Note 8 – Commitments and Contingencies

Litigations, Claims, and Assessments

The Company is involved in various disputes, claims, liens and litigation matters arising out of the normal course of business. While the outcome of these disputes, claims, liens and litigation matters cannot be predicted with certainty, after consulting with legal counsel, management does not believe that the ultimate outcome of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Principal Shareholder Matter

During August 2021, the Company received a $2.3 million expense reimbursement request from a principal shareholder. The principal shareholder alleges that former officers of the Company verbally agreed to reimburse certain costs of the principal shareholder that were incurred in connection with specified Company transactions. The Company is evaluating the approval, authorization, nature and reasonableness of the costs related to this matter and is in discussions with the principal shareholder. The Company has not recorded an accrual as of September 30, 2021.

Operating Leases

On November 5, 2020, Allied Esports entered into an amendment of its lease of event space in Las Vegas Nevada (the “Amended Las Vegas Lease”), pursuant to which (i) $299,250 of deferred minimum monthly rent and additional rent due under the lease for the period from April 1, 2020 through June 3, 2020 must be paid in its entirety by December 31, 2021; (ii) the monthly rent to be paid for the period from June 25, 2020 through December 31, 2020 (the “Rent Relief Period) was reduced to an amount equal to 20% of gross sales (excluding food sales) at the event space (the “Percentage Rent”), (iii) the initial term of the lease was extended for two additional months until May 31, 2023, and (iv) the option period to extend the lease was extended to between April 1, 2022 and September 30, 2022. Pursuant to the Amended Las Vegas Lease, if the aggregate Percentage Rent during the Rent Relief Period is less than $194,000, Allied Esports must pay the shortfall no later than December 31, 2021. The Company met the minimum aggregate Percentage Rent each month during the Rent Relief Period. The Company and the landlord of the event space agreed to extend the Rent Relief Period through the second quarter of 2021.

The Company’s aggregate incurred rent expense in the amount of $364,085 and $449,191 during the three months ended September 30, 2021 and 2020, respectively, and $1,111,138 and $1,381,817 during the nine months ended September 30, 2021 and 2020, respectively. Of the aggregate rent incurred during the three months ended September 30, 2021 and 2020, $317,550 and $353,887, respectively, was included within in-person costs and $46,535 and $95,304, respectively, was included in general and administrative expenses on the condensed consolidated statements of operations. Of the aggregate rent incurred during the nine months ended September 30, 2021 and 2020, $891,977 and $1,068,440, respectively, was included within in-person costs and $219,161 and $313,377, respectively, was included in general and administrative expenses on the condensed consolidated statements of operations.

AESE is currently the guarantor of WPT’s lease of Irvine, California office space (the “Irvine Lease”). The lease expires on October 1, 2033. Current base rent pursuant to the Irvine Lease is $41,027 per month, increasing to $58,495 per month over the term of the lease.

AESE is currently the guarantor of WPT’s lease of Los Angeles, California office space (the “LA Lease”). The lease expires on November 30, 2031. Current base rent pursuant to the LA Lease is $38,533.50 per month, increasing to $51,785.80 per month over the term on the lease.

The Company and the purchaser of WPT are working toward releasing the Company as a guarantor on the Irvine and LA leases as part of the Sale Transaction. See Note 3 – Sale of WPT.

Resignation of Chief Executive Officer

On July 13, 2021, Frank Ng resigned as Chief Executive Officer of the Company, effective immediately. In connection with his resignation, the Company entered into a Release and Separation Agreement with Mr. Ng (the “Separation Agreement”) pursuant to which, among other things, Mr. Ng has agreed to provide reasonable assistance to the Company (when, as and if requested) in connection with the Company’s Esports division, Mr. Ng released any and all claims he may have against the Company and its subsidiaries (subject to certain exclusions), and the Company agreed to provide Mr. Ng with certain separation benefits, including $400,000 (gross) in severance pay payable over a twelve-month period, accelerated vesting of 225,000 unvested stock options previously granted to Mr. Ng pursuant to an Option Agreement dated effective November 21, 2019, and accelerated vesting of all unvested shares of restricted stock previously granted to Mr. Ng pursuant to an Executive Restricted Stock Agreement dated August 7, 2020.

In addition, the Separation Agreement provides for an amendment to the terms of the restricted stock units previously granted to Mr. Ng. See Note 9 – Stockholders’ Equity, Restricted Stock Units.

Appointment of Chief Executive Officer, President and General Counsel

On July 13, 2021, the Company appointed Libing (Claire) Wu as its Chief Executive Officer, President and General Counsel. The Company entered into an employment agreement (the “CEO Agreement”) with Ms. Wu that provides for, among other things, payment to Ms. Wu of an annual base salary equal to $500,000, subject to certain cost-of-living adjustments.

Ms. Wu is also eligible to receive an annual incentive bonus of up to 60% of her annual salary, determined at the discretion of the Board of Directors and subject to the attainment of certain Board objectives. In addition, Ms. Wu received a $200,000 bonus payable upon the commencement of her employment. Also, upon commencement of her employment, Ms. Wu was granted 80,000 shares of restricted common stock, subject to transfer and forfeiture restrictions until the shares vest on August 16, 2022, and ten-year stock options to purchase up to 200,000 shares of the Company’s common stock at an exercise price of $2.21 per share that are scheduled to vest in four equal annual installments commencing on the one-year anniversary of the grant date.

The CEO Agreement expires automatically on the five-year anniversary of the effective date. However, the CEO Agreement may be extended for additional periods of up to one year by the parties’ mutual written agreement at least thirty days prior to expiration of the current term. The CEO Agreement can be terminated by the Company or by Ms. Wu prior to expiration.

In the event the CEO Agreement is terminated without cause (as described in the CEO Agreement) by the Company, or by Ms. Wu for good reason (as described in the CEO Agreement), Ms. Wu is entitled to receive severance from the Company equal to eighteen months of base salary, then in effect at the time of termination, payable over an eighteen-month period in equal installments on the Company’s regular pay dates, less applicable taxes and withholdings. Ms. Wu shall also receive any accrued, but unused vacation pay.

Board of Directors

On March 29, 2021, the Company’s Board of Directors (“Board”) increased the size of its Board from 10 directors to 11 directors. Yangyang Li was appointed as a Class A Director to fill the vacancy created by the Board’s increase in the size of the Board.

Ho Min Kim and Maya Rogers resigned from the Company’s Board of Directors (“Board”) on May 5, 2021. In connection with Ms. Rogers’ and Mr. Kim’s resignations, the Board permitted the accelerated vesting of 10,000 outstanding options previously issued to each person for their director services scheduled to vest on September 19, 2021 and extended the exercise period to exercise 20,000 vested outstanding options issued to each person to September 19, 2029. Given the foregoing resignations, the Board elected Libing (Claire) Wu as a Class C Director, and Jingsheng Lu as a Class B Director, to serve in the vacancies created by the resignations of Mr. Kim and Ms. Rogers, effective May 6, 2021.

On May 3, 2021, Frank Ng resigned from the Board of Directors (the “Board”). In connection with Mr Ng’s resignation, the Board permitted the accelerated vesting of 10,000 outstanding options previously issued to Mr. Ng for his director services scheduled to vest on September 19, 2021 and extended the exercise period to exercise 20,000 vested outstanding options issued to Mr. Ng to September 19, 2029. The Company appointed Jerry Lewin to serve as a Class C director on the Board and fill the vacancy on the Board created as a result of Mr. Ng’s resignation.

On August 12, 2021, Tae Hyung Steve Kim resigned from the Board. On August 13, 2021, the Company appointed Alexander Misch to serve as a Class B Director on the Board and fill the vacancy on the Board created as a result of Mr. Kim’s resignation. On November 5, 2021, Mr. Misch resigned from the Board. On November 11, 2021, the Company appointed Guanzhou (Jerry) Qin to serve as a Class B Director on the Board and fill the vacancy on the Board created as a result of Mr. Misch’s resignation.

On July 6, 2021, the Board approved the following compensation for non-executive directors: (i) annual $30,000 fee for director services; (ii) annual $10,000 fee for non-chair committee services (capped at $10,000 per director); and (iii) annual $15,000 fee for committee chairs (capped at $15,000 per director). The Company has the option to pay such amounts in cash or stock from the Company’s incentive plan (valued at the closing price of AESE common stock on the trading day immediately prior to issuance), with the current fees payable in cash. The fees are payable monthly by the Company.