ITEM 14. INDEMNIFICATION OF DIRECTORS
AND OFFICERS
Section 102 of the Delaware General Corporation
Law, or the DGCL, permits a corporation to eliminate the personal liability of its directors to the corporation or its stockholders
for monetary damages for a breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend
or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our Certificate
of Incorporation that will be effective upon the closing of this offering provides that no director shall be personally liable
to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability, except to the extent that the DGCL prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty.
Section 145 of the DGCL provides that a
corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving
at the request of the corporation in related capacities against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by the person in connection with an action, suit or proceeding to
which he or she is or is threatened to be made a party by reason of such position, if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of actions brought
by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or
other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnification for such expenses which the Court of Chancery or such other
court shall deem proper.
Our Certificate of Incorporation, as amended,
provides that the Company shall indemnify all persons whom it may indemnify pursuant to Section 145 of DGCL. Further, expenses
(including attorneys’ fees) incurred by an officer or director of the Company in defending any civil, criminal, administrative,
or investigative action, suit or proceeding for which such officer or director may be entitled to indemnification under our Certificate
of Incorporation, as amended, shall be paid by the Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company.
Our Bylaws also provided that the Company
shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company)
by reason of the fact that he/she is or was a director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him /her in connection with such action, suit or proceeding if he/she acted in good faith and in a manner he/she reasonably
believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he/she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his/her
conduct was unlawful.
Our Bylaws further provide that the Company
shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he/she is or was a director,
officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee
or agent of another Corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’
fees) actually and reasonably incurred by him/her in connection with the defense or settlement of such action or suit if he she
acted in good faith and in a manner he/she reasonably believed to be in or not opposed to the best interests of the Company and
except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper.
We maintain a general liability insurance
policy that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their
capacities as directors or officers.
The underwriting agreement entered into
in connection with this offering of common stock being registered hereby provides that the underwriters will indemnify, under certain
conditions, our directors and officers (as well as certain other persons) against certain liabilities arising in connection with
such offering.
Insofar as the foregoing provisions permit
indemnification of directors, executive officers, or persons controlling us for liability arising under the Securities Act of 1933,
as amended (the “Securities Act”), we have been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED
SECURITIES
Brookfield Partnership.
On January 14, 2020,
we entered into a Share Purchase Agreement (the “Purchase Agreement”) with BPR Cumulus LLC (“Brookfield”),
an affiliate of Brookfield Property Partners. Pursuant to the Purchase Agreement, the Company issued to Brookfield 758,725 shares
of the Company’s common stock in exchange for $5,000,000 (the “Purchase Price”) on January 16, 2020. The Purchase
Price is to be used by the Company or its subsidiaries to develop integrated esports experience venues at mutually agreed upon
shopping malls owned and/or operated by Brookfield or any of its affiliates (each, a “Brookfield Mall”) that will include
a dedicated gaming space and production capabilities to attract and to activate esports and other emerging live events (each, an
“Esports Venue”). To that end, half of the Purchase Price is held in escrow until the parties execute a written lease
agreement for the first Esports Venue, and the other half is held in escrow until the parties execute a written lease agreement
for the second Esports Venue. Under the Purchase Agreement, the Company, or one of its subsidiaries, must create, produce, and
execute three esports events per year during calendar years 2020, 2021 and 2022 that will include the Company’s HyperX Esports
Truck at one or more Brookfield Malls at mutually agreed times.
Merger Consideration
On August 9, 2019,
the Company consummated its merger transaction (the “Merger”) contemplated by the Agreement and Plan of Reorganization,
dated as of December 19, 2018 and amended by the Amendment dated August 5, 2019 (the “Merger Agreement”), by and among
the Company, Black Ridge Merger Sub Corp., Allied Esports Media, Inc. (“AEM”), Noble Link Global Limited, Ourgame International
Holdings Limited, and Primo Vital Limited, pursuant to which, among other things, AEM became a wholly-owned subsidiary of the Company
and the Company assumed ownership of the businesses of Allied Esports International, Inc. (“Allied Esports”) and the
World Poker Tour® (“WPT”). Upon consummation of the Merger, the Company issued to the former owners of Allied Esports
and WPT (i) an aggregate of 11,602,754 shares of Company common stock and (ii) an aggregate of 3,800,003 Company warrants, which
warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable as of September 9, 2019. Additionally,
the former owners of Allied Esports and WPT are entitled to receive their pro rata portion of an aggregate of an additional 3,846,153
shares of common stock if the last sales price of the common stock reported on the Nasdaq Capital Market equals or exceeds $13.00
per share (as adjusted for stock splits, dividends, and the like) for 30 consecutive trading days at any time during the five-year
period after the consummation of the Merger.
Investment Bankers
In connection with
the consummation of the Merger, the following service providers of the Company were entitled to cash payments, and agreed to accept
shares of the Company’s common stock in lieu of such cash payments: EarlyBirdCapital, Inc., MIHI LLC, Roth Capital Partners,
LLC, Northland Securities, Inc., The Oak Ridge Financial Services Group, Inc., Dougherty & Company LLC, and D.A. Davidson &
Co, Inc.
Bridge Loans
The former owners of
WPT and Allied Esports issued a series of secured convertible promissory notes on October 11, 2018 and May 15, 2019 in the aggregate
original principal amount of $14,000,000. These notes were assumed by the Company effective upon the closing of the Merger as
follows.
$10 million of secured
convertible promissory notes (the “Initial Notes”) were purchased on October 11, 2018. The Initial Notes were due and
payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) upon conversion of the Notes into equity
as part of the Merger. As security for purchasing the Initial Notes, the investors received a security interest in Allied Esports’
assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as well as a pledge
of the equity of all of the entities comprising WPT. The liens and pledge described above would terminate upon the closing of the
Merger.
On May 15, 2019, $4
million of another series of secured convertible promissory notes (the “Additional Notes,” and together with the Initial
Notes, the “Bridge Loan Notes”) were purchased. Ms. Man Sha purchased a $1 million Additional Note, and is the wife
of Mr. Ng Kwok Leung Frank, a director and CEO of the Company. As part of the Additional Notes, the terms of the Initial Notes
were amended such that the terms of the Additional Notes applied to the Initial Notes. The Bridge Loan Notes accrue annual interest
at 12%; provided that no interest is payable in the event the Notes are converted into Company common stock. The Bridge Loan Notes
were due and payable on the first to occur of (i) the one-year anniversary of the issuance date, or (ii) the date on which a demand
for payment is made during the time period beginning on the closing of the Merger (the “Closing Date”) and ending on
the date that is three (3) months after the Closing Date. If any Bridge Loan Note is paid by the Company or AEM, the investor will
receive one year of interest. As security for purchasing the Bridge Loan Notes, the investors received a security interest in Allied
Esports’ assets (second to any liens held by the landlord of the Las Vegas arena for property located in that arena), as
well as a pledge of the equity of all of the entities comprising WPT, and a guaranty of Ourgame and the Company. The debt is convertible
into shares of common stock that are freely tradeable without restriction at $8.50 per share.
On August 5, 2019,
the Company entered into an amendment and acknowledgement agreement (the “Acknowledgement Agreement”), pursuant to
which Allied Esports and WPT amended the terms of the Bridge Loan Notes. Pursuant to the Acknowledgement Agreement, the bridge
holders agreed to defer repayment of the Bridge Loan Notes to one year and two weeks following the Closing Date (the maturity date
of the Bridge Loan Notes, the “Maturity Date”). In consideration of agreeing to the deferred repayment, the bridge
holders will be paid an additional six months of interest (i.e., a total of 18 months interest) to the extent any bridge holder
elects not to convert their Bridge Loan Note to common stock. The Company agreed to assume the debt under the Bridge Loan Notes
as part of the Merger, and agreed that the debt will be secured by all the assets of the Company following the Closing Date. The
Bridge Loan Notes are convertible at any time by a holder between the Closing Date and the Maturity Date, into shares of common
stock that are freely tradable without restriction, at $8.50 per share.
If the Bridge Loan
Note holders elect to convert their Bridge Loan Notes into common stock, they would be entitled to receive additional shares of
common stock equal to the product of (i) 3,846,153 shares, multiplied by (ii) the Bridge Loan Note holder’s investment amount,
divided by (iii) $100,000,000, if, at any time within five years after the Closing Date, the last exchange-reported sale price
of common stock trades at or above $13.00 for thirty (30) consecutive calendar days.
Each Bridge Loan Note
holder received a warrant to purchase shares of common stock in an amount equal to the product of (i) 3,800,000 shares, multiplied
by (ii) the Bridge Loan Note holder’s investment amount, divided by (iii) $100,000,000. The warrants have a term of five
years, an exercise price of $11.50 per share, and became exercisable as of September 9, 2019.
Share Purchase Investors
The Company previously
entered into Share Purchase Agreements (the “Purchase Agreements”) with the following investors: TV AZTECA, S.A.B.
de C.V., Simon Equity Development LLC, Morris Goldfarb, Kepos Capital LP, Pennington Capital, Ron Geiger IRA, and Lyle Berman,
the Company’s Chairman of the Board (collectively, the “Investors”). Pursuant to the Purchase Agreements, the
Investors purchased an aggregate of $18,000,000 of shares of common stock in open market or privately negotiated transactions
at a price not to exceed the per share amount held in the Company’s trust account (which was approximately $10.30 per share)
(the “Maximum Price”). The Investors agreed not to convert any shares purchased in the open market or in privately
negotiated transactions at the Company’s meeting of stockholders held August 9, 2019 that approved, among other things,
the Merger. If the Investors were unable to purchase their full amount of shares in the open market or in privately negotiated
transactions, the Company agreed to sell to them newly issued shares upon closing of the Merger at the Maximum Price to fulfill
their purchase obligations. In addition, the Purchase Agreements provided that upon the closing of the Merger, the Company would
issue to the Investors 1.5 shares of its common stock for every 10 shares purchased by the Investors, and that the Company would
file a registration statement with the SEC as promptly as practicable following closing of the Merger to register the resale of
any shares of common stock purchased by the Investors that are not already registered and cause such registration statement to
become effective as soon as possible. Black Ridge, the Company’s sponsor (as described below), transferred 720,000 shares
of common stock to the Investors.
Sponsor
Prior to the Merger,
the Company was a special purchase acquisition company, and Black Ridge Oil & Gas, Inc. (“Black Ridge”) was its
sponsor. In connection with initially capitalizing and founding the Company in 2017, Black Ridge purchased 445,000 units of the
Company. Each unit was entitled to one share of common stock, one warrant to purchase common stock, and a right to one-tenth of
a share of common stock upon the consummation of a business combination by the Company. On August 9, 2019 in connection with the
Merger, such units were automatically converted into 445,000 shares of common stock, 445,000 warrants to purchase common stock,
and 445,000 rights to purchase one-tenth of a share of common stock. The rights were simultaneously converted into an additional
44,500 shares of common stock. The warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable
as of September 9, 2019.
Black Ridge received
an additional 60,000 units upon conversion of convertible promissory notes issued by the Company to Black Ridge, which had an aggregate
outstanding principal amount of $600,000 and accrued no interest, at a rate of $10 per unit. On the Closing Date in connection
with the Merger, the notes were converted into 60,000 shares of common stock, 60,000 warrants to purchase common stock, and 60,000
rights to purchase one-tenth of a share of common stock. The rights were simultaneously converted into an additional 6,000 shares
of common stock. The warrants have a term of five years, an exercise price of $11.50 per share, and became exercisable as of September
9, 2019.
Black Ridge’s
shares of common stock (other than the 66,000 shares issued upon conversion of the Company’s promissory notes issued to Black
Ridge) are kept in an escrow account maintained in New York, New York by Continental Stock Transfer & Trust Company, acting
as escrow agent. Subject to certain limited exceptions, these shares may not be transferred, assigned, sold or released from escrow
until (1) with respect to 50% of the shares, the earlier of one year after the date of the consummation of Merger or the date on
which the closing price of our common stock equals or exceeds $12.50 per share (as adjusted for share splits, share dividends,
reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business
combination and (2) with respect to the remaining 50% of the shares, one year after the date of the consummation of Merger, or
earlier, in either case, if, subsequent to the Merger, the Company consummates a liquidation, merger, stock exchange or other similar
transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities
or other property. The limited exceptions include transfers, assignments or sales (i) to the Company’s or Black Ridge’s
officers, directors, consultants or their affiliates, (ii) to an entity’s members upon its liquidation, (iii) to relatives
and trusts for estate planning purposes, (iv) by virtue of the laws of descent and distribution upon death, (v) pursuant to a qualified
domestic relations order, (vi) to us for no value for cancellation in connection with the consummation of our initial business
combination, or (vii) in connection with the consummation of a business combination at prices no greater than the price at which
the shares were originally purchased, in each case (except for clause (vi) or with our prior consent) where the transferee agrees
to the terms of the escrow agreement and to be bound by these transfer restrictions.
Exempt Issuances
The foregoing issuances
of warrants and shares of common stock were not registered under the Securities Act at the time of sale, and therefore may not
be offered or sold in the United States absent registration or an applicable exemption from registration requirements. For these
issuances, the Company relied on the exemption from federal registration under Section 4(a)(2) of the Securities Act and/or Rule
506 promulgated thereunder, based on the Company’s belief that the offer and sale of such common stock and warrants did not
involve a public offering.