Item
1.01. Entry into a Material Definitive Agreement.
On
May 12, 2020 (the “Issue Date”), Simplicity Esports and Gaming Company (the “Company”) issued a promissory
note (the “Kaplan Note”) in the principal sum of $90,000 in favor of Jed Kaplan, the Company’s Chief Executive
Officer, interim Chief Financial Officer, member of the Company’s Board of Directors and greater than 5% stockholder of
the Company. The Kaplan Note matures on the first business day following the 150-day anniversary of the Issue Date (the “Maturity
Date”). The Company will use the proceeds of the Kaplan Note to fund the operations of Simplicity One Brasil Ltda, the Company’s
majority owned subsidiary (“Simplicity Brasil”).
Pursuant
to the terms of the Kaplan Note, the Company agreed to pay to Mr. Kaplan the lesser of (i) the principal sum of $90,000 (the “Maximum
Commitment”), or (ii) the aggregate principal amount of all direct advances of the proceeds of the Kaplan Note (each, an
“Advance”), together with any interest thereon, and any and all other amounts which may be due and payable thereunder
from time to time.
Subject
to the terms of the Kaplan Note, Mr. Kaplan agreed to make one direct Advance to and for the benefit of the Company on the Issue
Date in the amount of $45,000, and one additional Advance to and for the benefit of the Company at such time as the Company may
request during the two month period following the Issue Date. The total of the aggregate principal balance of all Advances (collectively
referred to herein as the “Principal Amount”) outstanding at any time shall not exceed the Maximum Commitment. Advances
made by Mr. Kaplan to the Company under the Kaplan Note which have been repaid may not be borrowed again.
Prior
to the Maturity Date or an Event of Default (as hereinafter defined), the Principal Amount outstanding under the Kaplan Note will
bear interest at a rate of 3% (the “Interest Rate”). From and after the Maturity Date or upon and during the continuance
of an Event of Default, interest will accrue on the unpaid Principal Amount during any such period at an annual rate (the “Default
Rate”) equal to 10% plus the Interest Rate; provided, however, that in no event will the Default Rate exceed the maximum
rate permitted by law.
The
Company may prepay the Kaplan Note, in whole or in part, without a prepayment penalty, at any time provided that an Event of Default
has not then occurred.
For
purposes of the Kaplan Note, “Event of Default” means any of the following events (whatever the reason for such event
and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or
order of any court, or any order, rule or regulation of any administrative or governmental body):
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(i)
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any
default in the payment of (A) the Principal Amount or (B) interest, liquidated damages and other amounts owing to Mr. Kaplan
on the Kaplan Note, as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured
within three business days;
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(ii)
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the
Company fails to observe or perform any other covenant or agreement contained in the Kaplan Note which failure is not cured,
if possible to cure, within the earlier to occur of (A) five business days after notice of such failure, and (B) 10 business
days after the Company has become or should have become aware of such failure;
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(iii)
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any
written statement pursuant to the Kaplan Note or any other report, financial statement or certificate made or delivered to
Mr. Kaplan shall be untrue or incorrect in any material respect as of the date when made or deemed made;
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(iv)
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the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy
Event (as defined in the Kaplan Note);
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(v)
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the
Company or any Significant Subsidiary shall: (A) apply for or consent to the appointment of a receiver, trustee, custodian
or liquidator of it or any of its properties, (B) admit in writing its inability to pay its debts as they mature, (C) make
a general assignment for the benefit of creditors, (D) be adjudicated bankrupt or insolvent or be the subject of an order
for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute of any other jurisdiction or foreign country, (E) file a voluntary petition in bankruptcy, or
a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law, or (F) take or permit to be taken any action in furtherance
of or for the purpose of effecting any of the foregoing; or
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(vi)
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if
any order, judgment or decree shall be entered, without the application, approval or
consent of the Company or any Significant Subsidiary, by any court of competent jurisdiction,
approving a petition seeking liquidation or reorganization of the Company or any Significant
Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Company
or any Significant Subsidiary, or of all or any substantial part of its assets, and such
order, judgment or decree shall continue unstayed and in effect for any period of 60
days.
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If
an Event of Default occurs, then the outstanding Principal Amount, plus accrued but unpaid interest, liquidated damages and other
amounts owing shall become, at Mr. Kaplan’s election, immediately due and payable in cash (the “Default Amount”).
Notwithstanding the prior sentence, instead of electing to have the Company pay the Default Amount, Mr. Kaplan may elect to cause
the Company to use its commercially reasonable efforts to undertake such actions and to expend such amounts as reasonably required
in order to transfer to Mr. Kaplan 20% of the equity interests of Simplicity Brasil.
The
foregoing description of the Kaplan Note does not purport to be complete and is qualified in its entirety by reference to the
full text of the Kaplan Note, a copy of which is filed hereto as Exhibit 10.1 and is incorporated herein by reference.