Item 1.01 Entry into a Material Definitive Agreement.
Stock Purchase Agreement
On January 19, 2021, Allied Esports Entertainment, Inc. (the "Company"), and its
direct and indirect wholly-owned subsidiaries, Allied Esports Media, Inc.
("Esports Media," and together with the Company, the "Selling Parties") and Club
Services, Inc. ("CSI"), entered into a Stock Purchase Agreement with Element
Partners, LLC ("Buyer"), pursuant to which the Selling Parties have agreed to
sell 100% of the outstanding capital stock of CSI to Buyer. CSI is the Company's
indirect wholly-owned subsidiary that directly or indirectly owns 100% of the
outstanding capital stock of each of the legal entities that collectively
operate or engage in the Company's poker-related business and assets (the "WPT
Business"). The proposed sale of CSI is referred to herein as the "Sale
Transaction."
Buyer has agreed to pay Esports Media a total purchase price of $78.25 million
for the stock of CSI, including an initial purchase price at closing of $68.25
million (the "base purchase price") and $10.0 million in future payments after
the closing of the Sale Transaction, as further described below. The base
purchase price will be adjusted to reflect the amount of CSI's cash,
indebtedness (other than indebtedness related to an outstanding Paycheck
Protection Program loan) and accrued and unpaid transaction expenses as of the
closing of the Sale Transaction. Buyer remitted a $4.0 million advance payment
of the base purchase price upon the execution of the Stock Purchase Agreement
and is required to pay the balance of the base purchase price at the closing of
the Sale Transaction. The $10.0 million of future payments will be made on a
quarterly basis over the three-year period following the closing of the Sale
Transaction, with each payment to be equal to five percent of the aggregate
entry fees from World Poker Tour-branded tournaments during the applicable
quarterly period (but not to exceed $10.0 million in the aggregate). If the
aggregate quarterly future payments over such three-year period are less than
$10.0 million, Buyer will pay the shortfall to Esports Media on the three-year
anniversary of the closing of the Sale Transaction. Buyer's obligations to remit
the future payments are subject to Buyer's setoff rights with respect to
indemnification obligations of the Selling Parties.
The Stock Purchase Agreement contains customary representations and warranties,
covenants and indemnification provisions. The closing of the Sale Transaction is
subject to closing conditions, including the approval of the Sale Transaction by
the Company's stockholders and other customary closing conditions. The Company
intends to consummate the Sale Transaction shortly after obtaining stockholder
approval, assuming all other conditions to the completion of the Sale
Transaction have been satisfied or waived by the appropriate parties.
The Stock Purchase Agreement may be terminated by Buyer or the Company if the
closing of the Sale Transaction has not occurred by March 31, 2021, or upon the
occurrence of certain customary events as set forth in the Stock Purchase
Agreement. Depending on the circumstances surrounding a termination of the Stock
Purchase Agreement, either party may be required to pay a $3.0 million
termination or non-performance fee to the other, and the Selling Parties may be
required to return to Buyer the $4.0 million advance payment of purchase price
and reimburse Buyer for up to $1.0 million of its documented out of pocket
expenses incurred in connection with the authorization, preparation,
negotiation, execution and performance of the Stock Purchase Agreement and the
Sale Transaction.
Effective upon any termination of the Stock Purchase Agreement, other than a
termination in which Buyer is required to pay a termination or non-performance
fee to us, Buyer (or its affiliate) and Peerless Media Limited, an indirect
subsidiary of the Company that owns intellectual property related to the WPT
Business, will enter into a 3-year brand license for Buyer's (or its
affiliate's) use of the WPT brand in the territory of Asia for real-money gaming
in exchange for revenue-based royalty payments of 20% of qualifying revenues,
and minimum annual guaranteed royalty payments of $4.0 million, $6.0 million and
$8.0 million for the first, second and third years, respectively. Such license
will be subject to further customary terms and conditions and provide Peerless
Media Limited with a $2.0 million buy-out right after the first year. In the
event of any termination of the Stock Purchase Agreement under any circumstance
in which the Buyer is required to pay a termination fee to us, the Company will
have the option, but not the obligation, to require the Buyer to enter into such
license agreement with Peerless Media Limited.
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The foregoing description of the Stock Purchase Agreement (including the form of
WPT license agreement) and the Sale Transaction does not purport to be a
complete statement of the parties' rights under the Stock Purchase Agreement and
is qualified in its entirety by reference to the full text of the Stock Purchase
Agreement, a copy of which is filed with this Current Report as Exhibit 2.1, and
is incorporated by reference herein. The form of WPT license agreement is
attached to as Exhibit B to the Stock Purchase Agreement.
The Company's Board of Directors has approved the Stock Purchase Agreement and
adopted resolutions recommending that the Company's stockholders consent to and
adopt, authorize and approve the Stock Purchase Agreement and the Sale
Transaction. The Company has agreed to prepare and file with the Securities and
Exchange Commission (the "SEC") a Consent Solicitation Statement to solicit the
. . .
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers; Compensatory Arrangements of Certain
Officers.
On December 31, 2020, the Company and Frank Ng, who serves as Chief Executive
Officer and a director of the Company, amended Mr. Ng's employment agreement
(the "Employment Agreement Amendment"). The Employment Agreement Amendment
provides that Mr. Ng's annual salary will be $400,000 per year payable in cash,
and that the Company may, but is no longer required to, issue to Mr. Ng any
shares of the Company's common stock as compensation for his services.
On January 19, 2021, the Company entered into a Restricted Stock Unit Agreement
with Frank Ng. Pursuant to this agreement, Mr. Ng received restricted stock
units having a stated value equal to $1,000,000, which Units represent the right
to receive $1,000,000 payable upon the earlier of the two-year anniversary of
the closing date of the Sale Transaction, or the termination of Mr. Ng's
employment without cause (as defined in his employment agreement) (as
applicable, the "Vesting Date"). At the time of payment, the Company may elect
pay the $1,000,000 award in cash or in shares of common stock valued at the fair
market value of our common stock on the Vesting Date, or any combination
thereof. All issuances of common stock will be issued from our 2019 Equity
Incentive Plan. If payments or benefits provided or to be provided by the
Company or its affiliates to Mr. Ng pursuant to the agreement or otherwise
("Covered Payments") constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986 (the "Code") that would be
subject to the excise tax imposed under Section 4999 of the Code (collectively,
the "Excise Tax"), payments to be made under the agreement will be reduced to
the minimum extent necessary to ensure that no portion of the Covered Payments
is subject to the Excise Tax.
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On December 31, 2020, the Company entered into a Change in Control Agreement
with Adam Pliska, who serves as President and a director of the Company, and as
Chief Executive Officer of the Company's subsidiaries whose operations comprise
the WPT Business ("WPT"). Pursuant to this agreement, if Mr. Pliska is and
remains employed by the Company on the occurrence of a "Change in Control" (as
such term is defined in the agreement), Mr. Pliska will be entitled to a cash
bonus in the amount of $420,000 upon the closing of the Change in Control. Under
the agreement, a "Change in Control" will occur if a third party becomes a
beneficial owner of securities of WPT representing 50% or more of the voting
power of all of WPT's then-outstanding securities; or if our Board of Directors
approves of the sale of all, or substantially all, of the business or assets of
WPT or the liquidation or dissolution of WPT, and such transaction is
consummated. The Sale Transaction will constitute a Change in Control and, as a
result, Mr. Pliska will receive a cash bonus of $420,000 upon the closing of the
Sale Transaction.
Pursuant to the Stock Purchase Agreement, and as a condition to the closing of
the Sale Transaction, the Company is required to deliver an amendment to Mr.
Pliska's current employment agreement with the Company in the form attached as
Exhibit E to the Stock Purchase Agreement. Mr. Pliska's amended employment
agreement will, upon closing of the Sale Transaction, replace the Company as a
party with CSI resulting in Mr. Pliska's services being a part of the WPT
Business acquired by Buyer in the Sale Transaction, have its term extended by
one year, and the Company will be released from all obligations under the
employment agreement for periods from and after the closing of the Sale
Transaction.
The foregoing descriptions of Mr. Ng's Employment Agreement Amendment and
Restricted Stock Unit Agreement, and Mr. Pliska's Change in Control Agreement do
not purport to be complete statements of the parties' rights thereunder and are
qualified in their entirety by reference to the full text of such Employment
Agreement Amendment, Restricted Stock Unit Agreement and Change in Control
Agreement, copies of which are filed with this Current Report as Exhibits 10.1,
10.2 and 10.3, respectively, and are incorporated by reference herein.
Item 7.01 Regulation FD Disclosure.
On January 19, 2021, the Company issued a press release announcing, among other
things, the entry into the Stock Purchase Agreement. This press release is filed
as Exhibit 99.1 to this Current Report and is incorporated herein by reference.
Important Additional Information Will Be Filed With the SEC
The Company plans to file with the SEC and mail to its stockholders a Consent
Solicitation Statement in connection with the proposed Sale Transaction. The
Consent Solicitation Statement will contain important information about the
Company, the proposed Sale Transaction and the Stock Purchase Agreement.
Investors and security holders are urged to read the Consent Solicitation
Statement carefully when it is available before making any voting or investment
decision with respect to the proposed Sale Transaction.
Investors and security holders will be able to obtain free copies of the Consent
Solicitation Statement and other documents filed by the Company with the SEC
through the website maintained by the SEC at www.sec.gov. In addition, investors
and security holders will be able to obtain free copies of the Consent
Solicitation Statement from the Company by contacting the Company's investor
relations department by calling (949) 225-2600.
Participants in the Solicitation
The Company and its directors and executive officers may be deemed to be
participants in the solicitation of consents with respect to the proposed Sale
Transaction. Information regarding the Company's directors and executive
officers and their ownership of Company shares is contained in the Company's
Amended Annual Report on Form 10-K/A for the year ended December 31, 2019 and
its definitive proxy statement for the Company's 2020 Annual Meeting of
Stockholders which was filed with the SEC on November 4, 2020, and is
supplemented by other public filings made, and to be made, with the SEC. The
Company's directors and executive officers beneficially own approximately 6.8%
of the Company's common stock. A more complete description will be available in
the Consent Solicitation Statement filed in connection with the proposed Sale
Transaction. Investors and security holders may obtain additional information
regarding the direct and indirect interests of the Company and its directors and
executive officers with respect to the proposed Sale Transaction by reading the
proxy statement and other filings referred to above.
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Cautionary Statement Regarding Forward-Looking Information
This communication contains certain forward-looking statements under federal
securities laws. Forward-looking statements may include our statements regarding
our goals, beliefs, strategies, objectives, plans, including product and service
developments, future financial conditions, results or projections or current
expectations. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms, or other comparable terminology. For example, when we discuss the
impacts of the Sale Transaction, the satisfaction of the closing conditions to
the Sale Transaction, the timing of the completion of the Sale Transaction; and
our plans following the Sale Transaction, we are using forward-looking
statements. These statements are subject to known and unknown risks,
uncertainties, assumptions and other factors that may cause actual results to be
materially different from those contemplated by the forward-looking statements.
These factors include, but are not limited to, the occurrence of any event,
change or other circumstances that could give rise to the termination of the
Stock Purchase Agreement or could otherwise cause the Sale Transaction to fail
to close; the outcome of any legal proceedings that may be instituted against us
following the announcement of the Sale Transaction; the inability to complete
the Sale Transaction, including due to failure to obtain approval of our
stockholders or other conditions to closing; the receipt of an unsolicited offer
from another party for an alternative business transaction that could interfere
with the Sale Transaction; a change in our plans to retain the net cash proceeds
from the Sale Transaction; our inability to enter into one or more future
acquisition or strategic transactions using the net proceeds from the Sale
Transaction; an event or condition that results in our not fully participating
in the future revenues of Buyer (as contemplated by the Stock Purchase
Agreement); and a decision not to pursue strategic options for the esports
business. Most of these factors are difficult to predict accurately and are
generally beyond our control. You should consider the areas of risk described in
connection with any forward-looking statements that may be made herein. The
business and operations of the Company are subject to substantial risks, which
increase the uncertainty inherent in the forward-looking statements contained in
this communication. Except as required by law, we undertake no obligation to
release publicly the result of any revision to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Further information on potential
factors that could affect our business is described under "Item 1A. Risk
Factors" in our amended Annual Report on Form 10-K/A for the year ended December
31, 2019, as filed with the SEC on March 17, 2020. Readers are also urged to
carefully review and consider the various disclosures we made in such amended
Annual Report on Form 10-K/A and that will be included in the Consent
Solicitation Statement with respect to the proposed Sale Transaction that we
file with the SEC and mail to our stockholders.
Item 8.01 Other Events.
The rapid growth and popularity of gaming and esports during the COVID-19
pandemic has driven interest in the Company's esports business, Allied Esports.
The Company's Board of Directors has decided to explore strategic options for
the esports business in order to maximize value to its stockholders, including a
possible sale, and the Company has engaged a financial advisor to assist with
the process. If the Company pursues and ultimately completes a sale of the
esports business in addition to the sale of the WPT Business in the Sale
Transaction, the Company expects to proceed (likely under a new name) as a
publicly traded holding company focused on using its cash resources to explore
opportunities in online entertainment, including but not limited to, real money
gaming and other gaming sectors. However, the Company does not plan to limit
itself to any particular industry or geographic location in its efforts to
identify prospective target businesses. Currently, the Company does not have any
specific merger, asset acquisition, reorganization or other business combination
under consideration or contemplation. At this time no potential or particular
buyer has been identified to purchase the esports business, and there are no
initial or ongoing negotiations in respect of the sale of the esports business.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
2.1 Stock Purchase Agreement dated January 19, 2021 by and among Allied
Esports Entertainment, Inc., Allied Esports Media, Inc., Club Services,
Inc., and Element Partners, LLC*
10.1 Amendment to Employment Agreement dated December 31, 2020 by and
between Allied Esports Entertainment, Inc. and Frank Ng
10.2 Restricted Stock Unit Agreement dated January 19, 2021 by and between
Allied Esports Entertainment, Inc. and Frank Ng
10.3 Change in Control Agreement dated December 31, 2020 by and between
Allied Esports Entertainment, Inc. and Adam Pliska
99.1 Press Release dated January 19, 2021
* Certain exhibits and schedules to this Exhibit have been omitted in
accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish
a supplemental copy of any omitted exhibit or schedule to the SEC upon its
request.
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