Filed Pursuant to General Instruction II.L of Form F-10

 

File No. 333-254709

 

No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise.

 

This prospectus supplement (the “Prospectus Supplement”), together with the accompanying short form base shelf prospectus dated March 25, 2021 to which it relates, as amended or supplemented (the “ Prospectus”), and each document incorporated or deemed to be incorporated by reference into this Prospectus Supplement and into the Prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. See “Plan of Distribution”.

 

Information has been incorporated by reference in this Prospectus Supplement from documents filed with securities commissions or similar authorities in Canada and the United States. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Corporate Secretary of Engine Gaming and Media, Inc., 77 King Street West, Suite 3000, Toronto, Ontario M5K 1G8, or by telephone at (212) 931-1200, and are also available electronically at www.sedar.com and www.sec.gov.

 

New Issue March 31, 2023

 

Prospectus Supplement to the Short Form Base Shelf Prospectus Dated March 25, 2021

 

ENGINE GAMING AND MEDIA, INC.
(to be renamed “GameSquare Inc.”)

 

 

US$1.25

 

Up to US$9,000,000

 

Up to 7,200,000 Subscription Receipts
each representing the right to receive one Common Share

 

Engine Gaming and Media, Inc. (“Engine Gaming” or the “Company”) is hereby qualifying for distribution (the “Offering”) up to 7,200,000 subscription receipts (“Subscription Receipts”) of the Company at a price of US$1.25 per Subscription Receipt (the “Offering Price”), each of which will entitle the holder thereof to automatically receive, upon the closing of the Transaction (as defined herein), without any further action on the part of the holder thereof and without payment of additional consideration, one common share (“Common Share”) of the Company post-Consolidation (as defined herein). If the Over-Allotment Option (as defined herein) is exercised in full, an aggregate of an additional 1,080,000 Subscription Receipts will be offered by the Company. There is no minimum amount of funds that must be raised under the Offering. The Company could complete this Offering after raising only a small portion of the offering amount set out above. See “Details of the Offering” and “Plan of Distribution”. The Company is also hereby qualifying for distribution the Common Shares issuable on exchange of the Subscription Receipts. The Subscription Receipts are being offered to the public in each of the provinces of Canada, other than Québec, and in the United States pursuant to the MJDS (as defined herein).

 

The gross proceeds from the sale of the Subscription Receipts (the “Escrowed Funds”) will, from the Offering Closing Date (as defined herein) until the Transaction Closing Date (as defined herein), be held in escrow by Computershare Trust Company of Canada, as escrow agent (the “Escrow Agent”), pending closing of the Transaction or termination of the Arrangement Agreement (as defined herein).

 

(i)
 

 

The Subscription Receipts are being issued pursuant to an agency agreement (the “Agency Agreement”) entered into between the Company and Roth Canada, Inc. (the “Agent”).

 

On December 7, 2022, the Company entered into an arrangement agreement (the “Arrangement Agreement”) with GameSquare Esports Inc. (“GameSquare”) to acquire all of the issued and outstanding securities of GameSquare by way of an all-share transaction pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the “Transaction”). See “Recent Developments”.

 

Price: US$1.25 per Subscription Receipt

 

   Price to the Public   Agent’s Fee(1)(2)   Net Proceeds to the Company(3) 
Per Subscription Receipt  US$1.25   US$0.0875   US$1.1625 
Total(4)  US$9,000,000   US$630,000   US$8,370,000 

 

(1) Pursuant to the Agency Agreement, the Company has agreed to pay to the Agent an aggregate cash commission (the “Agent’s Fee”) equal to 7.0% of the gross proceeds from the sale of Subscription Receipts (including any gross proceeds raised on exercise of the Over-Allotment Option (as defined herein)), provided that the Agent’s’ Fee shall not be paid in respect of gross proceeds from the sale of Subscription Receipts to purchasers on a “president’s list” (the “President’s List”).The Agent’s Fee is payable as to 50% on the Offering Closing Date and 50% upon release of the Escrowed Funds. In the event the Escrowed Funds are refunded to purchasers, the fee payable to the Agent (as defined herein) will consist solely of the amount payable on the Offering Closing Date.

 

(2) The Agent will also be paid a corporate finance fee of US$125,000 on the Offering Closing Date.

 

(3) Before deducting the estimated expenses of the Offering of approximately US$300,000 and excluding any interest that may be earned on the Escrowed Funds. The expenses of the Offering, the corporate finance fee and the Agent’s Fee will be paid from the general funds of the Company.

 

(4) The Company has granted to the Agent an option (the “Over-Allotment Option”), exercisable at any time until the earlier of (i) 30 days following the Offering Closing Date, and (ii) the Termination Date (as defined herein), to purchase up to an additional 15% of the Subscription Receipts at the Offering Price. If the Over-Allotment Option is exercised in full, the total price to the public, the Agent’s Fee and the net proceeds to the Company, before expenses and interest on the Escrowed Funds, will be US$10,350,000, US$724,500 (of which 50% is payable upon release of the Escrowed Funds) and US$9,625,500, respectively. See “Plan of Distribution”. The grant of the Over-Allotment Option, the distribution of the Subscription Receipts that may be issued on the exercise of the Over-Allotment Option, and the issuance of Common Shares on exchange of such Subscription Receipts are also qualified under this Prospectus Supplement. A purchaser who acquires securities forming part of the Agent’s over allocation position acquires those securities under the Prospectus, regardless of whether the Agent’s over-allocation position is ultimately filled through the exercise of the Over- Allotment Option or secondary market purchases.

 

The following table sets out the maximum number of securities under options issuable to the Agent in connection with the Offering assuming the exercise of the Over-Allotment Option in full:

 

Agent’s Position   Maximum Number of Securities Available   Exercise Period   Exercise Price
Over-Allotment Option   1,080,000 Subscription Receipts   On or before the 30th day following the Closing Date   US$1.25 per Subscription Receipt

 

Immediately before the completion of the Transaction, the Company intends to consolidate its Common Shares on the basis of one (1) new Common Share for approximately every three (3) pre-consolidation Common Shares or such other ratio as is necessary to satisfy the minimum bid price requirement of the Nasdaq Capital Market (the “Consolidation”), and the Subscription Receipts shall be consolidated on the same ratio as the Consolidation prior to exchange into Common Shares. The issued and outstanding Common Shares are listed on the TSX Venture Exchange (the “TSXV”) and the NASDAQ Capital Market (the “NASDAQ”) under the symbol “GAME”. On March 30, 2023, the closing prices of the Common Shares on such exchanges were $1.79 and US$1.41, respectively. There is currently no market through which the Subscription Receipts may be sold and purchasers may not be able to resell Subscription Receipts purchased under this Prospectus Supplement. This may affect the pricing of the Subscription Receipts in the secondary market, the transparency and availability of trading prices, the liquidity of the Subscription Receipts and the extent of issuer regulation. See “Risk Factors”. The Company has applied to the TSXV to list, and notified NASDAQ of, the Common Shares issuable upon exchange of the Subscription Receipts offered by this Prospectus Supplement. Listing will be subject to the Company fulfilling all the listing requirements of the TSXV and NASDAQ.

 

(ii)
 

 

It is currently anticipated that the closing date of the Offering (the “Offering Closing Date”) will be on or about April 5, 2023, or such later date as the Company and the Agent may agree but in any event not later than April 21, 2023. Each Subscription Receipt will be automatically exchanged for one post-Consolidation Common Share, without any further action required on the part of the holder of the Subscription Receipt and without payment of additional consideration, at 5:00 p.m. (Toronto time) on the closing date of the Transaction (the “Transaction Closing Date”), which is expected to occur on or about April 10, 2023, provided that this date occurs on or prior to April 30, 2023 (the “Outside Date”). See “Details of the Offering”.

 

If the Transaction fails to close on or prior to 5:00 p.m. (Toronto time) on the Outside Date or if the Arrangement Agreement is terminated or the Company advises the Agent and the Escrow Agent or announces to the public that it does not intend to proceed with the Transaction (such date being the “Termination Date”), the Escrow Agent and the Company will return to each holder of Subscription Receipts, commencing on the third business day following the Outside Date or Termination Date, as the case may be, an amount equal to (i) the aggregate issue price of such holder’s Subscription Receipts plus (ii) an amount equal to such holder’s share of the interest earned on the Escrowed Funds, net of any applicable withholding taxes. See “Details of the Offering”.

 

Engine Gaming currently expects that the Offering Closing Date will occur prior to the Transaction Closing Date. However, if all of the conditions to the closing of the Transaction are satisfied or waived on or prior to the Offering Closing Date, the Company will deliver Common Shares on the Offering Closing Date instead of Subscription Receipts. This Prospectus Supplement also qualifies any such distribution of Common Shares. See “Details of the Offering” and “Use of Proceeds”.

 

Provided that the Transaction Closing Date occurs on or prior to the Outside Date and the Escrow Release Notice (as defined herein) is provided to the Escrow Agent on or prior to 5:00 p.m. (Toronto time) on the Outside Date, the Escrowed Funds (together with the interest earned thereon) will be released by the Escrow Agent to the Company. See “Details of the Offering”.

 

The Agent is conditionally offering the Subscription Receipts on a best efforts basis, subject to prior sale, if, as and when issued by the Company and accepted by the Agent in accordance with the terms and conditions contained in the Agency Agreement, and subject to the approval of certain legal matters relating to Canadian law on behalf of the Company by Fogler, Rubinoff LLP and on behalf of the Agent by Norton Rose Fulbright Canada LLP and certain legal matters relating to United States law on behalf of the Company by Dorsey & Whitney LLP and on behalf of the Agent by Norton Rose Fulbright US LLP.

 

Subscriptions will be received subject to rejection or allotment in whole or in part and the Agent reserves the right to close the subscription books at any time without notice. It is anticipated that the Subscription Receipts will be delivered under the book-based system through CDS Clearing and Depository Services Inc. (“CDS”) or its nominee and deposited in electronic form, or will otherwise be delivered registered as directed by the Agent, on the Closing Date. Except in limited circumstances, a purchaser of Subscription Receipts will receive only a customer confirmation from the registered dealer from or through which the Subscription Receipts are purchased and who is a CDS participant. CDS will record the CDS participants who hold Subscription Receipts on behalf of owners who have purchased Subscription Receipts in accordance with the book-based system. No definitive certificates will be issued unless specifically requested or required.

 

Subject to applicable laws, the Agent may, in connection with the Offering, over-allot the offering of the Subscription Receipts The Agent proposes to offer the Subscription Receipts initially at the Offering Price. After the Agent has made reasonable efforts to sell the Subscription Receipts at the Offering Price, the Agent may offer the Subscription Receipts at a price lower than the Offering Price specified in this Prospectus Supplement in order to sell any of the Subscription Receipts remaining unsold. Any such reduction will not affect the proceeds received by the Company. See “Plan of Distribution”.

 

Investing in the Subscription Receipts involves certain risks. See “Risk Factors” in the accompanying Prospectus and in this Prospectus Supplement.

 

The Company is permitted, under the multi-jurisdictional disclosure system adopted by the securities regulatory authorities in the United States and Canada (the “MJDS”), to prepare this prospectus supplement and the accompanying prospectus in accordance with Canadian disclosure requirements, which are different from United States disclosure requirements. The Company prepares its annual financial statements, certain of which are incorporated by reference herein, in United States dollars and in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”), and its interim financial statements, certain of which are incorporated by reference herein, in United States dollars and in accordance with IFRS as issued by the IASB as applicable to interim financial reporting, and they therefore may not be comparable to financial statements of United States companies.

 

(iii)
 

 

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that the Company is incorporated under the laws of British Columbia, a province of Canada, some of the officers and directors are not residents of the United States, and that all or a substantial portion of the Company’s assets are located outside of the United States. See “Enforceability of Certain Civil Liabilities”.

 

Mr. Louis Schwartz, Mr. Michael Munoz, Mr. Tom Rogers, Mr. Stuart Porter, Mr. Rudolph Cline-Thomas and Mr. Gregory Raifman, each a director or officer of the Company, reside outside of Canada. Each of Mr. Louis Schwartz, Mr. Michael Munoz, Mr. Tom Rogers, Mr. Stuart Porter, Mr. Rudolph Cline-Thomas and Mr. Gregory Raifman have appointed Fogler, Rubinoff LLP, 77 King Street West, Suite 3000, Toronto, Ontario, M9A 1Y1 as agent for service of process in Canada. Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person that resides outside of Canada, even if the party has appointed an agent for service of process.

 

NEITHER THE SEC NOR ANY STATE OR CANADIAN SECURITIES COMMISSION OR REGULATOR HAS APPROVED OR DISAPPROVED THE SUBSCRIPTION RECEIPTS OR THE COMMON SHARES ISSUABLE ON EXCHANGE OF THE SUBSCRIPTION RECEIPTS, NOR PASSED UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

 

Prospective investors should be aware that the acquisition of the Subscription Receipts described herein or Common Shares issuable on exchange of the Subscription Receipts may have tax consequences both in the United States and in Canada. Such consequences for investors who are resident in, or citizens of, the United States may not be described fully in this Prospectus Supplement or the Prospectus. Prospective investors should read the tax discussion in this Prospectus Supplement and consult their own tax advisors with respect to their particular circumstances. See “Certain Canadian Federal Income Tax Considerations” and “Certain United States Federal Income Tax Considerations”.

 

The Company’s head office is located at 33 Whitehall Street, 8th Floor, New York, NY 10004. The Company’s registered office is located at 77 King Street West, Suite 3000, PO Box 95, Toronto, Ontario M5K 1G8.

 

(iv)
 

 

TABLE OF CONTENTS

 

FORWARD-LOOKING INFORMATION S-1
EXCHANGE RATES S-2
WHERE TO FIND MORE INFORMATION S-2
DOCUMENTS INCORPORATED BY REFERENCE S-3
MARKETING MATERIALS S-3
CORPORATE STRUCTURE S-4
RECENT DEVELOPMENTS S-5
CONSOLIDATED CAPITALIZATION S-6
USE OF PROCEEDS S-8
PRIOR SALES S-8
TRADING PRICE AND VOLUME S-9
DETAILS OF THE OFFERING S-9
PLAN OF DISTRIBUTION S-11
CERTAIN INCOME TAX CONSIDERATIONS S-12
RISK FACTORS S-21
MATERIAL CONTRACTS S-23
LEGAL MATTERS S-23
INTERESTS OF EXPERTS S-24
AUDITORS, TRANSFER AGENT AND REGISTRAR S-24
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES S-24

 

 
 

 

Important Notice About Information in this
Prospectus Supplement and the Accompanying Prospectus

 

This document is in two parts. The first part is this Prospectus Supplement, which describes the specific terms of the securities the Company is offering and also adds to and updates certain information contained in the Prospectus and the documents incorporated by reference therein. The second part, the Prospectus, gives more general information, some of which may not apply to the Subscription Receipts offered hereunder.

 

Prospective investors should rely only on the information contained in or incorporated or deemed to be incorporated by reference into this Prospectus Supplement and the Prospectus. The Company has not authorized any other person to provide prospective investors with additional or different information. If anyone provides prospective investors with different or inconsistent information, prospective investors should not rely on it. The Company is offering to sell, and seeking offers to buy, these securities only in jurisdictions where offers and sales are permitted. Prospective investors should assume that the information appearing in this Prospectus Supplement and the Prospectus, as well as information the Company has previously filed with, or furnished to, the SEC and with the securities regulatory authority in each of the provinces of Canada (other than Québec) that is incorporated herein and in the Prospectus by reference, is accurate as of their respective dates only. The Company’s business, financial condition, results of operations and prospects may have changed since those dates.

 

In this Prospectus Supplement, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in United States dollars. References to “dollars”, “$”, US dollars” or “US$” are to lawful currency of the United States, and references to “CDN dollars” or “CDN$” are to lawful currency of Canada.

 

Unless otherwise indicated, all financial information included and incorporated by reference in this Prospectus Supplement and the Prospectus is determined using IFRS.

 

Forward-Looking Information

 

This Prospectus Supplement and the Prospectus and the documents incorporated by reference therein include “forward-looking statements” and “forward-looking information” within the meaning of securities laws (collectively, “forward-looking statements”), including the “safe harbour” provisions of the Securities Act (Ontario), the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the United States Securities Act of 1933, as amended. All forward-looking statements are based on the Company’s current beliefs as well as assumptions made by and information currently available to the Company and relate to, among other things, anticipated financial performance, business prospects, strategies, regulatory developments, new services, market forces, commitments and technological developments. Forward-looking statements may be identified by the use of words like “believes”, “intends”, “expects”, “may”, “will”, “should”, or “anticipates”, or the negative equivalents of those words or comparable terminology, and by discussions of strategies that involve risks and uncertainties.

 

Forward-looking statements include, but are not limited to, statements relating to: the business, opportunities and future activities of, and developments related to, the Company after the date of this Prospectus Supplement or the Prospectus, as applicable; expectations of the use by the Company of the net proceeds raised from the Offering, including as to achieving the related business objectives described herein; expectations of the timing and completion of the Offering; exercise of the Over-Allotment Option; expectations of the timing and completion of the Transaction; future outlook, future events, trends and future growth potential and performance of the Company; expectations regarding the ability to raise capital; the economy generally; anticipated and unanticipated costs; expectations regarding the Company’s revenue, expenses and operations; anticipated cash and financing needs of the Company; future growth plans of the Company including the entry into adjacent markets; the ability to attract new customers and develop and maintain existing customers; the ability to attract and retain personnel; and, the competitive position of the Company and its expectations regarding competition.

 

Forward-looking statements are necessarily based upon a number of factors and assumptions that, if untrue, could cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such statements. Forward-looking statements are based upon a number of estimates and assumptions that, while considered reasonable by the Company at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies that may cause the Company’s actual financial results, performance, or achievements to be materially different from those expressed or implied herein. Some of the material factors or assumptions used to develop forward-looking statements include, without limitation, general expectations with respect to the development of the Company’s products and services; general economic conditions; anticipated costs and the Company’s ability to fund its operations; the Company’s ability to obtain financing as and when required and on reasonable terms; the risks and uncertainties described under “Risk Factors” will not materialize; that the Company will continue to conduct its operations in a manner consistent with past operations; availability of financing and/or cash flow to fund current and future plans and expenditures; the impact of increasing competition; the general continuance of current industry conditions; the ability of the Company to obtain qualified staff, equipment and/or services in a timely and cost efficient manner; and currency, exchange and/or interest rates.

 

S-1
 

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

 

The factors identified above are not intended to represent a complete list of the factors that could affect the Company. The risks and uncertainties of the Company’s business, including those discussed and incorporated by reference in the Prospectus and the Annual Information Form (as defined herein) and as described under “Risk Factors” herein could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed. The material assumptions in making these forward-looking statements are disclosed in the MD&A (as defined herein and as may be modified or superseded by documents incorporated or deemed to be incorporated by reference herein and in the Prospectus). In addition, the Company bases forward-looking statements on assumptions about future events, which may not prove to be accurate. In light of these risks, uncertainties and assumptions, prospective investors should not place undue reliance on forward-looking statements and should be aware that events described in the forward-looking statements set out in this Prospectus Supplement and the documents incorporated by reference in this Prospectus Supplement and the Prospectus may not occur.

 

The Company cannot assure prospective investors that its future results, levels of activity and achievements will occur as the Company expects, and neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, the Company has no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Exchange Rates

 

The following table sets forth, for each of the periods indicated, the high, low and average exchange rates, and the exchange rate at the end of the period, for the conversion of one (1) United States dollar into the equivalent Canadian dollar, based on the indicative exchange rate as reported by the Bank of Canada.

 

   Year Ended December 31,   12 Months-Ended August 31, 
   2022   2021   2022   2021 
High for the period   1.3856    1.2942    1.3138    1.3966 
Low for the period   1.2451    1.2040    1.2329    1.2040 
End of period   1.3544    1.2678    1.3111    1.2617 
Average for the period(1)   1.3011    1.2535    1.2720    1.2688 

 

(1) Average represents the average of the rates on the last day of each month during the period.

 

On March 30, 2023, the exchange rate for United States dollars expressed in terms of the Canadian dollar, as reported by the Bank of Canada, was US$1.00 = CDN$1.3533

 

Where to Find More Information

 

The Company has filed with the SEC a registration statement on Form F-10, as amended (File No. 333-254709) (the “Registration Statement”) relating to the Subscription Receipts. This Prospectus Supplement and the Prospectus, which constitute a part of the Registration Statement, do not contain all of the information contained in the Registration Statement, certain items of which are contained in the exhibits to the Registration Statement as permitted by the rules and regulations of the SEC. Statements included or incorporated by reference in this Prospectus Supplement and in the Prospectus about the contents of any contract, agreement or other documents referred to are not necessarily complete, and in each instance, prospective investors should refer to the exhibits for a complete description of the matter involved. Each such statement is qualified in its entirety by such reference.

 

The Company files annual and quarterly financial information, material change reports, business acquisition reports and other material with the securities commissions or similar regulatory authority in each of the provinces of Canada (other than Québec) and the Company files with, or furnishes to, the SEC such information. Under the MJDS, documents and other information that the Company files with the SEC may be prepared in accordance with the disclosure requirements of Canada, which are different from those of the United States. Prospective investors may read and download any public document that the Company has filed with the securities commissions or similar authorities in each of the provinces of Canada (other than Québec) on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. Prospective investors may read and copy any document the Company has filed with, or furnished to, the SEC on the SEC’s Electronic Data Gathering and Retrieval (“EDGAR”) system at www.sec.gov.

 

S-2
 

 

Documents Incorporated by Reference

 

This Prospectus Supplement is deemed, as of the date hereof, to be incorporated by reference into the Prospectus only for the purposes of the Subscription Receipts, the Over-Allotment Option and the Common Shares issuable on exchange of Subscription Receipts offered hereby. Other documents are also incorporated or deemed to be incorporated by reference into the Prospectus and reference should be made to the Prospectus for full details.

 

The following documents of the Company, which are filed by the Company with the various securities commissions or similar authorities in each of the provinces of Canada (other than Québec), are specifically incorporated by reference into and form an integral part of this Prospectus Supplement and the Prospectus:

 

  (a) the audited consolidated financial statements of the Company for the years ended August 31, 2022 and 2021, together with the notes thereto and auditor’s reports thereon, and management’s discussion and analysis of financial condition and results of operations as at and for the year ended August 31, 2022 (the “MD&A”);
     
  (b) annual information form for the year ended August 31, 2022 dated November 29, 2022 (the “Annual Information Form”);
     
  (c) the information circular of the Company dated January 23, 2023 relating to the annual and special meeting of shareholders held on March 8, 2023, excluding the fairness opinion of Haywood Securities Inc. dated December 6, 2022 (the “Circular”);
     
  (d) the unaudited interim consolidated financial statements as at and for the three months ended November 30, 2022, and related notes thereto, and management’s discussion and analysis of financial condition and results of operations as at and for the three month period ended November 30, 2022;
     
  (e) the material change report dated December 8, 2022 relating to Engine Gaming’s pending acquisition of GameSquare (the “MCR”); and
     
  (f) the template version of the term sheet dated March 29, 2023 and the revised term sheet dated March 30, 2023, both in connection with the Offering (the “Marketing Materials”).

 

Any documents of the type referred to above or otherwise required by National Instrument 44-101 – Short Form Prospectus Distributions to be incorporated by reference into a short form prospectus which are filed by the Company after the date hereof and prior to the termination of the Offering shall be deemed to be incorporated by reference into this Prospectus Supplement and the Prospectus for the purposes of this Offering. These documents are available through the internet on SEDAR, which can be accessed at www.sedar.com. In addition, any similar documents filed by the Company with the SEC after the date of this Prospectus Supplement, shall be deemed to be incorporated by reference into this Prospectus Supplement and the Registration Statement of which the Prospectus Supplement forms a part, if and to the extent expressly provided in such reports. The Company’s reports filed with, or furnished to, the SEC are available on EDGAR, which can be accessed at www.sec.gov.

 

Any statement contained in the Prospectus, this Prospectus Supplement or in a document incorporated or deemed to be incorporated by reference in the Prospectus or this Prospectus Supplement for the purposes of the Offering shall be deemed to be modified or superseded, for the purposes of the Prospectus and this Prospectus Supplement, to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not constitute a part of the Prospectus or this Prospectus Supplement, except as so modified or superseded.

 

marketing materials

 

Any “template version” of “marketing materials” (each as defined in National Instrument 41-101 – General Prospectus Requirements) filed with the securities commission or similar authority in each of the provinces of Canada (other than Québec) in connection with this offering after the date of this Prospectus Supplement and before the termination of the distribution of the Subscription Receipts under this Prospectus Supplement (including any amendments to, or an amended version of, the Marketing Materials) is deemed to be incorporated by reference into this Prospectus Supplement. The Marketing Materials do not form part of this Prospectus Supplement to the extent that the contents of the Marketing Materials have been modified or superseded by a statement contained in this Prospectus Supplement. The Marketing Materials are available under the Company’s profile on SEDAR at www.sedar.com.

 

S-3
 

 

CORPORATE STRUCTURE

 

Name, Address and Incorporation

 

The Company was incorporated as “Stratton Capital Corp.” under the Business Corporations Act (Ontario) pursuant to articles of incorporation on April 8, 2011. On October 19, 2016, the Company filed Articles of Amendment changing its name from “Stratton Capital Corp.” to “Millennial Esports Corp.”

 

On June 7, 2019, the Company filed Articles of Amendment to effect a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every fifteen pre-consolidation Common Shares. On October 17, 2019, the Company filed Articles of Amendment to (i) change its name from “Millennial Esports Corp.” to “Torque Esports Corp.”, and (ii) to effect a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every five pre-consolidation Common Shares.

 

On August 13, 2020, the Company filed Articles of Amendment to (i) change its name from “Torque Esports Corp.” to “Engine Gaming and Media, Inc.”, and (ii) to effect a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every fifteen pre-consolidation Common Shares.

 

On December 18, 2020, the Company filed a Continuance Application with the British Columbia Registrar of Companies to continue into British Columbia under the Business Corporations Act (British Columbia).

 

On October 19, 2021, the Company changed its name from “Engine Media Holdings, Inc.” to “Engine Gaming and Media, Inc.”

 

The head office of the Company is located at 2110 Powers Ferry Road SE, Suite 450, Atlanta, GA 30339 and the registered office of the Company is located at 77 King Street West, Suite 3000, PO Box 95, Toronto, Ontario M5K 1G8.

 

Intercorporate Relationships and Material Subsidiaries

 

The following is a summary of the inter-corporate relationships between the Company and its material subsidiaries, which together comprise the consolidated Company as at the date hereof:

 

 

S-4
 

 

Recent Developments

 

GameSquare Transaction

 

On December 8, 2022, Engine Gaming announced that it had entered into the Arrangement Agreement with GameSquare, pursuant to which, and subject to the terms and conditions of the Arrangement Agreement, GameSquare and Engine will combine their businesses via an all share deal whereby Engine Gaming will acquire all of the issued and outstanding shares of GameSquare in exchange for shares of Engine Gaming in accordance with a plan of arrangement of GameSquare under the Business Corporations Act (Ontario) (the “Arrangement”). Pursuant to the terms of the Arrangement Agreement, Engine Gaming will acquire each outstanding GameSquare share in exchange for 0.08262 of a Common Share (subject to adjustment for the Consolidation) (the “Exchange Ratio”). Each outstanding option of GameSquare will be exchanged for an Engine Gaming option entitling the holder to a number of Engine Gaming common shares, as adjusted on the basis of the Exchange Ratio, and be subject to exercise thereof in accordance with the terms of the options, including payment of the exercise price, which will also be adjusted based upon the Exchange Ratio. All other material terms of the options will remain the same. Each outstanding restricted share unit of GameSquare will be exchanged for an Engine Gaming restricted share unit entitling the holder to a number of Engine Gaming common shares, as adjusted on the basis of the Exchange Ratio. All other material terms of the restricted share units will remain the same. Each outstanding warrant of GameSquare will be adjusted pursuant to its governing contractual instrument to entitle the holder to receive, upon due exercise, Engine Gaming common shares, adjusted on the basis of the Exchange Ratio.

 

On March 8, 2023, the shareholders of Engine Gaming voted to approve the Transaction and separately the shareholders of GameSquare approved the Arrangement with Engine Gaming at their respective meetings of shareholders. On March 13, 2023, GameSquare received the final approval from the Ontario Superior Court of Justice (Commercial List) to complete the Arrangement.

 

Immediately prior to the completion of the Transaction, the board of directors intends to change the name of the Company to “GameSquare Inc.” and to effect the Consolidation.

 

GameSquare is a vertically integrated, international digital media and entertainment company enabling global brands to connect and interact with gaming and esports fans. GameSquare owns a portfolio of companies including Code Red Esports Ltd., an esports talent agency serving the UK, GCN, a digital media company focusing on the gaming and esports audience based in Los Angeles, USA., NextGen Tech, LLC (dba as Complexity Gaming), a leading esports organization operating in the United States, Swingman LLC (dba ZONED), a gaming and lifestyle marketing agency based in Los Angeles, USA, Fourth Frame Studios, a multidisciplinary creative production studio, and Mission Supply, a merchandise and consumer products business.

 

Arrangement Agreement

 

Representations and Warranties

 

The Arrangement Agreement includes customary representations and warranties for transactions of this nature made by GameSquare and Engine Gaming.

 

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Covenants

 

The parties to the Arrangement Agreement have made customary covenants relating to certain events occurring between the signing of the Arrangement Agreement and the Transaction Closing Date, and the conduct of the business of GameSquare and Engine Gaming in the ordinary course of business except for the transactions contemplated or required by the Arrangement Agreement or as otherwise mutually agreed.

 

Indemnities

 

The Arrangement Agreement also contains customary indemnities by the parties thereto. These indemnities cover, among others, losses relating to or arising from breaches of the representations and warranties, or of the covenants and agreements, contained in the Arrangement Agreement.

 

Closing Conditions

 

The closing of the Transaction is subject to the mutual condition that no injunction or other order issued by a governmental authority prohibit or otherwise make illegal the consummation of the Transaction.

 

The closing of the Transaction is further subject to additional, customary closing conditions including, among others, that the parties shall have complied in all material respects with all covenants and agreements in the Arrangement Agreement and that the representations and warranties of the parties shall be true and correct in all material respects.

 

Termination of the Arrangement Agreement

 

The Arrangement Agreement may be terminated at any time prior to the Transaction Closing Date: (i) by the mutual written consent of the parties; (ii) by either party, if the closing of the Transaction has not occurred on or before the Outside Date, unless otherwise agreed by the parties; (iii) by Engine Gaming, if GameSquare fails to comply with any of its covenants or breaches its representations and warranties and such failure to comply or breach is not cured by the Outside Date and results in a failure to satisfy the conditions to closing; or (iv) by GameSquare, if Engine Gaming fails to comply with any of its covenants or breaches its representations and warranties and such failure to comply or breach is not cured by the Outside Date and results in a failure to satisfy the conditions to closing.

 

More information regarding the Transaction is set out in the MCR and the Circular, each of which is incorporated herein by reference, and subsequent press releases related to the Transaction. A copy of the Arrangement Agreement is available under the Company’s SEDAR and EDGAR profiles.

 

Consolidated Capitalization

 

There has been no material change in the Company’s share and debt capital on a consolidated basis since November 30, 2022, the date of the Company’s most recently completed financial period, except as disclosed under the heading “Prior Sales” in this Prospectus Supplement. Immediately before the completion of the Transaction, the Company intends to implement the Consolidation.

 

The following table sets forth (i) the consolidated capitalization of the Company as at November 30, 2022; and (ii) the pro forma consolidated capitalization of the Company after giving effect to the Transaction and the Offering (without giving effect to the exercise of the Over-Allotment Option). This table should be read in conjunction with the Company’s consolidated financial statements for the period ended November 30, 2022 and the notes thereto.

 

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Notes:

 

(1) Proforma adjustment to account for common shares issued by Engine under a shares for debt arrangement. Total of 200,000 common shares issued to settle convertible debt at its maturity date of February 28, 2023. The principal and accrued interest settled at maturity amounted to $250,000 and $55,137, respectively.

 

(2) Proforma adjustment to record the book value of GameSquare equity from its September 30, 2022 balance sheet. The number of GameSquare common shares outstanding on September 30, 2022 of 307,541,466 (included assumed conversion of 150,000 PVS to 15,000,000 common shares), was adjusted using the exchange ratio from the Arrangement Agreement of 0.08262 Engine common share for every 1 GameSquare common share, for a total of 25,409,076 Common Shares.

 

(3) Proforma adustment of $(1.8) million to estimate the total costs incurred by Engine in connection with the merger with GameSquare. These costs are reflected as a pre-closing adustment to Engine to arrive at the Engine closing balance sheet prior to recording of fair value adjustments from the purchase price allocation of Engine.

 

Proforma adjustment to record the purchase price allocation of Engine. See below for further breakdown of the PPA. The common shares and fully vested warrants, options and RSUs were valued using the offering price of $1.25 per common share.

 

 

(1) Proforma adjustment of $(1.6) million to estimate the total costs incurred by GameSquare in connection with the Transaction with Engine.

 

(2) Proforma adjustment to record the estimated results of the Offering. For purposes of the proforma, it was assumed none of the Over-Allotment Option of 15% was utilized, and total gross proceeds from the Offering were $9 million. At Offering Price of $1.25 per Common Share, a total of 7,200,000 Common Shares are issued. The gross proceeds of $9 million were offset by an estimated $736,159 in offering costs.

 

(3) Proforma adjustment to account for the 1 for 3 Consolidation. The total number of Common Shares of Engine after considering the impact of the proforma adjustments was 49,780,817 or 16,593,606 after applying the 1 for 3 Consolidation.

 

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USE OF PROCEEDS

 

The maximum net proceeds to be received by the Company from the Offering, after deducting the Agent’s Fee and expenses of the Offering in the estimated amount of $300,000 (including the corporate finance fee), will be (i) $8,070,000 if the Over-Allotment Option is not exercised, and (ii) $9,325,500, if the Over-Allotment Option is exercised in full.

 

The funds being raised in the Offering are being used to fund the ongoing expansion of the Company’s operations, including the funding of pending development initiatives. In addition, the funds will be used to fund the Company’s operating deficits until it can achieve positive cash flows from its operating activities.

 

In the event that the Over-Allotment Option is exercised by the Agent, the Company intends to use the additional funds for general corporate and working capital purposes.

 

Although the Company intends to use the proceeds from the Offering as described above, the actual allocation of the net proceeds may vary depending on future developments, at the discretion of the Company’s board of directors and management. Unallocated funds from the Offering will be added to the working capital of the Company, and will be expended at the discretion of management. The Company had negative cash flow from its most recently completed interim period for which financial statements have been included in this Prospectus Supplement. To the extent that the Company has negative cash flow from operating activities in future periods, the Company may need to use a portion of available funds to fund such negative cash flow. See “Risk Factors – Negative Operating Cash Flow” below and in the accompanying Base Prospectus.

 

PRIOR SALES

 

In the 12 months prior to the date of this Prospectus, the Company has issued the following securities:

 

Types of Security  Date of Issue  Number of Securities/ Principal Amount   Issue
Price		   Expiry Date
RSUs(1)  May 26, 2022   966,691    N/A   N/A
Common Shares(2)  July 4, 2022   57,029   $11.69   N/A
RSUs(3)  July 15, 2022   11,719    N/A   N/A
RSUs(4)  August 10, 2022   7,346    N/A   N/A
Common Shares(5)  August 31, 2022   87,963   $0.75   N/A
Common Shares(6)  November 8, 2022   108,269   $0.69   N/A
Common Shares(7)  November 25, 2022   10,164   $0.63   N/A
Common Shares(8)  November 30, 2022   114,057   $11.69   N/A
Common Shares(9)  March 22, 2023   200,000   $1.525   N/A
Common Shares(10)  March 22, 2023   100,000    N/A   N/A

 

Notes:

 

(1) On May 26, 2022, the Company granted 966,691 RSUs to employees and members of the board of directors pursuant to the Company’s incentive plan. The fair value of the RSUs will be recognized as share-based compensation expense over the vesting period, which is approximately one to three years.

 

(2) On July 4, 2022 the Company issued a total of 57,029 common shares to the following individuals for services provided: Tremain McGlown (14,257); and Jeremy Haile (42,772), at an issue price of US$11.69.

 

(3) On July 15, 2022, the Company granted 11,719 RSUs to a member of the board of directors pursuant to the Company’s incentive plan. The fair value of the RSUs will be recognized as share-based compensation expense over the vesting period, which is approximately one year.

 

(4) On August 10, 2022, the Company granted 7,346 RSUs to a member of the board of directors pursuant to the Company’s incentive plan. The fair value of the RSUs will be recognized as share-based compensation expense over the vesting period, which is approximately one year.

 

(5) On August 31, 2022 the Company issued a total of 87,963 common shares pursuant to the vesting of RSUs to the following individuals: Tom Rogers (37,698); Lou Schwartz (39,683); and Mike Munoz (10,582) at an issuance price of US$0.75.

 

(6) On November 9, 2022 the Company issued a total of 108,269 common shares pursuant to the vesting of RSUs to the following individuals: Larry Rutkowski (19,878); Bryan Reyhani (2,793); Bryan Reyhani (26,340); Rudolph Cline-Thomas (17,038); Edward Montserrat (9,872); John Wilk (12,353); Jake Phillips (2,913); Jason Rogers (5,034); Albert Alemany (3,003); Adam Hynes (6,293); and Benj Smith (2,797) pursuant to the vesting of RSUs at an exercise price of US$0.69.

 

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(7) On November 25, 2022 the Company issued a total of 10,164 common shares pursuant to the vesting of RSUs to the following individuals: Darrin Patrick (1,833); John Wilk (2,777); Mike Munoz (2,777) and Benj Smith (2,777) at an exercise price of US$0.63.

 

(8) On November 30, 2022, the Company issued a total of 114,057 common shares to the following individuals for services: Tremain McGlown (28,514); and Jeremy Haile (85,543) at an issue price of US$11.69.

 

(9) On March 22, 2023, the Company issued 200,000 common shares to settle outstanding debt.

 

(10) On March 22, 2023, the Company issued 100,000 common shares to fully settle an outstanding litigation matter.

 

TRADING PRICE AND VOLUME

 

The Common Shares are listed and posted for trading on the TSXV and on the NASDAQ under the trading symbol “GAME”. The following table sets forth, on a monthly basis, the reported price range (which are not necessarily the closing prices) and the aggregate volume of trading of the Common Shares on the TSXV and the NASDAQ, respectively, for the months indicated. Immediately before the completion of the Transaction, the Company intends to complete the Consolidation.

 

   TSXV
(prices in Canadian dollars)		   NASDAQ
(prices in U.S. dollars)		 
Date  Price Range (high - low)   Total Volume   Price Range (high - low)   Total Volume 
                 
March 1 - 30, 2023  $3.25 - $1.78    184,526   $2.39 - $1.26    2,394,826 
February 2023  $2.63 - $1.75    246,510   $1.95 - $1.19    7,967,100 
January 2023  $1.94 - $1.43    135,779   $1.46 - $0.91    1,861,900 
December 2022  $2.29 - $0.68    571,642   $1.77 - $0.51    10,165,749 
November 2022  $0.95 - $0.75    73,931   $0.72 - $0.56    832,080 
October 2022  $1.14 - $0.79    52,073   $0.90 - $0.56    1,040,915 
September 2022  $0.93 - $0.70    83,015   $0.77 - $0.51    820,435 
August 2022  $1.37 - $0.93    86,513   $1.11 - $0.70    763,420 
July 2022  $1.70 - $1.10    70,057   $1.39 - $0.80    1,370,642 
June 2022  $1.25 - $0.95    81,442   $1.05 - $0.73    619,413 
May 2022  $1.71 - $1.05    65,649   $1.39 - $0.78    888,629 
April 2022  $2.80 - $1.40    100,869   $2.26 - $1.08    1,342,125 
March 2022  $3.67 - $2.13    283,694   $2.99 - $1.52    1,518,524 
February 2022  $4.25 - $3.10    202,742   $3.36 - $2.34    833,715 

 

On March 30, 2023, the closing price of the Common Shares was CDN$1.79 on the TSXV, and US$1.41 on the NASDAQ.

 

Details of the Offering

 

The Offering consists of up to 7,200,000 Subscription Receipts at a price of US$1.25 per Subscription Receipt. Each Subscription Receipt represents the right to receive, without payment of additional consideration, one post-Consolidation Common Share upon closing of the Transaction.

 

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Set forth below is a summary of the material attributes and characteristics of the Subscription Receipts. This summary does not purport to be complete. The subscription receipt agreement governing the terms of the Subscription Receipts to be dated as of the Offering Closing Date among the Company, the Agent, and the Escrow Agent (the “Subscription Receipt Agreement”) will be filed with the securities regulatory authorities in Canada and with the SEC on or after the Offering Closing Date.

 

The Subscription Receipts will be issued on the Offering Closing Date pursuant to the Subscription Receipt Agreement. The Escrowed Funds will be delivered to and held in escrow by the Escrow Agent pending: (i) receipt of a notice (the “Escrow Release Notice”) in prescribed form signed by the Company and the Agent confirming: (a) that the parties to the Arrangement Agreement are able to complete the Transaction in accordance with the terms of the Arrangement Agreement; (b) the Consolidation has been completed (with (a), the “Escrow Release Conditions”); (ii) termination of the Arrangement Agreement or the Company advising the Agent or announcing to the public that it does not intend to proceed with the Transaction; or (iii) either (i) or (ii) having not been completed by the Outside Date, at which time the Escrowed Funds will be released to the Company and the Agent or returned to each holder of Subscription Receipts as described below.

 

The closing of the Transaction is subject to several conditions including no order of any governmental authority remaining outstanding which prohibits or otherwise makes illegal the completion of the Transaction. See “Recent Developments—Arrangement Agreement”. Upon the consummation of the Transaction, the Company will send the Escrow Release Notice to the Escrow Agent. Provided that the Escrow Release Notice is delivered to the Escrow Agent on or prior to the Outside Date, the Escrow Agent will automatically issue and deliver the appropriate number of Common Shares to each registered holder of Subscription Receipts without any further action required by such holder and without payment of additional consideration. Contemporaneously with the issuance and delivery of the Common Shares to the holders of Subscription Receipts, the Company will issue a press release specifying that Common Shares have been so issued and delivered and the Escrowed Funds will be released to the Company.

 

In the event that all of the conditions to the closing of the Transaction are satisfied or waived on or prior to the Offering Closing Date, the Company will deliver Common Shares on the Offering Closing Date instead of Subscription Receipts. In such event, the proceeds of the Offering will be paid to the Company and will not be held in escrow by the Escrow Agent. In addition, the Over-Allotment Option will be exercisable to purchase Common Shares rather than Subscription Receipts.

 

In the event that the Transaction fails to close on or prior to the Outside Date or is otherwise terminated, the Escrow Agent and the Company will return to each holder of Subscription Receipts, commencing on the third business day following the Outside Date or Termination Date, as the case may be, an amount equal to (i) the aggregate issue price of such holder’s Subscription Receipts plus (ii) an amount equal to such holder’s share of the interest earned on the Escrowed Funds, net of any applicable withholding taxes.

 

Under the Subscription Receipt Agreement, original purchasers of Subscription Receipts pursuant to the Offering will have a contractual right of rescission following the issuance of Common Shares to such purchaser upon the exchange of the Subscription Receipts to receive the amount paid for the Subscription Receipts if the Prospectus or this Prospectus Supplement (including documents incorporated herein by reference) or any amendment hereto contains a misrepresentation or is not delivered to such purchaser, provided such remedy for rescission is exercised within 180 days of the Offering Closing Date.

 

From time to time while the Subscription Receipts are outstanding, the Company, the Agent and the Escrow Agent, without the consent of the holders of the Subscription Receipts, may amend or supplement the Subscription Receipt Agreement for certain purposes, including making any change that, in the opinion of the Escrow Agent, does not prejudice the rights of the holders of the Subscription Receipts. The Subscription Receipt Agreement provides for other modifications and alterations thereto and to the Subscription Receipts issued thereunder by way of an extraordinary resolution. The term “extraordinary resolution” is defined in the Subscription Receipt Agreement to mean, in effect, a resolution passed by the affirmative votes of the holders of not less than 662⁄3% of the number of outstanding Subscription Receipts represented and voting at a meeting of Subscription Receipt holders or an instrument or instruments in writing signed by the holders of not less than 662⁄3% of the number of outstanding Subscription Receipts.

 

The Subscription Receipts and the Common Shares issuable upon the exchange of the Subscription Receipts will be delivered under the book-based system through CDS or its nominee and deposited in electronic form, or will otherwise be delivered registered as directed by the Agent, on the Closing Date. Except in limited circumstances, a purchaser of Subscription Receipts will receive only a customer confirmation from the registered dealer from or through which the Subscription Receipts are purchased and who is a CDS participant. CDS will record the CDS participants who hold Subscription Receipts on behalf of owners who have purchased Subscription Receipts in accordance with the book-based system. No definitive certificates will be issued unless specifically requested or required.

 

Holders of Subscription Receipts are not shareholders and Subscription Receipts do not carry any voting rights in the Company. Holders of Subscription Receipts are entitled only to receive Common Shares on exchange of their Subscription Receipts or to a return of the Offering Price and an amount equal to such holder’s share of the interest earned on the Escrowed Funds, in each case as applicable, as described above.

 

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Plan of Distribution

 

Pursuant to the Agency Agreement, the Company has engaged the Agent to act as its agent to offer for sale to the public, on a “best efforts” agency basis, up to 7,200,000 Subscription Receipts at the Offering Price, for aggregate gross consideration of up to US$9,000,000, payable in cash to the Company against delivery of the Subscription Units, subject to the terms and conditions of the Agency Agreement and the Subscription Receipt Agreement. The obligations of the Agent under the Agency Agreement are subject to certain closing conditions and may be terminated at the Agent’s discretion on the basis of “disaster out”, “material adverse change out”, “regulatory out”, and “breach out” provisions in the Agency Agreement and may also be terminated upon the occurrence of certain other stated events. There is no minimum amount of funds that must be raised under the Offering. This means that the Company could complete the Offering after raising only a small proportion of the Offering set out above.

 

The Company has granted to the Agent the Over-Allotment Option exercisable at any time until the earlier of (i) 30 days following the Offering Closing Date, and (ii) the Termination Date, to purchase up to an additional 15% of the Subscription Receipts at the Offering Price, solely to cover over-allocations, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the total price to the public, the Agent’s Fee and the net proceeds to the Company, before expenses and interest, will be US$10,350,000, US$724,500 (of which 50% is payable upon release of the Escrowed Funds) and US$9,625,500, respectively. The grant of the Over-Allotment Option and the distribution of the Subscription Receipts that may be issued on the exercise of the Over-Allotment Option and the Common Shares issuable on exchange of these Subscription Receipts are also qualified under this Prospectus Supplement. A purchaser who acquires securities forming part of the Agent’s over allocation position acquires those securities under the Prospectus, regardless of whether the Agent’s over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.

 

The terms of the Offering were established through negotiations between the Company and the Agent.

 

Pursuant to the Agency Agreement, the Company has agreed to pay to the Agent the Agent’s Fee equal to 7.0% of the gross proceeds from the sale of Subscription Receipts (including any gross proceeds raised on exercise of the Over-Allotment Option), provided that the Agent’s’ Fee shall not be paid in respect of gross proceeds from the sale of Subscription Receipts to purchasers on the President’s List. The Agent’s Fee is payable as to 50% on the Offering Closing Date and 50% upon release of the Escrowed Funds. In the event the Escrowed Funds are refunded to purchasers, the Agent’s Fee will consist solely of the amount payable on the Offering Closing Date.

 

Subscriptions for Subscription Receipts will be received subject to rejection or allotment in whole or in part, and the right is reserved to close the subscription books at any time without notice.

 

There is currently no market through which the Subscription Receipts may be sold and purchasers may not be able to resell Subscription Receipts purchased under this Prospectus Supplement. The Company has applied to the TSXV to list, and notified NASDAQ of, the Common Shares issuable upon exchange of the Subscription Receipts. Listing is subject to the Company fulfilling all the listing requirements of the TSXV and NASDAQ.

 

This Offering is being made concurrently in each of the provinces of Canada, other than Québec, and in the United States pursuant to the MJDS. The Subscription Receipts will be offered in Canada and the United States through the Agent either directly or, if applicable, through their respective Canadian or United States registered broker-dealer affiliates or through a selling group of appropriately registered dealers and brokers.

 

The Company has agreed that, subject to certain exceptions, including pursuant to the Transaction, it shall not issue or agree to issue any Common Shares or other securities convertible into, or exchangeable for, Common Shares prior to 90 days after the Offering Closing Date without the prior consent of the Agent, which consent shall not be unreasonably withheld.

 

In connection with this Offering, the Agent may, subject to applicable law, over-allocate the issuance of Subscription Receipts or effect transactions which stabilize or maintain the market price of the Common Shares at levels other than those which otherwise might prevail on the open market. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of such securities while this Offering is in progress. These transactions may also include making short sales of the securities, which involve the sale by the Agent of a greater number of securities than they are required to purchase in this Offering. Short sales may be “covered short sales”, which are short positions in an amount not greater than the Over-Allotment Option, or may be “naked short sales”, which are short positions in excess of that amount. The Agent may close out any covered short position either by exercising the Over-Allotment Option, in whole or in part, or by purchasing the securities in the open market. In making this determination, the Agent will consider, among other things, the price of the securities available for purchase in the open market compared with the price at which they may purchase the securities through the Over-Allotment Option. If, following the closing of this Offering, the market price of the securities decreases, the short position created by the over-allocation position in the securities may be filled through purchases in the market, creating upward pressure on the price of the securities. If, following the closing of this Offering, the market price of the securities increases, the over-allocation position in the securities may be filled through the exercise of the Over-Allotment Option in respect of the securities at the Offering Price. The Agent must close out any naked short position by purchasing the securities in the open market. A naked short position is more likely to be created if the Agent are concerned that there may be downward pressure on the price of the securities in the open market that could adversely affect investors who purchase in this Offering. Any naked short sales will form part of the Agent’s over-allocation position. In addition, pursuant to policy statements of certain securities regulators, the Agent may not, throughout the period of distribution, bid for or purchase Subscription Receipts or Common Shares. The policy statements allow certain exceptions to the foregoing prohibitions. The Agent may only avail themselves of such exceptions on the condition that the bid or purchase not be engaged in for the purpose of creating actual or apparent active trading in, or raising the price of, the Common Shares. These exceptions include a bid or purchase permitted under the Universal Market Integrity Rules for Canadian Marketplaces of Market Regulation Services Inc., relating to market stabilization and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was not solicited during the period of distribution. Pursuant to the first mentioned exception, in connection with the Offering, the Agent may over-allot or effect transactions which stabilize or maintain the market price of the Common Shares at levels other than those which otherwise might prevail on the open market. Such transactions, if commenced, may be discontinued at any time.

 

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Certain Income Tax Considerations

 

In the opinion of Fogler, Rubinoff LLP, counsel to the Company, and Norton Rose Fulbright Canada LLP, counsel to the Agent, the following is a fair summary, as of the date hereof, of the principal Canadian federal income tax considerations generally applicable under the Income Tax Act (Canada) (the “Tax Act”) to the acquisition, holding and disposition of the Subscription Receipts and Common Shares that are qualified for distribution under this Prospectus. This summary applies only to a holder who is a beneficial owner of Subscription Receipts and Common Shares and who, for the purposes of the Tax Act, and at all relevant times: (i) deals at arm’s length with the Company and the Agent; (ii) is not affiliated with the Company or the Agent; and (iii) holds the Subscription Receipts and will hold the Common Shares as capital property (a “Holder”).

 

Subscription Receipts and Common Shares will generally be considered to be capital property of a Holder unless they are held in the course of carrying on a business of trading or dealing in securities or were acquired in one or more transactions considered to be an adventure or concern in the nature of trade.

 

This summary is not applicable to a Holder (i) that is a “financial institution” (as defined in the Tax Act for the purposes of the mark-to-market rules), (ii) an interest in which would be a “tax shelter investment” (as defined in the Tax Act), (iii) that is a “specified financial institution” (as defined in the Tax Act), (iv) that has elected to report its “Canadian tax results” (as defined in the Tax Act) in a currency other than Canadian currency, (v) that has entered or will enter into a “derivative forward agreement” or “synthetic disposition arrangement” (each as defined in the Tax Act) with respect to the Subscription Receipts or Common Shares, or (vi) that receives dividends on the Common Shares under or as part of a “dividend rental arrangement” (as defined in the Tax Act). Any such Holder should consult its own tax advisor with respect to an investment in the Subscription Receipts and Common Shares.

 

Additional considerations, not discussed herein, may be applicable to a Holder that is a corporation resident in Canada, and is, or becomes, or does not deal at arm’s length with a corporation resident in Canada that is, or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of the Subscription Receipts and Common Shares, controlled by a non-resident person (or a group of such persons that do not deal at arm’s length) for purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Any such Holder should consult its own tax advisor with respect to the consequences of any of the transactions described in this Prospectus Supplement.

 

This summary is based upon: (i) the current provisions of the Tax Act and the regulations thereunder (the “Regulations”) in force as of the date hereof; (ii) all specific proposals to amend the Tax Act and the Regulations which have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”); and (iii) counsel’s understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”). No assurance can be given that the Proposed Amendments will be enacted or otherwise implemented in their current form, or at all. This summary does not otherwise take into account or anticipate any changes in law, administrative policy or assessing practice, whether by legislative, regulatory, administrative, governmental or judicial decision or action, nor does it take into account provincial, territorial or foreign tax legislation or considerations.

 

This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. Accordingly, Holders should consult their own tax advisors with respect to their particular circumstances.

 

Currency Conversion

 

Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Subscription Receipts and Common Shares must be determined in Canadian dollars based on the rate of exchange quoted by the Bank of Canada on the date such amount arose or such other rate of exchange as may be acceptable to the CRA.

 

S-12
 

 

Acquisition of Common Shares Pursuant to the Terms of the Subscription Receipts

 

A Holder of Subscription Receipts will not realize any capital gain or capital loss upon the acquisition of the Common Shares pursuant to the terms of the Subscription Receipts. The cost to a Holder of a Common Share acquired pursuant to the terms of a Subscription Receipt will generally be equal to the amount paid by the Resident Holder for the Subscription Receipt. The adjusted cost base to a Holder of Common Shares acquired pursuant to the terms of the Subscription Receipts will be determined by averaging the cost of such Common Shares (being the amount paid to acquire the Subscription Receipts) with the adjusted cost base immediately before that time of any other Common Shares owned by the Holder as capital property immediately prior to the acquisition.

 

Holders Resident in Canada

 

This portion of the summary is generally applicable to a Holder who, at all relevant times, is, or is deemed to be, resident in Canada for the purposes of the Tax Act (a “Resident Holder”). Certain Resident Holders whose Common Shares might not otherwise qualify as capital property may be entitled to make the irrevocable election provided by subsection 39(4) of the Tax Act to have the Common Shares and every other “Canadian security” (as defined in the Tax Act) owned by such Resident Holder in the taxation year of the election and in all subsequent taxation years deemed to be capital property. Such election is not available in respect of the Subscription Receipts. Resident Holders should consult their own tax advisors for advice as to whether an election under subsection 39(4) of the Tax Act is available and/or advisable in their particular circumstances.

 

Dispositions of Subscription Receipts

 

A disposition or deemed disposition by a Resident Holder of a Subscription Receipt (which does not include the acquisition of a Common Share pursuant to the terms of Subscription Receipts), including on the repayment of the Offering Price of a Subscription Receipt as a consequence of the Transaction failing to close on or prior to the Outside Deadline or Termination Date, as applicable, will generally result in the Resident Holder realizing a capital gain (or capital loss) equal to the amount, if any, by which the proceeds of disposition exceed (or are less than) the aggregate of the adjusted cost base to the Resident Holder thereof and any reasonable costs of disposition.

 

The cost to a Resident Holder of a Subscription Receipt will generally be equal to the amount paid to acquire the Subscription Receipt. The adjusted cost base to a Resident Holder of a Subscription Receipt will generally be determined by averaging the cost of all Subscription Receipts held by the Resident Holder as capital property immediately before the disposition. Such capital gain (or capital loss) will be subject to the tax treatment described below under “— Holders Resident in Canada — Taxation of Capital Gains and Capital Losses”.

 

In the event that a Resident Holder becomes entitled to the repayment of the Offering Price of a Subscription Receipt as a consequence the Transaction failing to close on or prior to the Outside Deadline or Termination Date, as applicable, any amount that is paid to the Resident Holder by the Company as, or on account of, interest and that is included in the Resident Holder’s income, will be excluded from the Resident Holder’s proceeds of disposition of the Subscription Receipt.

 

Pro Rata Share of Interest

 

In the event that the Transaction fails to close on or prior to the Outside Deadline or Termination Date, as applicable, Resident Holders of Subscription Receipts shall be entitled to receive from the Escrow Agent an amount equal to the Offering Price plus their pro rata share of any interest earned thereon.

 

A Resident Holder that is a corporation, partnership, unit trust or any trust of which a corporation or a partnership is a beneficiary will be required to include in computing its income for a taxation year the amount of any such interest accrued to the Resident Holder to the end of the Resident Holder’s taxation year, or that is receivable or received by the Resident Holder before the end of that taxation year, except to the extent that such interest was included in computing the Resident Holder’s income for a preceding taxation year.

 

Any other Resident Holder that is entitled to receive its pro rata share of interest earned will be required to include in computing income for a taxation year such interest that is receivable or received by the Resident Holder in that taxation year, depending upon the method regularly followed by the Resident Holder in computing income.

 

S-13
 

 

Dividends on Common Shares

 

Dividends received or deemed to be received by a Resident Holder that is an individual (other than certain trusts) will be subject to the gross-up and dividend tax credit rules in the Tax Act normally applicable to dividends received from taxable Canadian corporations, including the enhanced gross-up and dividend tax credit in respect of dividends designated by the Company as “eligible dividends”. There may be limitations on the ability of the Company to designate dividends as eligible dividends.

 

Dividends received or deemed to be received by a Resident Holder that is a corporation will be included in computing the corporation’s income and will generally be deductible in computing its taxable income for that taxation year. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Resident Holder that is a corporation as proceeds of disposition or a capital gain. Such Resident Holders should consult their own tax advisors.

 

A Resident Holder that is a “private corporation” (as defined in the Tax Act) or a “subject corporation” (as defined in the Tax Act), will generally be liable to pay a tax under Part IV of the Tax Act (refundable under certain circumstances) on dividends received (or deemed to be received) on the Common Shares to the extent such dividends are deductible in computing the Resident Holder’s taxable income for the year. A “subject corporation” is generally a corporation (other than a private corporation) controlled directly or indirectly by or for the benefit of an individual (other than a trust) or a related group of individuals (other than trusts).

 

Dispositions of Common Shares

 

A disposition or a deemed disposition of a Common Share (other than a disposition to the Company in a transaction that is not a sale in the open market) by a Resident Holder will generally result in the Resident Holder realizing a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of the Common Share exceed (or are less than) the aggregate of the Resident Holder’s adjusted cost base thereof and any reasonable costs of disposition. Such capital gain (or capital loss) will be subject to the tax treatment described below under “Holders Resident in Canada - Taxation of Capital Gains and Capital Losses”.

 

Taxation of Capital Gains and Capital Losses

 

One-half of any capital gain (a “taxable capital gain”) generally must be included in a Resident Holder’s income for the taxation year of the disposition and one-half of any capital loss (an “allowable capital loss”) realized in a taxation year is generally required to be deducted from taxable capital gains realized in such year. Allowable capital losses in excess of taxable capital gains for the taxation year of disposition generally may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the circumstances specified in the Tax Act.

 

The amount of any capital loss realized on the disposition or deemed disposition of a Common Share by a Resident Holder that is a corporation may, in certain circumstances, be reduced by the amount of dividends received or deemed to have been received by it on such Common Shares to the extent and under the circumstances specified in the Tax Act. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns Common Shares or where a partnership or trust, of which a corporation is a member or a beneficiary, is a member of a partnership or a beneficiary of a trust that owns Common Shares. Resident Holders to whom these rules may be relevant should consult their own tax advisors.

 

Other Income Taxes

 

A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) or at any time in the year is a “substantive CCPC” (as defined in Proposed Amendments released by the Minister of Finance (Canada) on August 9, 2022) may be liable to pay a tax (refundable under certain circumstances) on its “aggregate investment income” (as defined in the Tax Act) for the year, including taxable capital gains and interest.

 

In general terms, a Resident Holder that is an individual (other than certain trusts) that receives or is deemed to have received taxable dividends on the Common Shares or that realizes a capital gain on the disposition or deemed disposition of Common Shares may be liable for alternative minimum tax under the Tax Act. Resident Holders that are individuals should consult their own tax advisors in this regard.

 

Holders Not Resident in Canada

 

This portion of the summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act: (i) is not, and is not deemed to be, resident in Canada; and (ii) does not use or hold, and is not deemed to use or hold, the Subscription Receipts or Common Shares in connection with carrying on a business in Canada (a “Non-Resident Holder”). This summary does not apply to a Holder that carries on, or is deemed to carry on, an insurance business in Canada and elsewhere or that is an “authorized foreign bank” (as defined in the Tax Act) and such Holders should consult their own tax advisors.

 

S-14
 

 

Dispositions of Subscription Receipts and Common Shares

 

A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized on a disposition of a Subscription Receipt (which does not include the acquisition of a Common Share pursuant to the terms of a Subscription Receipt), or of a Common Share, unless the Subscription Receipts or Common Shares constitute “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is not entitled to an exemption under an applicable income tax treaty or convention.

 

Subscription Receipts will generally be “taxable Canadian property” of a Non-Resident Holder at a particular time only if the Common Shares to be issued upon the exercise of the Subscription Receipts would be “taxable Canadian property” of the Non-Resident Holder at that time, as described below.

 

Generally, a Common Share will not be “taxable Canadian property” of a Non-Resident Holder at a particular time provided that the Common Share is listed on a “designated stock exchange” (as defined in the Tax Act), which currently includes the TSX-V, unless, at any time during the 60-month period that ends at that time, (a) 25% or more of the issued shares of any class or series of the Corporation’s shares were owned by or belonged to one or any combination of (i) the Non-Resident Holder, (ii) persons with whom the Non-Resident Holder did not deal at “arm’s length” (within the meaning of the Tax Act), and (iii) partnerships in which the Non-Resident Holder or a person described in (ii) held a membership interest directly or indirectly through one or more partnerships, and (b) more than 50% of the fair market value of the Common Share was derived directly or indirectly from one or any combination of real or immovable properties situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act), or options in respect of, interests in, or civil law rights in, any of the foregoing.

 

Notwithstanding the foregoing, Subscription Receipts and Common Shares may in certain circumstances be deemed to be “taxable Canadian property” of a Non-Resident Holder for purposes of the Tax Act. Non-Resident Holders whose Subscription Receipts or Common Shares may constitute “taxable Canadian property” should consult their own tax advisors for advice having regard to their particular circumstances.

 

If a Non-Resident Holder disposes (or is deemed to have disposed) of a Subscription Receipt or a Common Share that is taxable Canadian property of that Non-Resident Holder and any capital gain that would be realized on the disposition thereof is not exempt from tax under the Tax Act or pursuant to an applicable income tax treaty or convention, , the consequences described above under the headings “Holders Resident in Canada - Dispositions of Common Shares” and “Holders Resident in Canada – Taxation of Capital Gains and Capital Losses” will generally be applicable to such disposition.

 

Pro Rata Share of Interest

 

In the event that the Transaction fails to close on or prior to the Outside Deadline or Termination Date, as applicable, Non-Resident Holders of Subscription Receipts shall be entitled to receive from the Escrow Agent an amount equal to the Offering Price plus their pro rata share of any interest earned thereon, less any applicable withholding taxes.

 

A Non-Resident Holder will generally not be subject to Canadian withholding tax under the Tax Act in respect of any such interest.

 

Dividends on Common Shares

 

Dividends paid or credited, or deemed under the Tax Act to be paid or credited, to a Non-Resident Holder on the Common Shares will be subject to Canadian withholding tax under the Tax Act at the rate of 25% of the gross amount of the dividend, subject to reduction under any applicable income tax treaty or convention. For example, where a Non-Resident Holder is the beneficial owner of the dividend and is both a resident of the United States and fully entitled to the benefits of the Canada-United States Tax Convention (1980), as amended, the applicable rate of Canadian withholding tax is generally reduced to 15%.

 

Certain United States Federal Income Tax Considerations

 

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of Subscription Receipts acquired pursuant to this Prospectus Supplement, and the acquisition, ownership, and disposition of Common Shares acquired pursuant to the terms of the Subscription Receipts.

 

S-15
 

 

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Subscription Receipts and Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Subscription Receipts and Common Shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership, and disposition of Subscription Receipts and Common Shares.

 

No ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Subscription Receipts and Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary are based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.

 

Scope of this Summary

 

Authorities

 

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable, and, in each case, as in effect and available, as of the date of this Prospectus Supplement. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

 

U.S. Holders

 

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of Subscription Receipts and Common Shares acquired pursuant to the terms of the Subscription Receipts that is for U.S. federal income tax purposes:

 

  ● A citizen or individual resident of the United States;
  ● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
  ● an estate whose income is subject to U.S. federal income taxation regardless of its source; or
  ● a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

 

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

 

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own Subscription Receipts or Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired Subscription Receipts or Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Subscription Receipts or Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are subject to the alternative minimum tax; (i) are subject to special tax accounting rules with respect to the Subscription Receipts or Common Shares (including with respect to any interest earned on the Escrowed Funds); (j) are partnerships or other “pass-through” entities for U.S. federal income tax purposes (and partners or other owners thereof); (k) are S corporations (and shareholders thereof); (l) are U.S. expatriates or former long-term residents of the United States subject to Section 877 or 877A of the Code; (m) hold Subscription Receipts or Common Shares in connection with a trade or business, permanent establishment, or fixed base outside the United States; or (n) own, or have owned, or will own, directly, indirectly, or by attribution, 10% or more, by voting power or value, of the outstanding Common Shares. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Subscription Receipts or Common Shares.

 

S-16
 

 

If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds Subscription Receipts or Common Shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such partner (or owner). Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Subscription Receipts or Common Shares.

 

U.S. Federal Income Tax Consequences of the Acquisition, Ownership and Disposition of Subscription Receipts

 

Although there is no authority directly on point, the Company believes that a U.S. Holder should recognize no income, gain or loss for U.S. federal income tax purposes upon the issuance of Common Shares pursuant to the terms of the Subscription Receipt Agreement. In such case, the purchase price for each Subscription Receipt will be allocated to the Common Share received and such amount will establish a U.S. Holder’s initial tax basis for U.S. federal income tax purposes in each Common Share. The law is unclear as to when a U.S. Holder’s holding period in the Common Shares will commence. Such holding period may include a U.S. Holder’s holding period for the Subscription Receipts, if, for example, the issuance of Common Shares pursuant to the terms of the Subscription Receipt constitutes a sale or exchange from which gain or loss is not recognized under the Code, or, alternatively, may commence on the day following the receipt of the Common Shares in exchange for the Subscription Receipts, if such issuance is a taxable sale or exchange of Subscription Receipts for U.S. federal income tax purposes. The U.S. federal income tax treatment of the Subscription Receipts is subject to uncertainty, and there can be no assurance that the IRS will not assert that the exchange of Subscription Receipts for Common Shares is a taxable event for U.S. federal income tax purposes or otherwise give rise to taxable income for the exchanging U.S. Holder. Further, the treatment of any such taxable event or taxable income under the passive foreign investment company rules described below is unclear.

 

If the Escrow Release Conditions are not satisfied on or prior to 5:00 p.m. (Toronto time) on the Outside Date or prior to the Termination Date, all of the then issued and outstanding Subscription Receipts will be cancelled and terminated and the Escrowed Funds will be used to pay holders of the Subscription Receipts an amount equal to the price paid for the Subscription Receipts, plus a pro rata portion of any interest earned on the Escrowed Funds (the “Earned Interest”), less applicable withholding taxes, if any. In such case, the Company intends to treat a U.S. Holder of Subscription Receipts as subject to tax with respect to such interest distributed to such U.S. Holder (without reduction for any tax withheld, if any) in accordance with such U.S. Holder’s method of accounting, and such interest will be treated as foreign source income for foreign tax credit purposes. The Company does not intend to treat a U.S. Holder of Subscription Receipts as subject to tax with respect to Earned Interest if the Escrow Release Conditions are satisfied on or prior to 5:00 p.m. (Toronto time) on the Outside Date in which case the Earned Interest is distributed to the Company. Although the Company intends to take the position that the foregoing is the correct U.S. federal income tax treatment of Earned Interest, the treatment of such interest is subject to uncertainty, and the IRS might assert that each U.S. Holder is subject to tax on such holder’s share of such interest upon, or before, the relinquishment of such holder’s Subscription Receipts, even if the underlying Common Shares are received in exchange therefor. The IRS might alternatively assert that any such interest income constitutes gain to such U.S. Holder from the disposition of the Subscription Receipts, which should be treated in a manner similar to that discussed below under “Sale or Other Disposition of Common Shares”. U.S. Holders may, subject to a number of complex rules and limitations, be able to claim a foreign tax credit for any foreign income tax withheld on or paid by such U.S. Holders with respect to such U.S. Holders’ pro rata portions of Earned Interest (or proceeds thereof). U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits.

 

A disposition of a Subscription Receipt by a U.S. Holder (other than in the event that the Escrow Release Conditions are not satisfied prior to the Outside Date or the Termination Date or in the event of an exchange of a Subscription Receipt for a Common Share, which are described above) should be treated in a manner similar to that discussed below under “Sale or Other Disposition of Common Shares”.

 

The U.S. federal income tax treatment of the ownership and disposition of the Subscription Receipts is subject to uncertainty. As a result, prospective U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax treatment of Subscription Receipts.

 

Ownership and Disposition of Common Shares

 

The following discussion is subject in its entirety to the rules described below under the heading “Passive Foreign Investment Company Rules.”

 

S-17
 

 

Taxation of Distributions

 

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC (as defined below) for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and thereafter as gain from the sale or exchange of such Common Shares (see “Sale or Other Disposition of Common Shares” below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to the Common Shares will constitute ordinary dividend income. Dividends received on Common Shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction”.

 

Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention or the Common Shares are readily tradable on a United States securities market (including the NASDAQ), dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

 

Sale or Other Disposition of Common Shares

 

A U.S. Holder will generally recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such Common Shares sold or otherwise disposed of. Any such gain or loss recognized on such sale or other disposition generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such Common Shares are held for more than one year.

 

Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

 

Passive Foreign Investment Company Rules

 

If the Company were to constitute a “passive foreign investment company” (“PFIC”) under the Code for any year during a U.S. Holder’s holding period of Common Shares, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Shares. The Company believes that it was not a PFIC for its most recently completed tax year, and based on current business plans and financial expectations, the Company does not anticipate that it will be a PFIC for its current tax year or for the foreseeable future. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. However, PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. The Company’s PFIC classification for its current or future tax years may depend on, among other things, the manner in which, and how quickly, the Company utilizes the cash proceeds received from the Offering, as well as on changes in the market value of Common Shares. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold Common Shares.

 

In addition, in any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.

 

S-18
 

 

The Company generally will be a PFIC if, after the application of certain “look-through” rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the “income test”) or (b) 50% or more of the average value of the Company’s assets (generally calculated as a quarterly average) is attributable to assets that either produce passive income or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

 

If the Company were a PFIC in any tax year during which a U.S. Holder held Common Shares, unless the U.S. Holder makes a QEF Election or a Mark-to-Market Election (each as described below), such holder generally would be subject to special rules with respect to “excess distributions” made by the Company on the Common Shares and with respect to gain from the disposition of Common Shares, regardless of whether the Company continues to be a PFIC in subsequent tax years unless the Company ceases to be a PFIC and the U.S. Holder makes a special “purging” election. An “excess distribution” generally is defined as the excess of distributions with respect to the Common Shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the Common Shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the Common Shares ratably to each day in its holding period for the Common Shares. Such amounts allocated to the year of the disposition or excess distribution or any year prior to the first year in which the Company was a PFIC would be taxed as ordinary income in the current year, and amounts allocated to other tax years would be taxed as ordinary income at the highest marginal U.S. federal income tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.

 

While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including the “QEF Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.

 

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any subsidiary that also is classified as a PFIC.

 

A U.S. Holder that has made a timely “Mark-to-Market” Election with respect to its Common Shares beginning in the first tax year of such U.S. Holder’s holding period for the Common Shares during which the Company is a PFIC may avoid the imposition of the adverse PFIC rules described above, provided the Common Shares are (and continue to be) “marketable stock” for U.S. federal income tax purposes and the U.S. Holder includes the fluctuation in market value of its Common Shares as ordinary income or loss (such loss not in excess of such ordinary income previously included) as required under the Mark-to-Market Election. Generally, the Common Shares will be considered “marketable stock” as long as they are regularly traded (as determined for U.S. federal income tax purposes) on a national securities exchange (including the NASDAQ). “Mark-to-Market” Election generally cannot be made with respect to a subsidiary of the Company that is a PFIC.

 

Certain additional adverse rules may apply with respect to a U.S. Holder if the company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of Common Shares, and the availability of certain U.S. tax elections under the PFIC rules.

 

Additional Considerations

 

Receipt of Foreign Currency

 

The amount of any distribution paid to a U.S. Holder in foreign currency, or payment received on the sale, exchange or other taxable disposition of Subscription Receipts or Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable disposition of the Subscription Receipts or Common Shares. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

 

S-19
 

 

Foreign Tax Credit

 

Dividends paid on the Common Shares will be treated as foreign-source income, and generally will be treated as “passive category income” or “general category income” for U.S. foreign tax credit purposes. The Code applies various complex limitations on the amount of foreign taxes that may be claimed as a credit by U.S. taxpayers. In addition, Treasury Regulations that apply to taxes paid or accrued (the “Foreign Tax Credit Regulations”) impose additional requirements for Canadian withholding taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied.

 

Subject to the PFIC rules and the Foreign Tax Credit Regulations, each as discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to interest received on the Subscription Receipts or dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

 

If a U.S. Holder is eligible for the benefits of Canada-U.S. Tax Convention, the amount of Canadian income tax withheld or paid with respect to such interests or dividends for foreign tax credit purposes is limited to the reduced amount applicable to such U.S. Holder under the Canada-U.S. Tax Convention, regardless of whether such benefits are claimed by the U.S. Holder.

 

If such dividends are eligible for the preferential tax rates as described in “Ownership and Disposition of Common Shares –Taxation of Distributions” above, the amount of such dividends taken into account for purposes of calculating the foreign tax credit limitation generally will be reduced to appropriately take into account the tax rate differential between the applicable preferential rates and the highest rate of tax normally applicable to dividends.

 

Any gain or loss recognized on a sale or other disposition of Common Shares generally will be United States source gain or loss. Certain U.S. Holders that are eligible for the benefits of Canada-U.S. Tax Convention may elect to treat such gain or loss as Canadian source gain or loss for U.S. foreign tax credit purposes.

 

The foreign tax credit rules are complex, and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.

 

Backup Withholding and Information Reporting

 

Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U. S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.

 

Payments made within the U.S. or by a U.S. payor or U.S. middleman, of interest or dividends on, and proceeds arising from the sale or other taxable disposition of, Subscription Receipts or Common Shares will generally be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against the U.S. holder’s federal income tax liability, if any, or will be refunded, if such holder furnishes required information to the IRS in a timely manner.

 

Certain beneficial owners of Common Shares that are not U.S. Holders may be required to comply with applicable certification and other requirements in order to avoid the imposition of backup withholding.

 

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.

 

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF SUBSCRIPTION RECEIPTS OR COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.

 

S-20
 

 

Eligibility for Investment

 

In the opinion of Fogler, Rubinoff LLP, counsel to the Company, and Norton Rose Fulbright Canada LLP, counsel to the Agent, based on the current provisions of the Tax Act, the Regulations and the Proposed Amendments, the Subscription Receipts and Common Shares, if issued on the date hereof, would be qualified investments for trusts governed by a registered retirement savings plan, registered retirement income fund, registered education savings plan, registered disability savings plan, tax-free savings account (collectively referred to as “Registered Plans”) or a deferred profit sharing plan (“DPSP”), provided that:

 

  (i) in the case of the Subscription Receipts, (a) the Common Shares are listed on a “designated stock exchange”, as defined in the Tax Act (which currently includes the TSXV and NASDAQ) or the Company is otherwise a “public corporation”, as defined in the Tax Act, and (b) each person who is an annuitant, a beneficiary, an employer or a subscriber under, or a holder of, such Registered Plan or DPSP deals at arm’s length with the Company and is not the Company itself; and
     
  (ii) in the case of the Common Shares, the Common Shares are listed on a designated stock exchange in Canada for the purposes of the Tax Act (which currently includes the TSXV and NASDAQ) or the Company is otherwise a “public corporation” (as defined in the Tax Act).

 

Notwithstanding the foregoing, the holder of, subscriber of, or annuitant under, a Registered Plan (the “Controlling Individual”) will be subject to a penalty tax in respect of Subscription Receipts and Common Shares held in the Registered Plan if such securities are a prohibited investment for the particular Registered Plan. A Subscription Receipt and Common Share generally will be a “prohibited investment” for a Registered Plan if the Controlling Individual does not deal at arm’s length with the Company for the purposes of the Tax Act or the Controlling Individual has a “significant interest” (as defined in subsection 207.01(4) the Tax Act) in the Company. In addition, the Common Shares will not be a “prohibited investment” if the Common Shares are “excluded property”, as defined in the Tax Act, for a Registered Plan.

 

Holders who intend to hold Subscription Receipts and Common Shares in trusts governed by such plans should consult with their own tax advisors regarding the application of the “prohibited investment” rules having regard to their particular circumstances.

 

The Subscription Receipts and Common Shares issuable pursuant to the Offering will be qualified investments for a trust governed by a first home savings account (once the legislation implementing such accounts comes into force) provided that the conditions discussed above in relation to Registered Plans and DPSPs are satisfied. In addition, the rules in respect of a “prohibited investment” will also apply to FHSAs and the holders thereof. The rules in the Tax Act applicable to FHSAs come into force on April 1, 2023.

 

Risk Factors

 

An investment in the Subscription Receipts offered hereunder (including the underlying Common Shares) involves certain risks. In addition to the other information contained in this Prospectus Supplement and the accompanying Prospectus, and in the documents incorporated by reference therein, prospective purchasers of Subscription Receipts should consider carefully the risk factors set forth below, as well as the risk factors referenced in the accompanying Prospectus under the heading “Risk Factors”.

 

Risks Relating to the Offering

 

Subscription Receipt Structure

 

The Subscription Receipts will be automatically exchanged for Common Shares concurrently with the closing of the Transaction upon notice thereof by the Company to the Escrow Agent. The Company may, in its sole discretion, waive certain closing conditions in its favour in the Arrangement Agreement or agree to amend the Arrangement Agreement and consummate the Transaction on terms that may be different from those described in this Prospectus Supplement. As a result, the expected benefits of the Transaction may not be fully realized. See “Recent Developments—Arrangement Agreement” in this Prospectus Supplement. As a consequence, holders of Subscription Receipts will essentially assume the same risk as though they had invested directly in Common Shares on the Offering Closing Date.

 

S-21
 

 

Rights of Holders of Subscription Receipts may Change

 

From time to time while the Subscription Receipts are outstanding, the Company, the Agent and the Subscription Receipt Agent, without the consent of the holders of the Subscription Receipts, may amend or supplement the Subscription Receipt Agreement for certain purposes, including making any change that does not prejudice the rights of the holders of Subscription Receipts. The Subscription Receipt Agreement will provide for other modifications and alterations thereto and to the Subscription Receipts issued thereunder by way of a resolution passed by the affirmative votes of the holders of not less than 66 ⅔% of the number of outstanding Subscription Receipts represented and voting at a meeting of Subscription Receipt holders or an instrument or instruments in writing signed by the holders of not less than 66 ⅔% of the number of outstanding Subscription Receipts. The description of the Subscription Receipt Agreement contained in this Prospectus Supplement is qualified in its entirety by the provisions of such agreement, which should be reviewed by holders of Subscription Receipts. The Subscription Receipt Agreement will be filed by the Company with the securities regulatory authorities in Canada and with the SEC on or after the Offering Closing Date.

 

Market for Securities

 

There is currently no market through which the Subscription Receipts may be re-sold and purchasers of Subscription Receipts may not be able to resell the Subscription Receipts purchased under this Prospectus Supplement. The price offered to the public for the Subscription Receipts and the number of Subscription Receipts to be issued have been determined by negotiations among the Company and the Agent. The price paid for each Subscription Receipt may bear no relationship to the price at which the Common Shares will trade in the public market subsequent to this Offering and subsequent to the closing of the Transaction, if consummated. The Company cannot predict at what price the Common Shares will trade. The Company has applied to the TSXV to list, and notified NASDAQ of, the Common Shares issuable upon exchange of the Subscription Receipts. Listing will be subject to the Company fulfilling all the listing requirements of the TSXV and NASDAQ.

 

Monies in Escrow

 

The proceeds of the Offering are being held in escrow pending closing of the Transaction or termination of the Arrangement Agreement. There can be no assurance that the conditions for the release of the Escrowed Funds will be satisfied on or prior to the Outside Date or Termination Date.

 

The Company has discretion with respect to the use of proceeds from the Offering.

 

Management will have broad discretion with respect to the use of the net proceeds from the Offering, and investors will be relying on the judgment of management regarding the application of these proceeds. At the date of this Prospectus Supplement, the Company intends to use the net proceeds from the Offering as described under the heading “Use of Proceeds”. However, the Company’s needs may change as its business and the industry in which the Company operates may evolve. As a result, the proceeds to be received in the Offering may be used in a manner significantly different from the Company’s current expectations. The failure by management to apply these funds effectively could have a material adverse effect on the Company’s business.

 

Negative Cash Flow from Operations

 

During the year ended August 31, 2022 and the three months ended November 30, 2022, the Company had negative cash flow from operating activities. The Company anticipates it will have negative cash flow from operating activities in future periods. To the extent that the Company has negative cash flow in any future period, certain of the net proceeds from the Offering may be used to fund operating activities, if any.

 

Risks Relating to the Transaction

 

Closing of the Transaction

 

It is expected that the Offering Closing Date will occur prior to the Transaction Closing Date. The closing of the Transaction is subject to certain conditions - see “Recent Developments — Arrangement Agreement”. The Company intends to consummate the Transaction as soon as practicable after meeting such conditions. However, there can be no assurance that such conditions to the closing of the Transaction will be satisfied on schedule or at all. If the Transaction fails to close on or prior to 5:00 p.m. (Toronto time) on the Outside Date (if such Outside Date is not further extended by the parties to the Arrangement Agreement, of which there is no guarantee) or if the Arrangement Agreement is terminated at any earlier time, the Escrow Agent and the Company will return to each holder of Subscription Receipts an amount equal to (i) the aggregate issue price of such holder’s Subscription Receipts plus (ii) an amount equal to such holder’s share of the interest earned on the Escrowed Funds, net of any applicable withholding taxes. See “Details of the Offering”.

 

S-22
 

 

Unexpected Costs or Liabilities Related to the Transaction

 

Although the Company conducted what it believed to be a prudent and thorough level of investigation in connection with the Transaction, an unavoidable level of risk remains regarding any undisclosed or unknown liabilities of, or issues concerning, GameSquare. Following the Transaction, the Company may discover that it has acquired substantial undisclosed liabilities. In addition, the Company may be unable to retain existing GameSquare customers or employees following the Transaction. The existence of undisclosed liabilities or the Company’s inability to retain existing GameSquare customers or employees could have an adverse impact on the Company’s business, financial condition, results of operations and cash flows. In addition, each of the Company and GameSquare has incurred various costs in connection with the Transaction and the Company expects to incur a number of additional costs associated with completing the Transaction and integrating the operations of GameSquare.

 

Integration of GameSquare

 

To effectively integrate GameSquare into its current operations, the Company must establish appropriate operational, administrative, finance, management systems and controls and marketing functions relating to GameSquare. This will require substantial attention from the Company’s management team. This diversion of management attention, as well as any other difficulties which the Company may encounter in completing the transition and integration process, could have an adverse impact on the Company’s business, financial condition, results of operations and cash flows. There can be no assurance that the Company will be successful in integrating GameSquare’s operations, or that the expected benefits will be realized.

 

Failure to Realize the Anticipated Benefits of the Transaction

 

The Company believes that the Transaction will provide certain benefits to the Company and its shareholders. There is, however, a risk that some or all of the expected benefits of the Transaction may fail to materialize, or may not occur within the time periods anticipated by the Company. The realization of such benefits may be affected by a number of factors including those disclosed in this Prospectus Supplement and the documents incorporated by reference herein. If the Transaction fails to provide the results that the Company anticipates, the Transaction could materially and adversely affect the Company and its financial results.

 

Material Contracts

 

The material contracts and other instruments entered into by, to be entered into by, or to become binding upon, the Company or its subsidiary entities in connection with the Transaction or the Offering are as follows:

 

●the Arrangement Agreement referred to under “Recent Developments—Arrangement Agreement”;
   
●the Subscription Receipt Agreement referred to under “Details of the Offering”; and
   
●the Agency Agreement referred to under “Plan of Distribution”.

 

Copies of the foregoing agreements once filed on the Company’s SEDAR profile at www.sedar.com and EDGAR profile at www.sec.com may be inspected during regular business hours at the offices of the Company, at 77 King Street West, Suite 3000, Toronto, Ontario M5K 1G8, until the expiry of the 30 day period following the date of this Prospectus Supplement and are or will also be available electronically at www.sedar.com and www.sec.com.

 

Legal Matters

 

The matters referred to under “Eligibility for Investment” and “Certain Canadian Federal Income Tax Considerations”, as well as certain other legal matters relating to Canadian law in connection with the Subscription Receipts offered hereby will be passed upon on behalf of the Company by Fogler, Rubinoff LLP, and on behalf of the Agent by Norton Rose Fulbright Canada LLP. Certain legal matters relating to United States law, as well as the matters referred to under “Certain United States Federal Income Tax Considerations”, in connection with the Subscription Receipts offered hereby will be passed upon on behalf of the Company by Dorsey & Whitney LLP and on behalf of the Agent by Norton Rose Fulbright US LLP.

 

S-23
 

 

Interests of Experts

 

As at the date of this Prospectus Supplement, the partners and associates of Fogler, Rubinoff LLP, as a group, the partners and associates of Norton Rose Fulbright Canada LLP as a group, and the partners and associates of Norton Rose Fulbright US LLP as a group beneficially own, directly or indirectly, less than 1% of any class of securities of the Company.

 

Auditors, Transfer Agent and Registrar

 

Our financial statements as at August 31, 2022 and for the year then ended incorporated by reference into this Prospectus have been audited by Baker Tilly WM LLP, independent registered public accounting firm, as indicated in their report dated November 29, 2022, which is also incorporated by reference herein, and is incorporated herein in reliance upon the authority of said firm as experts in accounting and auditing.

 

The transfer agent and registrar for the Common Shares is Computershare Trust Company of Canada at its principal offices in Toronto, Ontario. The Subscription Receipt Agent for the Subscription Receipts is Computershare Trust Company of Canada at its principal offices located in Toronto, Ontario.

 

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES

 

The Company is a corporation incorporated under and governed by the Business Corporations Act (British Columbia). Some of the directors and officers of the Company may reside outside the United States, and all or a substantial portion of their assets, and a certain portion of the Company’s assets, are located outside the United States. The Company has appointed an agent for service of process in the United States, but it may be difficult for investors who reside in the United States to effect service of process upon these persons in the United States, or to enforce a U.S. court judgment predicated upon the civil liability provisions of the U.S. federal securities laws against the Company or any of these persons. There is substantial doubt whether an action could be brought in Canada in the first instance predicated solely upon U.S. federal securities laws.

 

We have filed with the SEC, concurrently with the Registration Statement of which this prospectus supplement is a part, an appointment of agent for service of process on Form F-X. Under the Form F-X, the Company appointed Louis Schwartz as its agent for service of process in the United States in connection with any investigation or administrative proceeding conducted by the SEC, and any civil suit or action brought against or involving the Company in a United States court, arising out of or related to or concerning the Offering.

 

S-24
 

 

SHORT FORM BASE SHELF PROSPECTUS

 

New Issue March 25, 2021

 

ENGINE MEDIA HOLDINGS, INC.

 

US$150,000,000

 

Common Shares

Preference Shares

Warrants

Subscription Receipts

Debt Securities

Units

 

Engine Media Holdings, Inc. (“Engine”, the “Company”, “we” or “us”) may offer and issue from time to time common shares of the Company (“Common Shares”), preference shares of the Company (“Preference Shares”, and together with Common Shares, the “Shares”), warrants to purchase Common Shares (“Warrants”), subscription receipts of the Company exchangeable for Common Shares and/or other securities of the Company (“Subscription Receipts”), debt securities (the “Debt Securities”), or any combination thereof (“Units” and collectively with all of the foregoing, the “Securities”) up to an aggregate initial offering price of US$150,000,000 (or the equivalent thereof if the Securities are denominated in any other currency or currency unit) during the 25-month period that this short form base shelf prospectus (this “Prospectus”), including any amendments hereto, remains effective. Securities may be offered in amounts, at prices and on terms to be determined based on market conditions at the time of sale and set forth in one or more accompanying prospectus supplements (collectively or individually, as the case may be, a “Prospectus Supplement”).

 

All information required to be included in a short form prospectus but permitted under applicable law to be omitted from this Prospectus will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus, except where an exemption from such delivery requirements is available. Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the Prospectus Supplement and only for the purposes of the distribution of the Securities to which the Prospectus Supplement pertains.

 

The outstanding Common Shares are listed and posted for trading on the TSX Venture Exchange (“TSXV”) and quoted on the OTCQB® Venture Market operated by OTC Markets Group, Inc. Unless otherwise specified in the applicable Prospectus Supplement, Securities other than Common Shares will not be listed on any securities exchange. There is no market through which the Securities, other than the Common Shares, may be sold and purchasers may not be able to resell such Securities purchased under this Prospectus and any applicable Prospectus Supplement. This may affect the pricing of such Securities in the secondary market, the transparency and availability of trading prices, the liquidity of the Securities, and the extent of issuer regulation. See “Risk Factors”. The offering of Securities hereunder is subject to approval of certain legal matters on behalf of the Company by Fogler, Rubinoff LLP, with respect to Canadian legal matters.

 

 

 

  

Investing in the Securities involves significant risks. Investors should carefully read the “Risk Factors” section in this Prospectus beginning on page 8, in the documents incorporated by reference herein, and in the applicable Prospectus Supplement.

 

The specific terms of the Securities with respect to a particular offering will be set out in the applicable Prospectus Supplement and may include, where applicable: (i) in the case of Common Shares, the number of shares offered, the offering price, the currency, dividend rate, if any, and any other terms specific to the Common Shares being offered; (ii) in the case of Preference Shares, the designation of the particular series, the number of Preference Shares offered, the offering price, the currency, and any other terms specific to the Preference Shares being offered, (iii) in the case of Warrants, the designation, number and terms of the Common Shares issuable upon exercise of the Warrants, the offering price, the currency, any procedures that will result in the adjustment of these numbers, the exercise price, dates and periods of exercise, and any other terms specific to the Warrants being offered, (iv) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the currency (which may be Canadian dollars or any other currency), the offering price, the terms, conditions and procedures for the exchange of the Subscription Receipts into or for Common Shares and/or other securities of the Company and any other specific terms; and (v) in the case of Debt Securities, the designation of the Debt Securities, any limit on the aggregate principal amount of the Debt Securities, the maturity date, whether payment on the Debt Securities will be senior or subordinated to the Company’s other liabilities and obligations, whether the Debt Securities will be secured by any of the Company’s assets or guaranteed by any other person and any other terms specific to the Debt Securities being offered, whether the Debt Securities will bear interest, the interest rate or method of determining the interest rates, any conversion or exchange rates attached to the Debt Securities, whether the Company may redeem the Debt Securities at its option and any other specific terms; and (vi) in the case of Units, the designation, number of Securities comprising the Units, the offering price, the currency and any other terms specific to the Units being offered. A Prospectus Supplement may include specific variable terms pertaining to the Securities that are not within the alternatives and parameters set forth in this Prospectus. Where required by statute, regulation or policy, and where Securities are offered in currencies other than Canadian dollars, appropriate disclosure of foreign exchange rates applicable to the Securities will be included in the Prospectus Supplement describing the Securities.

 

Prospective investors should be aware that the acquisition of the Securities described herein may have tax consequences both in Canada and the United States. This Prospectus does not, and any applicable Prospectus Supplement may not fully, describe these tax consequences. Prospective investors should read the tax discussion in any applicable Prospectus Supplement, but note that such discussion may be only a general summary that does not cover all tax matters that may be of importance to a prospective investor. Each prospective investor is urged to consult its own tax advisors about the tax consequences relating to the purchase, ownership and disposition of the Securities in light of the investor’s own circumstances.

 

No underwriter has been involved in the preparation of this Prospectus nor has any underwriter performed any review of the contents of this Prospectus.

 

This Prospectus constitutes a public offering of Securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell the Securities. The Company may offer and sell Securities to, or through, underwriters and also may offer and sell certain Securities directly to other purchasers or through agents pursuant to exemptions from registration or qualification under applicable securities laws. A Prospectus Supplement relating to each issue of Securities offered thereby will set forth the names of any underwriters or agents involved in the offering and sale of the Securities and will set forth the terms of the offering of the Securities, the method of distribution of the Securities including, to the extent applicable, the proceeds to the Company and any fees, discounts or any other compensation payable to underwriters or agents and any other material terms of the plan of distribution. This Prospectus may qualify an “at-the-market distribution” (as such term is defined in National Instrument 44-102 – Shelf Distributions). However, the Company has filed an undertaking with the Autorité des marchés financiers pursuant to which the Company undertakes to file an amendment to this Prospectus to add Québec as a jurisdiction should the Company determine to proceed with an “at-the-market distribution”.

 

In connection with any offering of the Securities (unless otherwise specified in a Prospectus Supplement), other than an “at-the-market distribution”, the underwriters or agents may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a higher level than that which might exist in the open market. Such transactions, if commenced, may be interrupted or discontinued at any time. See “Plan of Distribution”.

 

The financial information of the Company contained in the documents incorporated by reference herein are presented in United States dollars. References in this Prospectus to “$” and “US$” are to United States dollars. Canadian dollars are indicated by the symbol “CDN$”, except as otherwise indicated.

 

- ii - 

 

  

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR ANY STATE SECURITIES COMMISSION OR REGULATOR NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION OR REGULATOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

We are permitted, under the multi-jurisdictional disclosure system adopted by the securities regulatory authorities in the United States and Canada (“MJDS”), to prepare this Prospectus in accordance with Canadian disclosure requirements, which are different from United States disclosure requirements.

 

We prepare our annual financial statements, certain of which are incorporated by reference herein, in United States dollars and in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”), and our interim financial statements, certain of which are incorporated by reference herein, in United States dollars and in accordance with IFRS as issued by the IASB as applicable to interim financial reporting, and they therefore may not be comparable to financial statements of United States companies.

 

Your ability to enforce civil liabilities under United States federal securities laws may be affected adversely because: (i) the Company is existing in British Columbia, a province of Canada; (ii) some of the officers and directors and some of the experts named in this Prospectus are not residents of the United States; and (iii) certain of the Company’s assets and all or a substantial portion of the assets of such persons are located outside of the United States. See “Enforceability of Certain Civil Liabilities and Agent for Service of Process”.

 

The Company’s head office is located at 33 Whitehall Street, 8th Floor, New York, NY 10004. The Company’s registered office is located at 77 King Street West, Suite 3000, PO Box 95, Toronto, Ontario M5K 1G8.

 

WHERE YOU CAN FIND MORE INFORMATION

 

Information has been incorporated by reference in this Prospectus from documents filed with securities commissions or similar authorities in each of the provinces of Canada, other than Québec. Copies of the documents incorporated herein by reference may be obtained on request without charge from the secretary of the issuer at 77 King Street West, Suite 3000, PO Box 95, Toronto, Ontario M5K 1G8, or by telephone at (212) 931-1200, and are also available electronically at www.sedar.com.

 

- iii - 

 

  

TABLE OF CONTENTS

 

  Page
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 2

   
FINANCIAL INFORMATION AND CURRENCY 4
   
THE COMPANY 5
   
RISK FACTORS 8
   
USE OF PROCEEDS 16
   
CONSOLIDATED CAPITALIZATION 17
   
DESCRIPTION OF SHARE CAPITAL 18
   
DESCRIPTION OF WARRANTS 18
   
DESCRIPTION OF SUBSCRIPTION RECEIPTS 20
   
DESCRIPTION OF DEBT SECURITIES 20
   
DESCRIPTION OF UNITS 22
   
PRICE RANGE AND TRADING VOLUMES 23
   
PRIOR SALES 24
   
PLAN OF DISTRIBUTION 28
   
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS 29
   
DOCUMENTS INCORPORATED BY REFERENCE 29
   
MATERIAL CONTRACTS 31
   
LEGAL MATTERS 31
   
REGULATORY RELIEF 31
   
TRANSFER AGENT AND REGISTRAR 31
 
AGENT FOR SERVICE OF PROCESS 32
   
ORDERS, PENALTIES AND BANKRUPTCIES 32
   
AUDITORS 32

  

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Prospectus and the documents incorporated by reference herein contain certain “forward-looking information” and “forward-looking statements” as defined under applicable Canadian and U.S. securities laws (collectively, “forward-looking statements”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. Such statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, or “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Such forward-looking statements are made as of the date of this Prospectus, or in the case of any document incorporated by reference herein, as of the date of each such document. Forward-looking statements in this Prospectus and the documents incorporated by reference herein include, but are not limited to, statements with respect to:

 

● financial, operational and other projections and outlooks as well as statements or information concerning future operation plans, objectives, performance, revenues, growth, acquisition strategy, profits or operating expenses;
   
● our ability to successfully execute our business plan;
   
● any expectation of regulatory approval and receipt of certifications with respect to the Company’s current and proposed business transactions;
   
● expectations regarding existing products and plans to develop, implement or adopt new technology or products;
   
● expectations regarding the successful integration of recent acquisitions of WinView, Inc. (“WinView”) and Frankly Inc. (“Frankly”);
   
● the expectation of obtaining new customers for the Company’s products and services, as well as expectations regarding expansion and acceptance of the Company’s brand and products to new markets;
   
● estimates and projections regarding the industry in which the Company operates and adoption of technologies, including expectations regarding the growth and impact of esports;
   
● requirements for additional capital and future financing options;
   
● the risks inherent in international operations;
   
● marketing plans;
   
● our ability to compete with our competitors and their technologies;
   
● our reliance on key executives and the ability to attract and retain qualified personnel;
   
● the availability of intellectual property protection for the Company’s products, and our ability to expand and exploit our intellectual property;
   
● statements related to the expected or potential impact of the novel coronavirus (“COVID-19”) pandemic;
   
● the completion of and our use of the proceeds of any offering; and
   
● other expectations of the Company.

 

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The forward-looking statements are based on a number of key expectations and assumptions made by our management, including, but not limited to:

 

● that the projections relating to growth and trends in the industry of the Company and adoption of the technologies underlying the Company’s products are accurate;
   
● assumptions and uncertainties related to the expected size of the esports market and other markets for the Company’s products and the acceptance of the Company’s product in existing and new markets;
   
● our ability to generate new sales and market demand for our products;
   
● our ability to continue to attract and retain qualified personnel;
   
● our ability to protect our intellectual property and to expand and exploit our intellectual property;
   
● the successful execution of our business plan;
   
● the availability of additional capital; and
   
● general economic and financial market conditions.

 

Forward-looking statements contained in or incorporated by reference in this Prospectus are based on the assumptions described in this Prospectus. Although management believes the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are based on the opinions, assumptions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors, both known and unknown, that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include, but are not limited to:

 

● liquidity concerns and future financings;
   
● execution of business plan;
   
● the integration of recent acquisitions such as WinView, Frankly, and UMG Media Ltd. (“UMG”);
   
● the management of growth;
   
● reduced cash reserves from future operating losses;
   
● failure to compete successfully in various markets;
   
● the development of high-quality products;
   
● rapid technological changes;
   
● proprietary protection and intellectual property disputes;
   
● transmission of user data;
   
● data collection risk;
   
● mobile gaming and the free-to-play business model;
   
● the condition of the global economy;
   
● risks inherent in foreign/international operations;

 

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● changing governmental regulations;
   
● COVID-19 related risks;
   
● speculative nature of investment in the Securities;
   
● the Company has never paid dividends;
   
● volatility in the market price of the Common Shares;
   
● no market for the Preference Shares, Warrants, Debt Securities or Units;
   
● dilution risk;
   
● issuance of Preference Shares that have superior rights to Common Shares;
   
● the listing of the Common Shares on the NASDAQ Capital Market (“NASDAQ”);
   
● loss of foreign private issuer status;
   
● discretion in use of proceeds; and
   
● those risks discussed in this Prospectus under the heading “Risk Factors”.
   

 

These factors are not intended to represent a complete list of the factors that could affect the Company. However, these factors should be considered carefully by prospective investors. A more detailed assessment of the risks that could cause actual events or results to materially differ from our current expectations can be found under the heading “Risk Factors” in this Prospectus.

 

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, described or intended.

 

A number of factors could cause actual events, performance or results to differ materially from what is projected in forward-looking statements. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward-looking statements contained in this Prospectus or in any document incorporated by reference herein.

 

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

We qualify all the forward-looking statements contained in this Prospectus and the documents incorporated by reference herein and therein by the foregoing cautionary statements.

 

FINANCIAL INFORMATION AND CURRENCY

 

The financial statements of the Company incorporated by reference in this Prospectus are reported in United States dollars. The Company’s consolidated financial statements for the years ended August 31, 2020 and 2019, as incorporated by reference in this Prospectus, have been prepared in accordance with IFRS.

 

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The following table sets forth (i) the rate of exchange for the Canadian dollar, expressed in U.S. dollars, in effect at the end of the periods indicated; (ii) the average exchange rates for the Canadian dollar, on the last day of each month during such periods; and (iii) the high and low exchange rates for the Canadian dollar, expressed in U.S. dollars, during such periods, each based on the daily rates of exchange, as applicable, as reported by the Bank of Canada for conversion of Canadian dollars into U.S. dollars:

 

   Fiscal Year Ended August 31 
   2020   2019 
Rate at the end of period  $0.7668   $0.7522 
Average rate during period  $0.7436   $0.7546 
Highest rate during period  $0.7710   $0.7811 
Lowest rate during period  $0.6898   $0.7330 

 

On March 24, 2021, the closing exchange rate for Canadian dollars in terms of the United States dollar, as quoted by the Bank of Canada, was CDN$1.00= US$0.7961.

 

THE COMPANY

 

Corporate Structure

 

The Company was incorporated as “Stratton Capital Corp.” under the Business Corporations Act (Ontario) (“OBCA”) pursuant to articles of incorporation on April 8, 2011. On October 19, 2016, the Company filed Articles of Amendment changing its name from “Stratton Capital Corp.” to “Millennial Esports Corp.” On June 7, 2019, the Company filed Articles of Amendment to effect a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every fifteen pre-consolidation Common Shares. On October 17, 2019, the Company filed Articles of Amendment to (i) change its name from “Millennial Esports Corp.” to “Torque Esports Corp.”, and (ii) to effect a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every five pre-consolidation Common Shares.

 

On August 13, 2020, the Company filed Articles of Amendment to (i) change its name from “Torque Esports Corp.” to “Engine Media Holdings, Inc.”, and (ii) to effect a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every fifteen pre-consolidation Common Shares

 

On December 18, 2020, the Company filed a Continuance Application with the British Columbia Registrar of Companies to continue into British Columbia.

 

The head office of the Company is located at 33 Whitehall Street, 8th Floor, New York, NY 10004 and the registered office of the Company is located at 77 King Street West, Suite 3000, PO Box 95, Toronto, Ontario M5K 1G8.

 

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Inter-Corporate Relationships

 

The following is a summary of the inter-corporate relationships between the Company and its subsidiaries, which together comprise the consolidated Company as at the date hereof:

 

 

Businesses of Engine

 

Engine is a multi-platform media group leading the charge in esports, news streaming and gaming. Following the completion of the transformational acquisition of each of Frankly and WinView, the Company now offers a unique combination of esports content, streaming technology, gaming platforms, data analytics and intellectual property.

 

Engine is focused on accelerating new, live, immersive esports and interactive gaming experiences for consumers through its partnerships with traditional and emerging media companies. Following the Frankly and WinView acquisitions, Engine clients include more than 1,200 television, print and radio brands including CNN, ESPN, Discovery / Eurosport, Fox, Vice, Newsweek, and Cumulus; dozens of gaming and technology companies including EA, Activision, Blizzard, Take2Interactive, Microsoft, Google, Twitch, and Ubisoft; and has connectivity into hundreds of millions of homes around the world through content, distribution, and technology. Engine generates revenue through a combination of: direct-to-consumer and subscription fees; streaming technology and data software-as-a-service (“SaaS”) based offerings; and, programmatic advertising and sponsorships.

 

Eden Games

 

Eden Games is a game developer with market-leading competency in building mobile racing games. They are well-known in the industry for the multiple racing franchises they have created and are considered experts in the fields of licensing and racing technology. Founded in 1998 in Lyon, France, by two experienced Atari developers, Eden Games is a household name in development circles and has both a storied history of success and a strong pipeline of future engagements. Its current development deals are for the official F1 mobile game and porting its Gear.Club franchise onto the hugely successful Nintendo Switch. These two contracts provide regular revenue contracted from 3rd parties and a share of the revenue from game sales or in-app purchases.

 

Eden has produced the following video game titles: V-Rally (1998); V-Rally 2 (1999); Need for Speed: Porsche (2000); V-Rally 3 (2002); KYA: Dark Lineage (2003); TITEUF: Mega Compet (2004); Test Drive Unlimited (2006); Alone in the Dark (2008); Test Drive Unlimited 2 (2011); TDU2 Casino Online (2011); Gear.Club Mobile (2016 – 2020); Gear.Club Unlimited (2017); F1 Mobile (2018 – 2020); and Gear.Club Unlimited 2 (2018 – 2020).

 

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Stream Hatchet

 

Stream Hatchet S.L. (“Stream Hatchet”), is a data analytics company based in Terrassa, Spain, providing intelligence for persons and entities involved in video game streaming. Stream Hatchet provides real-time data analytics and viewership information that assists in the development and marketing decisions of the Company’s initiatives. This is a service that no other publisher or esports operator owns in-house. These unique data analytic capabilities provide the Company an edge in accessing sponsorships and promotions from major brands focused on esports, as the Company has proprietary data on esports viewership, brand exposure and sponsorship valuation to quantify the value of our brand exposure on multiple streaming platforms around the globe.

 

Stream Hatchet, through a SaaS offering, also generates significant independent revenue for the Company as a standalone unit without infringing upon its strategic value to the Company. Stream Hatchet provides holistic data to its users, which include streamers, esports organizations, video game producers, and advertising agencies. Stream Hatchet provides a clearly-delineated product offering with a high degree of automation, and a strong pipeline of clients and brands looking for intelligence in the esports & gaming landscape. Stream Hatchet’s innovative reporting and data analytics are unique in the industry, with services and reporting having been sold to major brands in the technology space.

 

UMG

 

The Company acquired UMG on December 31, 2019. UMG is a premier esports company in North America, offering live gaming entertainment events and online play. UMG provides online and live tournaments as well as the creation and distribution of original esports content.

 

UMG, through its wholly-owned subsidiary UMG Events LLC, which was founded in 2012, is actively involved in many aspects of the esports industry. UMG is deeply ingrained in the gaming community and very well established within the competitive gaming sector with approximately 2.1 million registered users and over 18 million matches played live and online through its platform.

 

UMG is a diversified esports company that has operations involved in:

 

  ● Live tournaments
  ● Online contests
  ● Casino esports operations
  ● Creation and distribution of original content
  ● Esports tournament operations through its proprietary tournament management app

 

Frankly and WinView Acquisition

 

On May 8, 2020, the Company completed a business combination with Frankly and WinView. It is expected that the transaction will place Engine at the forefront of esports, news streaming and sports gaming across multiple media platforms. The completion of the Frankly and WinView acquisition has resulted in a company with a unique combination of assets, ranging from esports content, streaming technology, sports gaming, data and analytics as well as intellectual property.

 

Frankly

 

Frankly, through its wholly-owned subsidiary Frankly Media, LLC, provides a complete suite of solutions that give publishers a unified workflow for the creation, management, publishing and monetization of digital content to any device, while maximizing audience value and revenue.

 

Frankly’s products include a ground-breaking online video platform for Live, Video-on-Demand (“VOD”) and Live-to-VOD workflows, a full-featured content management system with rich storytelling capabilities, as well as native apps for iOS, Android, Apple TV, Fire TV and Roku.

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Frankly also provides comprehensive advertising products and services, including direct sales and programmatic ad support. With the release of its server-side ad insertion (SSAI) platform, Frankly has been positioned to help video producers take full advantage of the growing market in addressable advertising.

 

WinView

 

WinView is a Silicon Valley-based company, pioneering second-screen interactive TV. WinView is a leading skill-based sports prediction mobile games platform. WinView plans to leverage its extensive experience in pioneering real-time interactive television games played on the mobile second screen, its foundational patents and unique business model. The WinView app is an end-to-end two-screen TV synchronization platform for both television programming and commercials. The paid entry, skill-based WinView Games app uniquely enhances TV viewing enjoyment and rewards sports fans with prizes as they answer in-game questions while competing in real-time during live televised sports. WinView also holds the foundational patents on the synchronized second screen experience.

 

Disposition of Motorsport Assets

 

On November 4, 2020, the Company announced that it completed the disposition of all of its shares in IDEAS+CARS Limited (“IDEAS+CARS”) and DriverDB AB (“Driver DataBase”), which also included, by extension, the disposition of its other motorsport assets: The World’s Fastest Gamer, WTF1, The Race, Let’s Go Racing, and The World Series of Racing (collectively with IDEAS+CARS and Driver DataBase, the “Motorsport Assets”). The Motorsport Assets were acquired by LNT Group, an investment group based in the United Kingdom. As consideration for the acquisition of the Motorsport Assets, LNT Group assumed all ongoing liabilities for the business with respect to the Motorsport Assets.

 

As part of the disposition of the Motorsport Assets, Darren Cox resigned as co-CEO of the Company and he resigned as a director of the Company effective December 31, 2020.

 

RECENT DEVELOPMENTS – COVID-19

 

The Company continues to assess, monitor and deal with the impact of COVID-19 on our business and to share information across the Company. We continue to adjust our operations and take actions to protect the health of our employees. The Company’s workforce is currently working remotely and has been largely unaffected by COVID-19 given the nature of the Company’s business.

 

Also see, below, “Risk Factors - Emerging diseases, like COVID-19, may adversely affect our operations, our suppliers, or our customers”.

 

RISK FACTORS

 

Before making an investment decision, investors should carefully consider the information described in this Prospectus, any applicable Prospectus Supplement and in the documents incorporated by reference herein and therein. There are certain risks inherent in an investment in the Securities, including the factors listed below, and any other risk factors described in a document incorporated by reference in this Prospectus and any applicable Prospectus Supplement, which investors should carefully consider before investing. Some of the following factors and the risk factors described in the documents incorporated by reference in this Prospectus and any applicable Prospectus Supplement are interrelated and, consequently, investors should treat such risk factors as a whole. The risks described in this Prospectus, any applicable Prospectus Supplement and in the documents incorporated by reference herein and therein describe certain currently known material factors, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations. If any of the following or other risks occur, it could have a material adverse effect on our business, prospects, financial condition and results of operations and on the trading price of the Common Shares, which could materially decline, and investors may lose all or part of their investment. It is also believed that these factors could cause actual results to be different from expected results. Additional risks and uncertainties of which we are currently unaware or that are unknown or that we currently deem to be immaterial could also have a material adverse effect on our business, prospects, financial condition and results of operations. We cannot assure prospective purchasers that it will successfully address any or all of these risks. There is no assurance that any risk management steps taken will avoid future loss due to the occurrence of any of the risks described in this Prospectus, any applicable Prospectus Supplement and in the documents incorporated by reference herein and therein, or other unforeseen risks. The market in which we currently compete is very competitive and changes rapidly. Sometimes new risks emerge and management may not be able to predict them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. Prospective purchasers should not rely upon forward-looking statements as a prediction of future results. In addition to the risks described elsewhere in this Prospectus and any applicable Prospectus Supplement, including in the documents incorporated by reference herein and therein, the following risks for the Company should be considered.

 

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Risks Associated with our Business and Industry

 

Liquidity concerns and future financings

 

Although we have been successful in the past in financing our activities, there can be no assurance that we will be able to obtain additional financing as and when needed in the future to execute our business plan and future operations. Our ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as our business performance. It may be difficult or impossible for us to obtain financing on commercially acceptable terms. This may be further complicated by the limited market liquidity for shares of smaller companies such as us, restricting access to some institutional investors. There is a risk that interest rates will increase given the current historical low level of interest rates. An increase in interest rates could result in a significant increase in the amount that we pay to service future debt incurred by us and affect our ability to fund ongoing operations.

 

Failure to obtain additional financing on a timely basis could also result in delay or indefinite postponement of further development of its products. Such delay would have a material and adverse effect on our business, financial condition and results of operations.

 

We may not be able to successfully execute our business plan

 

The execution of our business plan poses many challenges and is based on a number of assumptions. We may not be able to successfully execute our business plan. If our business plan is more costly than we anticipate or we have significant cost overruns, certain products and development activities may be delayed or eliminated or we may be compelled to secure additional funding (which may or may not be available) to execute our business plan. We cannot predict with certainty our future revenues or results from our operations. If the assumptions on which our revenue or expenditure forecasts are based change, the benefits of our business plan may change as well. In addition, we may consider expanding our business beyond what is currently contemplated in our business plan. Depending on the financing requirements of a potential acquisition or new product opportunity, we may be required to raise additional capital through the issuance of equity or debt. If we are unable to raise additional capital on acceptable terms, we may be unable to pursue a potential acquisition or new product opportunity.

 

Difficulties integrating acquisitions and strategic investments

 

We have acquired businesses, personnel and technologies in the past and we expect to continue to pursue acquisitions, such as the completed acquisitions of Frankly, WinView, UMG, Eden Games, Stream Hatchet and other investments that are complementary to our existing business, and expanding our employee base and the breadth of our offerings. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, the ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. Since we expect the esports industry to consolidate in the future, we may face significant competition in executing our growth strategy. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt, and contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.

 

The above risks and difficulties, if they materialize, could disrupt our ongoing business, distract management, result in the loss of key personnel, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial performance.

 

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Management of growth

 

We have grown rapidly since our inception and we plan to continue to grow at a rapid pace. This growth has put significant demands on our processes, systems and personnel.

 

We may be subject to growth-related risks including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Managing our growth will require significant expenditures and allocation of valuable management resources. Our inability to deal with this growth may have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We may continue to have reduced cash reserves

 

We expect our cash reserves will be reduced due to future operating losses, working capital requirements, capital expenditures, and potential acquisitions and other investments by our business, and we cannot provide certainty as to how long our cash reserves will last or that we will be able to access additional capital when necessary.

 

We expect to incur continued losses and generate negative cash flow until we can produce sufficient revenues to cover our costs. We may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future. For the reasons discussed in more detail below, there are substantial uncertainties associated with our achieving and sustaining profitability. We expect our cash reserves will be reduced due to future operating losses, and working capital requirements, and we cannot provide certainty as to how long our cash reserves will last or that we will be able to access additional capital if and when necessary.

 

The PPP loans may not be forgiven

 

We currently have outstanding PPP loans of $1,414,764 which we expect will be forgiven in full as it has cleared all requirements for full forgiveness - all forgiveness applications have been submitted as of present and formal forgiveness of these loans is expected in the near term. However, we have no certainty that the PPP loans will be forgiven, and if the applications are not accepted, the loans will need to be repaid partially or in full.

 

Competition

 

Our potential failure to compete successfully in the various markets we participate in could have a material adverse effect on our business, financial condition and results of operations. The market for the various types of product and service offerings we provide is very competitive and rapidly changing. We face competition from other esports businesses, many of which are larger and better funded than us. There can be no guarantee that our current and future competitors will not develop similar or superior services to our products and services which may render us uncompetitive. Increasing competition could result in fewer future customers, reduced revenue, reduced sales margins and loss of market share, any one of which could harm our business.

 

Players in the current market face a vast array of entertainment choices. Other forms of entertainment, such as offline, traditional online, personal computer and console games, television, movies, sports and the internet are much larger and more well-established markets and may be perceived by our customers to offer greater variety, affordability, interactivity and enjoyment. These other forms of entertainment compete for the discretionary time and income of our customers. If we are unable to sustain sufficient interest in our games in comparison to other forms of entertainment, including new forms, our business model may no longer be viable.

 

The development of high-quality products requires substantial up-front expenditures

 

Consumer preferences for games are usually cyclical and difficult to predict, and even the most successful titles remain popular for only limited periods of time, unless refreshed with new content or otherwise enhanced. In order to remain competitive, we must continuously develop new products or enhancements to existing products. The amount of lead time and cost involved in the development of high-quality products is increasing, and the longer the lead time involved in developing a product and the greater the allocation of financial resources to such product, the more critical it is that we accurately predict consumer demand for such product. If its future products do not achieve expected consumer acceptance or generate sufficient revenues upon introduction, we may not be able to recover the substantial development and marketing costs associated with those products.

 

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Rapid technological changes

 

Rapid technological changes may increase competition and render our technologies, products or services obsolete or cause us to lose market share. The online gaming software industry is subject to rapid and significant changes in technology, frequent new service introductions and evolving industry standards. Such changes may adversely affect our revenue. There can be no assurance that we can improve the features, functionality, reliability and responsiveness of infrastructure. Similarly, the technologies that we employ may become obsolete or subject to intense competition from new technologies in the future. If we fail to develop, or obtain timely access to, new technologies, or if we fail to obtain the necessary licenses for the provision of services using these new technologies, we may lose market share, and our results of operations would be adversely affected.

 

Proprietary protection and intellectual property disputes

 

Protection of our trade secrets, copyrights, trademarks, domain names and other product rights are important to our success. We protect our intellectual property rights by relying on trademark protection, common law rights as well as contractual restrictions. However, many of our proprietary technologies are currently unpatented nor have we made any applications for such intellectual property registrations and we have no present intention to do so in the near future. As such, the current steps that it takes to protect our intellectual property, including contractual arrangements, may not be sufficient to prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.

 

Should we decide to register our intellectual property in one or more jurisdictions, it will be an expensive and time consuming process and there is no assurance that we will be successful in any or all of such jurisdictions. The absence of registered intellectual property rights, or the failure to obtain such registrations in the future, may result in us being unable to successfully prevent our competitors from imitating our solutions or using some or all of our processes. Even if patents and other registered intellectual property rights were to be issued to us, our intellectual property rights may not be sufficiently comprehensive to prevent our competitors from developing similar competitive products and technologies.

 

With our acquisition of WinView, we acquired WinView’s intellectual property portfolio. WinView’s patent portfolio is an important asset to us and our patent strategy with respect to the WinView patent portfolio is to pursue the broadest possible patent protection of its technologies in selected jurisdictions. Litigation may be necessary to enforce our intellectual property rights. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating results. Moreover, due to the differences in foreign patent, trademark, copyright and other laws concerning proprietary rights, our intellectual property may not receive the same degree of protection in foreign countries as it would in Canada or the United States. Our failure to possess, obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

 

We may also face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors and former employers of our personnel. Whether a product infringes a patent or other intellectual property right involves complex legal and factual issues, the determination of which is often uncertain. As the result of any court judgment or settlement, we may be obligated to cancel the launch of a new game or product offering, cease offering a game or certain features of a game, pay royalties or significant settlement costs, purchase licenses or modify our software and features, or develop substitutes. We have already had communication from trade mark trolls in this respect. At this time these actions are a nuisance rather than a quantifiable business risk.

 

In addition, we use open source software in our games and we expect to continue to use open source software in the future. From time to time, we may face claims from companies that incorporate open source software into their products, claiming ownership of, or demanding release of, the source code, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our games, any of which would have a negative effect on our business and operating results.

 

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Transmission of User Data

 

We transmit and store a large volume of data. We are subject to legislation and regulations on the collection, storage, retention, transmission and use of user-data that we collect. Our efforts to protect the personal information of our users, partners and clients may be unsuccessful due to the actions of third parties, software bugs or technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data, our users’ data, our partners’ data or our clients’ data. If any of these events occur, users’, partners’ or clients’ information could be accessed or disclosed improperly. Any incidents involving the unauthorized access to or improper use of the information of users or incidents involving violation of our terms of service or policies could damage our reputation and brands and diminish our competitive position. Moreover, affected users, clients or governmental authorities could initiate legal or regulatory action against us in connection with such incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices and remediate the effects of any such incidents of unauthorized access or use. Any of these events could have a material adverse effect on our prospects, businesses, financial condition or results of operations.

 

Data collection risks

 

We partially rely on data captured by Stream Hatchet for our revenues and for assessing the performance of some of our brands. Capturing accurate data is subject to various limitations. For example, Stream Hatchet may need to collect certain data from mobile carriers or other third parties such as various viewing platforms, which limits its ability to verify the reliability of such data. Further, Stream Hatchet may not be able to collect any data from third parties at all. Failure to capture accurate data or an incorrect assessment of this data may materially harm business and operating results.

 

Mobile gaming and the free-to-play business model

 

Eden Games is partially reliant on the free-to-play business model where monetization is through in-app purchases. The risks of that business model include the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game, including the current title, Gear.Club. If we increase our reliance on the free-to-play model, we may be exposed to increased risk. For example, we may invest in the development of new free-to-play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs. Further, if: (1) we fail to offer monetization features that appeal to our consumers; (2) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (3) our platform providers make it more difficult or expensive for players to purchase our virtual currency; or (4) we cannot encourage significant additional consumers to purchase virtual items in our free-to-play games, our business may be negatively impacted.

 

Global economy

 

Our business is subject to general economic conditions. Adverse changes in general economic and market conditions could adversely impact demand for our products, prices, revenue, operating costs, results of financing efforts, and the timing and extent of capital expenditures.

 

Foreign operational risks

 

A significant portion of our business and operations is conducted in foreign jurisdictions, including the United States, Spain, the United Kingdom, and France. As such, our business and operations may be adversely affected by changes in foreign government policies and legislation or social instability and other factors which are not within our control, including, but not limited to, renegotiation or nullification of existing contracts or licenses, changes in policies, regulatory requirements or the personnel administering them, economic sanctions, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, volatility of financial markets, labour disputes and other risks arising out of foreign governmental sovereignty over the areas in which our business is conducted. Our operations may also be adversely affected by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment.

 

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If our operations are disrupted and/or the economic integrity of our contracts is threatened for unexpected reasons, our business may be harmed. In the event of a dispute arising in connection with our operations in a foreign jurisdiction where we conduct or will conduct our business, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. We may also be hindered or prevented from enforcing our rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, our activities in foreign jurisdictions could be substantially affected by factors beyond our control, any of which could have a material adverse effect on our business. We believe that our management is sufficiently experienced to manage these risks.

 

Regulation

 

We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet, gaming, e-commerce and electronic devices. Existing and future laws and regulations may impede our growth or strategy. These regulations and laws cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, consumer protection, web services, wagering, the provision of online payment services, websites and the characteristics and quality or products and services. Unfavourable changes in regulations and laws could decrease demand for our events, online offering and merchandise, increase our cost of doing business or otherwise have a material adverse effect on our reputation, popularity, results of operations and financial condition.

 

Emerging diseases, like COVID-19, may adversely affect our operations, our suppliers, or our customers

 

Emerging diseases, like COVID-19, and government actions to address them, may adversely affect our operations, our suppliers, or our customers. The COVID-19 pandemic continues to evolve rapidly and, as a result, it is difficult to accurately assess its continued magnitude, outcome and duration, but it could:

 

● worsen economic conditions, which could negatively impact access to capital;
   
● reduce consumer spending;
   
● limit our employees from travelling which could affect the execution of our business plan given the Company is multi-jurisdictional; or
   
● result in governmental regulation adversely impacting our business

 

all of which could have a material adverse effect on our business, financial condition and results of operations, which could be rapid and unexpected.

 

The Company’s Working Capital Requirements May Be Higher than Anticipated and/or Its Revenue May Be Lower than Anticipated Over Relevant Periods.

 

The Company’s current available financial resources and the anticipated cash flow, are expected to provide sufficient financial resources to fund the Company’s planned operations and cash requirements for at least 12 months following the date of this Prospectus. However, there is a risk that working capital requirements over that time period will be greater than anticipated, or that revenues may be lower than anticipated. Working capital requirements over the next 12 months may also be greater than the Company currently anticipates for a variety of reasons, including, but not limited to, the following: operating costs may be higher than expected; and, unanticipated capital requirements. Many of these factors are not within the Company’s control. See “Caution Regarding Forward-Looking Statements”.

 

Risks Related to our Securities

 

Investing in the Securities is speculative, and investors could lose their entire investment

 

An investment in the Securities is speculative and may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in the Securities.

 

We have never paid dividends and may not do so in the foreseeable future

 

We have never paid cash dividends on our Common Shares. Currently, we intend to retain our future earnings, if any, to fund the development and growth of our business, and we do not anticipate paying any cash dividends on our Common Shares in the near future. As a result, shareholders will have to rely on capital appreciation, if any, to earn a return on investment in any Common Shares in the foreseeable future.

 

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The market price for Common Shares has been volatile in the past, and may be subject to fluctuations in the future

 

The market price of the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control. This volatility may affect the ability of holders of Common Shares to sell their securities at an advantageous price. Market price fluctuations in the Common Shares may be due to our operating results failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts’ estimates, adverse changes in general market conditions or economic trends, acquisitions, dispositions or other material public announcements by us or our competitors, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Common Shares.

 

Financial markets historically at times experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Common Shares may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue, our operations could be adversely impacted and the trading price of the Common Shares may be materially adversely affected.

 

There is no market through which the Preference Shares, Warrants, Debt Securities or Units may be sold

 

There is no market through which the Preference Shares, Warrants, Debt Securities or Units may be sold. There can be no assurance that an active trading market will develop for the aforementioned securities, or if developed, that such a market will be sustained at the price level at which it was offered. The liquidity of the trading market in those securities, and the market price quoted for those securities, may be adversely affected by, among other things:

 

● changes in the overall market for those securities;
   
● changes in our financial performance or prospects;
   
● changes or perceived changes in our creditworthiness;
   
● the prospects for companies in the industry generally;
   
● the number of holders of those securities;
   
● the interest of securities dealers in making a market for those securities; and
   
● prevailing interest rates.

 

There can be no assurance that fluctuations in the trading price will not materially adversely impact on our ability to raise equity funding without significant dilution to our existing shareholders, or at all.

 

Future sales or issuances of Securities could decrease the value of existing securities, dilute investors’ voting power and reduce our earnings per share

 

We may sell additional securities in subsequent offerings and may issue additional securities to finance operations, acquisitions or other projects. Our articles permit the issuance of an unlimited number of Common Shares. Moreover, we may issue additional Common Shares on the issuance of RSUs, DSUs or the exercise of options under our Omnibus Equity Incentive Plan. We cannot predict the size of future sales and issuances of securities or the effect, if any, that such future sales and issuances of securities will have on the market price of the Securities. Our directors have discretion to determine the price and the terms of further issuances. Sales or issuances of a substantial number of securities, or the perception that such sales could occur, may adversely affect prevailing market prices for Securities. With any additional sale or issuance of Common Shares (including securities convertible into Common Shares), investors will suffer dilution of their voting power and may experience dilution in the Company’s earnings per share.

 

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The board of directors may issue, without shareholder approval, Preference Shares that have rights and preferences potentially superior to those of the Common Shares. Such an issuance may delay or prevent a change of control.

 

While there are no Preference Shares currently outstanding, our articles allow the issuance of Preference Shares in one or more series. Subject to the TSXV and any applicable regulatory approvals, the board of directors may set the rights and preferences of any series of Preference Shares in its sole discretion without shareholder approval. The rights and preferences of those Preference Shares may be superior to those of the Common Shares. Accordingly, the issuance of Preference Shares may adversely affect the rights of holders of Common Shares and could have the effect of delaying or preventing a change of control, which may deprive our shareholders of a control premium that might otherwise have been realized in connection with an acquisition of Engine.

 

Risks relating to our status as a “foreign private issuer” under U.S. securities laws.

 

We are a “foreign private issuer”, under applicable U.S. federal securities laws, and are, therefore, we will not be subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the United States Exchange Act of 1934, as amended (the “U.S. Exchange Act”), we will not be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we will not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors, and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions of Section 16 of the U.S. Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell Common Shares, as the reporting periods under the corresponding Canadian insider reporting requirements are longer.

 

As a foreign private issuer, we will be exempt from the rules and regulations under the U.S. Exchange Act related to the furnishing and content of proxy statements. We will also be exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While we comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the U.S. Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, we may not be required under the U.S. Exchange Act to file annual and quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the U.S. Exchange Act.

 

In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements that we are not following and describe the Canadian practices we follow instead. We may in the future elect to follow home country practices in Canada with regard to certain corporate governance matters. As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance requirements.

 

We may not be successful in listing our Common Shares on NASDAQ; if listed, we may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses to us.

 

We have applied for the listing of our Common Shares on NASDAQ and will concurrently file with this Prospectus a registration statement on Form F-10 (the “Registration Statement”) with the SEC, which has not yet been declared effective. We cannot assure you that our Common Shares will be approved for listing on NASDAQ. The listing of the Common Shares on NASDAQ is subject to a number of regulatory requirements, including the effectiveness of the Registration Statement and a determination by the NASDAQ that the Company has satisfied all applicable listing requirements.

 

Additionally, even if the Common Shares are approved for listing on NASDAQ and following the effectiveness of the Registration Statement, we may lose our status as a foreign private issuer under applicable U.S. federal securities laws. As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the U.S. Exchange Act and related rules and regulations. As a result, we will not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In order to maintain our current status as a foreign private issuer, a majority of our Common Shares must be either directly or indirectly owned by non-residents of the United States unless we also satisfy one of the additional requirements necessary to preserve this status. We may in the future lose our foreign private issuer status if a majority of the Common Shares are held in the United States and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs we would incur as a Canadian foreign private issuer eligible to use MJDS. If we are not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers.

 

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Status as an “Emerging Growth Company” Under U.S. Securities Laws

 

We are an “emerging growth company” as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and we will continue to qualify as an emerging growth company until the earliest to occur of: (a) the last day of the fiscal year during which we have total annual gross revenues of US$1,070,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”); (c) the date on which we have, during the previous three year period, issued more than US$1,000,000,000 in non-convertible debt; and (d) the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 under the U.S. Exchange Act. We will qualify as a large accelerated filer (and would cease to be an emerging growth company) at such time when on the last business day of our second fiscal quarter of such year the aggregate worldwide market value of our common equity held by non-affiliates will be US$700 million or more.

 

For so long as we remain an emerging growth company, we are permitted to and intend to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the JOBS Act. We may take advantage of some, but not all, of the available exemptions available to emerging growth companies. We cannot predict whether investors will find the Common Shares less attractive because we rely upon certain of these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and the Common Share price may be more volatile. On the other hand, if we no longer qualify as an emerging growth company, we would be required to divert additional management time and attention from our development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting requirements, which could negatively impact our business, financial condition and results of operations.

 

We will have broad discretion over the use of proceeds from sales of the Securities, and we may not use the proceeds in the desired manner

 

Management will have discretion concerning the use of the proceeds from sales of the Securities as well as the timing of their expenditure. As a result, an investor will be relying on the judgment of management for the application of the proceeds from sales of the Securities. Management may use the net proceeds from sales of the Securities other than as described under the heading “Use of Proceeds” if they believe it would be in our best interest to do so and in ways that an investor may not consider desirable. The results and the effectiveness of the application of the proceeds are uncertain. If the proceeds are not applied effectively, our results of operations may suffer.

 

USE OF PROCEEDS

 

Unless otherwise indicated in the applicable Prospectus Supplement, we intend to use the net proceeds from the sale of Securities for working capital requirements or for other general corporate purposes, including, but not limited to, investments in product development and market development activities necessary to commercialize our products and services. More detailed information regarding the use of proceeds from the sale of Securities will be described in the applicable Prospectus Supplement. We may, from time to time, issue Common Shares or other securities otherwise than through the offering of Securities pursuant to this Prospectus.

 

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Prior to taking into account the January and February 2021 Private Placements and other recent adjustments to working capital, the Company had cash and working capital balance as of November 30, 2020 of $2.7 million and $(15.7) million, respectively. On February 26, 2021, the Company announced that EB Acquisition Company, LLC (“EB LLC”) had completed the previously agreed conversion of the US$5 million principal amount secured credit facility (the “EB Loan”) into a secured convertible debenture (the “Convertible Debenture”) with a three year term which is convertible into units of the Company at a conversion price of US$10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of US$15.00 per share for a period of three years from the issuance of the Convertible Debenture – the Convertible Debenture has been approved by the TSXV. In addition, as of February 28, 2021, the Company had outstanding loans under the Paycheck Protection Program (the “PPP”) of $1,589,559, of which $174,795 was recently forgiven, and the Company expects that the balance of $1,414,764 will be forgiven in full as it has cleared all requirements for full forgiveness - all forgiveness applications have been submitted as of present and formal forgiveness of these loans is expected in the near term. Excluding those PPP loans and the EB Loan, and accounting for the January and February 2021 Private Placements and the recent payments to Newsweek (as press released by the Company on February 15, 2021), the revised estimated working capital balance as of February 28, 2021 would be approximately $13.6 million.

 

In calculating working capital, all items are reflected in current assets except for prepaid expenses and other; and, all items in current liabilities are reflected except for warrant liability and deferred revenue - the excluded items are not financial assets and liabilities as they will not be settled in cash, and as such they have not been included in the calculation of working capital. As of February 28, 2021, the Company had a cash balance of approximately $22.1 million.

 

As of February 28, 2021, the Company had promissory notes totalling approximately $1.6 million outstanding. In addition to the EB LLC Convertible Debenture, the Company currently has outstanding the following non-current liabilities: (i) principal amount CDN$1,605,890 convertible debentures issued in 2019, which convert into units of the Company at CDN$7.50 per unit, and mature on dates ranging from July 8, 2022 to August 8, 2022; (ii) principal amount $925,000 convertible debentures issued in 2020, which convert into units of the Company at $7.50 per unit, and mature on dates ranging from August 19, 2022 to September 15, 2022; and, (iii) principal amount $2,000,000 convertible debenture issued in 2020, which converts into units of the Company at $8.90 per unit, and matures on November 20, 2022.

 

The Company estimates it can continue operations for 12 to 24 months considering cash on hand as of present date. This estimate is based on the current operating performance of the Company. The Company’s current average monthly cash outflow is now approximately $900,000 per month based on the Company’s current revenue run rate and operating expenditures. The Company does not currently have any committed capital expenditures that are not subject to adjustment. The current monthly cash burn is subject to positive adjustments based on increasing revenues and negative adjustments based on increased operating expenses. The Company believes that the improved cash burn going forward is repeatable as it has spent the past year incorporating the acquisitions of UMG, Frankly and WinView, and as a result the Company has now identified expenditures that can be reduced or eliminated without impacting revenues – a significant portion of these expenses have already been eliminated, primarily through the disposition of the Motorsport Assets.

 

The $900,000 monthly cash burn rate is the Company’s current approximate monthly cash burn rate, which is in effect its Adjusted EBITDA. This excludes change in cash due to changes in working capital, interest expense on its debts, non-cash charges such as depreciation and amortization and items that management believes are non-recurring in nature and should not be represented as future cash expenditures, such as professional fees for pursuing a Nasdaq listing. Prior to the disposal of the Motorsport Assets in November 2020, the Company’s monthly cash burn averaged approximately $1.7 million per month, with approximately $700,000 per month of that burn coming from the operations of the Motorsports Assets. Post disposal of the Motorsport Assets, the Company’s monthly cash burn was reduced to an average of $1.0 million. In addition, around the same time as the disposal of the Motorsport Assets, the Company made some smaller reductions to its existing spend that reduced its operating expenses by approximately $100,000 per month. These reductions included headcount reduction, reduction of third party technology and infrastructure costs, duplicate costs of the recently combined entities of the group and public relations costs.

 

Over the next 12 months, the Company does not have any committed expenses beyond normal operating expenditures. For growth initiatives over the next 12 months, the Company currently expects to allocate capital as follows:

 

UMG – Marketing and Advertising  $850,000 
UMG – Product Development  $560,000 
Stream Hatchet – Product Development  $600,000 
WinView – Product Development  $450,000 

 

The Company’s software development roadmap is focused on a number of key initiatives that will enable the Company to accelerate audience and revenue growth which furthers the Company’s direct to consumer marketing strategies. Today, the Company has approximately 2.5 million registered users on the UMG tournament platform. One of the key operating milestones for the current year is to convert ten (10%) percent of the registered user base to the premium subscription service - UMG Prime @ $4.99 USD/month. The Company also seeks to grow its registered user base, which will have a direct impact on expanding advertising and sponsorship revenues.

 

As part of its growth strategies, the Company will also continue to investigate value-enhancing acquisitions and/or potential strategic partnerships. The decisions will depend on market conditions, acquisition candidates and other factors, as they evolve over time. The Company is currently in early stage discussions and the due diligence phase on certain acquisition opportunities, but there is no certainty that such opportunities will evolve beyond the current stage of discussions and investigations.

 

While the Company anticipates that it will spend the funds available to it as set forth above, there may be circumstances where, for sound business reasons, a reallocation of expenditure priorities may be necessary.

 

We incurred operating losses and negative operating cash flow for the year ended August 31, 2020 and the three month period ended November 30, 2020. We expect to use the net proceeds from the sale of Securities in pursuit of our ongoing general business objectives. To that end, a substantial portion of the net proceeds from the sale of Securities are expected to be allocated to working capital requirements and to the continuing development and marketing of our proprietary technologies and core products. To the extent that we have negative operating cash flows in future periods, we may need to deploy a portion of the net proceeds from the sale of Securities and/or existing working capital to fund such negative cash flow. See “Risk Factors”.

 

CONSOLIDATED CAPITALIZATION

 

Other than as set out herein in the table below, and more fully described under “Prior Sales”, there have been no material changes in the share capitalization of the Company since November 30, 2020.

 

The applicable Prospectus Supplement will describe any material change, and the effect of such material change, on the share and loan capitalization of the Company that will result from the issuance of Securities pursuant to such Prospectus Supplement.

 

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   November 30, 2020   March 23, 2021 
Share Capital   Unlimited    Unlimited 
Common Shares   7,856,634    14,162,551 
Warrants   2,659,095    6,236,165 
Restricted Share Units   652,753    566,442 
Options   252,666    252,666 
2019 Convertible Debentures(1)   CDN$1,605,890    CDN$690,890 
2020 Convertible Debentures(2)   US$7,651,393    -(7)
2020 Convertible Debentures ($7.80)(3)   US$1,000,000    -(7)
One Up Debenture(4)   US$3,000,000    -(7)
Standby Debentures(5)   US$2,000,000    US$2,000,000 
EB Loan(6)   -    US$5,000,000 

 

Notes:

 

(1)For more information on the 2019 Convertible Debentures, see Note (1) of “Prior Sales” below.
   
(2)For more information on the 2020 Convertible Debentures, see Note (13) of “Prior Sales” below.
   
(3)For more information on the 2020 Convertible Debentures ($7.80), see Note (17) of “Prior Sales” below.
   
(4)For more information on the One Up Debenture, see Note (15) of “Prior Sales” below.
   
(5)For more information on the Standby Debentures, see Note (16) of “Prior Sales” below.
   
(6)For more information on the EB Loan, see Notes (26) and (32) of “Prior Sales” below.
   
(7)For more information on the Debt Settlements and conversions, see Notes (27) and (29) of “Prior Sales” below.

 

DESCRIPTION OF SHARE CAPITAL

 

The following is a brief summary of certain general terms and provisions of the Securities as at the date of this Prospectus. The summary does not purport to be complete and is indicative only. The specific terms of any Securities to be offered under this Prospectus, and the extent to which the general terms described in this Prospectus apply to such Securities, will be set forth in the applicable Prospectus Supplement. Moreover, a Prospectus Supplement relating to a particular offering of Securities may include terms pertaining to the Securities being offered thereunder that are not within the terms and parameters described in this Prospectus. The Securities will not include any novel derivatives or asset-backed securities as discussed under Part 4 of National Instrument 44-102 - Shelf Distributions.

 

Common Shares

 

The Company is authorized to issue an unlimited number of Common Shares, without par value, of which 14,162,551 are issued and outstanding as at the date of this Prospectus.

 

Each Common Share entitles the holder thereof to receive notice of any meetings of shareholders of the Company, to attend and to cast one vote at all such meetings. Holders of Common Shares do not have cumulative voting rights with respect to the election of directors and, accordingly, holders of a majority of the Common Shares entitled to vote in any election of directors may elect all directors standing for election. The holders of Common Shares are entitled to receive if, as and when declared by the Board, dividends in such amounts as shall be determined by the Board in its discretion. The holders of Common Shares have the right to receive the Company’s remaining property and assets after payment of debts and other liabilities on a pro rata basis in the event of a liquidation, dissolution or winding-up, whether voluntary or involuntary. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights.

 

Dividend Policy

 

We have not paid any dividends to date on the Common Shares. We intend to retain our earnings, if any, to finance the growth and development of our business. Accordingly, we do not currently expect to pay any dividends on our Common Shares in the near future.

 

Preference Shares

 

The Company is authorized to issue an unlimited number of Preference Shares. As of the date of this Prospectus, no Preference Shares are issued and outstanding.

 

Holders of Preference Shares shall not be entitled to receive notice of, or attend or vote at, any meeting of shareholders of the Company except as required by law or as provided in the special rights and restrictions attached to any series of Preference Shares. Holders of Preference Shares shall be entitled, on the distribution of assets or property of the Company on the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or on any other distribution of assets or property of the Company among its shareholders for the purpose of winding up its affairs, to receive, before any distribution or payment is made to holders as set out in the special rights and restrictions attached to the applicable series of Preference Shares. After payment to holders of Preference Shares of the amounts so payable to them, they shall not, as such, be entitled to share in any further distribution of assets or property of the Company except as specifically provided in the special rights and restrictions attached to any particular series of Preference Shares.

 

DESCRIPTION OF WARRANTS

 

The following description, together with the additional information we may include in any applicable Prospectus Supplements, summarizes the material terms and provisions of the Warrants that we may offer under this Prospectus, which will consist of Warrants to purchase Common Shares and may be issued in one or more series. Warrants may be offered independently or together with other Securities, and may be attached to or separate from those Securities. While the terms we have summarized below will apply generally to any Warrants that we may offer under this Prospectus, we will describe the particular terms of any series of Warrants that we may offer in more detail in the applicable Prospectus Supplement. The terms of any Warrants offered under a Prospectus Supplement may differ from the terms described below.

 

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General

 

Warrants may be issued under and governed by the terms of one or more warrant indentures (a “Warrant Indenture”) between us and a warrant trustee (the “Warrant Trustee”) that we will name in the relevant Prospectus Supplement, if applicable. Each Warrant Trustee will be a financial institution organized under the laws of Canada or any province thereof and authorized to carry on business as a trustee.

 

This summary of some of the provisions of the Warrants is not complete. The statements made in this Prospectus relating to any Warrant Indenture, if any, and Warrants to be issued under this Prospectus are summaries of certain anticipated provisions thereof and do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Warrant Indenture, if any, and the Warrant certificate. Prospective investors should refer to the Warrant Indenture, if any, and the Warrant certificate relating to the specific Warrants being offered for the complete terms of the Warrants. If applicable, we will file a Warrant Indenture describing the terms and conditions of Warrants we are offering concurrently with the filing of the applicable Prospectus Supplement under which such Warrants are offered.

 

The applicable Prospectus Supplement relating to any Warrants offered by us will describe the particular terms of those Warrants and include specific terms relating to the offering. This description will include, where applicable:

 

● the designation and aggregate number of Warrants;
   
● the price at which the Warrants will be offered;
   
● the currency or currencies in which the Warrants will be offered;
   
● the date on which the right to exercise the Warrants will commence and the date on which the right will expire;
   
● the number of Common Shares that may be purchased upon exercise of each Warrant and the price at which and currency or currencies in which the Common Shares may be purchased upon exercise of each Warrant;
   
● the designation and terms of any Securities with which the Warrants will be offered, if any, and the number of the Warrants that will be offered with each Security;
   
● the date or dates, if any, on or after which the Warrants and the other Securities with which the Warrants will be offered will be transferable separately;
   
● whether the Warrants will be subject to redemption and, if so, the terms of such redemption provisions;
   
● whether the Company will issue the Warrants as global securities and, if so, the identity of the depositary of the global securities;
   
● whether the Warrants will be listed on any exchange;
   
● material Canadian federal income tax consequences of owning the Warrants; and
   
● any other material terms or conditions of the Warrants.

 

Rights of Holders Prior to Exercise

 

Prior to the exercise of their Warrants, holders of Warrants will not have any of the rights of holders of the Common Shares issuable upon exercise of the Warrants.

 

- 19 -
 

 

Exercise of Warrants

 

Each Warrant will entitle the holder to purchase Common Shares, as specified in the applicable Prospectus Supplement at the exercise price that we describe therein. Unless we otherwise specify in the applicable Prospectus Supplement, holders of the Warrants may exercise the Warrants at any time up to the specified time on the expiration date that we set forth in the applicable Prospectus Supplement. After the close of business on the expiration date, unexercised Warrants will become void.

 

Holders of the Warrants may exercise the Warrants by delivering the Warrant certificate representing the Warrants to be exercised together with specified information, and paying the required amount to the Warrant Trustee, if any, or to us, as applicable, in immediately available funds, as provided in the applicable Prospectus Supplement. We will set forth on the Warrant certificate and in the applicable Prospectus Supplement the information that the holder of the Warrant will be required to deliver to the Warrant Trustee, if any, or to us, as applicable.

 

Upon receipt of the required payment and the Warrant certificate properly completed and duly executed at the corporate trust office of the Warrant Trustee, if any, to us at our principal offices, as applicable, or any other office indicated in the applicable Prospectus Supplement, we will issue and deliver the securities purchasable upon such exercise. If fewer than all of the Warrants represented by the Warrant certificate are exercised, then we will issue a new Warrant certificate for the remaining amount of Warrants. If we so indicate in the applicable Prospectus Supplement, holders of the Warrants may surrender securities as all or part of the exercise price for Warrants.

 

Anti-Dilution

 

The Warrant Indenture, if any, and the Warrant certificate will specify that upon the subdivision, consolidation, reclassification or other material change of the Common Shares or any other reorganization, amalgamation, merger or sale of all or substantially all of our assets, the Warrants will thereafter evidence the right of the holder to receive the securities, property or cash deliverable in exchange for or on the conversion of or in respect of the Common Shares to which the holder of a Common Share would have been entitled immediately after such event. Similarly, any distribution to all or substantially all of the holders of Common Shares of rights, options, warrants, evidences of indebtedness or assets will result in an adjustment in the number of Common Shares to be issued to holders of Warrants.

 

DESCRIPTION OF SUBSCRIPTION RECEIPTS

 

Subscription Receipts may be offered separately or together with other Securities.

 

Subscription Receipts will be issued under a subscription receipt agreement entered into between us and an escrow agent (the “Escrow Agent”). The applicable Prospectus Supplement will include details of the agreement pursuant to which such Subscription Receipts will be created and issued. Subscription Receipts will entitle the holders to receive Common Shares or other securities or a combination of securities upon the satisfaction of certain conditions, typically the completion of an acquisition by us of the assets or securities of another entity. Subsequent to an offering of Subscription Receipts, all or a portion of the proceeds for the Subscription Receipts will be held in escrow by the Escrow Agent, pending the satisfaction of the conditions specified in the applicable Prospectus Supplement. Holders of Subscription Receipts are not shareholders. Holders of Subscription Receipts are only entitled to receive Common Shares or other securities upon exchange or conversion of their Subscription Receipts in accordance with the terms thereof or to a return of the price for the Subscription Receipts together with any payments in lieu of interest or other income earned on the subscription proceeds.

 

The particular terms and provisions of Subscription Receipts offered under any Prospectus Supplement, and the extent to which the general terms and provisions described in this Prospectus may apply to those Subscription Receipts, will be described in the Prospectus Supplement filed in respect of such Subscription Receipts. This description will include, where applicable:

 

●the aggregate number of Subscription Receipts offered;
   
●the price and currency or currency unit at which the Subscription Receipts will be offered;
   
●the terms, conditions and procedures pursuant to which the holders of Subscription Receipts will become entitled to receive Common Shares or other securities;
   
●the number of Common Shares or other securities that may be obtained upon exchange or conversion of each Subscription Receipt;
   
●the designation and terms of any other Securities with which the Subscription Receipts will be offered, if any, and the number of Subscription Receipts that will be offered with each other Security;
   
●the circumstances, if any, which will cause the Subscription Receipts to be automatically exchanged or converted;
   
●whether the Subscription Receipts are to be issued in registered form, “book entry only” form, bearer form or in the form of temporary or permanent global securities and the basis of exchange, transfer and ownership thereof;
   
●the terms applicable to the gross proceeds from the sale of such Subscription Receipts plus any interest or other income earned thereon;
   
●certain material Canadian tax consequences of owning Subscription Receipts; and
   
●any other material terms and conditions of the Subscription Receipts.

 

The terms and provisions of any Subscription Receipts offered under a Prospectus Supplement may differ from the terms described above, and may not be subject to or contain any or all of the terms described above.

 

The preceding description and any description of Subscription Receipts in the applicable Prospectus Supplement does not purport to be complete and is subject to and is qualified in its entirety by reference to the subscription receipt agreement relating to such Subscription Receipts.

 

In the case of Subscription Receipts which are exchangeable for other securities of the Company, the holders will not have any of the rights of holders of the securities issuable upon the exchange of the Subscription Receipts until the issuance of those securities in accordance with the terms of the Subscription Receipts.

 

Prospective purchasers of Subscription Receipts should be aware that special Canadian federal income tax, accounting and other considerations may be applicable to instruments such as Subscription Receipts. The applicable Prospectus Supplement will describe such considerations, to the extent they are material, as they apply generally to purchasers of such Subscription Receipts.

 

DESCRIPTION OF DEBT SECURITIES

 

The following description, together with the additional information we may include in any applicable Prospectus Supplements, summarizes the material terms and provisions of the Debt Securities that we may offer under this Prospectus, which may be issued in one or more series. Debt Securities may be offered independently or together with other Securities.

 

- 20 -
 

 

General

 

The Debt Securities will be issued in one or more series under an indenture (the “Indenture”) to be entered into between the Company and one or more trustees (the “Trustee”) that will be named in a Prospectus Supplement for a series of Debt Securities. To the extent applicable, the Indenture will be subject to and governed by the United States Trust Indenture Act of 1939, as amended. A copy of the form of the Indenture to be entered into has been or will be filed with the SEC as an exhibit to the Registration Statement and will be filed with the securities commissions or similar authorities in Canada when it is entered into. The description of certain provisions of the Indenture in this section do not purport to be complete and are subject to, and are qualified in their entirety by reference to, the provisions of the Indenture. Terms used in this summary that are not otherwise defined herein have the meaning ascribed to them in the Indenture. The particular terms relating to Debt Securities offered by a Prospectus Supplement will be described in the related Prospectus Supplement. This description may include, but may not be limited to, any of the following, if applicable:

 

● the specific designation of the Debt Securities;
   
● any limit on the aggregate principal amount of the Debt Securities; the date or dates, if any, on which the Debt Securities will mature and the portion (if less than all of the principal amount) of the Debt Securities to be payable upon declaration of acceleration of maturity;
   
● the rate or rates (whether fixed or variable) at which the Debt Securities will bear interest, if any, the date or dates from which any such interest will accrue and on which any such interest will be payable and the record dates for any interest payable on the Debt Securities that are in registered form;
   
● the terms and conditions under which we may be obligated to redeem, repay or purchase the Debt Securities pursuant to any sinking fund or analogous provisions or otherwise;
   
● the terms and conditions upon which we may redeem the Debt Securities, in whole or in part, at our option;
   
● the covenants applicable to the Debt Securities;
   
● the terms and conditions for any conversion or exchange of the Debt Securities for any other securities;
   
● the extent and manner, if any, to which payment on or in respect of the Debt Securities of the series will be senior or will be subordinated to the prior payment of other liabilities and obligations of the Company;
   
● whether the Debt Securities will be secured or unsecured;
   
● whether the Debt Securities will be issuable in registered form or bearer form or both, and, if issuable in bearer form, the restrictions as to the offer, sale and delivery of the Debt Securities which are in bearer form and as to exchanges between registered form and bearer form;
   
● whether the Debt Securities will be issuable in the form of registered global securities (“Global Securities”), and, if so, the identity of the depositary for such registered Global Securities;
   
● the denominations in which registered Debt Securities will be issuable, if other than denominations of $1,000 and integral multiples of $1,000 and the denominations in which bearer Debt Securities will be issuable, if other than denominations of $5,000;
   
● each office or agency where payments on the Debt Securities will be made and each office or agency where the Debt Securities may be presented for registration of transfer or exchange;
   
● if other than United States dollars, the currency in which the Debt Securities are denominated or the currency in which we will make payments on the Debt Securities;
   
● material Canadian federal income tax consequences and United States federal income tax consequences of owning the Debt Securities;
   
● any index, formula or other method used to determine the amount of payments of principal of (and premium, if any) or interest, if any, on the Debt Securities; and
   
● any other terms, conditions, rights or preferences of the Debt Securities which apply solely to the Debt Securities.

 

If we denominate the purchase price of any of the Debt Securities in a currency or currencies other than United States dollars or a non-United States dollar unit or units, or if the principal of and any premium and interest on any Debt Securities is payable in a currency or currencies other than United States dollars or a non-United States dollar unit or units, we will provide investors with information on the restrictions, elections, general tax considerations, specific terms and other information with respect to that issue of Debt Securities and such non-United States dollar currency or currencies or non-United States dollar unit or units in the applicable Prospectus Supplement.

 

Each series of Debt Securities may be issued at various times with different maturity dates, may bear interest at different rates and may otherwise vary.

 

- 21 -
 

 

The terms on which a series of Debt Securities may be convertible into or exchangeable for Common Shares or other securities of the Company will be described in the applicable Prospectus Supplement. These terms may include provisions as to whether conversion or exchange is mandatory, at the option of the holder or at the option of the Company, and may include provisions pursuant to which the number of Common Shares or other securities to be received by the holders of such series of Debt Securities would be subject to adjustment.

 

To the extent any Debt Securities are convertible into Common Shares or other securities of the Company, prior to such conversion the holders of such Debt Securities will not have any of the rights of holders of the securities into which the Debt Securities are convertible, including the right to receive payments of dividends or the right to vote such underlying securities.

 

Rights of Holders Prior to Exercise

 

To the extent any Debt Securities are convertible into Common Shares or other securities of the Company, prior to the conversion of such Debt Securities, holders of such Debt Securities will not have any of the rights of holders of the securities into which the Debt Securities are convertible, including the right to receive payments of dividends or the right to vote such underlying securities.

 

Global Securities

 

We may issue Debt Securities in whole or in part in the form of one or more global securities, which will be registered in the name of and be deposited with a depositary, or its nominee, each of which will be identified in the applicable Prospectus Supplement. The global securities may be in temporary or permanent form. The applicable Prospectus Supplement will describe the terms of any depositary arrangement and the rights and limitations of owners of beneficial interests in any global security. The applicable Prospectus Supplement will describe the exchange, registration and transfer rights relating to any global security.

 

DESCRIPTION OF UNITS

 

The following description, together with the additional information we may include in any applicable Prospectus Supplements, summarizes the material terms and provisions of the Units that we may offer under this Prospectus. While the terms we have summarized below will apply generally to any Units that we may offer under this Prospectus, we will describe the particular terms of any series of Units in more detail in the applicable Prospectus Supplement. The terms of any Units offered under a Prospectus Supplement may differ from the terms described below.

 

We will file the form of unit agreement (“Unit Agreement”), if any, between us and a unit agent that describes the terms and conditions of the series of Units we are offering, and any supplemental agreements, concurrently with the filing of the applicable Prospectus Supplement under which such series of Units are offered. The following summaries of material terms and provisions of the Units are subject to, and qualified in their entirety by reference to, all the provisions of the Unit Agreement, if any, and any supplemental agreements applicable to a particular series of Units. We urge you to read the applicable Prospectus Supplements related to the particular series of Units that we sell under this Prospectus, as well as the complete Unit Agreement, if any, and any supplemental agreements that contain the terms of the Units.

 

General

 

We may issue Units comprising one or more of Securities otherwise described herein 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 Unit Agreement under which a Unit may be issued may provide that the securities included in the Unit may not be held or transferred separately, at any time or at any time before a specified date.

 

We will describe in the applicable Prospectus Supplement the terms of the series of Units, including:

 

● the designation and terms of the Units and of the securities comprising the Units, including whether and under what circumstances those securities may be held or transferred separately;
   
● provisions of the governing Unit Agreement, if any; and
   
● any provisions for the issuance, payment, settlement, transfer or exchange of the Units or of the securities comprising the Units.

 

The provisions described in this section, as well as those described under “Description of Share Capital” and “Description of Warrants” will apply to each Unit and to any Security included in each Unit, respectively.

 

- 22 -
 

 

Issuance in Series

 

We may issue Units in such amounts and in numerous distinct series as we determine.

 

PRICE RANGE AND TRADING VOLUMES

 

The Common Shares are listed and posted for trading on the TSXV under the symbol “GAME”. The following table sets forth, on a monthly basis, the reported price range and the aggregate volume of trading of the Common Shares during the 12 months preceding the date of this Prospectus.

 

  

TSXV

(prices in Canadian dollars)

 
Date  Price Range (high - low)   Total Volume 

March 1 - 24, 2021

  $ 14.24 - $11.00

    580,589 
February 2021  $

14.84 - $8.90

    

1,417,221

 
January 2021  $

10.90 - $9.01

    311,902 
December 2020  $11.00 - $8.17    406,204 
November 2020  $10.35 - $7.21    403,501 
October 2020  $11.76 - $9.00    496,703 
September 2020  $11.74 - $8.70    378,890 
August 2020(3)  $14.75 - $7.43    744,917 
July 27 – 31, 2020(1)  $11.40 - $8.85    218,290 
June 1 – 22, 2020(1)   14.25 - $10.20    572,451 
May 2020  $18.00 - $5.85    1,581,284 
April 2020  $15.00 - $6.15    619,235 
March 2020  $17.70 - $6.38    165,585 
February 28, 2020(2)  $13.20 - $9.90    23,039 

 

Notes:

 

(1) On June 22, 2020, the OSC issued a cease trade order against Engine and its securities were halted on June 23, 2020 from trading on the TSXV. The OSC issued the order as a result of Engine not meeting the deadline for filing its second quarter interim financial statements for the six-month period ended February 29, 2020, the related management’s discussion and analysis and certificates of its CEO and CFO (the “Q2 Filings”). On July 8, 2020, Engine filed the Q2 Filings and the CTO was lifted on July 10, 2020. Engine common shares resumed trading on the TSXV on July 27, 2020.

 

(2) On January 6, 2020, the OSC issued a cease trade order against Engine and its securities were halted from trading on the TSXV. The OSC issued the order as a result of Engine not meeting the deadline of December 31, 2019 to file its annual financial statements for the fiscal year ended August 31, 2019, the related management’s discussion and analysis and the related certification of the annual filings (the “2019 Annual Filings”). On February 17, 2020 Engine filed its 2019 Annual Filings and the CTO was lifted on February 24, 2020. Engine common shares resumed trading on the TSXV on February 28, 2020.

 

(3) On October 17, 2019, the Company completed a consolidation of its Common Shares on the basis of one post-consolidation Common Share for every five pre-consolidation Common Shares. On August 13, 2020, the Company completed a further consolidation of its Common Shares on the basis of one post-consolidation Common Share for every fifteen pre-consolidation Common Shares. The figures in this table are presented on a post-consolidation basis.

 

The closing price of the Common Shares on the TSXV on March 24, 2021 was CDN$11.75.

 

- 23 -
 

 

PRIOR SALES

 

In the 12 months prior to the date of this Prospectus, the Company has issued the following securities:

 

Types of Security  Date of Issue  Number of Securities/ Principal Amount   Exercise
Price		   Expiry Date
Common Share purchase warrant(1)(2)  March 19, 2020 – August 31, 2020   445,146    CDN$7.50   July 8, 2024
Common Share(1)(3)  March 19, 2020 – August 31, 2020   445,146    N/A   N/A
Common Share purchase warrant(1)(2)  March 19, 2020 – March 15, 2021   345,264    CDN$7.50   July 25, 2024
Common Share(1)(3)  March 19, 2020 – March 15, 2021   345,264    N/A   N/A
Common Share purchase warrant(1)(2)  March 19, 2020 – March 18, 2021   357,995    CDN$7.50   August 8, 2024
Common Share(1)(3)  March 19, 2020 – March 18, 2021   357,995    N/A   N/A
Common Share(4)  March 24, 2020 – March 15, 2021   681,867    N/A   N/A
Common Share(5)  March 20, 2020   46,300    N/A   N/A
Common Share(6)  March 20, 2020 – May 27, 2020   444,428    N/A   N/A
Common Share purchase warrant(6)  March 20, 2020 – May 27, 2020   222,214    CDN$13.50   March 20 – May 27, 2023
Stock Options(7)  April 1, 2020   170,000    CDN$11.25   April 1, 2023
RSUs(8)  April 1, 2020   26,667    N/A   N/A
Common Share(8)  April 15, 2020   26,667    N/A   N/A
Common Share(9)  May 8, 2020   3,976,604    N/A   N/A
Options (Frankly)(9)  May 8, 2020   3,524
56,500
4,666		    CDN$106.50
CDN$7.50
CDN$7.05		   January 29, 2025 – November 27, 2027
November 7, 2029
April 20, 2021
RSUs (Frankly)(9)  May 8, 2020   91,647    N/A   N/A

 

- 24 -
 

 

Warrants (Frankly)(9)  May 8, 2020   1,055,036    CDN$9.75 - CDN$13.50   May 22, 2021 to March 13, 2022
Common Share(10)  June 3, 2020   100,000    N/A   N/A
Common Share(11)  June 3, 2020   200,000    N/A   N/A
Common Share(12)  June 16, 2020   13,354    N/A   N/A
Convertible Debentures(13)  August 19, 2020 – September 15, 2020  $7,651,393    N/A   August 19, 2022 – September 15, 2022
RSUs(14)  August 13, 2020   352,335    N/A   N/A
Convertible Debentures(15)  August 25, 2020  $3,000,000    N/A   August 25, 2022
Convertible Debentures(16)  October 16, 2020  $1,050,000    N/A   October 16, 2022
Convertible Debentures(17)  October 16, 2020  $1,000,000    N/A   October 16, 2022
Common Share(18)  October 29, 2020   2,500    N/A   N/A
RSUs(19)  November 3, 2020   75,944    N/A   N/A
RSUs(20)  November 4, 2020 – November 15, 2020   246,603    N/A   N/A
Convertible Debentures(21)  November 20, 2020  $950,000    N/A   November 20, 2022
Warrants(22)  November 20, 2020   224,719   $15   November 20, 2024
Common Shares(23)  November 25, 2020   66,666    N/A   N/A
Common Shares(24)  December 2, 2020   40,000    N/A   N/A
Common Shares(25)  December 3, 2020   75,944    N/A   N/A
Convertible Debentures(26)  December 2, 2020  $1,000,000    N/A   January 5, 2022
Common Shares(26)  December 30, 2020   6,666    N/A   N/A
Common Shares(27)  January 8, 2021   1,430,186    N/A   N/A
Warrants(27)  January 8, 2021   1,072,639   $15   August 19, 2023
Common Shares(28)  January 8, 2021   1,442,399    N/A   N/A
Warrants(28)  January 8, 2021   796,147   $15   January 8, 2024
Common Shares(28)  January 22, 2021   979,048    N/A   N/A
Warrants(28)  January 22, 2021   529,564   $15   January 22, 2024
Common Shares(29)  February 12, 2021 – March 18, 2021   123,331    N/A   N/A
Warrants(29)  February 12, 2021 – March 18, 2021   61,664   $15   August 19, 2023– September 15, 2023
Common Shares(30)  February 23, 2021 – March 10, 2021   23,825    N/A   N/A
Common Shares(31)  February 24, 2021   2,013,966    N/A   N/A
Warrants(31)  February 24, 2021   1,051,550   $15   February 24, 2024
Convertible Debentures(32)  February 24, 2021  $5,000,000   $10.25   February 24, 2024

Common Shares(33)

 

March 10, 2021

   

15,867

    

N/A

  

N/A

 

- 25 -
 

 

Notes:

 

(1) On July 8, 2019, Engine closed a first tranche of a non-brokered private placement of convertible debentures in the amount of CDN$5,251,112 (“2019 Convertible Debentures”). The 2019 Convertible Debentures will mature 36 months from the date of issuance and bear interest at a rate of 6% per annum, payable on maturity. Holders of the 2019 Convertible Debentures may convert all or a portion of the principal amount of the 2019 Convertible Debentures into units of Engine at a price of CDN$7.50 per unit. Each unit is comprised of one Common Share and one warrant, with each warrant exercisable into a Common Share at an exercise price of CDN$7.50 per share for a period of five years from the issuance of the 2019 Convertible Debentures. Engine shall be entitled to call for the exercise of any outstanding warrants following the 6 month anniversary of closing in the event that the closing trading price of the shares is above CDN$45.00 for 15 consecutive trading days. On July 25, 2019 Engine closed an additional tranche of principal amount 2019 Convertible Debentures of CDN$5,342,000 and on August 8, 2019, Engine closed a final tranche of principal amount 2019 Convertible Debentures of CDN$4,406,900. The non-brokered private placement of 2019 Convertible Debentures was fully subscribed for a total of principal amount of CDN$15,000,012. As of the date of this Prospectus, the balance remaining of the 2019 Convertible Debentures after accounting for conversions was CDN$$690,890.

 

(2) Common Share purchase warrants issued on conversion of the 2019 Convertible Debentures, as described under Note (1), above.

 

(3) Common Shares issued on conversion of the 2019 Convertible Debentures, as described under Note (1), above.

 

(4) Common Shares issued on exercise of 681,867 warrants issued under the 2019 Convertible Debentures, as described under Note (1), above.

 

(5) On March 20, 2020, the Company issued 46,300 Common Shares to settle and extinguish CDN$900,002.55 of indebtedness owed to three creditors of the Company.

 

(6) On March 25, 2020, the Company announced it closed the first tranche of its non-brokered private placement of up to 444,444 units at a price of $9.00 per unit for gross proceeds of up to CDN$4,000,000. Each unit consisted of one Common Share of Engine and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional Common Share of Engine for a period of 36 months from the date of issuance at a price of CDN$13.50 per share. Aggregate proceeds of CDN$500,000 were raised and 55,555 units were issued on the closing of the first tranche of the offering. On March 30, 2020, the Company announced it closed the second tranche of the offering, for aggregate gross proceeds of CDN$844,370 and 93,818 units were issued on the closing of the tranche. On March 31, 2020, the Company announced it closed an additional tranche of the offering, for aggregate gross proceeds of CDN$310,000 and 34,444 units were issued on the closing of the tranche. On May 28, 2020, the Company announced it closed the final tranche of the offering, for aggregate gross proceeds of CDN$2,344,890 and 260,609 units were issued on the closing of this final tranche.

 

(7) On April 1, 2020, the board of directors of the Company approved the grant of 170,000 incentive stock options, which were granted to directors and senior officers of the Company. The options are exercisable into Common Shares of the Company at a price of CDN$11.25 per share, expire on April 1, 2023 and vest immediately.

 

(8) On April 1, 2020, the Company granted an aggregate of 26,667 RSUs to directors and senior officers of the Company, which vest immediately. On April 15, 2020, the Company issued an aggregate of 26,667 Common Shares pursuant to the RSUs.

 

(9) On May 8, 2020, the Company acquired all of the issued and outstanding shares of Frankly in exchange for consideration of one Engine Common Share for each Frankly common share acquired, pursuant to a court approved plan of arrangement, resulting in the issuance of 2,216,607 Common Shares upon closing the business combination described herein. The Company also concurrently indirectly acquired WinView, pursuant to a statutory merger under the laws of the State of Delaware, with WinView securityholders receiving an aggregate of 1,759,997 Common Shares of Engine as well as certain contingent consideration. All outstanding convertible securities of Frankly were exchanged for equivalent securities of Engine (other than outstanding warrants to purchase common shares of Frankly, which will remain outstanding and have the terms of such securities adjusted to reflect the exchange ratio).

 

(10) On June 1, 2020, the Company signed a definitive agreement to acquire Driver DataBase AB (“Driver Database”) in exchange for the issuance of 100,000 Common Shares of Engine to the shareholders of Driver Database on June 3, 2020. On November 4, 2020, the Company announced that it has completed the disposition of the Motorsports Assets, which included the disposition of Driver Database.

 

(11) On June 2, 2020, the Company signed a definitive agreement to acquire The Race YouTube Channel (“The Race”), previously known as LetsGoRacing, in exchange for total cash consideration of £315,000 (approximately CDN$530,000) to be payable to shareholders of The Race in tranches over 12 months from closing, in addition to 200,000 Common Shares of the Company issued to the shareholders of The Race on June 3, 2020. On November 4, 2020, the Company announced that it has completed the disposition of the Motorsports Assets, which included the disposition of The Race asset.

 

(12) On June 16, 2020, the Company issued 13,354 Common Shares to settle and extinguish CDN$125,000 in professional fees owing to Haywood Securities Inc. in connection with the provision of a fairness opinion to the board of directors of Frankly, to preserve cash and improve the Company’s balance sheet. The debt settlement was conditionally approved by the TSXV on June 15, 2020.

 

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(13) On August 19, 2020, Engine closed a first tranche of a non-brokered private placement of convertible debentures in the amount of US$5,750,000 (“2020 Convertible Debentures”). The 2020 Convertible Debentures will mature 24 months from the date of issuance and bear interest at a rate of 5% per annum (subject to the following adjustments), payable on maturity. At the Company’s option, interest under the 2020 Convertible Debentures is payable in kind in Engine Common Shares at an issue price which would be based on the trading price of the Common Shares at the time of such interest payment. The interest rate under the 2020 Convertible Debentures will increase from 5% to 10% per annum on a prospective basis on December 19, 2020, if a public offering has not occurred by that date. The 2020 Convertible Debentures holders may convert all or a portion of the principal amount of the 2020 Convertible Debentures into units of the Company at a price equal to the lesser of (a) US$11.25 per unit, and (b) if such conversion occurs after a public offering of securities by the Company, a 15% discount to the public offering price, provided that such conversion price shall not be less than US$7.50 per unit. Notwithstanding the foregoing, if by December 19, 2020, the Company has not obtained registration rights in the United States to allow sale in the United States of the Common Shares of the Company and the exercise of warrants of the Company to be issued pursuant to the conversion of the 2020 Convertible Debentures, holders of 2020 Convertible Debentures may convert such convertible debentures into units at US$7.50 per unit. Each unit is comprised of one Common Shares and one-half of one warrant, with each warrant exercisable into one Common Shares of the Company at an exercise price of US$15.00 per share for a period of three years from the issuance of the 2020 Convertible Debentures. Under certain circumstances, the Company shall be entitled to call for the exercise of any outstanding warrants in the event. On September 15, 2020, Engine closed the final tranche of 2020 Convertible Debentures in the amount of US$1,901,393.

 

(14) On August 13, 2020, the Company granted RSUs pursuant to the Company’s Omnibus Equity Incentive Plan to the following directors and officers in the following amounts: Tom Rogers (113,095 RSUs), Lou Schwartz (147,619 RSUs), Peter Liabotis (16,384 RSUs) Steve Zenz (14,764 RSUs), Bryan Reyhani (16,773 RSUs), Hank Ratner (11,954 RSUs), and Mike Munoz (31,746 RSUs).

 

(15) On August 25, 2020, Engine announced it completed the acquisition of a 20.48% interest in mobile gaming company One Up Group, LLC (“One Up”). The purchase price was satisfied with the issuance of principal amount US$3 million convertible debentures, having the same terms as the 2020 Convertible Debentures, except that references therein to US$7.50 have been changed to US$9.50 (the “One Up Debenture”).

 

(16) On October 16, 2020, the Company announced that it closed a first tranche of principal amount US$1,050,000 of the first US$2,000,000 draw of a US$8,000,000 stand-by convertible debenture facility (“Standby Debentures”). The Standby Debentures have substantially similar terms as the 2020 Convertible Debentures, as described under Note (13) above, except the following: (i) the references therein to a minimum US$7.50 conversion price have been changed to US$8.90; and (ii) the Standby Debentures are only convertible into common shares of the Company, not units.

 

(17) On October 16, 2020, the Company announced that it closed a principal US$1 million convertible debenture financing which as similar terms to the 2020 Convertible Debentures, as described under Note (13) above, except the references therein to US$7.50 have been changed to US$7.80 (the “2020 Convertible Debentures ($7.80)”).

 

(18) Common Shares issued on exercise of 2,500 warrants at an exercise price of CDN$9.75, issued in connection with the Frankly transaction, as described under Note (9), above.

 

(19) On November 3, 2020, the Company granted 75,944 RSUs to Darren Cox which will vest 30 days following the grant thereof.

 

(20) On November 4, 2020, the Company granted 241,103 RSUs to management of the Company which will vest over a three year period. On November 15, 2021, the Company granted 5,500 RSUs to management of the Company under the same terms.

 

(21) On November 20, 2020, the Company closed a second tranche of Standby Debentures in the amount of US$950,000.

 

(22) Common Share purchase warrants issued in connection with the Standby Debentures (“Standby Warrants”). Each Standby Warrant is exercisable into a Common Share at an exercise price of US$15 until November 20, 2024.

 

(23) Common Shares issued pursuant to the vesting of RSUs.

 

(24) On December 2, 2020, the Company agreed to settle outstanding debt of CDN294,000 with two arm’s length creditors by issuing 40,000 Common Shares at a deemed price of CDN$7.35 per Common Share. The Common Shares are subject to a four-month hold period which will expire on April 5, 2021.

 

(25) Common Shares issued pursuant to the vesting of RSUs.

 

(26) On December 2, 2020, the Company announced that its wholly-owned subsidiaries Frankly Media LLC and Frankly have amended the existing secured credit facility (as amended, the “EB Loan”) with arm’s length lender EB Acquisition Company, LLC (the “EB Lender”), in connection with the advance of an additional US$1,000,000 under the EB Loan, which is convertible at the option of the EB Lender, at a conversion price per share of US$11.25. The credit limit under the EB Loan of US$5 million is now fully drawn. In connection with the amendment, the maturity date of the EB Loan has been extended from January 5, 2021 until January 5, 2022. Additionally, the Company has guaranteed the obligations under the EB Loan and has granted a security interest in favour of the EB Lender over the assets of the Company. In consideration of the extension of the maturity date, the Company has agreed to issue to the EB Lender an aggregate of 6,666 Common Shares and an amendment fee of US$100,000 which forms part of the outstanding principal under the EB Loan. The Common Shares issuable will be subject to a hold period expiring four months and a day following the date of issuance, as well as restrictions on transfer under applicable securities laws.

 

(27) On January 8, 2021 the Company completed the settled convertible debentures (the “Debt Settlements”) of an aggregate principal amount of $10,726,393 in outstanding convertible debentures through the issuance of 1,430,186 units at a deemed price of US$7.50 per unit, with each unit consisting of a common share and three-quarters of a warrant, with each whole warrant exercisable into a common share at an exercise price of US$15 per share for a period of three years.

 

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(28) On December 23, 2020, the Company announced its intention to complete a non-brokered private placement of up to approximately 3.3 million units at a price of US$7.50 per unit for gross proceeds of up to US$25,000,000 (“January 2021 Private Placement”). Each unit consists of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional share of the Company at a price of US$15.00 per share for a period of 3 years provided that: (i) if the common shares are listed for trading on NASDAQ, (ii) the Company completes an offering of securities under a short form prospectus for an aggregate amount of at least US$30,000,000, and (iii) the closing price of the common shares on NASDAQ is US$30.00 or greater for a period of 15 consecutive trading days, then the Company may accelerate the expiry date of the warrants to the 30th day after the date written notice is provided to the holders. On January 8, 2021 the Company closed the first tranche of the January 2021 Private Placement for aggregate gross proceeds of US$10,540,883 and 1,405,451 units were issued. The Company paid cash commissions to eligible finders totalling $284,989 and also issued the following securities as partial payment of commissions to finders: 36,948 units; and, 74,947 finders warrants, with each finder warrant exercisable into a common share at an exercise price of US$15.00 per share for 3 years subject to the same acceleration terms described above. On January 26, 2021, the Company announced it had closed the final tranche of 966,296 units for gross proceeds of US$7,247,222.50 of the previously announced non-brokered private placement of units at a price of US$7.50 per unit. The Company paid cash commissions to eligible finders under the offering totaling $205,652.05 and also issued the following securities as partial payment of commissions to finders: 12,752 units; and, 40,040 finders warrants, with each finder warrant exercisable into a common share at an exercise price of US$15.00 per share for 3 years subject to the same acceleration terms described above.

 

(29) Common Shares and warrants issued on the conversion of US925,000 of 2020 Convertible Debentures.

 

(30) Common Shares issued on exercise of 23,825 warrants at an exercise price of CDN$9.75, issued in connection with the Frankly transaction, as described under Note (9), above.

 

(31) On February, 5, 2021, the Company announced its intention to complete a non-brokered private placement of up to 2 million units at a price of US$7.50 per unit for gross proceeds of up to US$15,000,000 (“February 2021 Private Placement”). Each unit under the February 2021 Private Placement has the same terms as the units under the January 2021 Private Placement. On February 24, 2021, the Company closed the February 2021 Private Placement for aggregate gross proceeds of US$15,000,000 and 2,000,000 units were issued. The Company paid cash commissions to eligible finders under the Offering totalling US$229,506.08 and also issued the following securities as partial payment of commissions to finders: 13,966 units; and, 44,567 finders warrants, with each finder warrant exercisable into a common share at an exercise price of US$15.00 per share for 3 years subject to the same acceleration terms described above.

 

(32) On February 26, 2021, the Company announced that it and EB Lender converted the EB Loan in the principal amount of US$5,000,000, into a US$5,000,000 secured convertible debenture (which amount includes and replaces the US$1,000,000 convertible debenture described in Note 26, above) which is convertible into units of the Company at a conversion price of US$10.25 per unit, with each unit comprised of one common share and one-half of a warrant, with each whole warrant exercisable into a common share at an exercise price of US$15 per share for a period of three years from the issuance of the convertible debenture.

 

(33) Common Shares issued pursuant to the vesting of RSUs.

 

(34) On October 17, 2019, the Company completed a consolidation of its Common Shares on the basis of one post-consolidation Common Share for every five pre-consolidation Common Shares. On August 13, 2020, the Company completed a further consolidation of its Common Shares on the basis of one post-consolidation Common Share for every fifteen pre-consolidation Common Shares. The figures in this table and in the notes thereto are presented on a post-consolidation basis unless otherwise specified.

 

PLAN OF DISTRIBUTION

 

General

 

We may offer and sell the Securities, separately or together: (a) to one or more underwriters; (b) through one or more agents; or (c) directly to one or more other purchasers. The Securities offered pursuant to any Prospectus Supplement may be sold from time to time in one or more transactions at: (i) a fixed price or prices, which may be changed from time to time; (ii) market prices prevailing at the time of sale; (iii) prices related to such prevailing market prices; or (iv) other negotiated prices, including sales in transactions that are deemed to be “at-the-market distributions”, including sales made directly on the TSXV or other existing trading markets for the Securities. We may only offer and sell the Securities pursuant to a Prospectus Supplement during the period that this Prospectus, including any amendments hereto, remains effective. The Prospectus Supplement for any of the Securities being offered thereby will set forth the terms of the offering of such Securities, including the type of Security being offered, the name or names of any underwriters or agents, the purchase price of such Securities, the proceeds to us from such sale, any underwriting commissions or discounts and other items constituting underwriters’ compensation. Only underwriters so named in the Prospectus Supplement are deemed to be underwriters in connection with the Securities offered thereby.

 

By Underwriters

 

If underwriters are used in the sale, the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Unless otherwise set forth in the Prospectus Supplement relating thereto, the obligations of underwriters to purchase the Securities will be subject to certain conditions, but the underwriters will be obligated to purchase all of the Securities offered by the Prospectus Supplement if any of such Securities are purchased. We may offer the Securities to the public through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. The Company may agree to pay the underwriters a fee or commission for various services relating to the offering of any Securities. Any such fee or commission will be paid out of our general corporate funds. We may use underwriters with whom we have a material relationship. We will describe in the Prospectus Supplement, naming the underwriter, the nature of any such relationship.

 

By Agents

 

The Securities may also be sold through agents designated by us. Any agent involved will be named, and any fees or commissions payable by us to such agent will be set forth in the applicable Prospectus Supplement. Any such fees or commissions will be paid out of our general corporate funds. Unless otherwise indicated in the Prospectus Supplement, any agent will be acting on a best efforts basis for the period of its appointment.

 

General Information

 

Underwriters or agents who participate in the distribution of Securities may be entitled under agreements to be entered into with us to indemnification by us against certain liabilities, including liabilities under Canadian provincial legislation, or to contribution with respect to payments which such underwriters or agents may be required to make in respect thereof. Such underwriters or agents may be customers of, engage in transactions with, or perform services for, us in the ordinary course of business.

 

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No underwriter or dealer involved in an “at-the-market distribution” as defined under the applicable Canadian securities legislation, and no person or company acting jointly or in concert with an underwriter, may, in connection with the distribution, enter into any transaction that is intended to stabilize or maintain the market price of the securities or securities of the same class as the securities distributed under the at-the-market prospectus, including selling an aggregate number or principal amount of securities that would result in the underwriter creating an over-allocation position in the securities.

 

In connection with any offering of Securities, other than an “at-the-market distribution”, underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time.

 

CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

 

The applicable Prospectus Supplement may describe certain Canadian federal income tax consequences to an investor acquiring any Securities offered thereunder.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Information has been incorporated by reference in this Prospectus from documents filed with securities commissions or similar regulatory authorities in Canada (the “Canadian Securities Authorities”). Copies of the documents incorporated by reference herein may be obtained on request without charge from the secretary of the issuer at 77 King Street West, Suite 3000, PO Box 95, Toronto, Ontario M5K 1G8, or by telephone at (212) 931-1200 and are also available electronically at www.sedar.com.

 

The following documents, which were filed by the Company with the Canadian Securities Authorities, are specifically incorporated by reference into, and form an integral part of, this Prospectus:

 

(a) the annual information form of Engine dated January 8, 2021 for the year ended August 31, 2020;
   
(b) the information circular of Engine dated September 6, 2019 relating to the annual and special meeting of shareholders held on October 9, 2019;
   
(c) the information circular of Engine dated June 15, 2020 relating to the annual and special meeting of shareholders held on July 15, 2020;
   
(d) the audited consolidated financial statements of Engine for the years ended August 31, 2020 and 2019, together with the notes thereto and auditor’s reports thereon;
   
(e) management’s discussion and analysis of the financial condition and results of operations of Engine for the year ended August 31, 2020;
   
(f)

the unaudited interim consolidated financial statements (except for the notice of no auditor review) as at and for the three months ended November 30, 2020 and November 30, 2019, and related notes thereto;

 
(g)

the management’s discussion and analysis for the three months ended November 30, 2020;

   
(h)

the material change report of Engine dated January 12, 2021 relating to the announcement of the January 2021 Private Placement and the completion of the first tranche of the January 2021 Private Placement;

   
(i)

the material change report of Engine dated January 27, 2021 relating to the announcement of the completion of the final tranche of the January 2021 Private Placement;

   
(j)

the material change report of Engine dated March 1, 2021 relating to the announcement of the completion of the February 2021 Private Placement; and

   
(k)

the business acquisition report of Engine dated November 13, 2020 relating to the completion of its acquisition of each of Frankly and WinView.

 

Any statement contained in this Prospectus or in any document incorporated or deemed to be 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 or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus.

 

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Any document of the type referred to above or similar material and any documents required by National Instrument 44-101 – Short Form Prospectus Distributions to be incorporated by reference into a short form prospectus, including any annual information forms, all material change reports (excluding confidential reports, if any), all annual and interim financial statements and management’s discussion and analysis relating thereto, or information circular or amendments thereto filed by the Company with any securities commissions or similar regulatory authority in Canada after the date of this Prospectus and during the period that this Prospectus is effective, will be deemed to be incorporated by reference in this Prospectus and will automatically update and supersede information contained or incorporated by reference in this Prospectus. The documents incorporated or deemed to be incorporated herein by reference contain meaningful and material information relating to the Company and readers should review all information contained in this Prospectus, and the documents incorporated or deemed to be incorporated by reference herein.

 

In addition, to the extent that any document or information incorporated by reference into this Prospectus pursuant to the foregoing paragraph is also included in any report that we file with or furnish to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, such document or information shall be deemed to be incorporated by reference as an exhibit to the Registration Statement of which this Prospectus forms a part. Furthermore, we may incorporate by reference into the Registration Statement of which this Prospectus forms a part, any report on Form 6- K furnished to the SEC, including the exhibits thereto, if and to the extent provided in such report.

 

References to our website in any documents that are incorporated by reference into this Prospectus do not incorporate by reference the information on such website into this Prospectus, and we disclaim any such incorporation by reference.

 

DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT

 

The following documents will be filed with the SEC as part of the Registration Statement on Form F-10 of which this Prospectus forms a part:

 

(a) the documents listed under the heading “Documents Incorporated by Reference”;
   
(b) powers of attorney from our directors and officers, as applicable (included on the signature page to the registration statement);
   
(c) the consent of Baker Tilly WM LLP;
   
(d) the consent of McGovern Hurley LLP; and
   
(e) the form of indenture for any Debt Securities issued hereunder.

 

A copy of the form of warrant indenture or statement of eligibility of trustee on Form T-1, as applicable, will be filed by post-effective amendment or by incorporation by reference to documents filed or furnished with the SEC under the Exchange Act.

 

AVAILABLE INFORMATION

 

In addition to our continuous disclosure obligations under the securities laws of the provinces and territories of Canada, we will be subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with the SEC. Under the MJDS, such reports and other information may be prepared in accordance with the disclosure requirements of Canada, which requirements are different from those of the United States. As a foreign private issuer, the Company is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and the Company’s officers and directors are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. Some of the documents that we file with or furnish to the SEC are electronically available from the SEC’s Electronic Document Gathering and Retrieval system, which is commonly known by the acronym “EDGAR”, and may be accessed at www.sec.gov.

 

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The Company has concurrently filed with the SEC a registration statement on Form F-10 under the United States Securities Act of 1933, as amended, with respect to the Securities. This Prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement, certain parts of which have been omitted in accordance with the rules and regulations of the SEC. For further information with respect to the Company and the Securities offered in this Prospectus, reference is made to the registration statement and to the schedules and exhibits filed therewith. Statements contained in this Prospectus as to the contents of certain documents are not necessarily complete and, in each instance, reference is made to the copy of the document filed as an exhibit to the registration statement. Each such statement is qualified in its entirety by such reference. You may refer to the registration statement and the exhibits to the registration statement for further information with respect to the Company and the Securities. See “Documents Filed as Part of the Registration Statement”.

 

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES AND AGENT FOR SERVICE OF PROCESS

 

The Company is a corporation incorporated under and governed by the Business Corporations Act (British Columbia). Some of the directors and officers of the Company, are residents of Canada or otherwise reside outside the United States, and all or a substantial portion of their assets, and a certain portion of the Company’s assets, are located outside the United States. The Company has appointed an agent for service of process in the United States, but it may be difficult for investors who reside in the United States to effect service of process upon these persons in the United States, or to enforce a U.S. court judgment predicated upon the civil liability provisions of the U.S. federal securities laws against the Company or any of these persons. There is substantial doubt whether an action could be brought in Canada in the first instance predicated solely upon U.S. federal securities laws.

 

MATERIAL CONTRACTS

 

The following are the material contracts entered into by the Company, including certain contracts entered into in the ordinary course of business, since the beginning of the most recently completed financial year and prior to the most recently completed financial year if those material contracts are still in effect:

 

  i. the business combination agreement dated March 9, 2020 among the Company, Engine Merger Sub Inc., Frankly and WinView; and
     
  ii. the arrangement agreement dated November 6, 2019 between the Company and UMG.

 

LEGAL MATTERS

 

Unless otherwise specified in a Prospectus Supplement relating to any Securities offered, certain legal matters in connection with the offering of Securities may be passed upon on behalf of the Company by Fogler, Rubinoff LLP as to legal matters relating to Canadian law. In addition, certain legal matters in connection with any offering of Securities may be passed upon for any underwriters, dealers or agents by counsel to be designated at the time of the offering by such underwriters, dealers or agents, as the case may be.

 

As of the date hereof, the designated professionals of Fogler, Rubinoff LLP collectively beneficially own, directly or indirectly, less than 1% of the Company’s outstanding securities.

 

REGULATORY RELIEF

 

The Company has applied for exemptive relief from the requirements contained in subsection 2.3(1.1) of National Instrument 41-101 which prohibits an issuer from filing a final prospectus more than 90 days after the date of the receipt for the preliminary prospectus that relates to the final prospectus. The exemption requested will be evidenced by the issuance of a receipt for this prospectus. In the course of seeking exemptive relief, the Company has agreed to file the final prospectus no later than April 2, 2021.

 

TRANSFER AGENT AND REGISTRAR

 

Our registrar and transfer agent is Computershare Investor Services Inc., with an address at 100 University Avenue, 8th Floor, Toronto, Ontario M5J 2Y1.

 

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AGENT FOR SERVICE OF PROCESS

 

Mr. Tom Rogers, Mr. Bryan Reyhani, Mr. Lawrence Rutkowski, Mr. Hank Ratner, and Mr. Louis Schwartz, directors of the Company, each reside outside of Canada and have each appointed the following agent for service of process in Canada:

 

Name of Persons   Name and Address of Agent
Mr. Tom Rogers   Fogler, Rubinoff LLP
Mr. Bryan Reyhani   77 King Street West, Suite 3000, PO Box 95,
Mr. Lawrence Rutkowski   Toronto, Ontario M5K 1G8
Mr. Hank Ratner    
Mr. Louis Schwartz    

Mr. Michael Munoz

    

 

Purchasers are advised that it may not be possible for investors to enforce judgements obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.

 

ORDERS, PENALTIES AND BANKRUPTCIES

 

To the knowledge of the Company, except as disclosed hereinafter, as of the date hereof:

 

(a)no director or executive officer of the Company is, or has been, within 10 years before the date hereof, a director, chief executive officer or chief financial officer of any company (including the Company) that:

 

(i)was subject to an order that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer, or
   
(ii)was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer;

 

(b)no director or executive officer of the Company or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company:

 

(i)is, or has been, within 10 years before the date hereof, a director or executive officer of any company (including the Company) that, while such director or executive officer was acting in that capacity, or within a year of such director or executive officer ceased to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
   
(ii)has, within ten years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangements or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of such director, executive officer or shareholder.

 

Tom Rogers served as a Director of SuperMedia Inc. It filed for voluntary bankruptcy in March, 2013, pursuant to a merger plan with Dex One Corp which filed voluntary bankruptcy simultaneously. The prepackaged Chapter 11 proceeding was overseen by US Bankruptcy Court of the District of Delaware. The merged company trading as Dex Media on Nasdaq emerged from bankruptcy on May 1, 2013.

 

Bryan Reyhani was a director of FXCM Inc. (n/k/a GLBR Inc.) (“FXCM”) which filed for Chapter 11 bankruptcy as a short prepackaged plan of reorganization in December 2017. The purpose of the Chapter 11 filing was to restructure some of FXCM’s debts, particularly the Company’s $172 million in notes that were coming due in 2018. The court approved the prepackaged plan of reorganization in February 2018. The court closed the chapter 11 matter in August 2018.

 

Bryan Reyhani was a director of FXCM when its US trading subsidiary, Forex Capital Markets LLC, settled an action by the Commodity Futures Trading Commission (“CFTC”) in February 2017, with FXCM paying a fine of $650,000. FXCM did not admit to any wrongdoing as part of the settlement. The events giving rise to the foregoing CFTC action occurred prior to Bryan Reyhani joining FXCM as a director.

 

Bryan Reyhani was a director of FXCM when its US trading subsidiary, Forex Capital Markets LLC, had a decision issued against it by the National Futures Association (the “NFA”) in February 2017. FXCM did not admit to any wrongdoing as part of the settlement. The events giving rise to the foregoing NFA decision occurred prior to Bryan Reyhani joining FXCM as a director. This same matter also resulted in a settlement with the CFTC.

 

AUDITORS

 

Our financial statements as at August 31, 2020 and for the year then ended incorporated by reference into this Prospectus have been audited by Baker Tilly WM LLP, independent registered public accounting firm, as indicated in their report dated January 7, 2021, which is also incorporated by reference herein, and is incorporated herein in reliance upon the authority of said firm as experts in accounting and auditing.

 

Our financial statements as at August 31, 2019 and for the year then ended incorporated by reference into this Prospectus have been audited by McGovern Hurley LLP, independent registered public accounting firm, as indicated in their report dated February 14, 2020, which is also incorporated by reference herein, and is incorporated herein in reliance upon the authority of said firm as experts in accounting and auditing.

 

Effective July 17, 2020, McGovern Hurley LLP resigned as auditors of the Company, and the directors of the Company appointed Baker Tilly WM LLP as successor auditors in their place. McGovern Hurley LLP was independent in accordance with the auditor’s code of professional conduct of the Chartered Professional Accountants of Ontario up to the date of the Notice of Change of Auditor on July 17, 2020.

 

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