by the selling securityholder.
SELLING SECURITYHOLDER
When we refer to the “selling securityholder” in this prospectus
we mean the person listed in the table below, and the pledgees, assignees, donees, permitted transferees, successors, and others who later
come to hold any of the selling securityholder’s Series A preferred stock being offered by this prospectus.
This prospectus covers an aggregate of 1,798,956 shares of our
Series A preferred stock that may be sold or otherwise disposed of by the selling securityholder.
The following table sets forth, as of the date of this prospectus,
(i) the number of shares of Series A preferred stock beneficially owned by the selling securityholder prior to the offering;
(ii) the number of shares of Series A preferred stock offered for resale to the public by the selling securityholder; and (iii) the
number of shares of Series A preferred stock and the percentage of our Series A preferred stock to be beneficially owned by
the selling securityholder after the offering.
The information in the table is based on information supplied to us
by the selling securityholder. Other than as described in the footnotes below, or as otherwise described in this prospectus, the selling
securityholder has not, within the past three years, had any position, office or other material relationship with us or any of our predecessors
or affiliates other than as a holder of our securities. The selling securityholder is not a broker-dealer or an affiliate of a broker-dealer.
The selling securityholder may sell all, some, or none of the shares
of Series A preferred stock offered hereby in this offering. The selling securityholder identified in the table below may sell, transfer,
or otherwise dispose of some or all its shares of Series A preferred stock in transactions exempt from, or not subject to the registration
requirements of, the Securities Act. See “Plan of Distribution of Securities”. Information concerning the selling securityholder
may change from time to time and, if necessary and required, we will amend or supplement this prospectus accordingly.
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Before Offering (1)
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After Offering (1)
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Selling Securityholder
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Shares of Series
A Preferred
Stock
Beneficially
Owned Prior to
the Offering
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Shares of
Series A
Preferred
Stock Being
Registered
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Percent
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Shares of
Series A
Preferred
Stock
Owned
After the
Offering
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Percent
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CPE Holdings, Inc.(2)
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1,798,956
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1,798,956
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48.6
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%
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0
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0
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%
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(1)
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Beneficial ownership is determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and generally
includes shares over which the selling securityholder has voting or dispositive power, including
any shares that the selling securityholder has the right to acquire within 60 days of the
date hereof. The percentage of ownership before and after the offering is calculated based
on 3,698,318 shares of Series A preferred stock outstanding on June 21, 2021.
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(2)
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CPE Holdings, Inc. was a member of the joint venture entity Crackle Plus, LLC, from May 2019 to January 2021. CPE Holdings, Inc.
is a direct, wholly-owned subsidiary of Sony Pictures Entertainment Inc., which is a direct, wholly-owned subsidiary of Sony Entertainment
Inc, which is a direct, wholly-owned subsidiary of Sony Corporation of America, Inc., which is a direct, wholly-owned subsidiary
of Sony Americas Holding, Inc., which is a direct, wholly-owned subsidiary of Sony Corporation.
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DESCRIPTION OF CAPITAL STOCK
Introduction
In the discussion that follows, we have summarized selected provisions
of our certificate of incorporation, bylaws and the Delaware General Corporation Law, or “DGCL,” relating to our capital stock.
This summary is not complete. This discussion is subject to the relevant provisions of Delaware law and is qualified in its entirety by
reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of incorporation and our
bylaws as currently in effect for provisions that may be important to you.
General
We are authorized to issue 70 million shares of Class A common
stock, par value $.0001, 20 million shares of Class B common stock, par value $.0001, and 10 million shares of preferred stock, par
value $.0001, of which 4,300,000 shares has been designated Series A preferred stock.
Our Class A common stock and Series A preferred stock were
each approved for listing on the Nasdaq Global Market under the symbols “CSSE” and “CSSEP”, respectively.
As of the date of this prospectus, 6,700,831 shares of our Class A
common stock are outstanding, 7,654,506 shares of our Class B common stock are outstanding and 3,698,318 shares of our Series A
preferred stock are outstanding.
We also have outstanding:
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Class W warrants to purchase an aggregate of 527,212 shares of our Class A common stock;
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Class Z warrants to purchase an aggregate of 123,445 share of our Class A common stock, and
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Class I, II, III-A and III-B warrants to purchase an aggregate of 4,000,000 shares of Class A common stock.
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Common Stock
Voting Rights
Holders of shares of Class A common stock and Class B common
stock have substantially identical rights, except that holders of shares of Class A common stock are entitled to one vote per share
and holders of shares of Class B common stock are entitled to ten votes per share. Holders of shares of Class A common stock
and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote
of stockholders, unless otherwise required by law or our charter. See “— Certain Anti-Takeover Provisions
of our Certificate of Incorporation and By-Laws,” below. There is no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the voting power voting for the election of directors can elect all of the directors.
Dividend Rights
Shares of Class A common stock and Class B common stock shall
be treated equally, identically and ratably, on a per share basis, with respect to any dividends or distributions as may be declared and
paid from time to time by the board of directors out of any assets legally available therefor.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject
to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Subject to the preferential or other rights of any holders of preferred
stock then outstanding, including the Series A preferred stock, upon our dissolution, liquidation or winding up, whether voluntary
or involuntary, holders of Class A common stock and Class B common stock will be entitled to receive ratably all of our assets
available for distribution to our stockholders unless disparate or different treatment of the shares of each such class with respect to
distributions upon any such liquidation, dissolution or winding up is approved in advance by the affirmative vote (or written consent
if action by written consent of stockholders is permitted at such time under our certificate of incorporation) of the holders of a majority
of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.
Merger or Consolidation
In the case of any distribution or payment in respect of the shares
of Class A common stock or Class B common stock upon our consolidation or merger with or into any other entity, or in the case
of any other transaction having an effect on stockholders substantially similar to that resulting from a consolidation or merger, such
distribution or payment shall be made ratably on a per share basis among the holders of the Class A common stock and Class B
common stock as a single class, provided, however, that shares of one such class may receive different or disproportionate
distributions or payments in connection with such merger, consolidation or other transaction if (i) the only difference in the per
share distribution to the holders of the Class A common stock and Class B common stock is that any securities distributed to
the holder of a share Class B common stock have ten times the voting power of any securities distributed to the holder of a share
of Class A common stock, or (ii) such merger, consolidation or other transaction is approved by the affirmative vote (or written
consent if action by written consent of stockholders is permitted at such time under our Certificate of Incorporation) of the holders
of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.
Conversion
The outstanding shares of Class B common stock are convertible
at any time as follows: (a) at the option of the holder, a share of Class B common stock may be converted at any time into one
share of Class A common stock or (b) upon the election of the holders of a majority of the then outstanding shares of Class B
common stock, all outstanding shares of Class B common stock may be converted into shares of Class A common stock. Once converted
into Class A common stock, the Class B common stock will not be reissued.
Warrants
Class W and Class Z Warrants
Each outstanding Class W warrant entitles the registered holder
to purchase one share of our Class A common stock at a price of $7.50 per share, subject to adjustment as discussed below. Each Class W
warrant is exercisable at any time through June 30, 2023 at 5:00 p.m., New York City time.
Each outstanding Class Z warrant entitles the registered holder
to purchase one share of our Class A common stock at a price of $12.00 per share, subject to adjustment as discussed below. Each
Class Z warrant is exercisable at any time through June 30, 2024 at 5:00 p.m., New York City time.
Cancellation
We may call for cancellation of all or any portion of the Class W
warrants or Class Z warrants for which a notice of exercise has not yet been delivered to us for consideration equal to $.01 per
Class W warrant or Class Z warrant, as the case may be, in accordance with the provisions of such warrants, if (i) our
Class A common stock is traded, listed or quoted on any U.S. market or electronic exchange, and (ii) the closing per-share sales
price of the Class A common stock for any twenty (20) trading days during a consecutive thirty (30) trading days period exceeds $15.00,
for Class W warrants, or $18.00, for Class Z warrants, in each case subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like.
The right to exercise will be forfeited unless the warrants are exercised
prior to the date specified in the call notice. On and after the call date, a record holder of a warrant will have no further rights except
to receive the call price for such holder’s warrant upon surrender of such warrant.
The criteria for calling our warrants have been established at a price
which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient differential
between the then-prevailing share price and the warrant exercise price so that if the share price declines as a result of our call, the
call will not cause the share price to drop below the exercise price of the warrants.
Exercise Rights
Holders of the Class W warrants and Class Z warrants have
cashless exercise rights that allow each holder to pay the exercise price by surrendering the warrants for that number of shares of Class A
common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying
the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” by (y) the
fair market value. The “fair market value” for this purpose will mean the average reported last sale price of the shares of
common stock for the ten trading days ending on the trading day prior to the date of exercise.
The exercise price and number of shares of Class A common stock
issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary
dividend or our recapitalization, reorganization, merger or consolidation. However, neither the Class W warrants nor the Class Z
warrants will be adjusted for issuances of shares of any equity or equity-based securities at a price below their respective exercise
prices.
The warrant holders do not have the rights or privileges of holders
of shares of Class A common stock and any voting rights until they exercise their warrants and receive shares of Class A common
stock. After the issuance of shares of Class A common stock upon exercise of the warrants, each holder will be entitled to one vote
for each share of Class A common stock held of record on all matters to be voted on by stockholders.
No fractional shares will be issued upon exercise of the Class W
warrants or Class Z warrants. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will,
upon exercise, round up to the nearest whole number the number of shares of Class A common stock to be issued to the warrant holder.
Class I, II, III-A and III-B
Warrants
Each Class I, Class II, Class III-A, and Class III-B
Warrant is exercisable for shares of our Class A common stock for a five-year term that commenced on May 14, 2019. The Class I
Warrant has an exercise price of $8.13 per share, the Class II Warrant has an exercise price of $9.67 per share, and the Class III-A
and III-B Warrants have an exercise price of $11.61 per share.
The exercise price and number of shares of Class A common stock
issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary
dividend or our recapitalization, reorganization, merger or consolidation. However, the Class I, Class II, Class III-A
and Class III-B Warrants will not be adjusted for issuances of shares of any equity or equity-based securities at a price below their
respective exercise prices.
The Class I, Class II, Class III-A and Class III-B
Warrants have cashless exercise rights that allow each holder to pay the exercise price by surrendering warrants for that number of shares
of Class A common stock equal to the quotient obtained by dividing (i) the sum of (x) the product of the number of shares
of Class A common stock underlying such warrants multiplied by the “fair market value” less (y) the product
of the number of shares of Class A common stock underlying such warrants multiplied by the exercise price then in effect, by (ii) the
fair market value. The “fair market value” for this purpose means the closing sale price or bid price of the Class A
common stock on the trading day immediately preceding the date of exercise, if the Class A common stock is listed or quoted on a
national securities exchange or the fair market value per share as determined by an independent appraiser, if the Class A common
stock is not listed or quoted on a national securities exchange.
The holders of our Class I, Class II, Class III-A and
Class III-B Warrants do not have the rights or privileges of holders of shares of Class A common stock and any voting rights
until they exercise their warrants and receive shares of Class A common stock. After the issuance of shares of Class A common
stock upon exercise of the warrants, each holder will be entitled to one vote for each share of Class A common stock held of record
on all matters to be voted on by stockholders.
No fractional shares will be issued upon exercise of the Class I,
Class II, Class III-A and Class III-B Warrants. If, upon exercise, a holder would be entitled to receive a fractional interest
in a share, we will, upon exercise, round up or down to the nearest whole number the number of shares of Class A common stock to
be issued to the warrant holder.
Preferred Stock
Our board of directors is authorized, subject to limitations prescribed
by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in
each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations
or restrictions, in each case without further vote or action by our stockholders, provided that the designation of preferred stock ranking
senior to the Series A preferred stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up will require approval of the holders of Series A preferred stock, as described below in “Series A Preferred
Stock - Voting Rights.”. Our board of directors can also increase (but not above the total number of authorized shares of the
class) or decrease (but not below the number of shares then outstanding) the number of shares of any series of preferred stock, without
any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion
rights that could adversely affect the voting power or other rights of the holders of our common stock or other series of preferred stock.
The issuance of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate
purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control of our company and might
adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. As of the date
of this prospectus, we have authorized one series of preferred stock, the Series A preferred stock.
The following outlines some of the general terms
and provisions of the preferred stock that we may issue. A prospectus supplement will describe the particular terms of any preferred stock
offered from time to time, and may supplement or change the terms outlined below. We will file as an exhibit to the registration statement
of which this prospectus is a part, or will incorporate by reference from reports that we file with the SEC, a form of the certificate
of designations that sets forth the terms of the particular preferred stock we are offering. The summary of such terms contained in this
prospectus and in the applicable prospectus supplement is qualified in its entirety by reference to such form of certificate of designations.
We urge you to read the form of certificate of designations and the additional description of the terms of the preferred stock included
in the prospectus supplement.
If we offer a series of preferred stock, we will
describe the specific terms of that series in a prospectus supplement, including:
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the title of the series of preferred stock and the number of shares offered;
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the price at which the preferred stock will be issued;
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the dividend rate, if any, the dates on which the dividends will be payable and other terms relating to the payment of dividends on the preferred stock;
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the voting rights of the preferred stock;
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whether the preferred stock is redeemable or subject to a sinking fund, and the terms of any such redemption or sinking fund;
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whether the preferred stock is convertible into any other securities, and the terms and conditions of any such conversion;
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the liquidation preference of the preferred stock; and
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any additional rights, preferences and limitations of the preferred stock.
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When the consideration for which the board of
directors authorized the issuance of shares is received, the shares of preferred stock will be fully paid and nonassessable.
Series A Preferred Stock
On June 26, 2018, we filed a Certificate of Designation, Rights
and Preferences of our Series A preferred stock, or the “Series A Certificate of Designation,” with the Delaware
Secretary of State. We amended the Series A Certificate of Designation on August 22, 2018, November 14, 2018, and July 31,
2019 in order to designate additional shares of preferred stock as Series A preferred stock. The Series A Certificate of Designation,
as amended, fixes the rights, preferences, powers, restrictions and limitations of the Series A preferred stock.
The description of certain terms of the Series A preferred stock
in this prospectus does not purport to be complete and is in all respects subject to, and qualified in its entirety by references to the
relevant provisions of our amended and restated certificate of incorporation, the Series A Certificate of Designation, as amended,
our bylaws and the DGCL. Copies of our certificate of incorporation, certificate of designations, bylaws and all amendments thereto, are
available from us upon request.
No Maturity, Sinking Fund or Mandatory Redemption
The Series A preferred stock has no stated maturity and will not
be subject to any sinking fund or mandatory redemption. Shares of the Series A preferred stock will remain outstanding indefinitely
unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem the Series A preferred
stock.
Ranking
The Series A preferred stock will rank, with respect to rights
to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up:
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senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred
to in the next two bullet points below;
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on a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity
with the Series A preferred stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up;
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junior to all equity securities issued by us with terms specifically providing for ranking senior to the Series A preferred stock
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (please
see the section entitled “Voting Rights” below); and
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effectively junior to all our existing and future indebtedness (including indebtedness convertible to our common stock or preferred
stock) and to any indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries.
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Dividends
Holders of shares of the Series A preferred stock are entitled
to receive, when, as and if declared by our board of directors, out of funds of the Company legally available for the payment of dividends,
cumulative cash dividends at the rate of 9.75% of the $25.00 per share liquidation preference per annum (equivalent to $2.4375 per annum
per share). Dividends on the Series A preferred stock shall be payable monthly on the 15th day of each month; provided that if any
dividend payment date is not a business day, as defined in the certificate of designations, then the dividend that would otherwise have
been payable on that dividend payment date may be paid on the next succeeding business day and no interest, additional dividends or other
sums will accrue on the amount so payable for the period from and after that dividend payment date to that next succeeding business day.
Any dividend payable on the Series A preferred stock, including dividends payable for any partial dividend period, will be computed
on the basis of a 360-day year consisting of twelve 30-day months; however, the shares of Series A preferred stock offered hereby
will be credited as having accrued dividends since the first day of the calendar month in which they are issued. Dividends will be payable
to holders of record as they appear in our stock records for the Series A preferred stock at the close of business on the applicable
record date, which shall be the last day of the calendar month, whether or not a business day, immediately preceding the month in which
the applicable dividend payment date falls. As a result, holders of shares of Series A preferred stock will not be entitled to receive
dividends on a dividend payment date if such shares were not issued and outstanding on the applicable dividend record date.
No dividends on shares of Series A preferred stock shall be authorized
by our board of directors or paid or set apart for payment by us at any time when the terms and provisions of any agreement of ours, including
any agreement relating to our indebtedness, prohibit the authorization, payment or setting apart for payment thereof or provide that the
authorization, payment or setting apart for payment thereof would constitute a breach of the agreement or a default under the agreement,
or if the authorization, payment or setting apart for payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A preferred
stock will accrue whether or not we have earnings, whether or not there are funds legally available for the payment of those dividends
and whether or not those dividends are declared by our board of directors. No interest, or sum in lieu of interest, will be payable in
respect of any dividend payment or payments on the Series A preferred stock that may be in arrears, and holders of the Series A
preferred stock will not be entitled to any dividends in excess of full cumulative dividends described above. Any dividend payment made
on the Series A preferred stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to
those shares.
Future distributions on our common stock and preferred stock, including
the Series A preferred stock will be at the discretion of our board of directors and will depend on, among other things, our results
of operations, cash flow from operations, financial condition and capital requirements, any debt service requirements and any other factors
our board of directors deems relevant. Accordingly, we cannot guarantee that we will be able to make cash distributions on our preferred
stock or what the actual distributions will be for any future period.
Unless full cumulative dividends on all shares of Series A preferred
stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof has been or contemporaneously
is set apart for payment for all past dividend periods, no dividends (other than in shares of common stock or in shares of any series
of preferred stock that we may issue ranking junior to the Series A preferred stock as to the payment of dividends and the distribution
of assets upon liquidation, dissolution or winding up) shall be declared or paid or set aside for payment upon shares of our common stock
or preferred stock that we may issue ranking junior to, or on a parity with, the Series A preferred stock as to the payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up. Nor shall any other distribution be declared or made upon shares
of our common stock or preferred stock that we may issue ranking junior to, or on a parity with, the Series A preferred stock as
to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up. Also, any shares of our common
stock or preferred stock that we may issue ranking junior to or on a parity with the Series A preferred stock as to the payment of
dividends or the distribution of assets upon liquidation, dissolution or winding up shall not be redeemed, purchased or otherwise acquired
for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any such shares) by us (except
by conversion into or exchange for our other capital stock that we may issue ranking junior to the Series A preferred stock as to
the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up).
When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Series A preferred stock and the shares of any other series of preferred stock that we may
issue ranking on a parity as to the payment of dividends with the Series A preferred stock, all dividends declared upon the Series A
preferred stock and any other series of preferred stock that we may issue ranking on a parity as to the payment of dividends with the
Series A preferred stock shall be declared pro rata so that the amount of dividends declared per share of Series A preferred
stock and such other series of preferred stock that we may issue shall in all cases bear to each other the same ratio that accrued dividends
per share on the Series A preferred stock and such other series of preferred stock that we may issue (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A
preferred stock that may be in arrears.
Liquidation Preference
In the event of our voluntary or involuntary liquidation, dissolution
or winding up, the holders of shares of Series A preferred stock will be entitled to be paid out of the assets we have legally available
for distribution to our shareholders, subject to the preferential rights of the holders of any class or series of our capital stock we
may issue ranking senior to the Series A preferred stock with respect to the distribution of assets upon liquidation, dissolution
or winding up, a liquidation preference of $25.00 per share, plus an amount equal to any accumulated and unpaid dividends to, but not
including, the date of payment, before any distribution of assets is made to holders of our common stock or any other class or series
of our capital stock we may issue that ranks junior to the Series A preferred stock as to liquidation rights.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, our available assets are insufficient to pay the amount of the liquidating distributions on all outstanding
shares of Series A preferred stock and the corresponding amounts payable on all shares of other classes or series of our capital
stock that we may issue ranking on a parity with the Series A preferred stock in the distribution of assets, then the holders of
the Series A preferred stock and all other such classes or series of capital stock shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
We will use commercially reasonable efforts to provide written notice
of any such liquidation, dissolution or winding up no fewer than 10 days prior to the payment date. After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of Series A preferred stock will have no right or claim to
any of our remaining assets. The consolidation or merger of us with or into any other corporation, trust or entity or of any other entity
with or into us, or the sale, lease, transfer or conveyance of all or substantially all of our property or business, shall not be deemed
a liquidation, dissolution or winding up of us (although such events may give rise to the special optional redemption to the extent described
below).
Redemption
The Series A preferred stock is not redeemable by us prior to
June 27, 2023, except as described below under “—Special Optional Redemption.”
Optional
Redemption. On and after June 27, 2023, we may, at our option, upon not less than 30 nor more than 60 days’ written
notice, redeem the Series A preferred stock, in whole or in part, at any time or from time to time, for cash at a redemption price
equal to $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption.
Special
Optional Redemption. Upon the occurrence of a Change of Control, we may, at our option, upon not less than 30 nor more than
60 days’ written notice, redeem the Series A preferred stock, in whole or in part, within 120 days after the first date on
which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon
to, but not including, the redemption date.
A “Change of Control” is deemed to occur when the following
have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of
the Exchange Act (other than Mr. Rouhana, the chairman of our board of directors, our chief executive officer and our principal stockholder,
any member of his immediate family, and any “person” or “group” under Section 13(d)(3) of the Exchange
Act, that is controlled by Mr. Rouhana or any member of his immediate family, any beneficiary of the estate of Mr. Rouhana,
or any trust, partnership, corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock
entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election
of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right
to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
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following the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common
securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American, or Nasdaq, or listed
or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American, or Nasdaq.
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Redemption
Procedures. In the event we elect to redeem Series A preferred stock, the notice of redemption will be mailed to each
holder of record of Series A preferred stock called for redemption at such holder’s address as it appears on our stock transfer
records, not less than 30 nor more than 60 days prior to the redemption date, and will state the following:
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the number of shares of Series A preferred stock to be redeemed;
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the place or places where certificates (if any) for the Series A preferred stock are to be surrendered for payment of the redemption
price;
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that dividends on the shares to be redeemed will cease to accumulate on the redemption date;
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whether such redemption is being made pursuant to the provisions described above under “—Optional Redemption”
or “—Special Optional Redemption”; and
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if applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description of
the transaction or transactions constituting such Change of Control.
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If less than all of the Series A preferred stock held by any holder
are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series A preferred stock held by
such holder to be redeemed. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of
the proceedings for the redemption of any shares of Series A preferred stock except as to the holder to whom notice was defective
or not given.
Holders of Series A preferred stock to be redeemed shall surrender
the Series A preferred stock at the place designated in the notice of redemption and shall be entitled to the redemption price and
any accumulated and unpaid dividends payable upon the redemption following the surrender. If notice of redemption of any shares of Series A
preferred stock has been given and if we have irrevocably set aside the funds necessary for redemption in trust for the benefit of the
holders of the shares of Series A preferred stock so called for redemption, then from and after the redemption date (unless default
shall be made by us in providing for the payment of the redemption price plus accumulated and unpaid dividends, if any), dividends will
cease to accrue on those shares of Series A preferred stock, those shares of Series A preferred stock shall no longer be deemed
outstanding and all rights of the holders of those shares will terminate, except the right to receive the redemption price plus accumulated
and unpaid dividends, if any, payable upon redemption. If any redemption date is not a business day, then the redemption price and accumulated
and unpaid dividends, if any, payable upon redemption may be paid on the next business day and no interest, additional dividends or other
sums will accrue on the amount payable for the period from and after that redemption date to that next business day. If less than all
of the outstanding Series A preferred stock is to be redeemed, the Series A preferred stock to be redeemed shall be selected
pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method we determine.
In connection with any redemption of Series A preferred stock,
we shall pay, in cash, any accumulated and unpaid dividends to, but not including, the redemption date, unless a redemption date falls
after a dividend record date and prior to the corresponding dividend payment date, in which case each holder of Series A preferred
stock at the close of business on such dividend record date shall be entitled to the dividend payable on such shares on the corresponding
dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as provided above, we will
make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of the Series A preferred stock to be redeemed.
No shares of Series A preferred stock shall be redeemed unless
full cumulative dividends on all shares of Series A preferred stock have been or contemporaneously are declared and paid and all
outstanding shares of Series A preferred stock are simultaneously redeemed. We shall not otherwise purchase or acquire directly or
indirectly any shares of Series A preferred stock (except by exchanging it for our capital stock ranking junior to the Series A
preferred stock as to the payment of dividends and distribution of assets upon liquidation, dissolution or winding up); provided, however,
that the foregoing shall not prevent the purchase or acquisition by us of shares of Series A preferred stock pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding shares of Series A preferred stock.
Subject to applicable law, we may purchase shares of Series A
preferred stock in the open market, by tender or by private agreement. Any shares of Series A preferred stock that we acquire may
be retired and reclassified as authorized but unissued shares of preferred stock, without designation as to class or series, and may thereafter
be reissued as any class or series of preferred stock.
Voting Rights
Holders of the Series A preferred stock do not have any voting
rights, except as set forth below or as otherwise required by law.
On each matter on which holders of Series A preferred stock are
entitled to vote, each share of Series A preferred stock will be entitled to one vote. In instances described below where holders
of Series A preferred stock vote with holders of any other class or series of our preferred stock as a single class on any matter,
the Series A preferred stock and the shares of each such other class or series will have one vote for each $25.00 of liquidation
preference (excluding accumulated dividends) represented by their respective shares.
Whenever dividends on any shares of Series A preferred stock are
in arrears for eighteen or more monthly dividend periods, whether or not consecutive, the number of directors constituting our board of
directors will be automatically increased by two (if not already increased by two by reason of the election of directors by the holders
of any other class or series of our preferred stock we may issue upon which like voting rights have been conferred and are exercisable
and with which the Series A preferred stock is entitled to vote as a class with respect to the election of those two directors) and
the holders of Series A preferred stock (voting separately as a class with all other classes or series of preferred stock we may
issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A
preferred stock in the election of those two directors) will be entitled to vote for the election of those two additional directors (the
“preferred stock directors”) at a special meeting called by us at the request of the holders of record of at least 25% of
the outstanding shares of Series A preferred stock or by the holders of any other class or series of preferred stock upon which like
voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A preferred stock
in the election of those two preferred stock directors (unless the request is received less than 90 days before the date fixed for the
next annual or special meeting of shareholders, in which case, such vote will be held at the earlier of the next annual or special meeting
of shareholders), and at each subsequent annual meeting until all dividends accumulated on the Series A preferred stock for all past
dividend periods and the then current dividend period have been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment. In that case, the right of holders of the Series A preferred stock to elect any directors will cease and, unless
there are other classes or series of our preferred stock upon which like voting rights have been conferred and are exercisable, any preferred
stock directors elected by holders of the Series A preferred stock shall immediately resign and the number of directors constituting
the board of directors shall be reduced accordingly. In no event shall the holders of Series A preferred stock be entitled under
these voting rights to elect a preferred stock director that would cause us to fail to satisfy a requirement relating to director independence
of any national securities exchange or quotation system on which any class or series of our capital stock is listed or quoted. For the
avoidance of doubt, in no event shall the total number of preferred stock directors elected by holders of the Series A preferred
stock (voting separately as a class with all other classes or series of preferred stock we may issue upon which like voting rights have
been conferred and are exercisable and which are entitled to vote as a class with the Series A preferred stock in the election of
such directors) under these voting rights exceed two. Any person nominated to serve as a director of our company under the foregoing terms
shall be reasonably acceptable to our company.
If a special meeting is not called by us within 30 days after request
from the holders of Series A preferred stock as described above, then the holders of record of at least 25% of the outstanding Series A
preferred stock may designate a holder to call the meeting at our expense.
If, at any time when the voting rights conferred upon the Series A
preferred stock are exercisable, any vacancy in the office of a preferred stock director shall occur, then such vacancy may be filled
only by a written consent of the remaining preferred stock director, or if none remains in office, by vote of the holders of record of
the outstanding Series A preferred stock and any other classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series A preferred stock in the election of the
preferred stock directors. Any preferred stock director elected or appointed may be removed only by the affirmative vote of holders of
the outstanding Series A preferred stock and any other classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable and which classes or series of preferred stock are entitled to vote as a class with the Series A preferred
stock in the election of the preferred stock directors, such removal to be effected by the affirmative vote of a majority of the votes
entitled to be cast by the holders of the outstanding Series A preferred stock and any such other classes or series of preferred
stock, and may not be removed by the holders of the common stock.
So long as any shares of Series A preferred stock remain outstanding,
we will not, without the affirmative vote or consent of the holders of at least 66.67% of the votes entitled to be cast by the holders
of the Series A preferred stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting together
as a class with all other series of parity preferred stock that we may issue upon which like voting rights have been conferred and are
exercisable), (a) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking
senior to the Series A preferred stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up or reclassify any of our authorized capital stock into such shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares; or (b) unless redeeming all Series A preferred stock in
connection with such action, amend, alter, repeal or replace our amended and restated certificate of incorporation, including by way of
a merger, consolidation or otherwise in which we may or may not be the surviving entity, so as to materially and adversely affect and
deprive holders of Series A preferred stock of any right, preference, privilege or voting power of the Series A preferred stock
(each, an “Event”). An increase in the amount of the authorized preferred stock, including the Series A preferred stock,
or the creation or issuance of any additional Series A preferred stock or other series of preferred stock that we may issue, or any
increase in the amount of authorized shares of such series, in each case ranking on a parity with or junior to the Series A preferred
stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed
an Event and will not require us to obtain 66.67% of the votes entitled to be cast by the holders of the Series A preferred stock
and all such other similarly affected series, outstanding at the time (voting together as a class).
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required shall be affected, all outstanding shares of Series A
preferred stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in
trust to affect such redemption.
Except as expressly stated in the certificate of designations or as
may be required by applicable law, the Series A preferred stock do not have any relative, participating, optional or other special
voting rights or powers and the consent of the holders thereof shall not be required for the taking of any corporate action.
Information Rights
During any period in which we are not subject to Section 13 or
15(d) of the Exchange Act and any shares of Series A preferred stock are outstanding, we will use our best efforts to (i) make
available on our corporate investor webpage, copies of the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that
we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject thereto
(other than any exhibits that would have been required) and (ii) promptly, upon request, supply copies of such reports to any holders
of Series A preferred stock. We will use our best effort to provide the information to the holders of the Series A preferred
stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form 10-Q, as the case may be, in
respect of such information would have been required to be filed with the SEC, if we were subject to Section 13 or 15(d) of
the Exchange Act, in each case, based on the dates on which we would be required to file such periodic reports if we were a “non-accelerated
filer” within the meaning of the Exchange Act.
No Conversion Rights
The Series A preferred stock is not convertible into our common
stock or any other security.
No Preemptive Rights
No holders of the Series A preferred stock will, as holders of
Series A preferred stock, have any preemptive rights to purchase or subscribe for our common stock or any other security.
Credit Rating of Our Series A Preferred
Stock
Our Series A Preferred Stock has been rated BBB(-) by Egan-Jones
Rating Co., a Nationally Recognized Statistical Rating Organization. An explanation of the significance of ratings may be obtained from
the rating agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations,
studies and assumptions, as they deem appropriate. The rating of our Series A preferred stock should be evaluated independently from
similar ratings of other securities. A credit rating of a security is paid for by the issuer and is not a recommendation to buy, sell
or hold securities and maybe subject to review, revision, suspension, reduction or withdrawal at any time by the assigning rating agency.
Certain Anti-Takeover Provisions of our Certificate of Incorporation
and By-Laws
Special meeting of stockholders
Our bylaws provide that special meetings of our stockholders may be
called only by a majority vote of our board of directors, or by our chairman and chief executive officer or by our secretary at the request
in writing of stockholders owning a majority of the voting power of our issued and outstanding capital stock.
Advance notice requirements for stockholder
proposals and director nominations
Our bylaws provide that stockholders seeking to bring business before
our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders must provide
timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be delivered to our principal executive
offices not later than the close of business on the 60th day nor earlier than the close of business on the 90th
day prior to the scheduled date of the annual meeting of stockholders. In the event that less than 70 days’ notice or prior public
disclosure of the date of the annual meeting of stockholders is given, a stockholder’s notice shall be timely if delivered to our
principal executive offices not later than the 10th day following the day on which public announcement of the date of our annual
meeting of stockholders is first made or sent by us. Our bylaws also specify certain requirements as to the form and content of a stockholders’
meeting. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making
nominations for directors at our annual meeting of stockholders.
Dual Voting Structure
Our certificate of incorporation provides for two classes of common
stock. Holders of shares of Class A common stock and Class B common stock have substantially identical rights, except that holders
of shares of Class A common stock are entitled to one vote per share and holders of shares of Class B common stock are entitled
to ten votes per share. Holders of shares of Class A common stock and Class B common stock vote together as a single class on
all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. Accordingly,
the holders of shares of Class B common stock will exert significant control over our actions.
Removal and Appointment of Directors
Our entire board of directors or any individual director may be removed
from office with or without cause by a majority vote of the holders of the voting power of outstanding voting power of the shares then
entitled to vote at an election of directors. In such case, new directors may be elected by the stockholders then holding a majority of
our voting power. Immediately following this offering, our chairman and chief executive officer shall control the substantial majority
of our voting power and therefore will be able to unilaterally exercise the foregoing rights.
Class B Approval Required for Charter Amendments
Any amendment to our certificate of incorporation requires the approval
of the majority of the outstanding Class B common stock. This approval requirement is separate and in addition to any general stockholder
approval that would be required under our certificate of incorporation and law.
Exclusive Forum Selection
Article Twelve of our certificate of incorporation provides that,
unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including a beneficial
owner) to bring (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim
of breach of a fiduciary duty owed by any director, officer or other employee of our company to our company or its stockholders, (iii) any
action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or our charter documents, or (iv) any
action asserting a claim governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or if the
Court of Chancery does not have jurisdiction, another state court located within the State of Delaware, or if no state court located within
the State of Delaware has jurisdiction, the federal district court for the District of Delaware) in all cases subject to the court’s
having personal jurisdiction over the indispensable parties named as defendants. While this provision is intended to include all actions,
excluding any arising under the Securities Act of 1933, the Exchange Act of 1934 and any other claim for which the federal courts have
exclusive jurisdiction, there is uncertainty as to whether a court would enforce this provision.
Limitation on Directors’ Liability and Indemnification
Our certificate of incorporation provides that no director of ours
will be personally liable to us or any of our stockholders for monetary damages arising from the director’s breach of fiduciary
duty as a director. However, this does not apply with respect to any action in which the director would be liable under Section 174
of the DGCL nor does it apply with respect to any liability in which the director (i) breached his duty of loyalty to us or our stockholders;
(ii) did not act in good faith or, in failing to act, did not act in good faith; (iii) acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing
violation of law; or (iv) derived an improper personal benefit. This provision could have the effect of reducing the likelihood of
derivative litigation against our directors and may discourage or deter our stockholders or management from bringing a lawsuit against
our directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders.
Our certificate of incorporation and bylaws provide that all directors
and officers shall be entitled to be indemnified by such company to the fullest extent permitted by law. The certificate of incorporation
provides that we may indemnify to the fullest extent permitted by law all employees. Our bylaws provide that, if authorized by our board
of directors, we may indemnify any other person whom it has the power to indemnify under section 145 of the DGCL. We have entered, and
intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification
provided for in our certificate of incorporation and bylaws. We also maintain directors’ and officers’ liability insurance.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or person controlling us pursuant to the foregoing provisions, we have been informed that
in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
Certain Anti-Takeover Provisions of Delaware Law
Provisions of the DGCL and our certificate of incorporation and bylaws
could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and
directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and takeover bids
that our board of directors may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with
our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly
or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because,
among other things, negotiation of these proposals could result in improved terms for our stockholders.
Delaware Anti-Takeover Statute.
We are subject to Section 203 of the DGCL, an anti-takeover statute.
In general, Section 203 of the DGCL prohibits a publicly-held Delaware corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three years following the time the person became an interested stockholder,
unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder is approved
in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting
in a financial benefit to the interested stockholder. 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. The existence of this provision would be expected to have an anti-takeover effect with respect
to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over
the market price for the shares of common stock held by stockholders.
Amendments to Our Certificate of Incorporation.
Under the DGCL, the affirmative vote of a majority of the outstanding
shares entitled to vote thereon and a majority of the outstanding stock of each class entitled to vote thereon is required to amend a
corporation’s certificate of incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock
shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation,
if the amendment would:
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increase or decrease the aggregate number of authorized shares of such class;
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increase or decrease the par value of the shares of such class; or
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alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely.
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If any proposed amendment would alter or change the powers, preferences
or special rights of one or more series of any class of our capital stock so as to affect them adversely, but shall not so affect the
entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for the purposes of
this provision.
Listing
Our Class A common stock is listed for trading on the Nasdaq
Global Market under the symbol “CSSE” and our Series A preferred stock is listed for trading on the Nasdaq Global Market
under the symbol “CSSEP.” On June 18, 2021, the last reported sale prices of our Class A common stock and Series A
preferred stock were $39.46 and $27.52, respectively.
Transfer Agent and Registrar and Warrant Agent
The transfer agent and registrar for our Class A common stock
and Series A preferred stock is Continental Stock Transfer & Trust Company. The transfer agent and registrar for any other
series of preferred stock will be set forth in the applicable prospectus supplement. The warrant agent for any registered class of warrants,
if any, will be set forth in the applicable prospectus supplement.
DESCRIPTION OF OUR 2025 NOTES
Our 2025 Notes were issued under the Indenture
and Supplemental Indenture, each between us and U.S. Bank National Association, as trustee, and each dated July 17, 2020. We refer
to the indenture and the supplemental indenture collectively as the “Indenture” and to U.S. Bank National Association as
the “trustee.” As of June 21, 2021, we had outstanding $32,895,900 principal amount of 2025 Notes.
The 2025 Notes are governed by the Indenture, as
required by federal law for all bonds and 2025 Notes of companies that are publicly offered. An indenture is a contract between us and
the financial institution acting as trustee on your behalf and is subject to and governed by the Trust Indenture Act of 1939, as amended.
The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the
extent to which the trustee acts on your behalf, described in the second paragraph under “— Events of Default — Remedies
if an Event of Default Occurs.” Second, the trustee performs certain administrative duties for us with respect to the 2025 Notes.
General
The 2025 Notes will mature on July 31, 2025.
The principal payable at maturity will be 100% of the aggregate outstanding principal amount. The interest rate of the 2025 Notes is 9.50%
per year and will be paid every March 30, June 30, September 30, and December 30, and the regular record dates for
interest payments will be every March 15, June 15, September 15, and December 15. If an interest payment date falls
on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as
a result of such delayed payment.
The 2025 Notes were issued in denominations of $25
and integral multiples of $25 in excess thereof. The 2025 Notes are not be subject to any sinking fund and holders of the 2025
Notes will not have the option to have the 2025 Notes repaid prior to the stated maturity date.
Except as described under the captions “Events
of Default” and “Merger or Consolidation” in this prospectus, the indenture does not contain any provisions
that give you protection in the event we issue a large amount of debt or we are acquired by another entity.
Optional Redemption
The 2025 Notes may be redeemed in whole or in part
at any time or from time to time at our option on or after July 31, 2022 upon not less than 30 days nor more than 60 days
written notice by mail prior to the date fixed for redemption thereof. The redemption price shall include (i) 100% of the outstanding
principal amount of the 2025 Notes called for redemption on the date fixed for redemption plus (ii) all accrued and unpaid interest
payments otherwise payable thereon through the date fixed for redemption. In addition, in the event of a merger or sale of the company
or substantially all of its assets or a majority of the Company’s equity (on an after issued basis) in one or a series of related
transactions, the Company shall have the right to redeem the 2025 Notes prior to July 31, 2022 in connection with the consummation
of such transactions on the foregoing terms.
Holders of our 2025 Notes may be prevented from
exchanging or transferring the 2025 Notes when they are subject to redemption. In case any 2025 Notes are to be redeemed in part only,
the redemption notice will provide that, upon surrender of such 2025 Note, the holders will receive, without a charge, a new 2025 Note
or 2025 Notes of authorized denominations representing the principal amount of your remaining unredeemed 2025 Notes. Any exercise of our
option to redeem the 2025 Notes will be done in accordance with the indenture.
If we redeem only some of the 2025 Notes, the trustee
will determine the method for selection of the particular 2025 Notes to be redeemed, in accordance with the indenture and in accordance
with the rules of any national securities exchange or quotation system on which the 2025 Notes are listed. Unless we default in payment
of the redemption price, on and after the date of redemption, interest will cease to accrue on the 2025 Notes called for redemption.
Rating of the 2025 Notes
Our 2025 Notes have a credit rating of BBB from
Egan-Jones Ratings Company. An explanation of the significance of ratings may be obtained from the rating agency. Generally, rating agencies
base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate.
The rating of the 2025 Notes should be evaluated independently from similar ratings of other securities. A credit rating of a security
is paid for by the issuer and is not a recommendation to buy, sell or hold securities and maybe subject to review, revision, suspension,
reduction or withdrawal at any time by the assigning rating agency.
Global Securities
Each 2025 Note was issued in book-entry form and
represented by a global security that we deposit with and register in the name of The Depository Trust Company, New York, New York, known
as DTC, or its nominee. A global security may not be transferred to or registered in the name of anyone other than the depositary or its
nominee, unless special termination situations arise. As a result of these arrangements, the depositary, or its nominee, is the sole registered
owner and holder of all the 2025 Notes represented by a global security, and investors are permitted to own only beneficial interests
in a global security. For more information about these arrangements, see “— Book-Entry Procedures” below.
Termination of a Global Security
If a global security is terminated for any reason,
interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of
whether to hold the certificated 2025 Notes directly or in street name will be up to the investor. Investors must consult their own banks
or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will
be holders.
Payment and Paying Agents
We pay interest to the person listed in the trustee’s
records as the owner of the 2025 Notes at the close of business on a particular day in advance of each due date for interest, even if
that person no longer owns the 2025 Note on the interest due date. That day, usually about two weeks in advance of the interest due date,
is called the “record date.” Because we will pay all the interest for an interest period to the holders on the record date,
holders buying and selling the 2025 Notes must work out between themselves the appropriate purchase price. The most common manner is to
adjust the sales price of the 2025 Notes to prorate interest fairly between buyer and seller based on their respective ownership periods
within the particular interest period. This prorated interest amount is called “accrued interest.”
Payments on Global Securities
We make payments on the 2025 Notes so long as they
are represented by a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under
those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests
in the global security. An indirect holder’s right to those payments will be governed by the rules and practices of the depositary
and its participants, as described under “— Book-Entry Procedures.”
Payments on Certificated Securities
In the event the 2025 Notes become represented
by certificated securities, we will make payments on the 2025 Notes as follows. We will pay interest that is due on an interest payment
date to the holder of the 2025 Notes as shown on the trustee’s records as of the close of business on the regular record date at
our office in New York, New York. We will make all payments of principal and premium, if any, by check at the office of the applicable
trustee in New York, New York and/or at other offices that may be specified in the indenture or a notice to holders against surrender
of the 2025 Note.
Alternatively, at our option, we may pay any cash
interest that becomes due on the 2025 Notes by mailing a check to the holder at his, her or its address shown on the trustee’s records
as of the close of business on the regular record date or by transfer to an account at a bank in the United States, in either case, on
the due date.
Book-entry and other indirect holders should
consult their banks or brokers for information on how they will receive payments on the 2025 Notes.
Events of Default
Holders of our 2025 Notes will have rights if an
Event of Default occurs in respect of the 2025 Notes, as described later in this subsection.
The term “Event of Default” in respect
of the 2025 Notes means any of the following:
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We do not pay the principal (or premium, if any) of any 2025 Note when due.
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We do not pay interest on any 2025 Note, including any J025 Note, when due, and such default is not cured within 30 days.
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We remain in breach of a covenant in respect of the 2025 Notes, including the 2025 Notes, for 60 days after we receive a written notice of default stating we are in breach (the notice must be sent by either the trustee or holders of at least 25% of the principal amount of the 2025 Notes, as a single series).
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We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and in the case of certain orders or decrees entered against us under bankruptcy law, such order or decree remains undischarged or unstayed for a period of 60 days.
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An Event of Default for the 2025 Notes does not
necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee
may withhold notice to the holders of the 2025 Notes of any default, except in the payment of principal or interest, if it in good faith
considers the withholding of notice to be in the best interests of the holders.
Remedies if an Event of Default Occurs
If an Event of Default has occurred and is continuing,
the trustee or the holders of not less than 25% in principal amount of the 2025 Notes, as a single series, may declare the entire principal
amount of all the 2025 Notes to be due and immediately payable. This is called a declaration of acceleration of maturity. In certain circumstances,
a declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the 2025 Notes, as a single
series, if (1) we have deposited with the trustee all amounts due and owing with respect to the 2025 Notes (other than principal
that has become due solely by reason of such acceleration) and certain other amounts, and (2) any other Events of Default have been
cured or waived.
Except in cases of default, where the trustee has
some special duties, the trustee is not required to take any action under the indenture at the request of any holders unless the holders
offer the trustee protection from expenses and liability (called an “indemnity”). If indemnity is provided, the holders of
a majority in principal amount of the 2025 Notes, as a single series may direct the time, method and place of conducting any lawsuit or
other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances.
No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.
Before you are allowed to bypass the trustee and
bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the
2025 Notes, the following must occur:
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you must give the trustee written notice that an Event of Default has occurred and remains uncured;
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the holders of at least 25% in principal amount of all the 2025 Notes, as a single series, must make a written request that the trustee take action because of the default and must offer indemnity and/or security to the trustee against the cost and other liabilities of taking that action;
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the trustee must not have taken action for 60 days after receipt of the above notice and offer of indemnity and/or security; and
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the holders of a majority in principal amount of the 2025 Notes, as a single series, must not have given the trustee a direction inconsistent with the above notice during that 60-day period.
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However, holders of our 2025 Notes are entitled
at any time to bring a lawsuit for the payment of money due on your 2025 Notes on or after the due date.
Book-entry and other indirect holders should
consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare
or cancel an acceleration of maturity.
Each year, we will furnish to the trustee a written
statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the 2025 Notes, or
else specifying any default.
Waiver of Default
The holders of a majority in principal amount of
the 2025 Notes, as a single series, may waive any past defaults other than:
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the payment of principal or interest; or
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in respect of a covenant that cannot be modified or amended without the consent of each holder.
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Merger or Consolidation
Under the terms of the indenture, we are generally
permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another
entity. However, we may not take any of these actions unless all the following conditions are met:
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Where we merge out of existence or convey or transfer our assets substantially as an entirety, the resulting entity must agree to be legally responsible for our obligations under the 2025 Notes.
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The merger or sale of assets must not cause a default on the 2025 Notes and we must not already be in default (unless the merger or sale would cure the default). For purposes of this no-default test, a default would include an Event of Default that has occurred and has not been cured, as described under “Events of Default” above. A default for this purpose would also include any event that would be an Event of Default if the requirements for giving us a notice of default or our default having to exist for a specific period of time were disregarded.
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We must deliver certain certificates and documents to the trustee.
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Modification or Waiver
There are three types of changes we can make to
the indenture and the 2025 Notes.
Changes Requiring Your Approval
First, there are changes that we cannot make to
the 2025 Notes without your specific approval. The following is a list of those types of changes:
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change the stated maturity of the principal of or interest on the 2025 Notes;
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reduce any amounts due on the 2025 Notes;
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reduce the amount of principal payable upon acceleration of the maturity of a 2025 Note following a default;
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change the place or currency of payment on a 2025 Note;
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impair your right to sue for payment;
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reduce the percentage of holders of 2025 Notes whose consent is needed to modify or amend the indenture; and
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reduce the percentage of holders of 2025 Notes whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults.
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Changes Not Requiring Approval
The second type of change does not require any
vote by the holders of the 2025 Notes. This type is limited to clarifications and certain other changes that would not adversely affect
holders of the 2025 Notes in any material respect.
Changes Requiring Majority Approval
Any other change to the indenture and the 2025
Notes would require the following approval:
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if the change affects only the 2025 Notes, it must be approved by the holders of a majority in principal amount of the 2025 Notes; and
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if the change affects more than one series of debt securities issued under the same indenture, it must be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose.
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In both cases, the required approval must be given
by written consent.
The holders of a majority in principal amount of
all of the series of debt securities issued under an indenture, voting together as one class for this purpose, may waive our compliance
with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered
by the bullet points included above under “— Changes Requiring Majority Approval.”
Further Details Concerning Voting
When taking a vote, we will use the following rules to
decide how much principal to attribute to the 2025 Notes:
The 2025 Notes will not be considered outstanding,
and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption. The 2025 Notes will
also not be eligible to vote if they have been fully defeased as described later under “Defeasance — Full Defeasance.”
We will generally be entitled to set any day as
a record date for the purpose of determining the holders of the 2025 Notes that are entitled to vote or take other action under the indenture.
However, the record date may not be more than 30 days before the date of the first solicitation of holders to vote on or take such
action. If we set a record date for a vote or other action to be taken by holders of the 2025 Notes, that vote or action may be taken
only by persons who are holders of the 2025 Notes on the record date and must be taken within eleven months following the record
date.
Book-entry and other indirect holders should
consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the 2025
Notes or request a waiver.
Defeasance
“Defeasance” means that, by depositing
with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on the 2025 Notes
when due and satisfying any additional conditions 2025 Noted below, we will be deemed to have been discharged from our obligations under
the 2025 Notes. In the event of a “covenant defeasance,” upon depositing such funds and satisfying similar conditions discussed
below we would be released from the restrictive covenants under the indenture relating to the 2025 Notes.
The following defeasance provisions will be applicable
to the 2025 Notes:
Covenant Defeasance
Under the Indenture, we can make the deposit described
below and be released from some of the restrictive covenants in the indenture under which the 2025 Notes were issued. This is called “covenant
defeasance.” In that event, you would lose the protection of those restrictive covenants but would gain the protection of having
money or money and government securities set aside in trust to repay your 2025 Notes. If we achieve covenant defeasance and your 2025
Notes were subordinated as described under “Indenture Provisions — Ranking” below, such subordination
will not prevent the trustee under the indenture from applying the funds available to it from the deposit described in the first bullet
to the payment of amounts due in respect of such debt securities for the benefit of the subordinated debtholders. In order to achieve
covenant defeasance, we must do the following:
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Since the 2025 Notes are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of the 2025 Notes either cash or a combination of cash and U.S. government or U.S. government agency 2025 Notes or bonds that will generate enough cash to make interest, principal and any other payments on the 2025 Notes on their various due dates.
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We must deliver to the trustee a legal opinion of our counsel confirming that, under current U.S. federal income tax law, we may make the above deposit without causing you to be taxed on the 2025 Notes any differently than if we did not make the deposit.
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We must deliver to the trustee a legal opinion and officers’ certificate stating that all conditions precedent to covenant defeasance have been complied with.
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Defeasance must not result in a breach or violation of, or result in a default under, the indenture or any of our other material agreements or instruments.
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No default or event of default with respect to the 2025 Notes shall have occurred and be continuing and no defaults or events of default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days.
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If we accomplish covenant defeasance, holders of
our 2025 Notes can still look to us for repayment of the 2025 Notes if there were a shortfall in the trust deposit or the trustee is prevented
from making payment. For example, if one of the remaining Events of Default occurred (such as our bankruptcy) and the 2025 Notes became
immediately due and payable, there might be a shortfall. Depending on the event causing the default, holders may not be able to obtain
payment of the shortfall.
Full Defeasance
We can legally release ourselves from all payment
and other obligations on the 2025 Notes (called “full defeasance”) if we put in place the following other arrangements for
you to be repaid:
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Since the 2025 Notes are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of the 2025 Notes a combination of money and U.S. government or U.S. government agency 2025 Notes or bonds that will generate enough cash to make interest, principal and any other payments on the 2025 Notes on their various due dates.
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We must deliver to the trustee a legal opinion confirming that there has been a change in current U.S. federal tax law or an IRS ruling that allows us to make the above deposit without causing holders to be taxed on the 2025 Notes any differently than if we did not make the deposit. Under current U.S. federal tax law the deposit and our legal release from the 2025 Notes would be treated as though we paid holders their share of the cash and 2025 Notes or bonds at the time the cash and 2025 Notes or bonds were deposited in trust in exchange for your 2025 Notes and you would recognize gain or loss on the 2025 Notes at the time of the deposit.
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We must deliver to the trustee a legal opinion and officers’ certificate stating that all conditions precedent to defeasance have been complied with.
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Defeasance must not result in a breach or violation of, or constitute a default under, of the indenture or any of our other material agreements or instruments;
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No default or event of default with respect to the 2025 Notes shall have occurred and be continuing a and no defaults or events of default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days.
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If we ever did accomplish full defeasance, as described
above, holders of our 2025 Notes would have to rely solely on the trust deposit for repayment of the 2025 Notes. Holders could not look
to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of
our lenders and other creditors if we ever became bankrupt or insolvent.
Limitation on Restricted Payments Covenant
In addition to any other covenants described in
this prospectus, as well as standard covenants relating to payment of principal and interest, maintaining an office where payments may
be made or where securities can be surrendered for payment, payment of taxes by us and related matters, upon (i) the failure to pay
interest on any 2025 Note when such interest is due and payable or (ii) the occurrence of an Event of Default and while any such
interest payment remains unpaid or such Event of Default is ongoing the indenture prohibits us from:
(1) declaring
or paying any dividend, making any distribution on or in respect of our capital stock or making any similar payment to the direct or indirect
holders of our capital stock in their capacity as such;
(2) purchasing,
repurchasing, redeeming, retiring or otherwise acquiring (“Purchase”) for value any capital stock of the Company held by any
Person (other than capital stock held by the Company or a subsidiary) or any capital stock of a subsidiary held by any Affiliate of the
Company;
(3) purchasing
for value, prior to scheduled maturity, any scheduled repayment of any subordinated obligations; or
(4) making
any investment in any Person.
Form, Exchange and Transfer of Certificated Registered Securities
If registered 2025 Notes cease to be issued in
book-entry form, they will be issued:
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only in fully registered certificated form;
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without interest coupons; and
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unless we indicate otherwise, in denominations of $25 and amounts that are multiples of $25.
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Holders may exchange their certificated securities
for 2025 Notes of smaller denominations or combined into fewer 2025 Notes of larger denominations, as long as the total principal amount
is not changed and as long as the denomination is equal to or greater than $25.
Holders may exchange or transfer their certificated
securities at the corporate trust office of the trustee. We have appointed the trustee to act as our agent for registering 2025 Notes
in the names of holders transferring 2025 Notes. We may appoint another entity to perform these functions or perform them ourselves.
Holders will not be required to pay a service charge
to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated
with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holder’s proof
of legal ownership.
We may appoint additional transfer agents or cancel
the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.
If any certificated securities of a particular
series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt
securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing,
in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated
securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt
security that will be partially redeemed.
If a registered debt security is issued in book-entry
form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be
the sole holder of the debt security.
Resignation of Trustee
The trustee may resign or be removed with respect
to the 2025 Notes provided that a successor trustee is appointed to act with respect to the 2025 Notes. In the event that two or more
persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will
be a trustee of a trust separate and apart from the trust administered by any other trustee.
Indenture Provisions — Ranking
The 2025 Notes are our direct unsecured obligations
and rank:
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Pari passu with, which means equal to, all of our currently outstanding unsecured unsubordinated indebtedness issued by us, including the approximately $32.9 million principal amount of the 2025 Notes. The 2025 Notes also rank pari passu with our general liabilities, which consist of trade and other payables, including any outstanding dividend payable on our Series A preferred stock, interest and debt fees payable, vendor payables and accrued expenses such as auditor fees, legal fees, director fees, etc. In total, these general liabilities were $48.8 million as of March 31, 2021. We have the ability to issue from time to time other debt securities with terms different from the 2025 Notes and, without consent of the holders thereof, as well as the ability to reopen the 2025 Notes and issue additional 2025 Notes. If we issue additional debt securities, these additional debt securities could rank higher in priority of payment or have a lien or other security interest greater than that accorded to the holders of the 2025 Notes.
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Senior to any of our future indebtedness that expressly provides it is subordinated to the 2025 Notes. We currently do not have outstanding debt that is subordinated to the 2025 Notes and do not currently intend to issue indebtedness that expressly provides that it is subordinated to the 2025 Notes. Therefore, the 2025 Notes, as currently contemplated, will not be senior to any indebtedness or obligations.
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Effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially
unsecured to which we subsequently a grant security interest), including our $10,210,000 film acquisition advance from Great Point
Media Limited (of which $6,195,174 was outstanding as of March 31, 2021) which is secured by territorial licenses and distribution
rights in certain films and productions owned or to be acquired by Screen Media, and our $20.0 million revolving loan commitment
from MidCap (of which $18.3 million is outstanding as of June 21, 2021) which is secured by accounts receivable and the contracts
underlying such accounts receivable and other related assets, but only to the extent of the value of the assets securing such indebtedness.
Because the 2025 Notes will not be secured by any of our assets, they will be effectively subordinated to any existing secured indebtedness,
any indebtedness that we may incur in the future, such as a new credit facility, or any indebtedness that is initially unsecured
to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness. In any liquidation,
dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness may assert
rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets
may be used to pay other creditors, including the holders of the 2025 Notes, and any assets of our subsidiaries will not be directly
available to satisfy the claims of our creditors, including holders of the 2025 Notes.
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Structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries and financing vehicles, since the 2025 Notes are obligations exclusively of Chicken Soup for the Soul Entertainment, Inc. and not of any of our subsidiaries. Structural subordination means that creditors of a parent entity are subordinate to creditors of a subsidiary entity with respect to the subsidiary’s assets.
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Book-Entry Procedures
The 2025 Notes are represented by global securities
that will be deposited and registered in the name of DTC or its nominee. This means that, except in limited circumstances, you will not
receive certificates for the 2025 Notes.
Beneficial interests in the 2025 Notes are represented
through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC.
Investors may elect to hold interests in the 2025 Notes through either DTC, if they are a participant, or indirectly through organizations
that are participants in DTC.
The 2025 Notes were issued as fully registered
securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered certificate will be issued for each issuance of the 2025 Notes, in the aggregate
principal amount of such issue, and will be deposited with DTC. Interests in the 2025 Notes will trade in DTC’s Same Day Funds Settlement
System, and any permitted secondary market trading activity in such 2025 Notes will, therefore, be required by DTC to be settled in immediately
available funds. We will not have and neither the Trustee nor the Paying Agent will have any responsibility for the performance by DTC
or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
DTC is a limited-purpose trust company organized
under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing
agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for
over 1.3 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over
131 countries and territories that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates
the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic
computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement
of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation
(“DTCC”).
DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users
of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers
and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its participants are on file with
the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of the 2025 Notes under the DTC system
must be made by or through Direct Participants, which will receive a credit for the 2025 Notes on DTC’s records. The ownership interest
of each actual purchaser of each security, or the “Beneficial Owner,” is in turn to be recorded on the Direct and Indirect
Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are,
however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests
in the 2025 Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2025 Notes, except in the event
that use of the book-entry system for the 2025 Notes is discontinued.
To facilitate subsequent transfers, all 2025 Notes
deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other
name as may be requested by an authorized representative of DTC. The deposit of the 2025 Notes with DTC and their registration in the
name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the 2025 Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts the 2025
Notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Redemption notices shall be sent to DTC. If less
than all of the 2025 Notes within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest
of each Direct Participant in such issue to be redeemed.
Redemption proceeds, distributions, and interest
payments on the 2025 Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative
of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail
information from us or the Trustee on the payment date in accordance with their respective holdings shown on DTC’s records. Payments
by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant
and not of DTC nor its nominee, the Trustee, or us, subject to any statutory or regulatory requirements as may be in effect from time
to time. Payment of redemption proceeds, distributions, and interest payments to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) is the responsibility of us or the Trustee, but disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility
of Direct and Indirect Participants.
DTC may discontinue providing its services as securities
depository with respect to the 2025 Notes at any time by giving reasonable notice to us or to the Trustee. Under such circumstances, in
the event that a successor securities depository is not obtained, certificates are required to be printed and delivered. We may decide
to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates
will be printed and delivered to DTC.
The information in this section concerning DTC
and DTC’s book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the
accuracy thereof.
Listing
Our 2025 Notes are listed for trading on the Nasdaq Global Market under
the symbol “CSSEN.”
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of common stock, preferred stock,
debt securities or any other security offered hereby. Warrants may be issued independently or together with other securities and may be
attached to or separate from any offered securities. We may issue the warrants directly or under warrant agreements to be entered into
between a warrant agent and us. Any warrant agent will act solely as our agent in connection with the warrants and will not have any obligation
or relationship of agency or trust for or with any holders or beneficial owners of warrants.
The following outlines some of the general terms and provisions of
the warrants that we may issue. A prospectus supplement will describe the particular terms of any warrants offered from time to time and
may supplement or change the terms outlined below. We will file as an exhibit to the registration statement of which this prospectus is
a part, or will incorporate by reference from reports that we file with the SEC, a form of the warrant or form of the warrant agreement
and warrant certificate that sets forth the terms of the particular warrants we are offering. The summary of such terms contained in this
prospectus and in the applicable prospectus supplement is qualified in its entirety by reference to such warrant or warrant agreement
and warrant certificate. We urge you to read the warrant or warrant agreement and warrant certificate and the additional description of
the terms of the warrants included in the prospectus supplement.
General
The prospectus supplement relating to a particular issue of warrants
will describe the terms of the warrants, including the following:
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the title of the warrants;
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the offering price for the warrants, if any;
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the aggregate number of the warrants;
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the designation and terms of the common stock, preferred stock or other class of security that may be purchased upon exercise of the
warrants;
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if applicable, the designation and terms of the securities that the warrants are issued with and the number of warrants issued with
each security;
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if applicable, the date from and after which the warrants and any securities issued with the warrants will be separately transferable;
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the number of shares and price of common stock or preferred stock, or the designation and number or amount of other debt securities,
that may be purchased upon exercise of a warrant;
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the dates on which the right to exercise the warrants commence and expire;
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if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time;
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if applicable, a discussion of material U.S. federal income tax considerations;
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anti-dilution provisions of the warrants, if any;
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redemption or call provisions, if any, applicable to the warrants; and
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any additional terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants.
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Exercise of Warrants
Each warrant will entitle the holder of the warrant to purchase at
the exercise price set forth in the applicable prospectus supplement the principal amount of debt securities or shares of common stock
or preferred stock being offered. Holders may exercise warrants at any time up to the close of business on the expiration date set forth
in the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will be void. Holders
may exercise warrants as set forth in the prospectus supplement relating to the warrants being offered.
Until a holder exercises the warrants to purchase any securities underlying
the warrants, the holder will not have any rights as a holder of the underlying securities by virtue of ownership of warrants.
DESCRIPTION OF DEBT SECURITIES
We may offer any combination of senior debt securities or subordinated
debt securities. We may issue the senior debt securities and the subordinated debt securities under separate indentures between us, as
issuer, and the trustee or trustees identified in a prospectus supplement. Further information regarding the trustee may be provided in
the prospectus supplement. The form for each type of indenture is filed as an exhibit to the registration statement of which this prospectus
is a part.
The following outlines some of the general terms and provisions of
the debt securities that we may issue. A prospectus supplement will describe the particular terms of any debt securities offered from
time to time and may supplement or change the terms outlined below. We will file as an exhibit to the registration statement of which
this prospectus is a part or will incorporate by reference from reports that we file with the SEC, a form of the indenture supplement
that sets forth the terms of the particular debt securities we are offering. The summary of such debt securities contained in this prospectus
and in the applicable prospectus supplement is qualified in its entirety by reference to the indentures and the applicable indenture supplement.
We urge you to read the indentures, the applicable indenture supplement and the additional description of the debt securities in the prospectus
supplement.
General
Within the total dollar amount of this shelf registration statement,
we may issue an unlimited principal amount of debt securities in separate series. We may specify a maximum aggregate principal amount
for the debt securities of any series. The debt securities will have terms that are consistent with the indentures. Senior debt securities
will be unsubordinated obligations and will rank equal with all our other unsubordinated debt. Subordinated debt securities will be paid
only if all payments due under our senior indebtedness, including any outstanding senior debt securities, have been made.
The indentures might not limit the amount of other debt that we may
incur or whether that debt is senior to the debt securities offered by this prospectus and might not contain financial or similar restrictive
covenants. The indentures might not contain any provision to protect holders of debt securities against a sudden or dramatic decline in
our ability to pay our debt.
The prospectus supplement will describe the debt securities and the
price or prices at which we will offer the debt securities. The description will include:
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the title and form of the debt securities;
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any limit on the aggregate principal amount of the debt securities or the series of which they are a part;
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the date or dates on which we must repay the principal, the maturity date and the principal amount due at maturity and whether the
securities will be offered at a price such that they will be deemed an “original issue discount”;
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the person to whom any interest on a debt security of the series will be paid;
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the rate or rates at which the debt securities will bear interest;
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if any, the date or dates from which interest will accrue, and the dates on which we must pay interest;
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the place or places where we must pay the principal and any premium or interest on the debt securities;
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the terms and conditions on which we may redeem any debt security, if at all;
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any obligation to redeem or purchase any debt securities, and the terms and conditions on which we must do so;
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the denominations in which we may issue the debt securities;
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the currency in which we will pay the principal of and any premium or interest on the debt securities and whether we may pay in property
other than cash, including our securities;
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the principal amount of the debt securities that we will pay upon declaration of acceleration of their maturity;
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whether and under what circumstances, if any, we will pay additional amounts on any debt securities held by a person who is not a
United States person for tax purposes, and whether we can redeem the debt securities if we have to pay such additional amounts;
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if applicable, that the debt securities are defeasible and the terms of such defeasance;
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if applicable, the terms of any right to convert debt securities into, or exchange debt securities for, debt securities, preferred
stock and common stock or other securities or property;
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whether we will issue the debt securities in the form of one or more global securities and, if so, the respective depositaries for
the global securities and the terms of the global securities;
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the subordination provisions that will apply to any subordinated debt securities;
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any addition to or change in the events of default applicable to the debt securities and any change in the right of the trustee or
the holders to declare the principal amount of any of the debt securities due and payable;
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any addition to or change in the covenants in the indentures; and
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any other terms of the debt securities not inconsistent with the applicable indentures.
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We may sell the debt securities at a substantial discount below their
stated principal amount. We will describe U.S. federal income tax considerations, if any, applicable to debt securities sold at an original
issue discount in the prospectus supplement. An “original issue discount security” is any debt security sold for less than
its face value, and which provides that the holder cannot receive the full face-value if maturity is accelerated. The prospectus supplement
relating to any original issue discount securities will describe the particular provisions relating to acceleration of the maturity upon
the occurrence of an event of default. In addition, we will describe U.S. federal income tax or other considerations applicable to any
debt securities that are denominated in a currency or unit other than U.S. dollars in the prospectus supplement.
Conversion and Exchange Rights
The prospectus supplement will describe, if applicable, the terms on
which you may convert debt securities into or exchange them for debt securities, preferred stock and common stock or other securities
or property. The conversion or exchange may be mandatory or may be at our option or at your option. The prospectus supplement will describe
how the amount of debt securities, number of shares of preferred stock and common stock or other securities or property to be received
upon conversion or exchange would be calculated.
Subordination of Subordinated Debt Securities
The indebtedness underlying any subordinated debt securities will be
payable only if all payments due under our senior indebtedness, as defined in the applicable indenture and any indenture supplement, including
any outstanding senior debt securities, have been made. If we distribute our assets to creditors upon any dissolution, winding-up, liquidation
or reorganization or in bankruptcy, insolvency, receivership or similar proceedings, we must first pay all amounts due or to become due
on all senior indebtedness before we pay the principal of, or any premium or interest on, the subordinated debt securities. In the event
the subordinated debt securities are accelerated because of an event of default, we may not make any payment on the subordinated debt
securities until we have paid all senior indebtedness or the acceleration is rescinded. If the payment of subordinated debt securities
accelerates because of an event of default, we must promptly notify holders of senior indebtedness of the acceleration.
If we experience a bankruptcy, dissolution or reorganization, holders
of senior indebtedness may receive more, ratably, and holders of subordinated debt securities may receive less, ratably, than our other
creditors. The indenture for subordinated debt securities may not limit our ability to incur additional senior indebtedness.
Form, Exchange and Transfer
We will issue debt securities only in fully registered form, without
coupons, and only in denominations of $1,000 and integral multiples thereof, unless the prospectus supplement provides otherwise. The
holder of a debt security may elect, subject to the terms of the indentures and the limitations applicable to global securities, to exchange
them for other debt securities of the same series of any authorized denomination and of similar terms and aggregate principal amount.
Holders of debt securities may present them for exchange as provided
above or for registration of transfer, duly endorsed or with the form of transfer duly executed, at the office of the transfer agent we
designate for that purpose. We will not impose a service charge for any registration of transfer or exchange of debt securities, but we
may require a payment sufficient to cover any tax or other governmental charge payable in connection with the transfer or exchange. We
will name the transfer agent in the prospectus supplement. We may designate additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which any transfer agent acts, but we must maintain a transfer agent in each
place where we will make payment on debt securities.
If we redeem the debt securities, we will not be required to issue,
register the transfer of or exchange any debt security during a specified period prior to mailing a notice of redemption. We are not required
to register the transfer or exchange of any debt security selected for redemption, except the unredeemed portion of the debt security
being redeemed.
Global Securities
The debt securities may be represented, in whole or in part, by one
or more global securities that will have an aggregate principal amount equal to that of all debt securities of that series. Each global
security will be registered in the name of a depositary identified in the prospectus supplement. We will deposit the global security with
the depositary or a custodian, and the global security will bear a legend regarding the restrictions on exchanges and registration of
transfer.
No global security may be exchanged in whole or in part for debt securities
registered, and no transfer of a global security in whole or in part may be registered, in the name of any person other than the depositary
or any nominee or successor of the depositary unless:
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the depositary is unwilling or unable to continue as depositary; or
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the depositary is no longer in good standing under the Securities Exchange Act of 1934, as amended, or “Exchange Act,”
or other applicable statute or regulation.
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The depositary will determine how all securities issued in exchange
for a global security will be registered.
As long as the depositary or its nominee is the registered holder of
a global security, we will consider the depositary or the nominee to be the sole owner and holder of the global security and the underlying
debt securities. Except as stated above, owners of beneficial interests in a global security will not be entitled to have the global security
or any debt security registered in their names, will not receive physical delivery of certificated debt securities and will not be considered
to be the owners or holders of the global security or underlying debt securities. We will make all payments of principal, premium and
interest on a global security to the depositary or its nominee. The laws of some jurisdictions require that some purchasers of securities
take physical delivery of such securities in definitive form. These laws may prevent you from transferring your beneficial interests in
a global security.
Only institutions that have accounts with the depositary or its nominee
and persons that hold beneficial interests through the depositary or its nominee may own beneficial interests in a global security. The
depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of debt securities represented
by the global security to the accounts of its participants. Ownership of beneficial interests in a global security will be shown only
on, and the transfer of those ownership interests will be effected only through, records maintained by the depositary or any such participant.
The policies and procedures of the depositary may govern payments,
transfers, exchanges and other matters relating to beneficial interests in a global security. We and the trustee will assume no responsibility
or liability for any aspect of the depositary’s or any participant’s records relating to, or for payments made on account
of, beneficial interests in a global security.
Payment and Paying Agents
We will pay principal and any premium or interest on a debt security
to the person in whose name the debt security is registered at the close of business on the regular record date for such interest.
We will pay principal and any premium or interest on the debt securities
at the office of our designated paying agent. Unless the prospectus supplement indicates otherwise, the corporate trust office of the
trustee will be the paying agent for the debt securities.
Any other paying agents we designate for the debt securities of a particular
series will be named in the prospectus supplement. We may designate additional paying agents, rescind the designation of any paying agent
or approve a change in the office through which any paying agent acts, but we must maintain a paying agent in each place of payment for
the debt securities.
The paying agent will return to us all money we pay to it for the payment
of the principal, premium or interest on any debt security that remains unclaimed for a specified period. Thereafter, the holder may look
only to us for payment, as an unsecured general creditor.
Consolidation, Merger and Sale of Assets
Under the terms of the indentures, so long as any securities remain
outstanding, we may not consolidate or enter into a share exchange with or merge into any other person, in a transaction in which we are
not the surviving corporation, or sell, convey, transfer or lease our properties and assets substantially as an entirety to any person,
unless:
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the successor assumes our obligations under the debt securities and the indentures; and
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we meet the other conditions described in the indentures.
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Events of Default
Each of the following will constitute an event of default under each
indenture:
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failure to pay any interest on any debt security when due, for more than a specified number of days past the due date;
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failure to pay any principal or deposit any sinking fund payment when due;
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failure to perform any covenant or agreement in the indenture that continues for a specified number of days after written notice has
been given by the trustee or the holders of a specified percentage in aggregate principal amount of the debt securities of that series;
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events of bankruptcy, insolvency or reorganization; and
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any other event of default specified in the prospectus supplement.
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If an event of default occurs and continues, both the trustee and holders
of a specified percentage in aggregate principal amount of the outstanding securities of that series may declare the principal amount
of the debt securities of that series to be immediately due and payable. The holders of a majority in aggregate principal amount of the
outstanding securities of that series may rescind and annul the acceleration if all events of default, other than the nonpayment of accelerated
principal, have been cured or waived.
Except for its duties in case of an event of default, the trustee will
not be obligated to exercise any of its rights or powers at the request or direction of any of the holders, unless the holders have offered
the trustee reasonable indemnity. If they provide this indemnification and subject to conditions specified in the applicable indenture,
the holders of a majority in aggregate principal amount of the outstanding securities of any series may direct the time, method and place
of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect
to the debt securities of that series.
No holder of a debt security of any series may institute any proceeding
with respect to the indentures, or for the appointment of a receiver or a trustee, or for any other remedy, unless:
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the holder has previously given the trustee written notice of a continuing event of default;
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the holders of a specified percentage in aggregate principal amount of the outstanding securities of that series have made a written
request upon the trustee, and have offered reasonable indemnity to the trustee, to institute the proceeding;
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the trustee has failed to institute the proceeding for a specified period of time after its receipt of the notification; and
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the trustee has not received a direction inconsistent with the request within a specified number of days from the holders of a specified
percentage in aggregate principal amount of the outstanding securities of that series.
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Modification and Waiver
We and the trustee may change an indenture without the consent of any
holders with respect to specific matters, including:
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to fix any ambiguity, defect or inconsistency in the indenture; and
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to change anything that does not materially adversely affect the interests of any holder of debt securities of any series.
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In addition, under the indentures, the rights of holders of a series
of notes may be changed by us and the trustee with the written consent of the holders of at least a majority in aggregate principal amount
of the outstanding debt securities of each series that is affected. However, we and the trustee may only make the following changes with
the consent of the holder of any outstanding debt securities affected:
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extending the fixed maturity of the series of notes;
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reducing the principal amount, reducing the rate of or extending the time of payment of interest, or any premium payable upon the
redemption, of any debt securities; or
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reducing the percentage of debt securities the holders of which are required to consent to any amendment.
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The holders of a majority in principal amount of the outstanding debt
securities of any series may waive any past default under the indenture with respect to debt securities of that series, except a default
in the payment of principal, premium or interest on any debt security of that series or in respect of a covenant or provision of the indenture
that cannot be amended without each holder’s consent.
Except in limited circumstances, we may set any day as a record date
for the purpose of determining the holders of outstanding debt securities of any series entitled to give or take any direction, notice,
consent, waiver or other action under the indentures. In limited circumstances, the trustee may set a record date. To be effective, the
action must be taken by holders of the requisite principal amount of such debt securities within a specified period following the record
date.
Defeasance
To the extent stated in the prospectus supplement, we may elect to
apply the provisions in the indentures relating to defeasance and discharge of indebtedness, or to defeasance of restrictive covenants,
to the debt securities of any series. The indentures provide that, upon satisfaction of the requirements described below, we may terminate
all of our obligations under the debt securities of any series and the applicable indenture, known as legal defeasance, other than our
obligation:
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to maintain a registrar and paying agents and hold monies for payment in trust;
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to register the transfer or exchange of the notes; and
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to replace mutilated, destroyed, lost or stolen notes.
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In addition, we may terminate our obligation to comply with any restrictive
covenants under the debt securities of any series or the applicable indenture, known as covenant defeasance.
We may exercise our legal defeasance option even if we have previously
exercised our covenant defeasance option. If we exercise either defeasance option, payment of the notes may not be accelerated because
of the occurrence of events of default.
To exercise either defeasance option as to debt securities of any series,
we must irrevocably deposit in trust with the trustee money and/or obligations backed by the full faith and credit of the United States
that will provide money in an amount sufficient in the written opinion of a nationally recognized firm of independent public accountants
to pay the principal of, premium, if any, and each installment of interest on the debt securities. We may only establish this trust if,
among other things:
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no event of default shall have occurred or be continuing;
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in the case of legal defeasance, we have delivered to the trustee an opinion of counsel to the effect that we have received from,
or there has been published by, the Internal Revenue Service a ruling or there has been a change in law, which in the opinion of our counsel,
provides that holders of the debt securities will not recognize gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred;
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in the case of covenant defeasance, we have delivered to the trustee an opinion of counsel to the effect that the holders of the debt
securities will not recognize gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will
be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; and
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we satisfy other customary conditions precedent described in the applicable indenture.
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Notices
We will mail notices to holders of debt securities as indicated in
the prospectus supplement.
Title
We may treat the person in whose name a debt security is registered
as the absolute owner, whether or not such debt security may be overdue, for the purpose of making payment and for all other purposes.
Governing Law
The indentures and the debt securities will be governed by and construed
in accordance with the laws of the State of New York.
DESCRIPTION OF THE UNITS
We may issue units comprised of one or more of the other classes of
securities offered hereby in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security
included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each included security.
The units may be, but are not required to be, issued under unit agreements
to be entered into between us and a unit agent, as detailed in the prospectus supplement relating to the units being offered. We will
file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference from reports that
we file with the SEC, a form of the unit agreement and unit certificate, if any, that sets forth the terms of the particular units we
are offering. The summary of such terms contained in this prospectus and in the applicable prospectus supplement is qualified in its entirety
by reference to such unit agreement and unit certificate. We urge you to read the unit agreement and unit certificate, if any, and the
additional description of the terms of the units included in the prospectus supplement.
The prospectus supplement will describe the units and the price or
prices at which we will offer the units. The description will include:
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the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances
the securities comprising the units may be held or transferred separately;
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a description of the terms of any unit agreement governing the units;
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a description of the provisions for the payment, settlement, transfer or exchange of the units;
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a discussion of material federal income tax considerations, if applicable; and
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whether the units if issued as a separate security will be issued in fully registered or global form.
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The descriptions of the units in this prospectus and in any prospectus
supplement are summaries of the material provisions of the applicable agreements.
PLAN OF DISTRIBUTION OF SECURITIES
We are registering up to $1,000,000,000 of our common stock, shares
of preferred stock, warrants, debt securities and/or units comprised of one or more of the other classes of securities offered hereby.
We may sell or issue the securities offered by this prospectus from time to time in any one or more of the following ways:
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through underwriters or dealers;
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directly to purchasers or a single purchaser; or
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through a combination of any of these methods.
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The manner in which we may sell some or all of the securities covered
by this prospectus includes, without limitation, through:
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exercises of warrants or other rights;
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an “at the market” offering, within the meaning of Rule 415(a)(4) of the Securities Act of 1933, as amended,
or the “Securities Act,” to or through a market maker or into an existing trading market on an exchange or otherwise;
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a block trade in which a broker-dealer will attempt to sell as agent, but may position or resell a portion of the block, as principal,
in order to facilitate the transaction;
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purchases by a broker-dealer, as principal, and resale by the broker-dealer for its account;
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ordinary brokerage transactions and transactions in which a broker solicits purchasers; and
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privately negotiated transactions.
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The distribution of the securities may be effected from time to time
in one or more transactions:
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at a fixed price, or prices, which may be changed from time to time;
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at market prices prevailing at the time of sale;
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at varying prices determined at the time of sale; or
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For each offering of securities hereunder, we will describe the method
of distribution of such securities, among other things, in a prospectus supplement. A prospectus supplement will set forth the terms of
the offering of the securities, including:
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the name or names of any agents or underwriters;
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the purchase price of the securities being offered and the proceeds we will receive from the sale;
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any over-allotment options under which underwriters may purchase additional securities from us;
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any agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation;
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any initial public offering price;
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any discounts or concessions allowed or reallowed or paid to dealers; and
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any securities exchanges or markets on which such securities may be listed.
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Sales Through Underwriters or Dealers
If underwriters are used in the sale of the securities, the securities
will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions. The securities
may be either offered to the public through underwriting syndicates represented by managing underwriters or by underwriters without a
syndicate. The applicable prospectus supplement will indicate whether a sale is made on a firm commitment or best efforts basis or otherwise.
Unless otherwise set forth in the applicable prospectus supplement, the obligations of the underwriters to purchase the securities will
be subject to certain conditions precedent and the underwriters will be obligated to purchase all of the securities if any are purchased.
Any initial public offering price and any discounts or concessions allowed or paid to dealers may be changed from time to time.
If a dealer is used in the sale of the securities, we will sell such
securities to the dealer, as principal. The dealer may then resell such securities to the public at varying prices to be determined by
such dealer at the time of resale. We may negotiate and pay dealers’ commissions, discounts or concessions for their services. Any
such dealer may be deemed to be an underwriter, as such term is defined in the Securities Act, of our securities so offered and sold.
Direct Sales and Sales Through Agents
We may sell the securities directly, in which case no underwriters
or agents would be involved, or we may sell the securities through agents designated by us from time to time. If agents are used in the
sale of the securities, the agent will not purchase any securities for its own account, but will arrange for the sale of the securities.
Unless otherwise indicated in the prospectus supplement, any agent will be acting on a best efforts basis for the period of its appointment.
We may negotiate and pay agent’s fees or commissions for their services. If the securities are sold directly by us, we may sell
the securities to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act, with
respect to any sale of those securities.
Delayed Delivery Contracts
We may authorize underwriters, dealers or agents to solicit offers
by institutional investors, such as commercial banks and investment companies, to purchase the securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified
date in the future. The conditions to these contracts and the commissions payable for solicitation of the contracts will be set forth
in the applicable prospectus supplement.
At-the-Market Offerings
Underwriters, dealers or agents could make sales in an “at-the-market”
offering, directly on the Nasdaq Global Market, the existing trading market for our common stock, or such other exchange or automated
quotation system on which our securities trade, or to or through a market maker other than on an exchange.
Rights Offerings
We may issue the securities as a dividend or distribution or in a subscription
rights offering to our existing security holders. If we offer securities in a subscription rights offering to our existing security holders,
we may enter into a standby underwriting agreement with dealers, acting as standby underwriters. We may pay the standby underwriters a
commitment fee for the securities they commit to purchase on a standby basis. If we do not enter into a standby underwriting arrangement,
we may retain a dealer-manager to manage a subscription rights offering for us.
Compensation
In compliance with the guidelines of the Financial Industry Regulatory
Authority, Inc., or FINRA, all discounts, commissions or agency fees or other items constituting underwriting compensation to be
received by any FINRA member or independent broker-dealer will be disclosed in the applicable prospectus supplement.
Indemnification
Any underwriters and agents may be entitled to indemnification by us
against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the
agents or underwriters may be required to make in respect of their liabilities.
Stabilization Activities
During and after an offering through underwriters, the underwriters
may purchase and sell the securities in the open market. These transactions may include over allotment and stabilizing transactions and
purchases to cover syndicate short positions created in connection with the offering. The underwriters may also impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers for the offered securities sold for their account may
be reclaimed by the syndicate if such offered securities are repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the offered securities, which may be higher than the price
that might otherwise prevail in the open market. If commenced, these activities may be discontinued at any time.
Passive Market Making
Any underwriters who are qualified market makers may engage in passive
market making transactions in the securities in accordance with Rule 103 of Regulation M.
Trading Markets
Unless otherwise specified in the applicable prospectus supplement,
securities offered under this prospectus will be a new issue and, other than the Class A common stock and Series A preferred
stock, which are listed on the Nasdaq Global Market under the symbols “CSSE” and “CSSEP”, respectively, will have
no established trading market. We may elect to list any other class or series of securities on an exchange, and in the case of the common
stock, on any additional exchange, but, unless otherwise specified in the applicable prospectus supplement, we shall not be obligated
to do so. Any underwriters to whom securities are sold for public offering and sale may make a market in the securities, but the underwriters
will not be obligated to do so and may discontinue any market making at any time without notice. The securities may or may not be listed
on a national securities exchange or a foreign securities exchange. No assurance can be given as to the liquidity of the trading market
for any of the securities.
Other Matters
Any underwriters, dealers and agents, and their associates and affiliates
may be customers of, have borrowing relationships with, engage in other transactions with, or perform services, including investment banking
services, for us or one or more of our respective affiliates in the ordinary course of business.
We will bear all costs, expenses and fees associated with the registration
of the securities offered.
Sales by Selling Securityholders
We
are also registering for resale 1,798,956 shares of Series A preferred stock by the selling securityholder and any of its
pledgees, assignees and successors-in-interest.
The selling securityholder and its pledgees, assignees, and successors-in-interest
may, from time to time, sell any or all of the securities covered hereby on the Nasdaq Global Market or any other stock exchange, market
or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. The
selling securityholder may use any one or more of the following methods when selling securities:
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Ordinary brokerage transactions and transactions in which the broker-dealer solicits subscribers;
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Block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
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Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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An exchange distribution in accordance with the rules of the applicable exchange;
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Privately negotiated transactions;
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Settlement of short sales;
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In transactions through broker-dealers that agree with the selling securityholder to sell a specified number of such securities at
a stipulated price per security;
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Through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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A combination of any such methods of sale; or
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Any other method permitted pursuant to applicable law.
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The selling securityholder may also sell securities under Rule 144 or any other exemption from registration under the Securities
Act , if available, rather than under this prospectus.
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Broker-dealers engaged by the selling securityholder may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling securityholder in
amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess
of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein,
the selling securityholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn
engage in short sales of the securities in the course of hedging the positions they assume. The selling securityholder may also sell securities
short and deliver these securities to close out its short positions, or loan or pledge the securities to broker-dealers that in turn may
sell these securities.
The selling securityholder may also enter into option or other transactions
with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer
or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling securityholder and any broker-dealers or agents that are
involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities
purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling securityholder has informed
us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
Pursuant to a registration rights agreement we previously entered into
with the selling securityholder, we are required to pay certain fees and expenses incurred by us and the selling securityholder incident
to the registration of the securities. We have agreed to indemnify the selling securityholder against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act pursuant to the terms of such registration rights agreement.
We have agreed to keep the registration statement, which this prospectus
forms a part, effective until all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. Unless the shares of Series A preferred stock registered pursuant to the registration statement
of which this prospectus forms a part are sold pursuant to this prospectus, Rule 144 under the Securities Act or another federal
securities law exemption, the shares of Series A preferred stock covered by this prospectus will be sold only (a) through registered
or licensed brokers or dealers if required under applicable state securities laws and (b) otherwise in compliance with all applicable
state securities laws.
Under applicable rules and regulations under the Exchange Act,
any person engaged in the distribution of the shares of Series A preferred stock offered pursuant to this prospectus may not simultaneously
engage in market making activities with respect to the Series A preferred stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In addition, the selling securityholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases
and sales of the Series A preferred stock offered pursuant to this prospectus by the selling securityholder or any other person.
We will make copies of this prospectus available to the selling securityholder and have informed the selling securityholder of the need
to deliver a copy of this prospectus to each subscriber of shares of Series A preferred stock offered pursuant to this prospectus
at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
LEGAL MATTERS
The validity of the securities offered will be passed on for us by
our counsel, Graubard Miller, New York, New York. Graubard Miller and certain of its partners and family members own shares of the Class A
common stock and Class W warrants to purchase shares of Class A common stock of CSSE and certain Class B membership interests
in Chicken Soup for the Soul Holdings, LLC, our ultimate parent company.
EXPERTS
The consolidated financial statements of Chicken Soup for the Soul
Entertainment Inc. and subsidiaries as of December 31, 2020 and 2019, and for the years ended December 31, 2020 and 2019, have
been incorporated by reference herein to the Annual Report on Form 10-K for the year ended December 31, 2020, in reliance upon
the report of Rosenfield and Company, PLLC, independent registered public accounting firm, which are incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Sonar Entertainment, Inc. as of and
for the years ended December 31, 2020 and 2019 incorporated by reference in this prospectus have been audited by Moss Adams LLP,
independent auditors, as stated in their report (which expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating
to going concern). Such financial statements of such firm have been incorporated by reference given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. Our SEC filings are available to the public over the Internet at the SEC’s
web site at http://www.sec.gov.
We have filed with the SEC a registration statement under the Securities
Act relating to the resale of the Series A preferred stock offered hereby. The registration statement, including the attached exhibits,
contains additional relevant information about us and the securities. This prospectus does not contain all of the information set forth
in the registration statement. You can obtain a copy of the registration statement from the SEC at the web address listed above.
The registration statement and our SEC filings, including the documents
referred to below under “Information Incorporated by Reference,” are also available on our website, www.cssentertainment.com.
We have not incorporated by reference into this prospectus the information on our website, and you should not consider it to be a part
of this prospectus.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the information we file
with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated
by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and supersede
this information. This prospectus incorporates by reference the documents listed below, all filings we make under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the initial filing date of the registration statement of which this prospectus forms a part
and prior to effectiveness of such registration statement, and all filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after effectiveness of such registration statement and prior to the sale of all of the shares offered hereby:
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·
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our
Current Reports on Form 8-K and Form 8-K/A, as applicable, filed on January
15, 2021, January
19, 2021, January
20, 2021, February
17, 2021, March
9, 2021, March
16, 2021, April
9, 2021, April
16, 2021, May
17, 2021, May
25, 2021, May
27, 2021, June
11, 2021, June
21, 2021, June 24, 2021, July 1, 2021, July 2, 2021, July 8, 2021, July 16, 2021, August 12, 2021, August 18, 2021, September 17, 2021, October 18, 2021, November 9, 2021, November 10, 2021, and November 18, 2021.
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Any statement contained in a document filed before the date of this
prospectus and incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent
that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus. Any information that we file after the date of this prospectus
with the SEC and incorporated by reference herein will automatically update and supersede the information contained in this prospectus
and in any document previously incorporated by reference in this prospectus. Notwithstanding the foregoing, we are not incorporating any
document or portion thereof or information deemed to have been furnished and not filed in accordance with SEC rule.
We will provide you with a copy of any or all of the information that
has been incorporated by reference in this prospectus, without charge, upon written or oral request directed to Chicken Soup for the Soul
Entertainment, Inc. 132 E. Putnam Ave., Floor 2W, Cos Cob, Connecticut 06807, telephone number (855) 398-0443. You may also access
the documents incorporated by reference as described under “Where You Can Find More Information.”
1,875,000 shares of Class A common
stock
________________________________
PROSPECTUS SUPPLEMENT
________________________________
Joint Book-Running Managers
Guggenheim Securities
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Needham & Company
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Co-Managers
D.A. Davidson & Co.
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Northland Capital Markets
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Craig-Hallum
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Ladenburg Thalmann
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The Benchmark Company
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________________
July 1, 2021
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