Black Ridge (BRAC) Makes Additional Changes Ahead of its Vote
Black Ridge Acquisition Corp. (BRAC), issued a proxy supplement this morning, ahead of its shareholder vote this coming Friday, August 9th. Contained within that supplement were some additional changes to the merger agreement, but the good news is, Black Ridge also announced that “…it may explore effectuating amendments to its outstanding warrants following the closing of the business combination to make them more attractive to holders“. BRAC further went on to say those changes could include, but not be limited to, seeking to lower the exercise price of such warrants. However, without any real concrete amendments in place for the outstanding warrants, it’s just a nice idea right now. They could change their mind later and keep the warrants as is.
There were also changes to the note holders agreement as well as to a number of agreements affecting Adam Pliska. There are a lot of moving parts to take in, so let’s walk through each section.
MERGER AGREEMENT AND OURGAME
First up are the changes to the merger agreement. The agreement has been amended to reduce the minimum cash on hand at closing to $22 million, down from $80 million. Additionally, the Agreement also originally provided for the repayment of $35 million of debt of Allied Esports and WPT owed to Ourgame in cash at the Closing. However, now the Company will:
- Assume $10,000,000 of the debt obligations of Ourgame and Noble (including an additional $1,200,000 of accrued interest)
- Repay Ourgame the remaining balance of $23,800,000 by paying $3,500,000 in cash to Ourgame and its designees
- Issue to Ourgame and its designees 2,928,679 shares of the Company’s common stock
- Ourgame will retain $1,000,000 of the proceeds of such loans to pay its transaction expenses incurred in the Merger.
- The Sponsor also agreed to transfer an aggregate of 600,000 shares of the Company’s common stock held by it to Ourgame.
Adam Pliska, who will serve as President of BRAC and CEO of the WPT Entities after the consummation of the Mergers, will still be receiving $1.5 million for WPT’s performance prior to the closing of the Mergers, but his additional payments have now been amended. Previously, Mr. Pliska was entitled to receive the following additional payments:
- Receive a payment equal to 2% of the total gross proceeds from the sale of the WPT business up to $45 million, and an additional 1% of any amounts over $45 million. Since the WPT business is valued at $50 million for purposes of the Mergers, Mr. Pliska would be entitled to a payment of $950,000 in connection with the above provisions (the “WPT Payment”)
- Mr. Pliska was also entitled to receive $2,000,012 as part of a profit participation agreement with Ourgame
- “Finder Payments”: Upon the closing of the Mergers, pursuant to a SPAC Introduction Agreement entered into between Mr. Pliska (via Trisara, LLC, a consulting company he is a member of), and in consideration of Trisara, LLC introducing Ourgame to Black Ridge and facilitating the Mergers, Mr. Pliska would be entitled to receive:
- 290,069 shares of BRAC common stock
- A cash payment of $700,000
Instead, Mr. Pliska has now agreed to accept 546,300 shares of Company common stock, valued at $6.59 per share, as well as a cash payment of $50,000, as full satisfaction of the WPT Payment, Profit Participation Payments and Finder Payments. The foregoing stock issuance will be made pursuant to the Company’s equity incentive plan and approval by stockholders of the Incentive Plan Proposal will be deemed to be approval of the issuance under the plan.
Additionally, the Company entered into an amendment and acknowledgement agreement (the “Acknowledgement Agreement”) pursuant to which AEII/WPT amended the terms of the previously issued Notes whereby bridge holders provided $14 million to be used for the operations of AEII/WPT. However, the bridge holders have agreed to defer repayment of the Notes to one year and two weeks following the Closing (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 Note to equity. BRAC has agreed to assume the debt under the Notes as part of the Mergers, and agreed that the debt will be secured by all the assets of BRAC following the Closing.
The Sponsor has also agreed that it will not make any further transfer of its initial shares, subject to certain exceptions, until the debt is repaid. The Notes are convertible at any time by a holder between the Closing and the Maturity Date at the “Conversion Price.” The “Conversion Price” is the lesser of $8.50 per share or the price at which shares are issued to Ourgame or its affiliates in connection with the Mergers.
Summary: The good news is, Black Ridge is changing the minimum closing conditions and agreements BEFORE the vote, as opposed to CIC which amended their agreements post-vote. Regardless, Black Ridge has made a number of changes, as well as rounded up three backstop agreements, all within the past six weeks or so. Everybody involved in this transaction REALLY wants to make this happen. Whether they should is another story. However, keep in mind that this SPAC has 1,380,000 Rights Shares, so while the resulting company will most likely be a “low-float” company initially, once those Rights Shares are delivered, there should be a sell off. Also keep in mind that those Rights Shares also mean that post-closing it will meet the Nasdaq’s minimum number of publicly held shares (currently 1 million for the Capital Market). However, there is a caveat here…assuming there is a nearly complete redemption of the trust and the initial float consists almost entirely of just Rights Shares, 1.38 million shares is still a small float. There may be some volatility similar to PECK, which also had Rights Shares.
The Vote is this Friday, August 9th, and the last day to redeem is tomorrow, August, 7th. Game on.