Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2017

Commission file number 000-53952

 

 

Black Ridge Oil & Gas, Inc.

(Exact name of registrant as specified in its charter)

Nevada 27-2345075
(State of Incorporation) (I.R.S. Employer Identification No.)

110 North 5 th Street, Suite 410, Minneapolis, Minnesota 55403

(Address of principal executive offices) (Zip Code)

(952) 426-1241

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Act:

 

Title of Each Class

Name of Each Exchange On

Which Registered

   
COMMON STOCK OTCQB

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒   No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)   Smaller reporting company
Emerging growth company      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $1,366,659 as of June 30, 2017 (computed by reference to the last sale price of a share of the registrant’s Common Stock on that date as reported by OTC Bulletin Board).

There were 479,799,900 shares outstanding of the registrant’s common stock as of April 6, 2018.

 

     

 

 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

 

From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations and industry conditions are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items making assumptions regarding actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements.

 

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements include the following:

 

· volatility or decline of our stock price;
· low trading volume and illiquidity of our common stock, and possible application of the SEC’s penny stock rules;
· potential fluctuation in quarterly results;
· our failure to collect payments owed to us;
· material defaults on monetary obligations owed us, resulting in unexpected losses;
· inadequate capital of our clients to acquire working interests in oil and gas prospects and to participate in the drilling and production of oil and other hydrocarbons;
· inability to maintain adequate liquidity to meet our financial obligations;
· unavailability of oil and gas prospects to acquire for our clients;
· failure to acquire or grow new business ourselves or failure of our sponsored special purpose acquisition company to acquire a business;
· litigation, disputes and legal claims involving outside parties; and
· risks related to our ability to be listed on a national securities exchange and meeting listing requirements

 

We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in “Item 1A. Risk Factors” and other sections of this report, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.

 

Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the United States Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

 

 

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TABLE OF CONTENTS

 

 

PART 1      
ITEM 1   Business 1
ITEM 1A   Risk Factors 5
ITEM 1B   Unresolved Staff Comments 19
ITEM 2   Properties 19
ITEM 3   Legal Proceedings 19
ITEM 4   Mine Safety Disclosures 19
       
PART II      
ITEM 5   Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 20
ITEM 6   Selected Financial Data 21
ITEM 7   Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
ITEM 7A   Quantitative and Qualitative Disclosures About Market Risk 29
ITEM 8   Financial Statements and Supplementary Data 30
ITEM 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31
ITEM 9A   Controls and Procedures 31
ITEM 9B   Other Information 32
       
PART III      
ITEM 10   Directors, Executive Officers, and Corporate Governance 33
ITEM 11   Executive Compensation 37
ITEM 12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 43
ITEM 13   Certain Relationships and Related Transactions, and Director Independence 45
ITEM 14   Principal Accounting Fees and Services 45
       
PART IV      
ITEM 15   Exhibits, Financial Statement Schedules 47
SIGNATURES 50

 

 

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PART I

 

ITEM 1. BUSINESS

 

Overview

 

Effective April 2, 2012, we changed our name to Black Ridge Oil & Gas, Inc. (“BROG”). Our common stock is traded on the OTCQB under the trading symbol “ANFC”.

 

The Company is focused on acquiring, investing in, and managing the oil and gas assets for our partners. We continue to pursue asset acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture partners or other capital providers. Additionally, as the sponsor and manager of Black Ridge Acquisition Corp. (“BRAC”), we will be focused on BRAC’s efforts to identify a prospective target business in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America.

 

Rights Offering and BRAC IPO

 

The Company filed a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register the issuance of 431,819,910 shares of common stock in a Rights Offering that was declared effective by the SEC on August 3, 2017 (the “Rights Offering”). Pursuant to the Rights Offering, the Company distributed, on a pro rata basis, one right for each share of common stock owned by shareholders on August 2, 2017 (the “Record Date”). Each right permitted a shareholder to purchase up to nine shares of common stock at a subscription price of $0.012 per share. The Rights Offering expired on September 8, 2017 (the “Expiration Date”).

 

Associated with the Rights Offering the Company also entered into a Standby Purchase Agreement (the “Backstop Agreement”) with a consortium of investors, including members of the Company’s board of directors and our Chief Executive Officer (collectively, the “Backstop Purchasers”), who agreed to purchase up to $2.9 million of the unsubscribed shares following the completion of the rights offering.

 

On September 26, 2017, the Company finalized the Rights Offering and Backstop Agreement, and issued 431,819,910 shares raising gross proceeds of $5,181,839. Under the Rights Offering the Company’s current shareholders exercised rights to purchase 199,811,421 shares of stock for a total of $2,397,737. Under the Backstop Agreement, the Backstop Purchasers purchased 232,008,489 shares of stock for a total of $2,784,102. Additionally, as part of Backstop Agreement, the Company issued 435,000 warrants to purchase its common stock at $0.01 to participants in the Backstop Agreement. We incurred $130,164 in costs associated with raising the capital in Rights Offering and Backstop Agreement which were charged directly to stockholder’s equity. In October 2017, the Company used $4,450,000 of the net proceeds of the Rights Offering and Backstop Agreement to fulfill its obligation as sponsor of a special purpose acquisition company, Black Ridge Acquisition Corp., (“BRAC”), simultaneous with BRAC’s initial public offering (IPO) described below. BRAC was formed on May 9, 2017 with the purpose of becoming the special acquisition company as a wholly owned subsidiary of the Company. The remaining proceeds from the Rights Offering are intended to be used for general corporate purposes which may include other investments and acquisitions.

 

On October 10, 2017, the Company’s sponsored special purpose acquisition company, BRAC, completed an initial public offering (“IPO”) raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). BRAC is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business will not be limited to a particular industry or geographic region although it intends to focus its search for target businesses in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America. Following the initial public offering and over-allotment, the Company owns 22% of the outstanding common stock of BRAC and manages BRAC’s operations via a management services agreement.

 

The Company has determined that BRAC, following its IPO, is a variable interest entity (“VIE”) and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC and it has the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity to vote to approve a proposed business combination. Therefore, the consolidated financial statements contain the operations of the BRAC from its inception on May 9, 2017. BRAC’s IPO shareholders are reflected in our financial statements as a non-controlling interest. The non-controlling interest was recorded at fair value on October 10, 2017, with an addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. Hereafter the term “the Company” refers to the consolidated entity including BRAC.

 

 

 

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Debt Restructuring

 

On March 29, 2016, the Company entered into an Asset Contribution Agreement with Black Ridge Holding Company, LLC, a Delaware limited liability company (“BRHC”) which was formed by the Company to contribute and assign to BRHC, all of the Company's (i) oil and gas assets (including working capital and tangible and intangible assets) (the “Assets”), (ii) outstanding balances under the credit agreement between the Company, as borrower, and Cadence Bank, N.A. (“Cadence”), as lender (the “Cadence Credit Facility”) and the outstanding balances under the credit agreement between the Company, as borrower, and affiliates (specifically, Chambers Energy Capital II, LP and CEC II TE, LLC (collectively, the “Chambers Affiliates”)) of Chambers Energy Management, LP (“Chambers”), as administrative agent (the “Chambers Credit Facility”), and (iii) all current liabilities related to the Assets, in exchange for 5% of the issued and outstanding Class A Units (the “Class A Units”) in BRHC (the “Asset Contribution”). On March 29, 2016, the Chambers Affiliates entered into a Debt Contribution Agreement between BRHC and the Chambers Affiliates, pursuant to which BRHC issued a number of Class A Units representing 95% of the Class A Units of BRHC to the Chambers Affiliates in exchange for the release of BRHC's obligations under the Chambers Credit Facility (the “Satisfaction of Debt” and, together with the Asset Contribution, the “BRHC Transaction”). Concurrent with the Satisfaction of Debt, each warrant originally issued with the Chambers Credit Facility was automatically retired and cancelled. The closing of the BRHC Transaction was subject to the Company obtaining the approval of stockholders holding a majority of its outstanding capital stock and to the Company having assigned the Cadence Credit Agreement to BRHC with Cadence’s consent, and BRHC and Cadence entering into any applicable amendment agreements related to such assignment and waiver of financial covenant ratio compliance for the quarter ended December 31, 2015 and quarter ending March 31, 2016. On June 21, 2016, the Company satisfied all of these conditions and, for accounting purposes, the BRHC Transaction was consummated. The parties have agreed that the BRHC Transaction, the Asset Contribution and the Satisfaction of Debt are effective, for valuation purposes, as of April 1, 2016.

 

Cancelation of Management Services Agreement and Sale of BRHC Investment

 

On April 3, 2017, we were notified by BRHC of their termination of our Management Services Agreement and that they had finalized the sale of BRHC’s oil and gas assets to a third party. On April 3, 2017, BRHC signed a Contribution Agreement that provides for the transfer of ownership and title of all oil and gas assets held by BRHC in exchange for preferred membership interest in the acquiring LLC (the “BRHC Sale”). Consistent with the terms of the Management Services Agreement, we were paid for our management services through June 30, 2017.

 

The Company, Chambers Energy Capital II, LP and CEC II TE, LLC (together with Chambers Energy Capital II, LP the “Chambers Affiliates”) as the members of Black Ridge Holding Company, LLC (“BRHC”) agreed to dissolve and wind up BRHC and filed a Certificate of Cancellation under the Delaware Limited Liability Company Act as of October 3, 2017. On October 2, 2017, the Company entered into an agreement with the Chambers Affiliates whereby certain assets distributed to the Company upon the dissolution and winding up of BRHC effective as of October 2, 2017, were sold to the Assignees in exchange for cash consideration of $1,078,394. Additionally, cash and receivables totaling $4,645 in value were distributed directly to the Company from BRHC.

 

Business

 

We believe we create value through identifying and targeting acreage positions with attractive returns on the capital employed by evaluating, amongst other factors, reserve potential, operator performance, anticipated well costs and anticipated operating expenses. Our management team has significant access to both publicly available and proprietary business combination opportunities and has collectively bid on over $2.4 billion of opportunities with private equity sponsors since June 2015.

 

With the experience and connections of our personnel across a variety of onshore unconventional oil and gas plays, we believe that we are able to create value for our partners through opportunistic acquisitions development and subsequent divestitures. We believe our experience and relationships enhance our ability to identify and acquire high value prospects and manage them effectively.

 

As the sponsor and manager of Back Ridge Acquisition Corp. (“BRAC”), we will be focused on BRAC’s efforts to identify a prospective target business in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America.

 

Principal Agreements Affecting Our Ordinary Business

 

Our principal agreements for our continuing operations take the form of management service agreements, whereby our partners pay a fee to us for managing the business operations and day-to-day transactions of the business, and joint venture agreements, whereby joint ventures are funded by our partners and we are paid a fee to identify prospective oil and gas related investments for purchase and manage the day-to-day operations of those assets once purchased. Under the joint venture agreements, after certain investor hurdles are met, the Company will generally receive a share of profits in the joint venture.

 

 

 

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Employees

 

We currently have 7 full time employees. We may hire additional technical or administrative personnel as appropriate. However, we do not expect a significant change in the number of full time employees over the next 12 months based upon our currently-projected business plan. We are using and will continue to use the services of independent consultants and contractors to perform various professional services for us or on behalf of our partners. We believe that this use of third-party service providers enhances our ability to contain general and administrative expenses.

 

Office Locations

 

Our executive offices are located at 110 North Fifth Street, Suite 410, Minneapolis, Minnesota 55403. Our office space consists of approximately 2,786 square feet leased pursuant to an annual lease agreement that commenced on July 1, 2016 and continued on a month-to-month basis beginning July 1, 2017.

 

Financial Information about Segments and Geographic Areas

 

We have not segregated our operations into segments or geographic areas.

 

Available Information – Reports to Security Holders

 

Our website address is www.blackridgeoil.com. We make available on this website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports after we electronically file those materials with, or furnish those materials to, the SEC. These filings are also available to the public at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Electronic filings with the SEC are also available on the SEC internet website at www.sec.gov.

 

We also post to our website our Audit Committee Charter and our Code of Ethics, in addition to all pertinent company contact information.

 

 

ITEM 1A. RISK FACTORS

 

If we are unable to obtain the additional capital or joint venture partners that we need to implement our business plan , we may be unable to continue as a going concern.

 

As of December 31, 2017 our cash balance was $1,447,089. We will continue to have general and administrative expenses to remain a public company and continue with our business plan. The cash on hand would be insufficient to cover our current cash needs over the next year.

 

We continue to pursue sources of additional capital through various financing transactions or arrangements, including joint venturing of projects, equity financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business.

 

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, which may adversely impact our financial condition.

 

The report of the Company’s independent registered public accounting firm that accompanies its audited consolidated financial statements in this Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern.

 

 

 

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We are subject to risks inherent in our partners’ oil and gas businesses

 

Our partners, and ourselves to the extent we take or receive an equity position in our partners’ investments, experience the risks and volatility inherent with ownership of oil and gas operations. All of these risks could adversely affect their financial condition and the results of their operations and potentially limit their ability to meet their financial obligations to us and other parties. Those risks include, but are not limited to, the following:

 

  · Crude oil, natural gas and natural gas liquid (NGL’s) prices are very volatile;
  ·   Estimates of crude oil and natural gas reserves are based on many assumptions that may prove inaccurate;
  ·   Drilling for oil, natural gas and NGLs are high risk activities with many uncertainties;
  ·   Sustained decreases in oil and natural gas prices may result in writedowns in the valuation of oil and natural gas property values;
  · An inability to replace reserves produced;
  ·    As a non-operator, the development of successful operations relies on third-party operators who, if not successful, could have a materially adverse effect on the results of operations;
  ·    Derivative activities could result in financial losses or could reduce cash flows;
  ·    Derivative activities could result in exposure to potential regulatory risks;
  ·    Oil and gas operations rely on transportation and processing facilities and other assets that are owned by third parties;
  ·    Seasonal weather conditions may adversely affect third-party operators’ ability to conduct operations and drilling activities in areas where properties are located;
  ·    Significant capital expenditures will be required to develop properties and replace reserves;
  ·    The timing of development of any undeveloped reserves is in the hands of third party operators;
  ·    The inability of one or more of the operating partners to meet their obligations to us may adversely affect financial results;
  ·    Decommissioning costs are unknown and may be substantial, and unplanned costs could divert resources from other projects; and
  ·   Federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated or deferred as a result of future legislation.

 

Our net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code by certain changes in the ownership of our company.

 

We have net operating loss (“NOL”) carryforwards that we may use to offset against taxable income for U.S. federal income tax purposes. At December 31, 2017, we had an estimated NOL carryforward of approximately $26.5 million for United States federal tax return purposes. However, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the NOLs that we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our company. Any limitation on our ability to use NOLs could, depending on the extent of such limitation, result in higher U.S. federal income taxes being paid (and therefore a reduction in cash) than if such NOLs were available as an offset against such income for U.S. federal income tax reporting purposes. In addition, if the limitation under Section 382 is triggered, it could result in a significant charge to earnings in the period in which it is triggered.

 

We are highly dependent on Kenneth DeCubellis, our chief executive officer, and our other executive officers and employees. The loss of one or more of them, upon whose knowledge, leadership and technical expertise we rely, would harm our ability to execute our business plan.

 

Our success depends heavily upon the continued contributions of Kenneth DeCubellis, our chief executive officer, whose knowledge, leadership and technical expertise would be difficult to replace, with the support of James Moe, our chief financial officer, and Michael Eisele, our chief operating officer. If we were to lose their services, our ability to execute our business plan would be harmed and we may be forced to cease operations until such time as we are able to suitably replace them. Any of our executive officers may terminate their employment with our company at any time.

 

We have a limited operating history as a manager of oil and gas properties for our partners and may not be successful in becoming profitable.

 

We have a limited operating history as a manger of oil and gas properties for our partners. Our business operations must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a business in the crude oil and natural gas industries. There can be no assurance that our business operations will prove to be successful in the long-term. Our future operating results will depend on many factors, including: our ability to raise adequate working capital; our ability to attract and maintain key management and employees; and our ability to efficiently find investment opportunities for our partners. To sustain profitable operations in the future, we must, alone or with others, successfully manage these factors, as well as continue to develop the base of assets that we manage.

 

 

 

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Strategic relationships upon which we may rely are subject to change, which may diminish our ability to conduct business.

 

Our ability to successfully develop additional assets for our partners under the umbrella that we manage will depend on developing and maintaining close working relationships with industry participants. Our success will also depend on our ability to select and evaluate suitable properties for our partners and to consummate transactions in a highly competitive environment. These realities are subject to change and our inability to maintain close working relationships with industry participants or continue to identify suitable properties may impair our ability to execute our business plan.

 

To continue to develop our business, we will use the business relationships of our management and develop new relationships to enter into strategic relationships. These relationships may take the form of joint ventures, joint operating agreements, referral agreements and other contractual arrangements with outside individuals and crude oil and natural gas companies. We may not be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require us to incur expenses or undertake activities that we would not otherwise be inclined to do independent of these strategic relationships. If sufficient strategic relationships are not established and maintained, our business prospects, financial condition and results of operations may be materially adversely affected.

 

We may not be able to effectively manage our growth, which may harm our profitability.

 

Our strategy envisions the expansion of our business. If we fail to effectively manage our growth, our financial results could be adversely affected. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business capabilities, our systems and processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure that we will be able to:

 

  ·   meet our capital needs;
  ·   expand our systems effectively or efficiently or in a timely manner;
  · allocate our human resources optimally;
  ·   identify and engage qualified employees and consultants, or retain valued employees and consultants; or
  ·   incorporate effectively the components of any business that we may acquire in our effort to achieve growth.

 

If we are unable to manage our growth, our financial condition and results of operations may be materially adversely affected.

 

The Company may become subject to the requirements of the Investment Company Act of 1940, which would limit the Company’s business operations and require the Company to spend significant resources to comply with such act.

 

The Investment Company Act of 1940 (the “Investment Company Act”) defines an “investment company” as an issuer that is engaged in the business of investing, reinvesting, owning, holding or trading in securities and owns investment securities having a value exceeding 40 percent of the issuer's unconsolidated assets, excluding cash items and securities issued by the federal government. While we believe that a reasonable investor would not conclude that engaged primarily in investing in securities based on our continued focus on acquiring, investing in, and managing oil and gas assets, the current composition of our assets, including our ownership of BRAC shares, could contribute to a conclusion that we meet the threshold definition of an investment company. While the Investment Company Act also has several exclusions and exceptions that we would seek to rely upon to avoid being deemed an investment company, our reliance on any such exclusions or exceptions may be misplaced resulting in violation of the Investment Company Act, the consequences of which can be significant. For example, investment companies that fail to register under the Investment Company Act are prohibited from conducting business in interstate commerce, which includes selling securities or entering into other contracts in interstate commerce. Section 47(b) of the Investment Company Act provides that a contract made, or whose performance involves, a violation of the Investment Company Act is unenforceable by either party unless a court finds that enforcement would produce a more equitable result than non-enforcement. Similarly, a court may not deny rescission to any party seeking to rescind a contract that violates the Investment Company Act, unless the court finds that denial of rescission would produce more equitable result than granting rescission.

 

If we are be deemed to be an investment company under the Investment Company Act, Rule 3a-2 of the Investment Company Act provides that inadvertent or transient investment companies will not be treated as investment companies subject to the provisions of the Investment Company Act provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the issuer’s business activities and an appropriate resolution of the issuer’s board of directors, within one year from the commencement of the earlier of (1) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the value of such issuer's total assets on either a consolidated or unconsolidated basis, or (2) the date on which an issuer owns or proposes to acquire investment securities (as defined in section 3(a) of the Act) having a value exceeding 40% of the value of such issuer's total assets (exclusive of government securities and cash items) on an unconsolidated basis. If the Company becomes an inadvertent investment company, and fails to meet the requirements of the transient investment company exemption under Rule 3a-2 of the Investment Company Act, then we will be required to register as an investment company with the SEC.

 

 

 

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The ramifications of becoming an investment company, both in terms of the restrictions it would have on our company and the cost of compliance, would be significant. For example, in addition to expenses related to initially registering as an investment company, the Investment Company Act also imposes various restrictions with regard to our ability to enter into affiliated transactions, the diversification of our assets and our ability to borrow money. If we became subject to the Investment Company Act at some point in the future, our ability to continue pursuing our business plan would be severely limited.

 

Risks in Connection with Sponsorship BRAC

 

Our officers and directors will allocate a portion of their time to BRAC which could cause conflicts of interest in their determination as to how much time to devote to our affairs. This could have a negative impact on our ability to effectuate our operational business plan.

 

Our officers and directors are officers and/or directors BRAC and as a result may not be able to commit their full time to our affairs. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary to our business. The foregoing could have a negative impact on our ability to effectuate our operational business plan.

 

Our officers and directors may have a conflict of interest in determining whether a particular target business for BRAC is appropriate for a business combination.

 

Each of our officers and directors is an officer and/or director of BRAC. As described elsewhere in this annual report, an oil and gas company that pursues asset acquisitions in the energy industry, the same industry within which BRAC will focus its search for a target business. However, we will continue to focus on acquiring assets from businesses with private equity backing that are seeking to sell such assets for cash without retaining any equity interest in them, whereas BRAC intends to acquire a target business from a seller that wishes to retain a significant equity interest in the combined company. Accordingly, our management team does not believe that there will be a meaningful conflict between us and BRAC in relation to consummating a business combination. Nevertheless, we cannot assure you of this fact and it is possible that a suitable business opportunity could be presented to BRAC prior to its presentation to our company.

 

Risks Related to our Common Stock

 

The market price of our common stock is, and is likely to continue to be, highly volatile and subject to wide fluctuations.

 

The market price of our common stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to a number of factors, some of which are beyond our control, including but not limited to:

 

  ·   dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies;
  ·   fluctuations in revenue from management services business;
  ·   quarterly variations in our revenues and operating expenses;
  ·   changes in the valuation of similarly situated companies, both in our industry and in other industries;
  ·   challenges associated with timely SEC filings;
  ·   illiquidity and lack of marketability by being an OTC traded stock;
  ·   changes in analysts’ estimates affecting our company, our competitors and/or our industry;
  ·   changes in the accounting methods used in or otherwise affecting our industry;
  ·   additions and departures of key personnel;
  ·   fluctuations in interest rates and the availability of capital in the capital markets; and
  ·   significant sales of our common stock, including sales by selling shareholders following the registration of shares under a prospectus.

 

These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and our results of operations and financial condition.

 

Our operating results may fluctuate significantly, and these fluctuations may cause the price of our common stock to decline.

 

Our operating results will likely vary in the future primarily as the result of fluctuations in our revenues and operating expenses, including the expenses that we incur and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of our common stock may decline.

 

 

 

  8  

 

 

Shareholders will experience dilution upon the exercise of outstanding warrants and options and issuance of common stock under our incentive plans.

 

As of December 31, 2017, we had options for 7,093,800 shares of common stock outstanding under our 2012 Amended and Restated Stock Incentive Plan and options for an additional 3,763,500 shares of common stock outstanding under our 2016 Non-Qualified Stock Option Plan. If the holders of outstanding options exercise those options or our compensation committee or full board of directors determines to grant additional stock awards under our incentive plan, shareholders may experience dilution in the net tangible book value of our common stock. Further, the sale or availability for sale of the underlying shares in the marketplace as a result of the exercise of existing options and the grant of additional options could depress our stock price.

 

We do not expect to pay dividends in the foreseeable future.

 

We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. In addition, debt arrangements we may enter into in the future will likely preclude us from paying dividends. Therefore, investors will not receive any funds unless they sell their common stock, and shareholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in our common stock.

 

We may issue additional stock without shareholder consent.

 

Our board of directors has authority, without action or vote of the shareholders, to issue all or part of our authorized but unissued shares. Additional shares may be issued in connection with future financing, acquisitions, employee stock plans, or otherwise. Any such issuance will dilute the percentage ownership of existing shareholders. We are also currently authorized to issue up to 20,000,000 shares of preferred stock. The board of directors can issue preferred stock in one or more series and fix the terms of such stock without shareholder approval. Preferred stock may include the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. The issuance of preferred stock could adversely affect the rights of the holders of common stock and reduce the value of the common stock. In addition, specific rights granted to holders of preferred stock could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our shareholders. Such issuance could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

 

There is currently a limited trading market for our common stock and we cannot ensure that one will ever develop or be sustained.

 

To date there has not been a significant liquid trading market for our common stock. We cannot predict how liquid the market for our common stock might become. We currently do not satisfy the initial listing standards for any major securities exchange, although we intend to apply for such an exchange listing when we are able. Currently our common stock is traded on the OTCQB. Should we fail to remain traded on the OTCQB or not be able to be traded on the OTCQB, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility. Furthermore, for companies whose securities are quoted on the OTCQB, it may be more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies and (iii) to obtain needed capital.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144,or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could hinder our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

 

 

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Risks Related to BRAC and its Common Stock

 

BRAC is a recently formed company with no operating history and no revenues, and its investors have no basis on which to evaluate BRAC’s ability to achieve BRAC’s business objective.

 

BRAC is a newly formed company with no operating results to date. Therefore, BRAC’s ability to commence operations is dependent upon completing a business combination. Since BRAC does not have an operating history, its investors will have no basis upon which to evaluate BRAC’s ability to achieve BRAC’s business objective, which is to acquire an operating business. BRAC will not generate any revenues until, at the earliest, after the consummation of a business combination.

 

If BRAC is unable to consummate a business combination, BRAC’s public stockholders may be forced to wait more than 21 months from the completion of BRAC’s IPO (July 10, 2019) before receiving distributions from the trust account.

 

BRAC has until July 10, 2019 to complete a business combination. BRAC has no obligation to return funds to investors prior to such date unless BRAC consummates a business combination prior thereto and only then in cases where its investors have sought to convert or sell their shares to BRAC. Only after the expiration of this full time period will public security holders be entitled to distributions from the trust account if BRAC is unable to complete a business combination. Accordingly, BRAC’s investors’ funds may be unavailable to them until after such date and to liquidate their investment, public security holders may be forced to sell their public shares, rights or warrants, potentially at a loss.

 

BRAC’s public stockholders may not be afforded an opportunity to vote on BRAC’s proposed business combination, which means BRAC may complete BRAC’s initial business combination even if a majority of BRAC’s public stockholders do not support such a combination.

 

BRAC will either (1) seek stockholder approval of BRAC’s initial business combination at a meeting called for such purpose at which public stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account (net of franchise and income taxes payable), or (2) provide BRAC’s public stockholders with the opportunity to sell their shares to BRAC by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of franchise and income taxes payable), in each case subject to the limitations described elsewhere in this report. Accordingly, it is possible that BRAC will consummate BRAC’s initial business combination even if holders of a majority of BRAC’s public shares do not approve of the business combination BRAC consummates. The decision as to whether BRAC will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to BRAC in a tender offer will be made by us, solely in BRAC’s discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require BRAC to seek stockholder approval. For instance, NASDAQ rules currently allow BRAC to engage in a tender offer in lieu of a stockholder meeting but would still require BRAC to obtain stockholder approval if BRAC were seeking to issue more than 20% of BRAC’s outstanding shares to a target business as consideration in any business combination. Therefore, if BRAC were structuring a business combination that required BRAC to issue more than 20% of BRAC’s outstanding shares, BRAC would seek stockholder approval of such business combination instead of conducting a tender offer.

 

Because of BRAC’s structure, other companies may have a competitive advantage and BRAC may not be able to consummate an attractive business combination.

 

BRAC expects to encounter intense competition from entities other than blank check companies having a business objective similar to BRAC’s, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than BRAC does and BRAC’s financial resources will be relatively limited when contrasted with those of many of these competitors. While BRAC believes that there are numerous potential target businesses that BRAC could acquire with the net proceeds of this offering, BRAC’s ability to compete in acquiring certain sizable target businesses will be limited by BRAC’s available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Additionally, BROG, as BRAC’s sponsor, is an oil and gas company that pursues distressed asset acquisitions in the energy industry, the same industry within which BRAC intends to focus its search for a target business. While BROG intends to acquire assets from businesses with private equity backing that are seeking to sell such assets for cash without retaining any equity interest in them (as opposed to BRAC’s intent to acquire a target business from a seller that wishes to retain a significant equity interest in the combined company), it is not limited to this type of acquisition and BRAC therefore could nevertheless be subject to competition for acquisitions with BROG and its other interests. Furthermore, seeking stockholder approval or engaging in a tender offer in connection with any proposed business combination may delay the consummation of such a transaction. Additionally, BRAC’s outstanding rights and warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of the foregoing may place BRAC at a competitive disadvantage in successfully negotiating a business combination.

 

 

 

  10  

 

 

The ability of BRAC’s stockholders to exercise their conversion rights or sell their shares to BRAC in a tender offer may not allow BRAC to effectuate the most desirable business combination or optimize BRAC’s capital structure.

 

If BRAC’s business combination requires BRAC to use substantially all of its cash to pay the purchase price, because it will not know how many stockholders may exercise conversion rights or seek to sell their shares to it in a tender offer, it may either need to reserve part of the trust account for possible payment upon such conversion, or it may need to arrange third party financing to help fund its business combination. In the event that the acquisition involves the issuance of its stock as consideration, BRAC may be required to issue a higher percentage of its stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit BRAC’s ability to effectuate the most attractive business combination available to us.

 

In connection with any vote to approve a business combination, BRAC will offer each public stockholder the option to vote in favor of a proposed business combination and still seek conversion of his, her or its shares.

 

In connection with any vote to approve a business combination, BRAC will offer each public stockholder (but not BROG, as BRAC’s sponsor, or BROG’s officers or directors) the right to have his, her or its shares of common stock converted to cash (subject to the limitations described elsewhere in this annual report) regardless of whether such stockholder votes for or against such proposed business combination. This ability to seek conversion while voting in favor of BRAC’s proposed business combination may make it more likely that BRAC will consummate a business combination.

 

The ability of BRAC’s public stockholders to exercise redemption rights with respect to a large number of BRAC’s shares could increase the probability that BRAC’s initial business combination is not consummated and that its investors would have to wait for liquidation in order to redeem their stock.

 

If the definitive agreement for BRAC’s business combination requires it to use a portion of the cash in the trust account to pay the purchase price, or requires it to have a minimum amount of cash at closing, the probability that BRAC’s initial business combination would not be consummated is increased. If BRAC’s initial business combination is not consummated, its investors would not receive their pro rata portion of the trust account until BRAC liquidates the trust account in connection with BRAC’s liquidation. If its investors are in need of immediate liquidity, its investors could attempt to sell their stock in the open market; however, at such time BRAC’s stock may trade at a discount to the pro rata amount per share in the trust account. In either situation, its investors may suffer a material loss on their investment or lose the benefit of funds expected in connection with BRAC’s redemption until BRAC liquidates or its investors are able to sell their stock in the open market.

  

The requirement that BRAC complete its initial business combination within the prescribed time frame may give potential target businesses leverage over BRAC in negotiating a business combination and may decrease its ability to conduct due diligence on potential business combination targets as BRAC approaches its dissolution deadline, which could undermine its ability to complete its business combination on terms that would produce value for its stockholders.

 

Any potential target business with which BRAC enters into negotiations concerning a business combination will be aware that BRAC must complete its initial business combination by July 10, 2019. Consequently, such target business may obtain leverage over BRAC in negotiating a business combination, knowing that if BRAC does not complete its initial business combination with that particular target business, BRAC may be unable to complete its initial business combination with any target business. This risk will increase as BRAC get closer to the timeframe described above. In addition, BRAC may have limited time to conduct due diligence and may enter into its initial business combination on terms that it would have rejected upon a more comprehensive investigation.

 

BRAC may not obtain a fairness opinion with respect to the target business that BRAC seeks to acquire and therefore its investors may be relying solely on the judgment of BRAC’s board of directors in approving a proposed business combination.

 

BRAC will only be required to obtain a fairness opinion with respect to the target business that it seeks to acquire if it is an entity that is affiliated with any of BRAC’s officers, directors or BROG as its sponsor. In all other instances, BRAC will have no obligation to obtain an opinion. Accordingly, investors will be relying solely on the judgment of BRAC’s board of directors in approving a proposed business combination.

 

 

 

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BRAC may not be able to complete its initial business combination within the prescribed time frame, in which case BRAC would cease all operations except for the purpose of winding up and BRAC would redeem its public shares and liquidate.

 

BROG, as BRAC’s sponsor, and BROG’s executive officers and directors have agreed that BRAC must complete its initial business combination by July 10, 2019. If BRAC has not completed BRAC’s initial business combination by July 10, 2019, BRAC will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of franchise and income taxes payable) divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of BRAC’s remaining stockholders and BRAC’s board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to BRAC’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

 

If the net proceeds of BRAC’s initial public offering not being held in the trust account are insufficient, it could limit the amount available to fund BRAC’s search for a target business or businesses and complete its initial business combination and BRAC will depend on loans from its sponsor or management team to fund its search, to pay its income taxes and to complete its business combination.

 

Of the net proceeds of BRAC’s initial public offering, only approximately $428,000 (as of December 31, 2017) is available to BRAC outside the trust account to fund its working capital requirements. If BRAC is required to seek additional capital, it would need to borrow funds from its sponsor, management team or other third parties to operate or may be forced to liquidate. Neither BROG, as BRAC’s sponsor, or members of BRAC’s management team nor any of their affiliates is under any obligation to advance funds to it in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to BRAC upon completion of its initial business combination. If BRAC is unable to complete its initial business combination because BRAC does not have sufficient funds available to it, BRAC will be forced to cease operations and liquidate the trust account. Consequently, BRAC’s public stockholders may only receive, without taking into account, interest, if any, earned on the trust account, approximately $10.05 per share on BRAC’s redemption of its public shares, and BRAC’s warrants will expire worthless.

 

Since BRAC has not yet selected a particular industry or target business with which to complete a business combination, BRAC is unable to currently ascertain the merits or risks of the industry or business in which BRAC may ultimately operate.

 

Although BRAC intend to focus BRAC’s search for target businesses on companies in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America where BRAC’s management team’s networks and experience are suited, BRAC may consummate a business combination with a company in any industry BRAC chooses and are not limited to any particular industry or type of business. Accordingly, there is no current basis for its investors to evaluate the possible merits or risks of the particular industry in which BRAC may ultimately operate or the target business which BRAC may ultimately acquire. To the extent BRAC completes a business combination with a financially unstable company or an entity in its development stage, BRAC may be affected by numerous risks inherent in the business operations of those entities. If BRAC completes a business combination with an entity in an industry characterized by a high level of risk, BRAC may be affected by the currently unascertainable risks of that industry. Although BRAC’s management will endeavor to evaluate the risks inherent in a particular industry or target business, BRAC cannot assure its investors that BRAC will properly ascertain or assess all of the significant risk factors. BRAC also cannot assure its investors that an investment in BRAC’s units will not ultimately prove to be less favorable to investors in this offering than a direct investment, if an opportunity were available, in a target business.

 

BRAC may seek acquisition opportunities in industries or sectors outside the energy sector, which may or may not be outside of BRAC’s management’s area of expertise.

 

BRAC will consider an initial business combination outside the energy sector (which sectors may or may not be outside BRAC’s management’s areas of expertise) if a business combination candidate is presented to it and BRAC determines that such candidate offers an acquisition opportunity for BRAC’s company. Although BRAC’s management will endeavor to evaluate the risks inherent in any particular business combination candidate, BRAC cannot assure its investors that BRAC will adequately ascertain or assess all of the significant risk factors. BRAC also cannot assure its investors that an investment in BRAC’s securities will not ultimately prove to be less favorable to investors than a direct investment, if an opportunity were available, in a business combination candidate. In the event BRAC elects to pursue an acquisition outside of the areas of BRAC’s management’s expertise, BRAC’s management’s expertise may not be directly applicable to its evaluation or operation, and the information contained herein regarding the areas of BRAC’s management’s expertise would not be relevant to an understanding of the business that BRAC elects to acquire.

 

 

 

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Although BRAC identified general criteria and guidelines that BRAC believes are important in evaluating prospective target businesses, BRAC may enter into BRAC’s initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which BRAC enter into BRAC’s initial business combination may not have attributes entirely consistent with BRAC’s general criteria and guidelines.

 

Although BRAC has identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which BRAC enters into BRAC’s initial business combination will not have all of these positive attributes. If BRAC completes BRAC’s initial business combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of BRAC’s general criteria and guidelines. In addition, if BRAC announces a prospective business combination with a target that does not meet BRAC’s general criteria and guidelines, a greater number of stockholders may exercise their redemption rights, which may make it difficult for it to meet any closing condition with a target business that requires it to have a minimum net worth or a certain amount of cash. In addition, if stockholder approval of the transaction is required by law, or BRAC decides to obtain stockholder approval for business or other legal reasons, it may be more difficult for it to attain stockholder approval of BRAC’s initial business combination if the target business does not meet BRAC’s general criteria and guidelines. If BRAC is unable to complete BRAC’s initial business combination, BRAC’s public stockholders may receive, without taking into account, interest, if any, earned on the trust account, only approximately $10.05 per share on the liquidation of BRAC’s trust account and BRAC’s warrants will expire worthless.

  

BRAC may seek investment opportunities with a financially unstable business or an entity lacking an established record of revenue or earnings.

 

To the extent BRAC complete BRAC’s initial business combination with a financially unstable business or an entity lacking an established record of sales or earnings, BRAC may be affected by numerous risks inherent in the operations of the business with which BRAC combines. These risks include volatile revenues or earnings and difficulties in obtaining and retaining key personnel. Although BRAC’s executive officers and directors will endeavor to evaluate the risks inherent in a particular target business, BRAC may not be able to properly ascertain or assess all of the significant risk factors and BRAC may not have adequate time to complete due diligence. Furthermore, some of these risks may be outside of BRAC’s control and leave it with no ability to control or reduce the chances that those risks will adversely impact a target business.

 

BRAC may issue shares of BRAC’s capital stock or debt securities to complete a business combination, which would reduce the equity interest of BRAC’s stockholders and likely cause a change in control of BRAC’s ownership.

 

BRAC’s amended and restated certificate of incorporation authorizes the issuance of up to 35,000,000 shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. The issuance of additional shares of common stock or preferred stock:

 

· may significantly reduce the equity interest of BRAC’s shareholders;
· may subordinate the rights of holders of shares of common stock if BRAC issues shares of preferred stock with rights senior to those afforded to BRAC’s shares of common stock;
· may cause a change in control if a substantial number of shares of common stock are issued, which may affect, among other things, BRAC’s ability to use BRAC’s net operating loss carry forwards, if any, and could result in the resignation or removal of BRAC’s present officers and directors; and
· may adversely affect prevailing market prices for BRAC’s shares of common stock.

  

Similarly, if BRAC issues debt securities, it could result in:

 

· default and foreclosure on BRAC’s assets if BRAC’s operating revenues after a business combination are insufficient to repay BRAC’s debt obligations;
· acceleration of BRAC’s obligations to repay the indebtedness even if BRAC makes all principal and interest payments when due if BRAC breaches certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
· BRAC’s immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
· BRAC’s inability to obtain necessary additional financing if the debt security contains covenants restricting BRAC’s ability to obtain such financing while the debt security is outstanding.

 

 

 

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If BRAC incur indebtedness, BRAC’s lenders will not have a claim on the cash in the trust account and such indebtedness will not decrease the per-share conversion amount in the trust account.

 

Resources could be spent researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.

 

It is anticipated that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, BRAC may fail to consummate the business combination for any number of reasons including those beyond BRAC’s control. Any such event will result in a loss to BRAC of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.

 

BRAC is dependent upon BRAC’s executive officers and directors and their departure could adversely affect BRAC’s ability to operate.

 

BRAC’s operations are dependent upon a relatively small group of individuals and, in particular, Kenneth DeCubellis and BRAC’s other executive officers and directors. BRAC believes that BRAC’s success depends on the continued service of BRAC’s executive officers and directors, at least until BRAC has completed BRAC’s business combination. In addition, BRAC’s executive officers and directors are not required to commit any specified amount of time to BRAC’s affairs and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. BRAC does not have key-man insurance on the life of any of BRAC’s directors or executive officers. The unexpected loss of the services of one or more of BRAC’s directors or executive officers could have a detrimental effect on us.

 

BRAC’s ability to successfully effect a business combination and to be successful thereafter will be totally dependent upon the efforts of BRAC’s key personnel, some of whom may join it following a business combination. While BRAC intends to closely scrutinize any individuals BRAC engages after a business combination, BRAC cannot assure its investors that BRAC’s assessment of these individuals will prove to be correct.

 

BRAC’s ability to successfully effect a business combination is dependent upon the efforts of BRAC’s key personnel. BRAC believe that BRAC’s success depends on the continued service of BRAC’s key personnel, at least until BRAC has consummated BRAC’s initial business combination. BRAC cannot assure its investors that any of BRAC’s key personnel will remain with it for the immediate or foreseeable future. In addition, none of BRAC’s officers are required to commit any specified amount of time to BRAC’s affairs and, accordingly, BRAC’s officers will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. BRAC does not have employment agreements with, or key-man insurance on the life of, any of BRAC’s officers. The unexpected loss of the services of BRAC’s key personnel could have a detrimental effect on us.

 

The role of BRAC’s key personnel after a business combination, however, cannot presently be ascertained. Although some of BRAC’s key personnel serve in senior management or advisory positions following a business combination, it is likely that most, if not all, of the management of the target business will remain in place. While BRAC intends to closely scrutinize any individuals BRAC engages after a business combination, BRAC cannot assure its investors that BRAC’s assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause it to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect BRAC’s operations.

 

BRAC’s officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business BRAC may seek to acquire.

 

BRAC may consummate a business combination with a target business in any geographic location or industry BRAC chooses. BRAC cannot assure its investors that BRAC’s officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the target or its industry to make an informed decision regarding a business combination.

 

 

 

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None of BRAC’s executive officers or directors has ever been associated with a special purpose acquisition corporation and such lack of experience could adversely affect BRAC’s ability to consummate a business combination.

 

None of BRAC’s executive officers or directors has ever been associated with a special purpose acquisition corporation. BRAC’s management’s lack of experience in operating a special purpose acquisition corporation could adversely affect BRAC’s ability to consummate a business combination and could result in BRAC’s not completing a business combination in the prescribed time frame.

 

BRAC’s key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following a business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.

 

BRAC’s key personnel will be able to remain with the company after the consummation of a business combination only if they are able to negotiate employment or consulting agreements or other appropriate arrangements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or BRAC’s securities for services they would render to the company after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business.

 

BRAC may have a limited ability to assess the management of a prospective target business and, as a result, may effect BRAC’s initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company.

 

When evaluating the desirability of effecting BRAC’s initial business combination with a prospective target business, BRAC’s ability to assess the target business’s management may be limited due to a lack of time, resources or information. BRAC’s assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities BRAC suspected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any stockholders who choose to remain stockholders following the business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by BRAC’s executive officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the tender offer or proxy statement materials relating to the business combination contained an actionable material misstatement or material omission.

 

The officers and directors of an acquisition candidate may resign upon completion of BRAC’s initial business combination. The departure of a business combination target’s key personnel could negatively impact the operations and profitability of BRAC’s post-combination business. The role of an acquisition candidate’s key personnel upon the completion of BRAC’s initial business combination cannot be ascertained at this time. Although BRAC contemplates that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following BRAC’s initial business combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place.

 

   

BRAC may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with BRAC’s executive officers, directors or existing holders which may raise potential conflicts of interest.

 

In light of the involvement of BROG, as BRAC’s sponsor, and BROG’s executive officers and directors with other entities, BRAC may decide to acquire one or more businesses affiliated with BROG or its executive officers and directors. BRAC’s directors also serve as officers and board members for other entities. Such entities may compete with it for business combination opportunities. Although BRAC is not specifically focusing on, or targeting, any transaction with any affiliated entities, BRAC could pursue such a transaction if BRAC determined that such affiliated entity met BRAC’s criteria for a business combination and such transaction was approved by a majority of BRAC’s disinterested directors. Despite BRAC’s agreement to obtain an opinion from an independent accounting firm or independent investment banking firm regarding the fairness to BRAC’s company from a financial point of view of a business combination with one or more domestic or international businesses affiliated with BRAC’s executive officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to BRAC’s public stockholders as they would be absent any conflicts of interest.

 

 

 

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BRAC may only be able to complete one business combination with the proceeds of BRAC’s initial public offering, which will cause it to be solely dependent on a single business which may have a limited number of products or services.

 

It is likely BRAC will consummate a business combination with a single target business, although BRAC has the ability to simultaneously acquire several target businesses. By consummating a business combination with only a single entity, BRAC’s lack of diversification may subject it to numerous economic, competitive and regulatory developments. Further, BRAC would not be able to diversify BRAC’s operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for BRAC’s success may be:

 

· solely dependent upon the performance of a single business, or
· dependent upon the development or market acceptance of a single or limited number of products, processes or services.

  

This lack of diversification may subject it to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which BRAC may operate subsequent to a business combination.

 

Alternatively, if BRAC determines to simultaneously acquire several businesses and such businesses are owned by different sellers, BRAC will need for each of such sellers to agree that BRAC’s purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay BRAC’s ability, to complete the business combination. With multiple business combinations, BRAC could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If BRAC is unable to adequately address these risks, it could negatively impact BRAC’s profitability and results of operations.

 

BRAC may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder BRAC’s ability to complete BRAC’s business combination and give rise to increased costs and risks that could negatively impact BRAC’s operations and profitability.

 

If BRAC determines to simultaneously acquire several businesses that are owned by different sellers, BRAC will need for each of such sellers to agree that BRAC’s purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay BRAC’s ability, to complete BRAC’s initial business combination. With multiple business combinations, BRAC could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If BRAC is unable to adequately address these risks, it could negatively impact BRAC’s profitability and results of operations.

 

If BRAC’s security holders exercise their registration rights, it may have an adverse effect on the market price of BRAC’s shares of common stock and the existence of these rights may make it more difficult to effect a business combination.

 

BRAC’s sponsor is entitled to make a demand that BRAC register the resale of the founders’ shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the holders of the private units and any units BRAC’s sponsor, officers, directors, or their affiliates may be issued in payment of working capital loans made to it are entitled to demand that BRAC register the resale of the private units and any other units BRAC issues to them (and the underlying securities) commencing at any time after BRAC consummates an initial business combination. The presence of these additional shares of common stock trading in the public market may have an adverse effect on the market price of BRAC’s securities. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business, as the stockholders of the target business may be discouraged from entering into a business combination with it or will request a higher price for their securities because of the potential effect the exercise of such rights may have on the trading market for BRAC’s shares of common stock.

 

EarlyBirdCapital may have a conflict of interest in rendering services to it in connection with BRAC’s initial business combination.

 

BRAC has engaged EarlyBirdCapital to assist it in connection with BRAC’s initial business combination. BRAC will pay EarlyBirdCapital a cash fee of $4,830,000 for such services upon the consummation of BRAC’s initial business combination. This financial interest may result in EarlyBirdCapital having a conflict of interest when providing the services to it in connection with an initial business combination.

 

 

 

  16  

 

 

Because BRAC must furnish BRAC’s stockholders with target business financial statements prepared in accordance with U.S. generally accepted accounting principles or international financial reporting standards, BRAC will not be able to complete a business combination with prospective target businesses unless their financial statements are prepared in accordance with U.S. generally accepted accounting principles.

 

The federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financial reporting standards as issued by the International Accounting Standards Board, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. BRAC will include the same financial statement disclosure in connection with any tender offer documents BRAC use, whether or not they are required under the tender offer rules. Additionally, to the extent BRAC furnishes BRAC’s stockholders with financial statements prepared in accordance with IFRS, such financial statements will need to be audited in accordance with U.S. GAAP at the time of the consummation of the business combination. These financial statement requirements may limit the pool of potential target businesses BRAC may acquire.

 

BRAC is an emerging growth company within the meaning of the Securities Act, and if BRAC takes advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make BRAC’s securities less attractive to investors and may make it more difficult to compare BRAC’s performance with other public companies.

 

BRAC is an “emerging growth company,” as defined in the JOBS Act. BRAC will remain an “emerging growth company” for up to five years. However, if BRAC’s non-convertible debt issued within a three year period or revenues exceeds $1.07 billion, or the market value of BRAC’s shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, BRAC would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, BRAC is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, BRAC has reduced disclosure obligations regarding executive compensation in BRAC’s periodic reports and proxy statements and BRAC is exempt from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, BRAC has elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, BRAC’s financial statements may not be comparable to companies that comply with public company effective dates. BRAC cannot predict if investors will find BRAC’s shares of common stock less attractive because BRAC may rely on these provisions. If some investors find BRAC’s shares of common stock less attractive as a result, there may be a less active trading market for BRAC’s shares and BRAC’s share price may be more volatile.

 

Provisions in BRAC’s amended and restated certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for BRAC’s common stock and could entrench management.

 

BRAC’s amended and restated certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. BRAC’s board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. As a result, at a given annual meeting only a minority of the board of directors may be considered for election. Since BRAC’s “staggered board” may prevent BRAC’s stockholders from replacing a majority of BRAC’s board of directors at any given annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Moreover, BRAC’s board of directors has the ability to designate the terms of and issue new series of preferred stock.

 

BRAC is also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for BRAC’s securities.

 

 

 

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If BRAC effects a business combination with a company located outside of the United States, BRAC would be subject to a variety of additional risks that may negatively impact BRAC’s operations.

 

BRAC may effect a business combination with a company located outside of the United States. If BRAC did, BRAC would be subject to any special considerations or risks associated with companies operating in the target business’ home jurisdiction, including any of the following:

 

· rules and regulations or currency conversion or corporate withholding taxes on individuals;
· tariffs and trade barriers;
· regulations related to customs and import/export matters;
· longer payment cycles;
· tax issues, such as tax law changes and variations in tax laws as compared to the United States;
· currency fluctuations and exchange controls;
· challenges in collecting accounts receivable;
· cultural and language differences;
· employment regulations;
· crime, strikes, riots, civil disturbances, terrorist attacks and wars; and
· deterioration of political relations with the United States.

 

BRAC cannot assure its investors that BRAC would be able to adequately address these additional risks. If BRAC were unable to do so, BRAC’s operations might suffer.

 

If BRAC effects a business combination with a company located outside of the United States, the laws applicable to such company will likely govern all of BRAC’s material agreements and BRAC may not be able to enforce BRAC’s legal rights.

 

If BRAC effects a business combination with a company located outside of the United States, the laws of the country in which such company operates will govern almost all of the material agreements relating to its operations. BRAC cannot assure its investors that the target business will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of BRAC’s future agreements could result in a significant loss of business, business opportunities or capital. Additionally, if BRAC acquires a company located outside of the United States, it is likely that substantially all of BRAC’s assets would be located outside of the United States and some of BRAC’s officers and directors might reside outside of the United States. As a result, it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon BRAC’s directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of BRAC’s directors and officers under federal securities laws.

 

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect BRAC’s business, investments and results of operations.

 

BRAC is subject to laws and regulations enacted by national, regional and local governments. In particular, BRAC will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on BRAC’s business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on BRAC’s business and results of operations.

 

BRAC’s amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit BRAC’s stockholders’ ability to obtain a favorable judicial forum for disputes with it or BRAC’s directors, officers, employees or stockholders.

 

BRAC’s amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in BRAC’s name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Any person or entity purchasing or otherwise acquiring any interest in shares of BRAC’s capital stock shall be deemed to have notice of and consented to the forum provisions in BRAC’s amended and restated certificate of incorporation.

 

 

 

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This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of BRAC’s directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in BRAC’s amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, BRAC may incur additional costs associated with resolving such action in other jurisdictions, which could harm BRAC’s business, operating results and financial condition.

 

If BRAC consummates a business combination with a target business in the energy industry, BRAC would be subject to the risks attendant to such industry.

 

If BRAC is successful in consummating a business combination with a target business in the energy industry, BRAC would be subject to all of the risks attendant to such industry, including, among others:

 

· fluctuations in energy prices causing a reduction in the demand or profitability of the products or services BRAC may ultimately produce or offer;
· fluctuations in energy prices causing a reduction in the demand or profitability of the products or services BRAC may ultimately produce or offer;
· changes in technology rendering BRAC’s products or services obsolete following a business combination;
· increasing governmental regulation; and
  · failure to comply with governmental regulations resulting in the imposition of penalties, fines or restrictions on operations and remedial liabilities.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Executive Offices

 

Our executive offices are located at 110 North Fifth Street, Suite 410, Minneapolis, Minnesota 55403. Our office space consists of approximately 2,786 square feet leased pursuant to an annual lease agreement that commenced on July 1, 2016 and continued on a month-to-month basis beginning July 1, 2017.

 

Research and Development

 

We do not anticipate performing any significant product research and development under our plan of operation.

 

Delivery Commitments

 

We do not currently have any delivery commitments under our plan of operation.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us .

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

 

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Common Stock

 

Our common stock is currently quoted on the OTCQB under the symbol “ANFC.” The range of high and low bid information for each fiscal quarter during 2017 and 2016 are set forth below:

 

    Sales Price  
    High     Low  
Year Ended December 31, 2017            
First Quarter   $ 0.0725     $ 0.0161  
Second Quarter   $ 0.0498     $ 0.0122  
Third Quarter   $ 0.0550     $ 0.0121  
Fourth Quarter   $ 0.0554     $ 0.0179  
                 
Year Ended December 31, 2016                
First Quarter   $ 0.1500     $ 0.0380  
Second Quarter   $ 0.1500     $ 0.0200  
Third Quarter   $ 0.0930     $ 0.0350  
Fourth Quarter   $ 0.0700     $ 0.0195  

 

The above quotations reflect inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actual transactions. The closing price of our common stock on the OTCQB on April 6, 2018 was $0.0320 per share.

 

As of April 6, 2018, there were approximately 1,900 record holders of our common stock, not including shares held in “street name” in brokerage accounts which is unknown. As of April 6, 2018, there were 479,799,900 shares of common stock outstanding on record.

 

Dividends

 

not declared or paid any dividends on our common stock since our inception and do not anticipate paying dividends for the foreseeable future. The payment of dividends is subject to the discretion of our board of directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common shareholders will be payable when, as and if declared by our board of directors, based upon the board’s assessment of our financial condition and performance, earnings, need for funds, capital requirements, prior claims of preferred stock to the extent issued and outstanding, and other factors, including income tax consequences, restrictions and applicable laws. There can be no assurance, therefore, that any dividends on our common stock will ever be paid.

 

Equity Compensation Plan Information

 

Effective March 2, 2012, the 2012 Amended and Restated Stock Incentive Plan (the 2012 Plan) was approved by our Board and the holders of a majority of our outstanding shares, replacing the Ante5, Inc. 2010 Stock Incentive Plan. Amongst other things, the 2012 Plan increased the number of shares reserved under the Plan to a total of 7,500,000 shares of our common stock. The following table sets forth certain information regarding the 2012 Plan as of December 31, 2017:

 

Number of securities to be
issued upon exercise of
outstanding stock options
  Weighted-average exercise
price of outstanding stock
options
  Number of securities remaining
available for future issuance
under the 2012 Plan
7,093,800   $0.42   346,200

 

 

 

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For the fiscal years ended December 31, 2017 and 2016, we issued a total of -0- and 100,000 stock options, respectively, pursuant to the 2012 Plan. There were 49,700 and 12,000 options cancelled during the years ended December 31, 2017 and 2016, respectively.

 

Effective December 12, 2016, the 2016 Non-Qualified Stock Option Plan (“the 2016 Plan”) was approved by our Board. Amongst other things, the 2016 Plan authorized a total of 3,813,500 shares of our common stock. The following table sets forth certain information regarding our 2016 Plan as of December 31, 2017:

 

Number of securities to be
issued upon exercise of
outstanding stock options
  Weighted-average exercise
price of outstanding stock
options
  Number of securities remaining
available for future issuance
under the 2016 Plan
3,763,500   $0.04   50,000

 

For the fiscal years ended December 31, 2017 and 2016, we issued a total of -0- and 3,813,500 stock options, respectively, pursuant to our 2016 Plan. There were 50,000 and -0- options cancelled under the 2016 Plan during the years ended December 31, 2017 and 2016, respectively.

 

Warrants

 

We issued warrants to purchase 435,000 and -0- shares of registered or unregistered common stock for the fiscal years ended December 31, 2017 and 2016, respectively. There were -0- and 8,548,375 warrants forfeited or expired during the years ended December 31, 2017 and 2016, respectively. A total of 435,000 warrants are outstanding as of December 31, 2017.

 

Unregistered Issuance of Equity Securities

 

In connection with the Company’s registered distribution of subscription rights to shareholders for the purchase of shares of common stock (the “Rights Offering”), the Company entered into a Standby Purchase Agreement (the “Backstop Agreement”) with a consortium of investors, including members of the Company’s board of directors and our Chief Executive Officer (collectively, the “Backstop Purchasers”). On September 26, 2017, the Company closed the backstop offering transaction pursuant to which the Backstop Purchasers purchased 232,008,489 shares (the “Backstop Shares”) at a purchase price of $0.012 per share for total proceeds of $2,784,102. In addition, the Backstop Purchasers received 435,000 five-year warrants to purchase shares of common stock at an exercise price of $0.01 per share (the “Backstop Warrants”) in exchange for their participation in the Backstop Agreement. The Backstop Shares and Backstop Warrants were issued to the Backstop Purchasers by the Company in a private placement transaction not involving any public offering in reliance on the exemption available under Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The Company filed a registration statement on Form S-1 with the SEC to register the resale of the Backstop Shares and the shares underlying the Backstop Warrants (the “Resale Registration Statement”) which was declared effective by the SEC on February 9, 2018.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.

 

Overview and Outlook

 

Effective April 2, 2012, we changed our name to Black Ridge Oil & Gas, Inc. Our common stock is still quoted on the OTCQB under the trading symbol “ANFC.”

 

The Company is focused on acquiring, investing in, and managing the oil and gas assets for our partners. We continue to pursue asset acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture partners or other capital providers. Additionally, as the sponsor and manager of Black Ridge Acquisition Corp. (“BRAC”), we will be focused on BRAC’s efforts to identify a prospective target business in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America.

 

Rights Offering and BRAC IPO

 

The Company filed a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register the issuance of 431,819,910 shares of common stock in the Rights Offering that was declared effective by the SEC on August 3, 2017. Pursuant to the Rights Offering, the Company distributed, on a pro rata basis, one right for each share of common stock owned by shareholders on August 2, 2017 (the “Record Date”). Each right permitted a shareholder to purchase up to nine shares of common stock at a subscription price of $0.012 per share. The Rights Offering expired on September 8, 2017 (the “Expiration Date”).

 

 

 

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Associated with the Rights Offering the Company also entered into the Backstop Agreement with the Backstop Purchasers, who agreed to purchase up to $2.9 million of the unsubscribed shares following the completion of the rights offering.

 

On September 26, 2017, the Company finalized the Rights Offering and Backstop Agreement, and issued 431,819,910 shares raising gross proceeds of $5,181,839. Under the Rights Offering the Company’s current shareholders exercised rights to purchase 199,811,421 shares of stock for a total of $2,397,737. Under the Backstop Agreement, the Backstop Purchasers purchased 232,008,489 shares of stock for a total of $2,784,102. Additionally as part of Backstop Agreement; the Company issued 435,000 warrants to purchase its common stock at $0.01 for participants in the Backstop Agreement. We incurred $130,164 in costs associated with raising the capital in Rights Offering and Backstop Agreement which were charged directly to stockholder’s equity.

 

On September 10, 2017 the Company use d $4,450,000 of the net proceeds of the Rights Offering to fulfill its obligation as sponsor of a special purpose acquisition company, BRAC, as part of BRAC’s initial public offering (IPO). BRAC was formed on May 9, 2017 with the purpose of becoming the special acquisition company as a wholly owned subsidiary of the Company. After the IPO, the Company retained ownership of 22% of BRAC’s common stock. The remaining proceeds from the Rights Offering following the sponsorship are intended to be used for general corporate purposes which may include other investments and acquisitions.

 

The Company has determined that BRAC, following its IPO, is a variable interest entity (“VIE”) and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC and it has the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity to vote to approve a proposed business combination. Therefore, the financial statements contain the operations of the BRAC from its inception on May 9, 2017. BRAC’s IPO shareholders are reflected as a non-controlling interest. All significant inter-company transactions have been eliminated.

 

Going Concern Uncertainty

 

As of December 31, 2017 our cash balance was $1,477,089. We will continue to have general and administrative expenses to remain a public company and continue with our business plan. The cash on hand and BRAC management fee income would be insufficient to cover our current cash needs over the next year.

 

We continue to pursue sources of additional capital through various financing transactions or arrangements, including joint venturing of projects, equity financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business.

 

The report of the Company’s independent registered public accounting firm that accompanies its audited consolidated financial statements in this Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.

 

Debt Restructuring

 

On March 29, 2016, the Company entered into an Asset Contribution Agreement with Black Ridge Holding Company, LLC, a Delaware limited liability company (“BRHC”) which was formed by the Company to contribute and assign to BRHC, all of the Company's (i) oil and gas assets (including working capital and tangible and intangible assets) (the “Assets”), (ii) outstanding balances under the credit agreement between the Company, as borrower, and Cadence Bank, N.A. (“Cadence”), as lender (the “Cadence Credit Facility”) and the outstanding balances under the credit agreement between the Company, as borrower, and affiliates (specifically, Chambers Energy Capital II, LP and CEC II TE, LLC (collectively, the “Chambers Affiliates”)) of Chambers Energy Management, LP (“Chambers”), as administrative agent (the “Chambers Credit Facility”), and (iii) all current liabilities related to the Assets, in exchange for 5% of the issued and outstanding Class A Units (the “Class A Units”) in BRHC (the “Asset Contribution”). On March 29, 2016, the Chambers Affiliates entered into a Debt Contribution Agreement between BRHC and the Chambers Affiliates, pursuant to which BRHC issued a number of Class A Units representing 95% of the Class A Units of BRHC to the Chambers Affiliates in exchange for the release of BRHC's obligations under the Chambers Credit Facility (the “Satisfaction of Debt” and, together with the Asset Contribution, the “BRHC Transaction”). Concurrent with the Satisfaction of Debt, each warrant originally issued with the Chambers Credit Facility was automatically retired and cancelled. The closing of the BRHC Transaction was subject to the Company obtaining the approval of stockholders holding a majority of its outstanding capital stock and to the Company having assigned the Cadence Credit Agreement to BRHC with Cadence’s consent, and BRHC and Cadence entering into any applicable amendment agreements related to such assignment and waiver of financial covenant ratio compliance for the quarter ended December 31, 2015 and quarter ending March 31, 2016. On June 21, 2016, the Company satisfied all of these conditions and, for accounting purposes, the BRHC Transaction was consummated. The parties have agreed that the BRHC Transaction, the Asset Contribution and the Satisfaction of Debt are effective, for valuation purposes, as of April 1, 2016.

 

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Cancellation of Management Services Agreement and Sale of BRHC Assets

 

On April 3, 2017, we were notified by BRHC of their termination of our Management Services Agreement and that they had finalized the sale of BRHC’s oil and gas assets to a third party. On April 3, BRHC signed a Contribution Agreement that provides for the transfer of ownership and title of all oil and gas assets held by BRHC in exchange for preferred membership interest in the acquiring LLC (the “BRHC Sale”). Consistent with the terms of the Management Services Agreement, we will be paid for our management services for the three month period ended June 30, 2017.

 

The Company, Chambers Energy Capital II, LP and CEC II TE, LLC (together with Chambers Energy Capital II, LP the “Chambers Affiliates”) as the members of Black Ridge Holding Company, LLC (“BRHC”) agreed to dissolve and wind up BRHC and filed a Certificate of Cancellation under the Delaware Limited Liability Company Act as of October 3, 2017. On October 2, 2017, the Company entered into an agreement with the Chambers Affiliates whereby certain assets distributed to the Company upon the dissolution and winding up of BRHC effective as of October 1, 2017, were sold to the Assignees in exchange for cash consideration of $1,078,394. Additionally, cash and receivables totaling $4,645 in value were distributed directly to the Company from BRHC.

 

Overview of 2017 results

 

Our 2017 results were largely dominated by the transition from managing the BRHC assets to managing BRAC. We earned $1,000,000 in management fees through June 30, 2017 from BRHC at which time our attention was refocused to readying BRAC for its IPO on October 10, 2017 and thereafter managing BRAC and commencing our search for potential business combination candidates for BRAC.

 

General and administrative expenses remained relatively consistent throughout 2017, driven primarily by salaries and benefits amounting to $1,321,995, with a decrease toward the end of 2017 due to a decrease of one employee.

 

The sale of our BRHC investment was major contributor to our 2017 results, with a gain of $1,030,145 from the proceeds as discussed above.

 

 

Application of Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that our estimates, including those for the above-described items, are reasonable.

 

Critical Accounting Policies

 

The establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our financial statements in accordance with generally accepted accounting principles in the United States (GAAP), as well as ensuring compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances and a complex series of decisions.

 

Income Taxes

 

Deferred tax assets are recognized for temporary differences in financial statement and tax basis amounts that will result in deductible amounts and carry-forwards in future years. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred tax assets and liabilities are measured using enacted tax law and tax rate(s) for the year in which we expect the temporary differences to be deducted or settled. The effect of a change in tax law or rates on the valuation of deferred tax assets and liabilities is recognized in income in the period of enactment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant future taxable income would be required to realize this net tax asset.

 

 

 

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Estimating the amount of the valuation allowance is dependent on estimates of future taxable income, alternative minimum tax income, and changes in shareholder ownership that would trigger limits on use of net operating losses under Internal Revenue Code Section 382.

 

Fair Value of Financial Instruments

 

Our cash and cash equivalents, investments, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments. In January 2010, the FASB issued an amendment to the accounting standards related to the disclosures about an entity’s use of fair value measurements. Among these amendments, entities are required to provide enhanced disclosures about transfers into and out of the Level 1 (fair value determined based on quoted prices in active markets for identical assets and liabilities) and Level 2 (fair value determined based on significant other observable inputs) classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the Level 3 (fair value determined based on significant unobservable inputs) classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements.

 

Use of Estimates

 

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Results of Operations for the Years Ended December 31, 2017 and 2016.

 

The following table summarizes selected items from the statement of operations for the years ended December 31, 2017 and 2016.

 

    Years Ended December 31,  
    2017     2016  
             
Management fee income   $ 1,000,000     $ 1,049,451  
                 
Operating expenses:                
General and administrative:                
Salaries and benefits     1,321,995       1,324,569  
Stock compensation     574,851       626,602  
Professional services     176,155       152,413  
Other general and administrative     368,647       409,568  
Total general and administrative     2,441,648       2,513,152  
Depreciation and amortization     10,848       14,271  
Total operating expenses:     2,452,496       2,527,423  
                 
Net operating  loss     (1,452,496 )     (1,477,972 )
                 
Other income:                
Gain on debt restructuring           41,621,150  
Loss on sale of property and equipment     (4,714 )      
Interest expense     (8,713 )      
Interest income     355,338        
Unrealized loss on marketable securities held in trust     (64,985 )      
Gain on sale of investment in Black Ridge Holding Company     1,030,145        
Total other income     1,307,071       41,621,150  
                 
Income (loss) before provision for income taxes     (145,425 )     40,143,178  
                 
Provision for income taxes     (67,044 )      
                 
Income (loss) from continuing operations, net of income taxes     (212,469 )     40,143,178  
                 
Loss from discontinued operations, net of income taxes           (10,197,374 )
                 
Net income (loss)   $ (212,469 )   $ 29,945,804  
Less: Net income attributable to redeemable non-controlling interest     (180,060 )      
                 
Net income (loss) attributable to Black Ridge Oil & Gas, Inc.   $ (392,529 )   $ 29,945,804  

 

 

 

  24  

 

 

Management Fee Revenue

 

Management fees represent fees of $1,000,000 that were from BRHC prior to the cancellation of the BRHC Management Services Agreement effective June 30, 2017. Management fees in 2016 represent fees of $1,049,451 earned for the period from the completion of the BRHC transaction on June 21, 2016 through December 31, 2016.

 

General and Administrative Expenses

 

Salaries and benefits

 

Salaries and benefits for the year ended December 31, 2017 were $1,321,995 compared to $1,324,569 for the year ended December 31, 2016, a decrease of $2,574. The decrease in salaries and benefits was primarily due to a headcount decrease towards the latter part of 2017 offset by increased health benefit costs. There were no base salary increases in 2017 or 2016.

 

Stock compensation

 

Stock compensation expense for the year ended December 31, 2017 was $574,851 compared to $626,602 for year ended December, 2016, a decrease of $51,751 or 8%. The decrease was attributed to options issued in previous years reaching the end of their amortization period, partially offset by a full year of amortization in 2017 for options issued towards the end of 2016.

 

Professional services

 

General and administrative expenses related to professional services from continuing operations were $176,155 for 2017 compared $152,413 for 2016, an increase of $23,742. The increase primarily relates to increased accounting and legal services in 2017 due to maintaining two public companies in the last three months of 2017.

 

Other general and administrative expenses

 

Other general and administrative expenses for the year ended December 31, 2017 were $368,647 compared to $409,568 for year ended December 31, 2016, a decrease of $40,921, or 10%. The decrease is attributable to decreased insurance, software fees and maintenance costs, travel, public relations and office costs under the more simplified structure subsequent to the debt restructuring.

 

Depreciation

 

Depreciation expense for the year ended December 31, 2017 was $10,848, compared to $14,271 for year ended December 31, 2016, the decrease attributable to certain equipment becoming fully amortized.

 

Other income and expense

 

Gain on debt restructuring

 

The gain on debt restructuring of $41,621,150 in 2016 represents the difference between the net book value of the assets and liabilities transferred to BRHC, less our equity interest in BRHC following the debt restructuring.

 

Loss on sale of property and equipment

 

The loss on sale of property and equipment in 2017 relates to the sale of equipment used for trade shows with a basis of $6,874 for net proceeds of $2,160, resulting in a loss of $4,714.

 

 

 

  25  

 

 

Interest expense

 

Interest expense in 2017 was $8,713 related to $500,000 promissory note to our lender for the period from July 7 to September 14, including loan origination fees and related costs charged directly to interest expense.

 

Interest income

 

Interest income in 2017 was $355,388 representing interest income on the restricted cash and marketable securities in the trust fund of BRAC. We had no interest income in 2016.

 

Unrealized loss on marketable securities

 

The Unrealized loss on marketable securities in 2017 was $64,985 representing fluctuations on the mark-to-market value of the marketable securities held in the trust fund of BRAC. We had no unrealized gain or loss in 2016

 

Provision for Income Taxes

 

We had $67,044 of tax expense for the year ended December 31, 2017 representing the tax expense associated with BRAC, which is a stand-alone entity for tax purposes. The Company had no income tax expense in 2016 as the Company continues to reserve against any deferred tax assets of BROG due to the uncertainty of realization of any benefit.

 

Loss from discontinued operations

 

As part of the BRHC Transaction on June 21, 2016, the oil and gas operations and related debt were contributed to BRHC as part of a debt restructuring.

 

The Company has a loss of $10,197,374 during the period from January 1, 2016 through June 21, 2016 related to the assets and liabilities contributed to BRHC. The loss from discontinued operations of $10,197,374 in 2016 consisted of revenues of $2,293,903, including $5,539,613 of oil and gas sales, reduced by net losses of $3,245,710 related to derivatives. Expenses from discontinued operations in 2016 included a $5,219,000 impairment write-down on the Company’s oil and gas assets, $1,400,639 of production expenses, $568,028 of production taxes, $476,461 of general and administrative expenses directly related to the oil and gas assets and debt contributed to BRHC, $3,114,347 of depletion, $16,258 of accretion of the discount on asset retirement obligations and $1,696,544 of interest expense.

 

Liquidity and capital resources

 

The following table summarizes our total current assets, liabilities and working capital at December 31, 2017 and 2016.

 

    December 31,  
    2017     2016  
Current Assets   $ 1,566,195     $ 153,926  
                 
Current Liabilities   $ 186,677     $ 36,561  
                 
Working Capital   $ 1,379,518     $ 117,365  

 

As of December 31, 2017 we had positive working capital of $1,379,518.

 

The following table summarizes our cash flows during the years ended December 31, 2017 and 2016, respectively.

 

    Years Ended December 31,  
    2017     2016  
Net cash  provided by (used in) operating activities   $ (792,276 )   $ 2,953,124  
Net cash used in investing activities     (137,606,453 )     (4,765,049 )
Net cash provided by financing activities     139,809,549       1,650,000  
                 
Net change in cash and cash equivalents   $ 1,410,820     $ (161,925 )

 

 

 

  26  

 

 

Net cash used in operating activities was $792,276 and net cash provided by operating activities was $2,953,124 for the years ended December 31, 2017 and 2016, respectively, a year over year decrease of $3,745,400. The decrease was primarily due to cash provided from operating activities of discontinued operations in 2016. Cash provided from operating activities of discontinued operations was $-0- and $3,827,209, for the years ended December 31, 2017 and 2016, respectively. Changes in operating activities of continuing operation resulted in decreases in cash of $792,276 and $874,085 in 2017 and 2016, respectively, the difference of $81,809 driven by decreased cash related general and administrative expenses under the more simplified structure of the Company following the debt restructuring. Cash generated from management fee income was relatively similar between the years, decreasing $49,451 from $1,049,451 in 2016 to $1,000,000 in 2017.

 

Net cash used in investing activities was $137,606,453 and $4,765,049 for the years ended December 31, 2017 and 2016, respectively, an increase of $132,841,404. In 2017, we deposited $138,690,000 in a restricted trust account to be held for potential redeeming IPO shareholders in BRAC’s IPO offset by the receipt of cash proceeds of $1,081,387 from the sale of our interest in Black Ridge Holding Company, LLC. Nearly all of our investing activity in 2016 was derived from discontinued operations. We paid $4,858,134 for well development and sold 14 net leasehold acres for proceeds of $94,628 during the 2016. In the year ended December 31, 2016 we purchased equipment for $1,543.

 

Net cash provided from financing activities was $139,809,549 and $1,650,000 for the years ended December 31, 2017 and 2016, respectively. In 2017, we received $134,757,874, net of offering costs, from BRAC’s IPO and we received $5,051,675, net of $130,164 of offering costs, from the sale of stock in the Rights Offering and related Backstop Agreement. In 2017, the Company borrowed, and subsequently repaid, $500,000 under a promissory note. All of the cash provided from financing activities in the 2016 period was related to discontinued operations as we drew $1.65 million, net of repayments, on our credit facilities.

 

Debt Restructuring

 

As described above, on March 29, 2016 the Company entered into an Asset Contribution Agreement with Black Ridge Holding Company, LLC, a Delaware limited liability company (“BRHC”) which was formed by the Company to contribute and assign to BRHC all of the Company's (i) oil and gas assets (including working capital and tangible and intangible assets) (the “Assets”), (ii) outstanding balances under that certain Credit Agreement between the Company, as borrower, and Cadence Bank, N.A. (“Cadence”), as lender (the “Cadence Credit Facility”) and the outstanding balances under the credit agreement between the Company, as borrower, and affiliates (specifically, Chambers Energy Capital II, LP and CEC II TE, LLC (collectively, the “Chambers Affiliates”)) of Chambers Energy Management, LP (“Chambers”), as administrative agent (the “Chambers Credit Facility”), and (iii) all current liabilities related to the Assets, in exchange for 5% of the issued and outstanding Class A Units (the “Class A Units”) in BRHC (the “Asset Contribution”). On March 29, 2016, the Chambers Affiliates entered into a Debt Contribution Agreement between BRHC and the Chambers Affiliates, pursuant to which BRHC issued a number of Class A Units representing 95% of the Class A Units of BRHC to the Chambers Affiliates in exchange for the release of BRHC's obligations under the Chambers Credit Facility (the “Satisfaction of Debt” and, together with the Asset Contribution, the “BRHC Transaction”). Concurrent with the Satisfaction of Debt, each warrant originally issued with the Chambers Credit Facility was automatically retired and cancelled. The closing of the BRHC Transaction was subject to the Company obtaining the approval of stockholders holding a majority of its outstanding capital stock and to the Company having assigned the Cadence Credit Agreement to BRHC with Cadence’s consent, and BRHC and Cadence entering into any applicable amendment agreements related to such assignment and waiver of financial covenant ratio compliance for the quarter ended December 31, 2015 and quarter ending September 30, 2015. On June 21, 2016, the Company satisfied all of these conditions and, for accounting purposes, the BRHC Transaction was consummated. The parties have agreed that the BRHC Transaction, the Asset Contribution and the Satisfaction of Debt are effective, for valuation purposes, as of April 1, 2016.

 

Cancellation of Management Services Agreement and Sale of BRHC Assets

 

On April 3, 2017, BRAC were notified by BRHC of their termination of our Management Services Agreement and that they had finalized the sale of BRHC’s oil and gas assets to a third party. On April 3, BRHC signed a Contribution Agreement that provides for the transfer of ownership and title of all oil and gas assets held by BRHC in exchange for preferred membership interest in the acquiring LLC (the “BRHC Sale”). Consistent with the terms of the Management Services Agreement, BRAC were paid for our management services through June 30, 2017.

 

The Company, Chambers Energy Capital II, LP and CEC II TE, LLC (together with Chambers Energy Capital II, LP the “Chambers Affiliates”) as the members of Black Ridge Holding Company, LLC (“BRHC”) agreed to dissolve and wind up BRHC and filed a Certificate of Cancellation under the Delaware Limited Liability Company Act as of October 3, 2017. On October 2, 2017, the Company entered into an agreement with the Chambers Affiliates whereby certain assets distributed to the Company upon the dissolution and winding up of BRHC effective as of October 1, 2017 were sold to the Assignees in exchange for cash consideration of $1,078,394. Additionally, cash and receivables totaling $4,645 in value were distributed directly to the Company from BRHC.

 

 

 

  27  

 

 

Former Senior Credit Facility

 

The Company, as borrower, entered into a Credit Agreement dated August 8, 2013 and amendments thereto dated December 13, 2013, March 24, 2014, April 21, 2014, September 11, 2014, March 30, 2015 and August 10, 2015 (as amended, the “Senior Credit Agreement ) with Cadence Bank, N.A. (“Cadence”), as lender (the “Senior Credit Facility”). Under the terms of the Senior Credit Agreement, a senior secured revolving line of credit in the maximum aggregate principal amount of $50 million is available from time to time (i) for direct investment in oil and gas properties, (ii) for general working capital purposes, including the issuance of letters of credit, and (iii) to refinance the then existing debt under the Company’s former credit facility.

 

The Senior Credit Facility’s maturity date of August 8, 2016, was subsequently amended to January 15, 2017 pursuant to the amendment on March 30, 2015. The Senior Credit Facility was secured by first priority interests in mortgages on substantially all of the Company’s assets, including but not limited to the Company’s mineral interests in North Dakota and Montana.

 

As part of the debt restructuring outlined in Note 4 – Debt Restructuring, the Company transferred the obligation with a balance outstanding of $29,400,000 under the Senior Credit Facility to BRHC.

 

Former Subordinated Credit Facility

 

The Company, as borrower, entered into a Second Lien Credit Agreement dated August 8, 2013 and amendments thereto dated December 13, 2013, March 24, 2014, April 21, 2014, September 11, 2014, March 30,  015, and August 10, 2015 (as amended, the “Subordinated Credit Agreement”) by and among the Company, as borrower, Chambers Energy Management, LP, as administrative agent (“Chambers”), and the several other lenders named therein (the “Subordinated Credit Facility”). Under the Subordinated Credit Facility, term loans in the aggregate principal amount of up to $75 million were available from time to time (i) to repay the Previous Credit Facility, (ii) for fees and closing costs in connection with both the Senior Credit Facility and the Subordinated Credit Facility (together, the “Credit Facilities”), and (iii) general corporate purposes.

 

The Subordinated Credit Agreement provided initial commitment availability of $25 million, which was subsequently amended to $30 million, with the remaining commitments subject to the approval of Chambers and other customary conditions.

 

The Subordinated Credit Facility was to mature on June 30, 2017. The Subordinated Credit Facility was secured by second priority interests on substantially all of the Company’s assets, including but not limited to second priority mortgages on the Company’s mineral interests in North Dakota and Montana.

 

The first funding from the Subordinated Credit Facility occurred on September 9, 2013 at which time we drew $14,700,000, net of a $300,000 original issue discount, from the Subordinated Credit Agreement and used $10,226,057 of those proceeds to repay and terminate a previously outstanding revolving credit facility. We had drawn an additional $14,700,000, net of $300,000 original issue discounts, through June 21, 2016. The Company had borrowings of $30.0 million outstanding under the Subordinated Credit Facility as of June 21, 2016. The obligations under the Subordinated Credit Facility, $30.0 million of principal and $2,931,369 of PIK interest payable, were transferred to BRHC and converted to equity in BRHC as part of the debt restructuring outlined in Note 4- Debt Restructuring on June 21, 2016.

 

Covenant Violations

 

The Company was out of compliance with the collateral coverage ratio covenant as of March 31, 2016 and December 31, 2015 and the current ratio covenant as defined by the Subordinated Credit Facility as of March 31, 2016. Additionally, the audit report the Company received with respect to its financial statements as of December 31, 2015 contains an explanatory paragraph expressing uncertainty as to the Company’s ability to continue as a going concern, the delivery of which constitutes a default under both its Senior Credit Facility and Subordinated Credit Facility. The Company received a waiver for all debt covenants as of December 31, 2015 and March 31, 2016 as part of the debt restructuring outlined in Note 4 – Debt Restructuring.

 

Debt Discount, Detachable Warrants

 

In connection with the Subordinated Credit Facility, the Company issued to the lenders detachable warrants to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price of $0.65 per share. The warrants were cancelled as a part of the BRHC transaction.

 

 

 

  28  

 

 

Satisfaction of our cash obligations for the next 12 months

 

As of December 31, 2017, our balance of cash and cash equivalents was $1,477,089. Our plan for satisfying our cash requirements for the next twelve months is through the fees earned through our management agreement with BRAC, additional management service fees generated from new partners and additional financing in the form of equity or debt as needed.

 

Effects of inflation and pricing

 

We do not expect any significant effects from inflation and pricing.

 

Contractual obligations and commitments

 

We have no significant obligations and commitments as of December 31, 2017 to make future payments under contracts.

 

Summary of product and research and development that we will perform for the term of our plan

 

We are not anticipating significant research and development expenditures in the future.

 

Expected purchase or sale of plant and significant equipment

 

We do not anticipate the purchase or sale of any plant or significant equipment as such items are not required by us at this time.

 

Significant changes in the number of employees

 

As of December 31, 2017, we had seven employees, our chief executive officer, Kenneth DeCubellis, our chief financial officer, James Moe, our chief operating officer, Michael Eisele and four other employees. Currently, there are no organized labor agreements or union agreements and we do not anticipate any in the future.

 

Assuming we are able to replace and expand the assets we have under management, we may need to hire additional employees. In the interim, we intend to use the services of independent consultants and contractors to perform various professional services when appropriate. We believe the use of third-party service providers may enhance our ability to control general and administrative expenses and operate efficiently.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations liquidity, capital expenditures or capital resources that are material to investors.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Commodity Price Risk

 

Historically, the markets for oil and natural gas have been volatile, and our management believes these markets will likely continue to be volatile in the future. The prices for oil and gas products depend on numerous factors beyond our control.

 

The pricing received for oil and natural gas production heavily influences the economics of investment opportunities and hence our access to capital and the profitability of any joint ventures in which we participate.

 

Interest Rate Risk

 

We do not anticipate entering into any transactions that would expose us to any direct interest rate risk.

 

 

 

  29  

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF BLACK RIDGE OIL & GAS, INC.

 

 

BLACK RIDGE OIL & GAS, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

 

CONTENTS

 

Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of December 31, 2017 and 2016 F-2
   
Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 F-3
   
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2017 and 2016 F-4
   
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016 F-5
   
Notes to Consolidated Financial Statements F-6

 

 

 

 

 

 

 

 

 

 

  30  

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and
Stockholders of Black Ridge Oil & Gas, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Black Ridge Oil & Gas, Inc. (the Company) as of December 31, 2017 and 2016, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company suffered a net loss from operations and negative cash flows from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

M&K CPAS, PLLC
   
We have served as the Company’s auditor since 2010.
   
Houston, TX
   
April 12, 2018  

 

 

 

  F- 1  

 

 

 

BLACK RIDGE OIL & GAS, INC.

CONSOLIDATED BALANCE SHEETS

           

 

    December 31,     December 31,  
    2017     2016  
ASSETS                
                 
Current assets:                
Cash and cash equivalents   $ 1,477,089     $ 66,269  
Accounts receivable     1,611        
Prepaid expenses     68,817       86,892  
Deferred taxes     18,678        
Due from Black Ridge Holding Company, LLC           765  
Total current assets     1,566,195       153,926  
                 
Property and equipment:                
Property and equipment     128,156       140,547  
Less accumulated depreciation     (117,459 )     (112,128 )
Total property and equipment, net     10,697       28,419  
                 
Investment in Black Ridge Holding Company, LLC           52,853  
Restricted cash and investments held in trust     138,980,353        
Total assets   $ 140,557,245     $ 235,198  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
Accounts payable     91,186       21,563  
Accrued expenses     9,769       14,998  
Income tax payable     85,722        
Total current liabilities     186,677       36,561  
                 
Total liabilities     186,677       36,561  
                 
Commitments and contingencies            
                 
Redeemable non-controlling interest     138,870,060        
                 
Stockholders' equity:                
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding             
Common stock, $0.001 par value, 500,000,000 shares authorized, 479,799,900 and 47,979,990 shares issued and outstanding as of December 31, 2017 and 2016, respectively     479,800       47,980   
Additional paid-in capital     36,164,596       34,902,016  
Accumulated deficit     (35,143,888 )     (34,751,359 )
Total stockholders' equity     1,500,508       198,637  
                 
Total liabilities, redeemable non-controlling interest and stockholders' equity   $ 140,557,245     $ 235,198  

 

The accompanying notes are an integral part of these financial statements.

   

 

 

  F- 2  

 

 

BLACK RIDGE OIL & GAS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

       

 

    For the Years  
    Ended December 31,  
    2017     2016  
             
Management fee income   $ 1,000,000     $ 1,049,451  
Total revenues     1,000,000       1,049,451  
                 
Operating expenses:                
General and administrative expenses                
Salaries and benefits     1,321,995       1,324,569  
Stock compensation     574,851       626,602  
Professional services     176,155       152,413  
Other general and administrative     368,647       409,568  
Total general and administrative expenses     2,441,648       2,513,152  
Depreciation and amortization     10,848       14,271  
Total operating expenses     2,452,496       2,527,423  
                 
Net operating loss     (1,452,496 )     (1,477,972 )
                 
Other income:                
Gain on debt restructuring           41,621,150  
Loss on sale of property and equipment     (4,714 )      
Interest expense     (8,713 )      
Interest income     355,338        
Unrealized loss on marketable securities held in trust account     (64,985 )      
Gain on sale of investment in Black Ridge Holding Company     1,030,145        
Total other income     1,307,071       41,621,150  
                 
Income (loss) before provision for income taxes     (145,425 )     40,143,178  
                 
Provision for income taxes     (67,044 )      
                 
Income (loss) from continuing operations, net of income taxes     (212,469 )     40,143,178  
                 
Loss from discontinued operations, net of income taxes           (10,197,374 )
                 
Net income (loss)     (212,469 )     29,945,804  
Less: Net income attributable to redeemable non-controlling interest     (180,060 )      
                 
Net income (loss) attributable to Black Ridge Oil & Gas, Inc.   $ (392,529 )   $ 29,945,804  
                 
                 
Weighted average common shares outstanding - basic and fully diluted     160,970,732       47,979,990  
                 
Net income (loss) per common share - basic and fully diluted   $ (0.00 )   $ 0.62  

 

The accompanying notes are an integral part of these financial statements.

 

 

 

  F- 3  

 

 

BLACK RIDGE OIL & GAS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                               

 

                                  Retained     Total     Redeemable  
                            Additional     Earnings     Stockholders'     Non-  
    Preferred Stock     Common Stock     Paid-In     (Accumulated     Equity     controlling  
    Shares     Amount     Shares     Amount     Capital     Deficit)     (Deficit)     Interest  
                                                 
Balance, December 31, 2015         $       47,979,990     $ 47,980     $ 34,275,414     $ (64,697,163 )   $ (30,373,769 )   $  
                                                                 
Common stock options granted for services to employees and directors                             626,602             626,602        
                                                                 
Net income for the year ended December 31, 2016                                   29,945,804       29,945,804        
                                                                 
Balance, December 31, 2016         $       47,979,990     $ 47,980     $ 34,902,016     $ (34,751,359 )   $ 198,637     $  
                                                                 
Common stock options granted for services to employees and directors                             574,851             574,851        
                                                                 
Common stock sold in rights offering, net of offering costs                 199,811,421       199,811       2,067,762             2,267,573        
                                                                 
Common stock sold in private placement                 232,008,489       232,009       2,552,093             2,784,102        
                                                                 
Change in ownership of subsidiary resulting from subsidiary initial public offering                             (3,932,126 )           (3,932,126 )     138,690,000  
                                                                 
Net income (loss) for the year ended December 31, 2017                                   (392,529 )     (392,529 )     180,060  
                                                                 
Balance, December 31, 2017         $       479,799,900     $ 479,800     $ 36,164,596     $ (35,143,888 )   $ 1,500,508     $ 138,870,060  

 

The accompanying notes are an integral part of these financial statements.  

 

 

 

  F- 4  

 

 

BLACK RIDGE OIL & GAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

       

 

    For the Years  
    Ended December 31,  
    2017     2016  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income (loss) attributable to Black Ridge Oil & Gas, Inc.   $ (392,529 )   $ 29,945,804  
Loss from discontinued operations, net of income taxes           (10,197,374 )
Income (loss) from continuing operations, net of income taxes     (392,529 )     40,143,178  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                 
Depreciation and amortization     10,848       14,271  
Gain on debt restructuring           (41,621,150 )
Gain on sale of Black Ridge Holding Company, LLC     (1,030,145 )      
Loss on sale of property and equipment     4,714        
Amortization of common stock options issued to employees and directors     574,851       626,602  
Interest income     (355,338 )      
Unrealized loss on marketable securities held in trust account     64,985        
Net income attributable to redeemable non-controlling interest     180,060        
Decrease (increase) in current assets:                
Prepaid expenses     18,075       (49,792 )
Due from affiliates     765       (765 )
Deferred taxes     (18,678 )      
Increase (decrease) in current liabilities:                
Accounts payable     69,623       (1,427 )
Accrued expenses     (5,229 )     14,998  
Income taxes payable     85,722        
Net cash used in operating activities from continuing operations     (792,276 )     (874,085 )
Net cash provided by operating activities from discontinued operations           3,827,209  
Net cash provided by (used in) operating activities     (792,276 )     2,953,124  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Principal deposited in trust account     (138,690,000 )      
Proceeds from sale of investment in Black Ridge Holding Company, LLC     1,081,387        
Proceeds from sale of equipment     2,160        
Purchase of equipment           (1,543 )
Net cash used in investing activities from continuing operations     (137,606,453 )     (1,543 )
Net cash used in investing activities from discontinued operations           (4,763,506 )
Net cash used in investing activities     (137,606,453 )     (4,765,049 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of stock, net of offering costs     2,965,555        
Proceeds from sale of stock to related parties, net of offering costs     2,086,120        
Proceeds from sale of stock in Black Ridge Acquisition Corp. IPO, net of offering costs     134,757,874        
Proceeds from promissory note     500,000        
Repayment of promissory note     (500,000 )      
Net cash provided by financing activities from continuing operations     139,809,549        
Net cash provided by financing activities from discontinued operations           1,650,000  
Net cash provided by financing activities     139,809,549       1,650,000  
                 
NET CHANGE IN CASH     1,410,820       (161,925 )
CASH AT BEGINNING OF PERIOD     66,269       228,194  
CASH AT END OF PERIOD   $ 1,477,089     $ 66,269  
                 
SUPPLEMENTAL INFORMATION:                
Interest paid   $ 8,713     $ 1,429,564  
Income taxes paid   $     $  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Adjustment to additional paid-in capital to reflect redeemable non-operated interest   $ 3,932,126     $  
Accounts receivable received in dissolution of Black Ridge Holding Company, LLC   $ 1,611     $  
Transfer of net liabilities to Black Ridge Holding Company, LLC in restructuring   $     $ (41,568,297 )
Net change in accounts payable for purchase of oil and gas properties   $     $ (3,744,487 )
Capitalized asset retirement costs   $     $ 4,737  

 

The accompanying notes are an integral part of these financial statements.

 

 

  F- 5  

 

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Organization and Nature of Business

 

Effective April 2, 2012, Ante5, Inc. changed its corporate name to Black Ridge Oil & Gas, Inc., and continues to be quoted on the OTCQB under the trading symbol “ANFC”. Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.) (the “Company”) became an independent company in April 2010. We became a publicly traded company when our shares began trading on July 1, 2010. Since October 2010, we had been engaged in the business of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks trends in North Dakota and Montana.

 

On June 21, 2016 we closed on a debt restructuring transaction with our secured lenders as described in Note 4 – Debt Restructuring. Through June 30, 2017 we had also been managing the oil and gas assets relinquished during the debt restructuring in which we continued to have an indirect minority interest. Our management services agreement related to those same oil and gas assets was terminated on April 3, 2017, effective June 30, 2017.

 

The Company is focused on acquiring, investing in, and managing the oil and gas assets for our partners. We continue to pursue asset acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture partners or other capital providers.

 

On September 25, 2017, the Company finalized an equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $5,051,675 and issuing 431,819,910 shares. The proceeds were used to sponsor the Company’s obligations in sponsoring a special purpose acquisition company, discussed below, with the remainder for general corporate purposes.

 

On October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed an initial public offering (“IPO”) raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC. BRAC is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business will not be limited to a particular industry or geographic region although it intends to focus its search for target businesses in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America. Following the initial public offering and over-allotment, the Company owns 22% of the outstanding common stock of BRAC and manages BRAC’s operations via a management services agreement.

 

Note 2 Summary of Significant Accounting Policies

 

Basis of Accounting

Our financial statements are prepared using the accrual method of accounting as generally accepted in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC).

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the following entities:

 

Name of entity   State of Incorporation   Relationship
Black Ridge Oil and Gas, Inc.   Nevada   Parent
Black Ridge Acquisition Corp. (“BRAC”)   Delaware   Subsidiary (1)

 

(1) Wholly-owned subsidiary through October 10, 2017, the date of BRAC’s IPO, following which it is consolidated as a variable interest entity.

 

 

 

  F- 6  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company has determined that BRAC, following its IPO, is a variable interest entity (“VIE”) and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC and it has the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity to vote to approve a proposed business combination. Therefore, these consolidated financial statements herein contain the operations of the BRAC from its inception on May 9, 2017. BRAC’s IPO shareholders are reflected in our Consolidated Financial Statements as a non-controlling interest. The non-controlling interest was recorded at fair value on October 10, 2017, with an addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. All significant inter-company transactions have been eliminated in the preparation of theses financial statements.

 

The parent company, Black Ridge Oil & Gas, Inc. and Black Ridge Acquisition Corp. will be collectively referred to herein as the “Company” or “Black Ridge”. The Company’s headquarters is in Minneapolis, Minnesota and substantially all of its operations are in the United States.

 

Reclassifications

As discussed in Note 4- Debt Restructuring, income, expense and cash flows from the restructured operations for the year ended December 31, 2016 have been reclassified as net loss and cash flows from discontinued operations.

 

Segment Reporting

FASB ASC 280-10-50 requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

 

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Environmental Liabilities

The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial losses from environmental accidents or events which would have a material effect on the Company.

 

Cash and Cash Equivalents

Cash equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. The Company had no cash equivalents on hand as of December 31, 2017 and December 31, 2016.

 

Restricted cash and securities held in Trust Account

As of December 31, 2017, $ 39,742 of cash and $138,940,611 of marketable securities were held in the Trust Account which is restricted for the benefit of the BRAC’s IPO shareholders to be available for those shareholders in the event they elect to redeem their shares following an approved business combination or the upon dissolution of BRAC.

 

Cash in Excess of FDIC Insured Limits

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 under current regulations. The Company had approximately $977,089 and $-0- in excess of FDIC insured limits at December 31, 2017 and 2016, respectively. As of December 31, 2017, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

 

 

  F- 7  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Debt Issuance Costs

Costs relating to obtaining certain debts are capitalized and amortized over the term of the related debt using the straight-line method, which approximates the effective interest method. The Company paid $4,400 and $-0- of debt issuance costs during the years ended December 31, 2017 and 2016, respectively, of which the unamortized balance of debt issuance costs at December 31, 2017 and 2016 was $-0- and $-0-, respectively. Amortization of debt issuance costs charged to interest expense was $4,400 and $-0- for the years ended December 31, 2017 and 2016, respectively.

 

Website Development Costs

The Company accounts for website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs” (“ASC 350-50”), wherein website development costs are segregated into three activities:

 

1) Initial stage (planning), whereby the related costs are expensed.

 

2) Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures.

 

3) Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.

 

We have capitalized a total of $56,660 of website development costs from inception through December 31, 2016. We have recognized depreciation expense on these website costs of $-0- and $-0- for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, all website development costs have been fully depreciated.

 

Income Taxes

The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

 

On December 22, 2017 the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to value its deferred tax assets and liabilities at December 31, 2017 at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 108”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain effects of Tax Reform. The ultimate impact may differ from the provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of Tax Reform.

 

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis.

 

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of three to seven years. Expenditures for replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Long-lived assets are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may not be recoverable. The Company has not recognized any impairment losses on long-lived assets related to continuing operations. Depreciation expense was $10,848 and $14,271 for the years ended December 31, 2017 and 2016, respectively.

 

 

 

  F- 8  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue Concentration

All of the Company’s revenue earned from continuing operations comes from management fees earned through its management services agreement with Black Ridge Holding Company, LLC (“BRHC”). Revenues from continuing operations were earned prior to June 30, 2017 from its management services agreement with BRHC, which was cancelled by BRHC effective June 30, 2017.

 

Revenue Recognition

The Company recognizes management fee income as services are provided.

 

The Company recognized oil and gas revenues from its former interests in producing wells when production was delivered to, and title was transferred to, the purchaser and to the extent the selling price is reasonably determinable. Oil and gas revenues are reflected as a component of discontinued operations on the statements of operations.

 

Asset Retirement Obligations

The Company records the fair value of a liability for an asset retirement obligation in the period in which the well is spud or the asset is acquired and a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. The expense related to accretion of the discount on the asset retirement liability is reflected as component of discontinued operations on the statement of operations.

 

Full Cost Method

The Company followed the full cost method of accounting for oil and gas operations in 2016 whereby all costs related to the exploration and development of oil and gas properties were initially capitalized into a single cost center ("full cost pool"). The Company had no oil and gas operations in 2017 as they were disposed as part of the debt restructuring transaction on June 21, 2016 described in Note 4 – Debt Restructuring. Capitalized costs included land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities. Internal costs that were capitalized were directly attributable to acquisition, exploration and development activities and did not include costs related to general corporate overhead or similar activities. Costs associated with general corporate activities were expensed in the period incurred. Capitalized costs for year ended December, 2016 are summarized as follows:

 

    Year Ended  
    December 31, 2016  
Capitalized Certain Payroll and Other Internal Costs   $  
Capitalized Interest Costs     7,219  
Total   $ 7,219  

 

Proceeds from sales of proved properties were credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. A significant alteration would typically involve a sale of 20% or more of the proved reserves related to a single full cost pool. The Company assessed all items classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The assessment included consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs were transferred to the full cost pool and were then subject to amortization.

 

Capitalized costs associated with impaired properties and properties having proved reserves, estimated future development costs, and asset retirement costs under FASB ASC 410-20-25 were depleted and amortized on the unit-of-production method based on the estimated gross proved reserves as determined by independent petroleum engineers. The costs of unproved properties were withheld from the depletion base until such time as they are either developed or abandoned.

 

 

 

  F- 9  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Capitalized costs of oil and gas properties (net of related deferred income taxes) could not exceed an amount equal to the present value, discounted at 10% per annum, of the estimated future net cash flows from proved oil and gas reserves plus the cost of unproved properties (adjusted for related income tax effects). When capitalized costs exceeded this ceiling, impairment was recognized. The present value of estimated future net cash flows was computed by applying the arithmetic average first day price of oil and natural gas for the preceding twelve months to estimated future production of proved oil and gas reserves as of the end of the period, less estimated future expenditures to be incurred in developing and producing the proved reserves and assuming continuation of existing economic conditions. Such present value of proved reserves' future net cash flows excludes future cash outflows associated with settling asset retirement obligations. When this comparison indicated an excess carrying value, the excess was charged to earnings as an impairment expense. The Company recognized an impairment loss of $5,219,000 during the year ended December 31, 2016. The impairment loss is reflected as a component of discontinued operations on the statement of operations for the period.

 

Basic and Diluted Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net income by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants and restricted stock. The number of potential common shares outstanding relating to stock options, warrants and restricted stock is computed using the treasury stock method.

 

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the years ended December 31, 2017 and 2016 are as follows:

 

    Years Ended December 31,  
    2017     2016  
Weighted average common shares outstanding – basic     160,970,732       47,979,990  
Plus: Potentially dilutive common shares:                
Stock options and warrants            
Weighted average common shares outstanding – diluted     160,970,732       49,979,990  

 

For 2017 and 2016, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. Stock options and warrants excluded from the calculation of diluted EPS because their effect was anti-dilutive were 11,292,300 and 10,957,000 of December 31, 2017 and 2016, respectively.

 

Stock-Based Compensation

Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Amortization of the fair values of stock options issued for services and compensation totaled $574,851 and $626,602 for the years ended December 31, 2017 and 2016, respectively. The fair values of stock options were determined using the Black-Scholes options pricing model and an effective term of 6 to 6.5 years based on the weighted average of the vesting periods and the stated term of the option grants and the discount rate on 5 to 7 year U.S. Treasury securities at the grant date and are being amortized over the related implied service term, or vesting period.

 

Uncertain Tax Positions

In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

 

Various taxing authorities can periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.

 

 

 

  F- 10  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.

 

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's financial statements upon adoption.

 

In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . This guidance updates narrow aspects of the guidance issued in Update 2014-09. This amendment is effective for periods after December 15, 2017, with early adoption permitted. The Company adopted this standard on January 1, 2018 and anticipates it will not have a material impact on its financial statements and related disclosures.

 

In August, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This guidance provides guidance of eight specific cash flow issues. This amendment is effective for periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard on January 1, 2018 and anticipates it will not have a material impact on its financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to provide guidance in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 provides a screen to determine when a set of assets is not a business, requiring that when substantially all fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set of assets is not a business. A framework is provided to assist in evaluating whether both an input and a substantive process are present for the set to be a business. ASU 2017-01 is effective for periods beginning after December 15, 2017, including interim periods within those annual periods. No disclosures are required at transition and early adoption is permitted. The Company adopted this standard on January 1, 2018 and will apply this guidance to future business combinations.

 

Note 3 – Going Concern

 

As shown in the accompanying financial statements, as of December 31, 2017 the Company had a cash balance of $1,477,089 and total working capital of $1,379,518. The Company has no revenue source presently. Based on projections of cash expenditures in the Company’s current business plan, the cash on hand would be insufficient to fund the Company’s general and administrative expenses over the next year.

 

The Company continues to pursue sources of additional capital through various management fee agreements and financing transactions or arrangements, including joint venturing of projects, equity financing or other means. Additionally, as online gambling becomes legal in certain states, we may be due additional proceeds from our settlement agreement with Peerless/Electra Works and their successors if they choose to operate in those states. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business.

 

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

 

  F- 11  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 4 – Debt Restructuring

 

On March 29, 2016, the Company entered into an Asset Contribution Agreement with Black Ridge Holding Company, LLC, a Delaware limited liability company (“BRHC”) which was previously formed by the Company to contribute and assign to BRHC, all of the Company's (i) oil and gas assets (including working capital and tangible and intangible assets) (the “Assets”), (ii) outstanding balances under that certain Credit Agreement between the Company, as borrower, and Cadence Bank, N.A. (“Cadence”), as lender (the “Cadence Credit Facility”) and the outstanding balances under that certain Credit Agreement between the Company, as borrower, and the several banks and other financial institutions or entities from time to time parties thereto (the “Chambers”), and Chambers, as administrative agent (the “Chambers Credit Facility”) and (iii) all current liabilities related to the Assets, in exchange for 5% of the issued and outstanding Class A Units (the “Class A Units”) in BRHC (the “Asset Contribution”). On March 29, 2016, affiliates of Chambers Energy Management, LP (“Chambers”) (specifically, Chambers Energy Capital II, LP and CEC II TE, LLC (collectively, the “Chambers Affiliates”)) entered into a Debt Contribution Agreement between BRHC and the Chambers Affiliates, pursuant to which BRHC issued a number of Class A Units representing 95% of the Class A Units of BRHC to the Chambers Affiliates in exchange for the release of BRHC's obligations under the Chambers Credit Facility (the “Satisfaction of Debt” and, together with the Asset Contribution, the “BRHC Transaction”). Concurrent with the Satisfaction of Debt, each warrant originally issued with the Chambers Credit Facility was automatically retired and cancelled. The closing of the BRHC Transaction was subject to the Company obtaining the approval of stockholders holding a majority of its outstanding capital stock and to the Company having assigned the Cadence Credit Agreement to BRHC with Cadence’s consent, and BRHC and Cadence entering into any applicable amendment agreements related to such assignment and waiver of financial covenant ratio compliance for the quarter ended December 31, 2015 and quarter ending March 31, 2016. On June 21, 2016, the Company satisfied all of these conditions and, for accounting purposes, the BRHC Transaction was closed. The parties have agreed that the BRHC Transaction, the Asset Contribution and the Satisfaction of Debt are effective, for valuation purposes, as of April 1, 2016.

 

The terms of the Class A Units of BRHC are set forth in the limited liability company agreement of BRHC (the “LLC Agreement”), which became effective upon the closing of the BRHC Transaction. All distributions by BRHC of cash or other property, and whether upon liquidation or otherwise, will be made as follows:

 

First, 100% to the Class A Members, pro rata, until each Class A Member has received distributions in aggregate totaling the then Class A Preference, which is an amount equal to a 10.0% internal rate of return on the invested capital amount.
Second, 90% to the Class A Members, pro rata, and 10% to the Class B Members, pro rata, until such time as the aggregate distributions to Chambers equals 250% of the capital contribution of its Class A Units.
Third, 80% to the Class A Members, pro rata, and 20% to the Class B Members, pro rata.

 

BRHC was managed by the BRHC Board, which had been responsible for the conduct of the day-to-day business of BRHC and the management, oversight and disposition of the assets of BRHC. The initial BRHC Board was comprised of three managers, consisting of two managers appointed by Chambers and one member from the Company.

 

In addition, under the LLC Agreement, Chambers committed to contribute up to $30 million cash (the “Chambers Investment Commitment”) to BRHC in exchange for Class A Units. At Closing, Chambers funded $10 million (the “Initial Chambers Investment”) of the Chambers Investment Commitment, the proceeds of which were used to reduce outstanding amounts owed by BRHC to Cadence under the Cadence Credit Facility and for general corporate purposes. The remaining $20 million (the “Subsequent Chambers Investment”), subject to certain conditions, may be called from time to time during the Investment Period by the board of managers of BRHC (the “BRHC Board”). The Initial Chambers Investment and any Subsequent Chambers Investment shall serve to proportionately reduce the Company's Class A Units percentage ownership in BRHC. The investment period shall be the lesser of three years or such time as the entire Chambers Investment Commitment has been called by the BRHC Board (the “Investment Period”). Any portion of Chambers Investment Commitment not called by the BRHC Board prior to the expiration of the Investment Period will be cancelled. In no event will Chambers be required to make a capital contribution in an amount in excess of its undrawn commitment.

 

The Company was granted 1,000,000 Class B Units in BRHC at the Closing of the BRHC Transaction. At the discretion of the BRHC’s Board of Managers, the Company may be granted additional Class B Units in BRHC, and in turn, the Company may transfer such Class B Units to certain members of the Company's management. Subject to certain conditions, the Class B Units will entitle the holders to participate in any future distributions of BRHC after distributions equal to the capital contributions and preferred return have been made to the holders of Class A Units of BRHC.

 

 

 

  F- 12  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

At the closing of the BRHC Transaction, the Company entered into a Management Services Agreement with BRHC. Under the Management Services Agreement, the Company provided services to BRHC with respect to the business operations of BRHC, including but not limited to locating, investigating and analyzing potential non-operator oil and gas projects and day-to-day operations related to such projects. The Company received a fee under the Management Services Agreement intended to cover the costs of providing such services and is reimbursed for certain third party expenses. The term of the Management Services Agreement commenced on the closing of the BRHC Transaction and continued indefinitely, unless terminated, which required a three month notice by the terminating party. The management services agreement was terminated by BRHC as of June 30, 2017.

 

As a result of the transaction, the Company recorded for the year ended December 31, 2016 a gain on debt restructuring of $41,621,150 calculated as the difference between our final ownership interest in BRHC, after conversion of debt to equity and the equity contribution of the Initial Chambers Investment within BRHC and our retention of a 3.88% ownership interest in BRHC, and the net book value of the assets and labilities we transferred to BRHC.

 

The income and expense for the associated with the operating activities (through June 21, 2016, the date of the BRHC transaction) contributed in the BRHC Transaction are reflected as “Loss from discontinued items, net of income taxes” on our statement of operations for the year ended December 31, 2016. The items included in “Loss from discontinued operations, net of income taxes” are as follows:

 

    For the Year Ended  
    December 31,  
    2016  
       
Oil and gas sales   $ 5,539,613  
Gain on settled derivatives     1,043,026  
Loss on the mark-to-market of derivatives     (4,288,736 )
Total revenues     2,293,903  
         
Operating expenses:        
Production expenses     1,400,639  
Production taxes     568,028  
General and administrative     476,461  
Depletion of oil and gas properties     3,114,347  
Impairment of oil and gas properties     5,219,000  
Accretion of discount on asset retirement obligations     16,258  
Total operating expenses     10,794,733  
         
Net operating loss     (8,500,830 )
         
Other income (expense):        
Interest expense     (1,696,544 )
Total other income (expense)     (1,696,544 )
         
Loss before provision for income taxes     (10,197,374 )
         
Provision for income taxes      
         
Net income (loss)   $ (10,197,374 )

 

As described in Note 8, BRHC was dissolved in October of 2017.

 

 

 

  F- 13  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 5 – Rights Offering and Formation of Black Ridge Acquisition Corp.

 

The Company filed a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register the issuance of 431,819,910 shares of common stock in the Rights Offering that was declared effective by the SEC on August 3, 2017. Pursuant to the Rights Offering, the Company distributed, on a pro rata basis, one right for each share of common stock owned by shareholders on August 2, 2017 (the “Record Date”). Each right permitted a shareholder to purchase up to nine shares of common stock at a subscription price of $0.012 per share. The Rights Offering expired on September 8, 2017 (the “Expiration Date”).

 

In connection with the Rights Offering, the Company also entered into a Standby Purchase Agreement (the “Backstop Agreement”) with a consortium of investors, including members of the Company’s board of directors and our Chief Executive Officer (collectively, the “Backstop Purchasers”), who agree to purchase up to $2.9 million of the unsubscribed shares following the completion of the rights offering.

 

On September 26, 2017, the Company completed the Rights Offering, raising gross proceeds of $5,181,839 and issued 431,819,910 shares in connection with the exercise of rights in connection with the Rights Offering and related Backstop Agreement. Under the Rights Offering the Company’s current shareholders exercised rights to purchase 199,811,421 shares of stock for a total of $2,397,737. Under the Backstop Agreement, the Backstop Purchasers purchased 232,008,489 shares of stock for a total of $2,784,102. Officers and directors of the Company purchased 173,843,308 shares between the Rights Offering and as participants of the Backstop Agreement for $2,086,120 and received 179,376 warrants to purchase shares of common stock at $0.01 per share for their participation in the Backstop Agreement. The remaining 257,976,602 shares were purchased by non-related parties for proceeds of $2,965,555. The warrants issued to related parties fair value was estimated to be $4,179 (see Note 17). The Company incurred $130,164 in costs associated with raising capital, which has been netted against stockholders’ equity. Additionally as part of Backstop agreement, the Company issued 435,000 warrants to purchase its common stock at $0.01 for participants in the Backstop Agreement. The warrants fair value was estimated to be $10,135 (see Note 17).

 

On October 10, 2017 and October 18, 2017, in connection with the underwriter exercising its over-allotment option, the Company use d $4,450,000 of the net proceeds of the Rights Offering to fulfill its obligation as sponsor of a special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), as part of BRAC’s initial public offering (IPO). BRAC was formed on May 9, 2017 with the purpose of becoming the special acquisition company as a wholly owned subsidiary of the Company with an initial equity contribution of $25,000. After the IPO, the Company retained ownership of 22% of BRAC’s common stock. The remaining proceeds from the Rights Offering following the sponsorship are intended to be used for general corporate purposes.

 

Note 6 – BRAC’s IPO, Consolidation of BRAC and Non-controlling Interest

 

BRAC’s IPO

 

The registration statement for the BRAC’s IPO was declared effective on October 4, 2017. The registration statement was initially declared effective for 10,000,000 units (“Units” and, with respect to the common stock included in the Units being offered, the “Public Shares”), but the offering was increased to 12,000,000 Units pursuant to Rule 462(b) under the Securities Act of 1933, as amended. On October 10, 2017, the Company consummated the Initial Public Offering of 12,000,000 units, generating gross proceeds of $120,000,000.

 

Simultaneous with the closing of the Initial Public Offering, BRAC sold 400,000 units (the “Placement Units”) at a price of $10.00 per Unit in a private placement to BROG, generating gross proceeds of $4,000,000. BROG’s investment in BRAC’s common stock is eliminated in consolidation.

 

Transaction costs relating to the IPO amounted to $2,882,226, consisting of $2,400,000 of underwriting fees and $482,226 of other costs.

 

Following the closing of the IPO on October 10, 2017, an amount of $120,600,000 ($10.05 per Unit) from the net proceeds of the sale of the Units in the IPO and the Placement Units was placed in a trust account (“Trust Account”) and is invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account, as described below.

 

 

 

  F- 14  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

On October 18, 2017, in connection with the underwriters’ exercise of their over-allotment option in full, BRAC sold an additional 1,800,000 Units and the sale of an additional 45,000 Placement Units to BROG at $10.00 per Unit, generating total proceeds of $18,450,000. Transaction costs for underwriting fees on the sale of the over-allotment units were $360,000. Following the closing, an additional $18,090,000 of the net proceeds ($10.05 per Unit) was placed in the Trust Account, bringing the total aggregate proceeds held in the Trust Account to $138,690,000 ($10.05 per Unit). BROG’s investment in BRAC’s common stock is eliminated in consolidation.

 

BRAC’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and private placement, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the BRAC will be able to complete a Business Combination successfully. Upon the closing of the IPO, $ 10.05 per Unit sold in the IPO, including some of the proceeds of the Private Placements was deposited in a trust account (“Trust Account”) to be held until the earlier of (i) the consummation of its initial Business Combination or (ii) BRAC’s failure to consummate a Business Combination within 21 months from the consummation of the IPO (the “Combination Period”). Placing funds in the Trust Account may not protect those funds from third party claims against BRAC. Although BRAC will seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with BRAC waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The Trust Account is maintained by a third party trustee. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, the interest earned on the Trust Account balance may be released to BRAC for any amounts that are necessary to pay BRAC’s income and other tax obligations and up to $50,000 that may be used to pay for the costs of liquidating BRAC. BROG has agreed that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.05 per share by the claims of target businesses or claims of vendors or other entities that are owed money by BRAC for services rendered or contracted for or products sold to BRAC, but there is no assurance that BROG will be able to satisfy its indemnification obligations if it is required to do so. Additionally, the agreement entered into by BROG specifically provides for two exceptions to the indemnity it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with BRAC waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

 

Initial Business Combination

 

Pursuant to the Nasdaq Capital Markets listing rules, BRAC’s initial Business Combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the Trust Account at the time of the execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. The fair market value of the target will be determined by BRAC’s board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). The target business or businesses that BRAC acquires may have a collective fair market value substantially in excess of 80% of the Trust Account balance. In order to consummate such a Business Combination, BRAC may issue a significant amount of its debt or equity securities to the sellers of such business and/or seek to raise additional funds through a private offering of debt or equity securities. If BRAC’s securities are not listed on NASDAQ after the IPO, BRAC would not be required to satisfy the 80% requirement. However, BRAC intends to satisfy the 80% requirement even if BRAC’s securities are not listed on NASDAQ at the time of the initial Business Combination.

 

BRAC will provide the public stockholders, who are the holders of the common stock which was sold as part of the Units in the IPO, whether they are purchased in the IPO or in the aftermarket, or “Public Shares”, including BROG to the extent that it purchases such Public Shares (“Public Stockholders”), with an opportunity to redeem all or a portion of their Public Shares of BRAC’s Common stock, irrespective of whether they vote for or against the proposed transaction or if BRAC conducts a tender offer, upon the completion of the initial Business Combination either (1) in connection with a stockholder meeting called to approve the Business Combination, or (ii) by means of a tender offer, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest (net of franchise and income taxes payable, divided by the number of then outstanding Public Shares. The amount in the Trust Account, net of franchise and income taxes payable, currently amounts to $10.06 per Public Share. The common stock subject to redemption will be recorded at a redemption value and classified a temporary equity upon the completion of the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. BRAC will proceed with a Business Combination only if BRAC has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and in the case of a stockholder vote, a majority of the outstanding shares voted are voted in favor of the Business Combination. The decision as to whether BRAC will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by BRAC, solely in its discretion, based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require it to seek stockholder approval under the law or stock exchange listing requirement. If a stockholder vote is not required and BRAC decides not to hold a stockholder vote for business or other legal reasons, BRAC will, pursuant to the proposed amended and restated certificate of incorporation, (i) conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and (ii) file tender offer documents with the SEC prior to completing the initial Business Combination which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.

 

 

 

  F- 15  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

BROG has agreed to vote its Founder Shares and any Public Shares purchased during or after the IPO in favor of the initial Business Combination, and BRAC’s executive officers and directors have also agreed to vote any Public Shares purchased during or after the IPO in favor of the Initial Business Combination. BROG entered into a letter agreement, pursuant to which it agreed to waive its redemption rights with respect to the Founder Shares, shares included in the Placement Units and Public Shares in connection with the completion of the initial Business Combination. In addition, BROG has agreed to waive its rights to liquidating distributions from the Trust Account with respect to the Founder Shares and shares included in the Placement Units if BRAC fails to complete the initial Business Combination within the prescribed time frame. However, if BROG (or any of BRAC’s executive officers, directors or affiliates) acquires Public Shares in or after the IPO, it will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares in the event BRAC does not complete the initial Business Combination within such applicable time period.

 

Failure to Consummate a Business Combination

 

If BRAC is unable to complete the initial Business Combination within the Combination Period, BRAC must: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of franchise and income taxes payable divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of BRAC’s remaining stockholders and BRAC’s Board of Directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to BRAC’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

 

Consolidation of BRAC and Non-controlling Interest

 

The Company has determined that BRAC, following its IPO, is a variable interest entity (“VIE”) and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC and BROG has the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity to vote to approve a proposed business combination. Therefore, these consolidated financial statements contain the operations of the BRAC from its inception on May 9, 2017. BRAC’s IPO shareholders are reflected in our Consolidated Financial Statements as a redeemable non-controlling interest. The non-controlling interest was recorded at fair value on October 10, 2017, with an addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. The net earnings attributable to the IPO shareholders are subtracted from the net loss for the year ended December 31, 2017 to arrive at the net loss attributable to the Company and the non-controlling interest on the balance sheet was adjusted to include the net earnings attributable to the IPO shareholders.

 

Intercompany transactions and eliminations

 

BROG is paid a management fee by BRAC of $10,000 per month as part of an administrative services agreement, which commenced October 5, 2017, for general and administrative services including the cost of office space and personnel dedicated to BRAC. BROG is reimbursed for any out-of-pocket expenses, particularly travel, incurred in connection with activities on BRAC’s behalf, including but not limited to identifying potential target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by BRAC. BRAC paid a total of $28,710 to BROG for such services during the year ended December 31, 2017. The management services income of BROG and the management services expense of BRAC as well as any balances due between the companies for such services or reimbursements were eliminated in consolidation.

 

BROG’s investment in BRAC and the resulting equity recorded by BRAC have been eliminated upon consolidation. Additionally, as a result of recognizing the fair value of the upon redemption of the redeemable shares held by the BRAC IPO shareholders as a non-controlling interest as per ASC 810-10-45-23, BROG has recognized an adjustment of $3,932,126 to additional paid-in capital. The non-controlling interest in BRAC held by the BRAC’s IPO shareholders is presented on the balance sheet as temporary equity.

 

Note 7 – Prepaid Expenses

 

Prepaid expenses consist of the following:

 

    December 31,  
    2017     2016  
Prepaid insurance costs   $ 24,999     $ 43,324  
Prepaid employee benefits     11,716       11,844  
Prepaid office and other costs     32,102       31,724  
Total prepaid expenses   $ 68,817     $ 86,892  

 

 

 

  F- 16  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 8 – Related Party

 

During the year ended December 31, 2016, we granted various awards to our Officers and Directors as compensation for their services. These related party grants are fully disclosed in Note 16 below. No awards were granted in 2017.

 

Prior to July 1, 2016, the Company leased office space on a month to month basis where the lessor is an entity owned by our former CEO and current Chairman of the Board of Directors, Bradley Berman. Pursuant to the lease, we occupied approximately 2,813 square feet of office space. We terminated the lease concurrent with our move to another location on June 30, 2016. The lease had base rents of $2,110 per month, plus common area operations and maintenance charges, and monthly parking fees of $240 per month, for the period from November 15, 2013 to October 31, 2014, and was subject to increases of $117 per month beginning November 1, 2014 and for each of the subsequent annual periods. We paid a total of $36,183 to this entity during the year ended December 31, 2016.

 

As described in Note 5, officers and directors of the Company purchased 173,843,308 shares between the Rights Offering and as participants of the Backstop Agreement for $2,086,120 and received 179,376 warrants to purchase shares of common stock at $0.01 per share for their participation in the Backstop Agreement.

 

Note 9 – Investment in Black Ridge Holding Company, LLC

 

The investment in Black Ridge Holding Company, LLC as of December 31, 2016 represents our equity interest in Black Ridge Holding Company, LLC following the debt restructuring and related activity as described in Note 4 – Debt Restructuring. We accounted for the investment using the cost method.

 

Dissolution of BRHC

The Company and the Chambers Affiliates as the members of BRHC agreed to dissolve and wind up BRHC and filed a Certificate of Cancellation under the Delaware Limited Liability Company Act as of October 3, 2017. On October 2, 2017, the Company entered into an agreement with the Chambers Affiliates whereby certain assets distributed to the Company upon the dissolution and winding up of BRHC, effective as of October 1, 2017, were sold to the Assignees in exchange for cash consideration of $1,078,394. Additionally, cash and receivables totaling to $4,645 in value, were distributed directly to the Company from BRHC. As a result of the transactions, eliminating the Company’s basis in its investment in BRHC and deducting certain transaction related expenses, the Company recorded a gain of $1,030,145.

 

Note 10 – Property and Equipment

 

Property and equipment at December 31, 2017 and December 31, 2016, consisted of the following:

 

    December 31,     December 31,  
    2017     2016  
Property and equipment   $ 128,156     $ 140,547  
Less: Accumulated depreciation and amortization     (117,459 )     (112,128 )
Total property and equipment, net   $ 10,697     $ 28,419  

 

During the year ended December 31, 2017 we sold certain assets with a book value of $6,874 for proceeds of $2,160, resulting in a loss on disposal of $4,714.

 

The following table shows depreciation, depletion, and amortization expense by type of asset:

 

    Year Ended  
    December 31,  
    2017     2016  
Depletion of costs for evaluated oil and gas properties (1)   $     $ 3,114,347  
Depreciation and amortization of other property and equipment     10,848       14,271  
Total depreciation, amortization and depletion   $ 10,848     $ 3,128,618  

(1) Presented as a component of loss from discontinued operations, net of income taxes.

 

 

 

  F- 17  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Impairment of Oil and Gas Properties

As a result of low commodity prices and their effect on the proved reserve values of properties in 2016, we recorded a non-cash ceiling test impairment of $5,219,000 for the year ended December 31, 2016. The expense associated with the impairments is presented as component of loss from discontinued operations, net of income taxes. The impairment charges affected our reported net income but did not reduce our cash flow.

 

Note 11 – Oil and Natural Gas Properties

 

The following tables summarize gross and net productive oil wells by state at June 21, 2016 (prior to their disposition through our debt restructuring). A net well represents our percentage ownership of a gross well. The following tables do not include wells in which our interest is limited to royalty and overriding royalty interests. The following tables also do not include wells which were awaiting completion, in the process of completion or awaiting flow back subsequent to fracture stimulation.

 

    June 21, 2016  
    Gross     Net  
North Dakota     352       10.64  
Montana     5       0.37  
      357       11.01  

 

The Company’s oil and natural gas properties consist of all acreage acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs. As of June 21, 2016, our principal oil and gas assets included approximately 7,016, respectively, located in North Dakota and Montana.

 

The following table summarizes our capitalized costs for the purchase and development of our oil and natural gas properties for the years ended December 31, 2016 (prior to their disposition through our debt restructuring):

 

    Year Ended  
    December 31, 2016  
Purchases of oil and natural gas properties and development costs for cash   $ 4,858,134  
Purchase of oil and natural gas properties accrued at period end (prior to disposition)     3,155,016  
Purchase of oil and natural gas properties accrued at the beginning of period     (6,899,503 )
Capitalized asset retirement obligations     4,737  
Total purchase and development costs, oil and natural gas properties   $ 1,118,384  

 

2016 Disposals

During 2016, the Company sold, prior to our debt restructuring, approximately 14 net mineral acres of oil and natural gas properties for total proceeds of $94,628. No gain or loss was recorded pursuant to the sales.

 

2016 Disposition in Debt Restructuring

On June 21, 2016 we disposed of all of our oil and gas properties, with net carrying costs of $24,498,638, as part of our debt restructuring as outlined in Note 4 – Debt Restructuring.

 

Note 12 – Asset Retirement Obligation

 

The Company has asset retirement obligations (ARO) associated with the future plugging and abandonment of proved properties and related facilities. Under the provisions of FASB ASC 410-20-25, the fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred and a corresponding increase in the carrying amount of the related long lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. The Company has no assets that are legally restricted for purposes of settling asset retirement obligations.

 

 

 

  F- 18  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes the Company’s asset retirement obligation transactions recorded in accordance with the provisions of FASB ASC 410-20-25 during the year ended December 31, 2016:

 

    Year ended  
    December 31, 2016  
Beginning ARO   $ 368,089  
Liabilities incurred for new wells placed in production     4,737  
Accretion of discount on ARO (a component of loss from discontinued operations)     16,258  
Liability relieved in debt restructuring     (389,084 )
Ending ARO   $  

 

Note 13 – Derivative Instruments

 

The Company is required to recognize all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as such, marks its derivative instruments to fair value and recognizes the realized and unrealized changes in fair value in its statements of operations under the captions “Loss on Settled Derivatives” and “Losses on the mark-to-market of derivatives.”

 

The Company has utilized swap and collar derivative contracts to hedge against the variability in cash flows associated with the forecasted sale of crude oil production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits the upside revenue potential of upward price movements.

 

For a fixed price swap contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price and the Company is required to make a payment to the counterparty if the settlement price for any period is greater than the swap price. For a collar contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is below the floor price, the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price and no payment is required by either party if the settlement price for any settlement period is between the floor price and the ceiling price.

 

The Company’s derivative contracts are settled based on reported settlement prices on commodity exchanges, with crude oil derivative settlements based on NYMEX West Texas Intermediate (“WTI”) pricing.

 

As of June 21, 2016 all of our then outstanding derivative contracts, with a mark-to-market liability valuation of $3,134,336, were transferred to BRHC as part of the debt restructuring.

 

Derivative Gains and Losses

The following table presents realized and unrealized gains and losses on derivative instruments for the periods presented:

 

    Year Ended  
    December 31, 2016  
Realized gain on derivatives:        
Crude oil fixed price swaps   $ 922,872  
Crude oil collars     120,154  
Realized gain on derivatives, net   $ 1,043,026  
         
Gain (loss) on the mark-to-market of derivatives:        
Crude oil fixed price swaps   $ (4,157,491 )
Crude oil collars     (131,245 )
Gain (loss) on the mark-to-market of derivatives, net   $ (4,288,736 )

 

 

 

  F- 19  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 14 – Fair Value of Financial Instruments

 

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

The Company has cash and cash equivalents and a revolving credit facility that must be measured under the fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of December 31, 2017 and 2016:

 

    Fair Value Measurements at December 31, 2017  
    Level 1     Level 2     Level 3  
Assets                  
Cash and cash equivalents   $ 1,477,089                  
Restricted cash and investments held in trust     138,980,353     $     $  
Total assets     140,457,442              
                         
Liabilities                        
Total Liabilities                  
    $ 140,457,442     $     $  
                         

 

    Fair Value Measurements at December 31, 2016  
    Level 1     Level 2     Level 3  
Assets                  
Cash and cash equivalents   $ 66,269     $     $  
Total assets     66,269              
                         
Liabilities                        
Total Liabilities                  
    $ 66,269     $     $  

 

There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2017 and 2016.

 

Level 2 liabilities include revolving credit facilities. No fair value adjustment was necessary during the years ended December 31, 2017 and 2016.

 

 

 

  F- 20  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 15 – Revolving Credit Facilities and Long Term Debt

 

Promissory Note

 

On July 7, 2017 the Company entered into a $500,000 Promissory Note (the Note) issued to Cadence Bank, N.A. (Cadence) and a Security Agreement by the Company in favor of Cadence. The Note bore interest at 4.5% per annum payable monthly and was due on October 7, 2017. The Note was repaid in full on September 14, 2017. The Note was secured by the Company’s deposit account at Cadence and all of the Company’s rights, title and interests in and to the contractual rights of the Company to receive payment from Chambers Energy Management for the purchase of the Company’s interest in Black Ridge Holding Company, LLC. The Company incurred and paid $4,313 in interest on the Note and paid $4,400 in origination fees and other set up costs that are included in interest expense on the statement of operations.

 

Former Senior Credit Agreement

 

The Company, as borrower, entered into a Credit Agreement dated August 8, 2013 and amendments thereto dated December 13, 2013, March 24, 2014, April 21, 2014, September 11, 2014, March 30, 2015 and August 10, 2015 (as amended, the “Senior Credit Agreement ) with Cadence, as lender (the “Senior Credit Facility”). Under the terms of the Senior Credit Agreement, a senior secured revolving line of credit in the maximum aggregate principal amount of $50 million was available from time to time (i) for direct investment in oil and gas properties, (ii) for general working capital purposes, including the issuance of letters of credit, and (iii) to refinance the then existing debt under the Company’s former credit facility.

 

Availability under the Senior Credit Facility was at all times subject to the then-applicable borrowing base, determined by Cadence in a manner consistent with the normal and customary oil and gas lending practices of Cadence. Availability was initially set at $7 million and was subject to periodic redeterminations. Subject to availability under the borrowing base, the Company could borrow, repay and re-borrow funds in amounts of $250,000 or more. At the Company’s election, the unpaid principal balance of any borrowings under the Senior Credit Facility may bear interest at either (i) the Base Rate, as defined in the Senior Credit Facility, plus the applicable margin, which varies from 1.00% to 1.50% or (ii) the LIBOR rate, as defined in the Senior Credit Facility, plus the applicable margin, which varies from 3.00% to 3.50%. Interest was payable for Base Rate loans on the last business day of the month and for LIBOR loans on the last LIBOR business day of each LIBOR interest period. The Company was also required to pay a quarterly fee of 0.50% on any unused portion of the borrowing base, as well as a facility fee of 0.90% of the initial and any subsequent additions to the borrowing base.

 

The Senior Credit Facility’s maturity date of August 8, 2016, was subsequently amended to January 15, 2017 pursuant to the amendment on March 30, 2015. The Company could prepay the entire amount of Base Rate loans at any time, and could prepay the entire amount of LIBOR loans upon at least three business days’ notice to Cadence. The Senior Credit Facility was secured by first priority interests in mortgages on substantially all of the Company’s assets, including but not limited to the Company’s mineral interests in North Dakota and Montana.

 

As part of the debt restructuring outline in Note 4 – Debt Restructuring, the Company transferred the obligation with a balance outstanding of $29,400,000 under the Senior Credit Facility to BRHC on June 21, 2016.

 

Former Subordinated Credit Facility

The Company, as borrower, entered into a Second Lien Credit Agreement dated August 8, 2013 and amendments thereto dated December 13, 2013, March 24, 2014, April 21, 2014, September 11, 2014, March 30, 2015, and August 10, 2015 (as amended, the “Subordinated Credit Agreement”) by and among the Company, as borrower, Chambers Energy Management, LP, as administrative agent (“Chambers”), and the several other lenders named therein (the “Subordinated Credit Facility”). Under the Subordinated Credit Facility, term loans in the aggregate principal amount of up to $75 million were available from time to time (i) to repay the Previous Credit Facility, (ii) for fees and closing costs in connection with both the Senior Credit Facility and the Subordinated Credit Facility (together, the “Credit Facilities”), and (iii) general corporate purposes.

 

The Subordinated Credit Agreement provided initial commitment availability of $25 million, which was subsequently amended to $30 million, with the remaining commitments subject to the approval of Chambers and other customary conditions. The Company could borrow the available commitments in amounts of $5 million or more and could not request borrowings of such loans more than once a month, provided that the initial draw was at least $15 million. Loans under the Subordinated Credit Facility were funded net of a 2% OID. The unpaid principal balance of borrowings under the Subordinated Credit Facility bore interest at the Cash Interest Rate plus the PIK Interest Rate. The Cash Interest Rate was 9.00% per annum plus a rate per annum equal to the greater of (i) 1.00% and (ii) the offered rate for three-month deposits in U.S. dollars that appears on Reuters Screen LIBOR 01 as of 11:00 a.m. (London time) on the second full LIBOR business day preceding the first day of each calendar quarter. The PIK Interest Rate was equal to 4.00% per annum. Interest was payable on the last day of each month. The Company was also required to pay an annual nonrefundable administration fee of $50,000 and a monthly availability fee computed at a rate of 0.50% per annum on the average daily amount of any unused portion of the available amount under the commitment.

 

 

 

  F- 21  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Subordinated Credit Facility was to mature on June 30, 2017. Upon at least three business days’ written notice, the Company could prepay the entire amount under the loans, together with accrued interest. Each prepayment made prior to the second anniversary of the funding date, as defined in the Subordinated Credit Facility, would be accompanied by a make-whole amount, as defined in the Subordinated Credit Agreement. Prepayments made on or after the second anniversary of the funding date were accompanied by an applicable premium, as set forth in the Subordinated Credit Agreement. The Subordinated Credit Facility was secured by second priority interests on substantially all of the Company’s assets, including but not limited to second priority mortgages on the Company’s mineral interests in North Dakota and Montana.

 

The first funding from the Subordinated Credit Facility occurred on September 9, 2013 at which time we drew $14,700,000, net of a $300,000 original issue discount, from the Subordinated Credit Agreement and used $10,226,057 of those proceeds to repay and terminate a previously outstanding revolving credit facility. We had drawn an additional $14,700,000, net of $300,000 original issue discounts, through June 21, 2016. The Company had borrowings of $30.0 million outstanding under the Subordinated Credit Facility as of June 21, 2016. The obligations under the Subordinated Credit Facility, $30.0 million of principal and $2,931,369 of PIK interest payable, were transferred to BRHC and converted to equity in BRHC as part of the debt restructuring outlined in Note 4 - Debt Restructuring on June 21, 2016.

 

Intercreditor Agreements and Covenants

Cadence and Chambers had entered into an Intercreditor Agreement dated August 8, 2013 (the “Intercreditor Agreement”). The Intercreditor Agreement provided that any liens on the assets of the Company securing indebtedness under the Subordinated Credit Facility were subordinate to liens on the assets securing indebtedness under the Senior Credit Facility and set forth the respective rights, obligations and remedies of the lenders under the Senior Credit Facility with respect to their first priority liens and the lenders under the Subordinated Credit Facility with respect to their second priority liens.

 

The Credit Facilities, as amended, required customary affirmative and negative covenants for credit facilities of the respective types and sizes for companies operating in the oil and gas industry, as well as customary events of default. Furthermore, the Credit Facilities contain financial covenants that required the Company to satisfy certain specified financial ratios. The Senior Credit Agreement required the Company to maintain, as of the last day of each fiscal quarter of the Company, (i) a collateral coverage ratio (reserve value plus consolidated working capital to adjusted indebtedness) of at least 0.65 to 1.00 through the quarter ending June 30, 2014, 0.70 to 1.00 for the quarters ending September 30, 2014 and December 31, 2014, was waived for the quarters ending March 31, 2015 and June 30, 2015, and 0.70 to 1.00 for the quarter ending September 30, 2015, and 0.80 to 1.00 for the quarter ending December 31, 2015 and thereafter, (ii) a ratio of current assets, including debt facility available to be drawn, to current liabilities of a minimum of 1.0 to 1.0, except for the quarter ending June 30, 2014, which was waived, (iii) a net debt to EBITDAX, as defined in the Senior Credit Agreement, ratio of 3.75 to 1.00 for the quarter ended March 31, 2014, 4.25 to 1.00 for the quarters ended June 30, 2014 and September 30, 2014, 4.00 to 1.00 for the quarter ended December 31, 2014, was waived for the quarters ended March 31, 2015 and June 30, 2015, and 3.50 to 1.00 for the quarter ending September 30, 2015, and 3.65 to 1.00 for the quarter ending December 31, 2015, and 3.50 to 1.00 for the quarter ending March 31, 2016 and thereafter, in each case calculated on a modified trailing four quarter basis, (iv) a maximum senior leverage ratio of not more than 2.5 to 1.0 calculated on a modified trailing four quarter basis, and (v) a minimum interest coverage ratio of not less than 3.0 to 1.0. The Subordinated Credit Agreement required the Company to maintain, as of the last day of each fiscal quarter of the Company, (i) a collateral coverage ratio (reserve value plus consolidated working capital to adjusted indebtedness) of at least 0.65 to 1.00 through the quarter ending June 30, 2014, 0.70 to 1.00 for the quarters ending September 30, 2014 and December 31, 2014, was waived for the quarters ending March 31, 2015 and June 30, 2015, and 0.70 to 1.00 for the quarter ending September 30, 2015, and 0.80 to 1.00 for the quarter ending December 31, 2015 and thereafter, (ii) a consolidated net leverage ratio (adjusted total indebtedness less the amount of unrestricted cash equivalents to consolidated EBITDA) of no more than 3.75 to 1.00 for the quarter ending March 31, 2014, 4.25 to 1.00 for the quarters ending June 30, 2014 and September 30, 2014, 4.00 to 1.00 for the quarter ending December 31, 2014, was waived for the quarters ending March 31, 2015 and June 30, 2015, and 3.50 to 1.00 for the quarter ending September 30, 2015, and 3.65 to 1.00 for the quarter ending December 31, 2015, and 3.50 to 1.00 for the quarter ending March 31, 2016 and thereafter, calculated on a modified trailing four quarter basis, (iii) a consolidated cash interest coverage ratio (consolidated EBITDA to consolidated cash interest expense) of no less than 2.5 to 1.0, calculated on a modified trailing four quarter basis and (iv) a ratio of consolidated current assets to consolidated current liabilities of at least 1.0 to 1.0, except for the quarter ending June 30, 2015 when the covenant was waived. In addition, each of the Credit Facilities required that the Company enter into hedging agreements based on anticipated oil production from currently producing wells as agreed to by the lenders.

 

Covenant Violations

The Company was out of compliance with the collateral coverage ratio covenant as of March 31, 2016 and December 31, 2015 and the current ratio covenant as defined by the Subordinated Credit Facility as of March 31, 2016. Additionally, the audit report the Company received with respect to its financial statements as of December 31, 2015 contains an explanatory paragraph expressing uncertainty as to the Company’s ability to continue as a going concern, the delivery of which constituted a default under both its Senior Credit Facility and Subordinated Credit Facility. The Company received a waiver for all debt covenants as of December 31, 2015 and March 31, 2016 as part of the debt restructuring outlined in Note 4 – Debt Restructuring.

 

 

 

  F- 22  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following presents components of interest expense which is presented as a component of loss from discontinued operations, net of tax, on the Company’s statement of operations for the years ended December 31, 2017 and 2016:

 

    Years Ended  
    December 31,  
    2017     2016  
Accrued PIK interest   $     $ 330,740  
Interest and fees     8,713       1,373,023  
Less interest capitalized to the full cost pool of our proved oil & gas properties           (7,219 )
    $ 8,713     $ 1,696,544  

 

Note 16 – Stockholders’ Equity

 

Preferred Stock

The Company has 20,000,000 authorized shares of $0.001 par value preferred stock. No shares have been issued to date.

 

Common Stock

The Company has 500,000,000 authorized shares of $0.001 par value common stock.

 

On September 26, 2017 the Company issued 199,811,421 shares of common stock in a Rights Offering, raising gross proceeds of $2,397,737, and issued an additional 232,008,789 shares in a private placement (the Backstop Agreement), raising gross proceeds of $2,784,102. The Company incurred $130,164 in costs associated with the Rights Offering and Backstop Agreement.

 

Note 17 – Options

 

No options were granted during the year ended December 31, 2017.

 

The following table presents all options granted during the year ended December 31, 2016:

 

                        Black-Scholes                  
                        Options                  
        Number       Term   Vesting   Pricing Model:   Total     Expense     Expense  
Grant       of   Strike   in   Term in       Call   Fair     Recognized     Recognized  
Date   Recipient   Options   Price   Years (1)   Years (1)   Volatility   Value   Value     in 2017     in 2016  
12/12/16   K. DeCubellis, CEO   1,204,000   $0.040   10   3   228%   $0.0398   $ 47,925     $ 15,976     $ 825  
12/12/16   J. Moe, CFO   450,000   $0.040   10   3   228%   $0.0398     17,912       5,972       308  
12/12/16   M. Eisele, COO   500,000   $0.040   10   3   228%   $0.0398     19,903       6,636       343  
12/12/16   Employee   300,000   $0.040   10   3   228%   $0.0398     11,942       3,980       206  
12/12/16   Employee   36,000   $0.040   10   3   228%   $0.0398     1,433       476       25  
12/12/16   Employee   50,000   $0.040   10   3   228%   $0.0398     1,990       498       34  
12/12/16   Employee   65,000   $0.040   10   3   228%   $0.0398     2,587       864       45  
12/12/16   Employee   8,500   $0.040   10   3   228%   $0.0398     338       112       6  
12/12/16   J. Lahti, Director   300,000   $0.040   10   3   228%   $0.0398     11,942       3,980       206  
12/12/16   B. Oehler, Director   300,000   $0.040   10   3   228%   $0.0398     11,942       3,980       206  
12/12/16   B. Berman, Director   300,000   $0.040   10   3   228%   $0.0398     11,942       3,980       206  
12/12/16   L. Berman, Director   300,000   $0.040   10   3   228%   $0.0398     11,942       3,980       206  
10/26/16   L. Berman, Director   100,000   $0.050   10   3   226%   $0.0497     4,973       1,656       297  
        3,913,500                       $ 156,771     $ 52,090     $ 2,913  

 

(1) All options vest in equal annual installments, commencing one year from the date of the grant, are exercisable for 10 years from the date of the grant and are being amortized over the implied service term, or vesting period, of the options.

 

 

 

  F- 23  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Options Cancelled

During 2017, 87,700 options were forfeited by an employee

 

No options were cancelled during the year ended December 31, 2016.

 

Options Expired

During 2017, a total of 12,000 options with a strike price of $0.29 per share expired.

 

During 2016, a total of 12,000 options with a strike price of $0.33 per share expired.

 

Options Exercised

No options were exercised during the year ended December 31, 2017 and 2016.

 

The following is a summary of information about the Stock Options outstanding at December 31, 2017.

 

    Shares Underlying
Shares Underlying Options Outstanding   Options Exercisable
        Weighted            
    Shares   Average   Weighted   Shares   Weighted
    Underlying   Remaining   Average   Underlying   Average
Range of   Options   Contractual   Exercise   Options   Exercise
Exercise Prices   Outstanding   Life   Price   Exercisable   Price
$0.03 - $1.00   10,857,300   6.74 years   $0.29   6,938,433   $0.37

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:

 

    December 31,   December 31,
    2017   2016
Average risk-free interest rates   None granted   2.06%
Average expected life (in years)   None granted   5
Volatility   None granted   228%

 

The Black-Scholes option pricing model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. During the years ended December 31, 2017 and 2016 there were no options granted with an exercise price below the fair value of the underlying stock at the grant date.

 

The following is a summary of activity of outstanding stock options:

 

          Weighted  
          Average  
    Number     Exercise  
    of Shares     Prices  
Balance, December 31, 2015     7,055,500       0.44  
Options expired     (12,000 )     (0.33 )
Options cancelled            
Options granted     3,913,500       0.04  
Options exercised            
Balance, December 31, 2016     10,957,000       0.29  
Options expired     (12,000 )     (0.29 )
Options cancelled     (87,700 )     (0.17 )
Options granted            
Options exercised            
Balance, December 31, 2017     10,857,300       0.29  
                 
Exercisable, December 31, 2017     6,938,433     $ 0.37  

 

 

  F- 24  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company expensed $574,851 and $626,602 from the amortization of common stock options during the years ended December 31, 2017 and 2016, respectively.

 

Note 18 – Warrants

 

Warrants Granted

The Company issued 435,000 warrants to purchase shares at $0.01 per share to participants of the Backstop Agreement on September 22, 2017. The Company accounted for the warrants as an expense of the Rights Offering which resulted in a charge directly to stockholders’ equity. The Company estimated the fair value of these warrants to be approximately $10,135 (or $.0233 per warrant) using the Black-Scholes option-pricing model. The fair value of the warrants was estimated as of the date of grant using the following assumptions: (1) expected volatility of 388%, (2) risk-free interest rate of 1.89% and (3) expected life of five years.

 

No warrants were granted during the year ended December 31, 2016.

 

Warrants Cancelled

No warrants were cancelled during the year ended December 31, 2017.

 

A total of 5,000,000 warrants with a strike price of $0.65 per share were forfeited on June 21, 2016 commensurate with our debt refinancing.

 

Warrants Expired

No warrants were expired during the year ended December 31, 2017.

 

A total of 3,048,375 warrants with an average strike price of $1.45 per share expired on July 26, 2016.

 

A total of 500,000 warrants with a strike price of $0.95 per share expired on May 2, 2016.

 

Warrants Exercised

No warrants were exercised during the years ended December 31, 2017 and 2016.

 

The following is a summary of activity of outstanding warrants:

 

          Weighted  
          Average  
    Number     Exercise  
    of Shares     Prices  
Balance, December 31, 2015     8,548,375       0.95  
Warrants expired     (3,548,375 )     (1.38 )
Warrants cancelled     (5,000,000 )     (0.65 )
Warrants granted            
Warrants exercised            
Balance, December 31, 2016            
Warrants expired            
Warrants cancelled            
Warrants granted     435,000       .01  
Warrants exercised            
Balance, December 31, 2017     435,000       .01  
                 
Exercisable, December 31, 2017     435,000       .01  
                 

 

 

 

  F- 25  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 19 - BRAC Rights and Warrants

 

Initial Public Offering

 

Pursuant to the its Initial Public Offering and including the subsequent over-allotment option exercised by the underwriter, BRAC sold 13,800,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of one share of common stock, one right (“Public Right”) and one warrant (“Public Warrant”). Each Public Right will convert into one-tenth (1/10) of one share of common stock upon consummation of a Business Combination. Each Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50.

 

Private Placement

 

Simultaneous with the its Initial Public Offering and over-allotment option exercise, BROG purchased an aggregate of 445,000 Placement Units at a price of $10.00 per Unit (or an aggregate purchase price of $4,450,000). Each Placement Unit consists of one share of common stock (“Placement Share”), one right (“Placement Right”) and one warrant (each, a “Placement Warrant”) to purchase one share of the common stock at an exercise price of $11.50 per share. The proceeds from the Placement Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If BRAC does not complete a Business Combination within the Combination Period, the proceeds of the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Rights and Placement Warrants will expire worthless.

 

The Placement Units are identical to the Units sold in the Initial Public Offering except that the Placement Warrants (i) are not redeemable by BRAC and (ii) may be exercised for cash or on a cashless basis, so long as they are held by BROG or any of its permitted transferees. In addition, the Placement Units and their component securities may not be transferable, assignable or salable until after the consummation of a Business Combination, subject to certain limited exceptions.

 

Rights

 

Each holder of a right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination, even if a holder of such right converted all ordinary shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchange of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering. If BRAC enters into a definitive agreement for a Business Combination in which BRAC will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the shares of common stock will receive in the transaction on an as-converted into shares of common stock basis and each holder of rights will be required to affirmatively covert its rights in order to receive 1/10 of a share of common stock underlying each right (without paying additional consideration). The shares of common stock issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of BRAC).

 

If BRAC is unable to complete a Business Combination within the Combination Period and BRAC liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from BRAC’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will BRAC be required to net cash settle the rights. Accordingly, the rights may expire worthless. 

 

The rights included in the Private Units sold in the Private Placement are identical to the rights included in the Units sold in the Initial Public Offering, except that, among others, the rights including the shares issuable upon exchange of such rights, are being purchased pursuant to an exemption from the registration requirements of the Securities Act and will become tradable only after certain conditions are met or the resale of such rights (including underlying securities) is registered under the Securities Act.

 

 

 

  F- 26  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Warrants

 

Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Warrants. The Warrants will become exercisable on the later of (a) 30 days after the consummation of a Business Combination or (b) October 10, 2018. No Warrants will be exercisable for cash unless BRAC has an effective and current registration statement covering the shares of common stock issuable upon exercise of the Warrants and a current prospectus relating to such shares. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon the exercise of the Warrants is not effective within 30 days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when BRAC shall have failed to maintain an effective registration statement, exercise the Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Warrants on a cashless basis. The Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.

 

The Private Warrants will be identical to the Warrants underlying the Units sold in the Initial Public Offering, except the Private Warrants will be exercisable for cash (even if a registration statement covering the shares of common stock issuable upon exercise of such Private Warrants is not effective) or on a cashless basis, at the holder’s option, and will not be redeemable by BRAC, in each case so long as they are still held by BROG or its affiliates.

 

BRAC may call the Warrants for redemption (excluding the Private Warrants but including any outstanding Warrants issued upon exercise of the unit purchase option issued to EarlyBirdCapital), in whole and not in part, at a price of $.01 per Warrant:

 

· at any time while the Warrants are exercisable,
· upon not less than 30 days’ prior written notice of redemption to each Warrant holder,
· if, and only if, the reported last sale price of the shares of common stock equals or exceeds $18.00 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to Warrant holders, and
· if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such Warrants at the time of redemption and for the entire 30-day redemption period and continuing each day thereafter until the date of redemption.  

 

If BRAC calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement.

 

The exercise price and number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuances of shares of common stock at a price below its exercise price. Additionally, in no event will BRAC be required to net cash settle the Warrants. If BRAC is unable to complete a Business Combination within the Combination Period and BRAC liquidates the funds held in the Trust Account, holders of Warrants will not receive any of such funds with respect to their Warrants, nor will they receive any distribution from BRAC’s assets held outside of the Trust Account with respect to such Warrants. Accordingly, the Warrants may expire worthless.

 

Unit Purchase Option

 

On October 10, 2017, BRAC sold to the underwriter and its designees, for $100, an option to purchase up to 600,000 Units exercisable at $11.50 per Unit (or an aggregate exercise price of $6,900,000) commencing on the later of the first anniversary of the effective date of the registration statement related to the Initial Public Offering and the consummation of a Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the effective date of the registration statement related to the Initial Public Offering. The Units issuable upon exercise of this option are identical to those offered in the Initial Public Offering. BRAC accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to stockholders’ equity. BRAC estimated the fair value of this unit purchase option to be approximately $1,778,978 (or $2.97 per Unit) using the Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriters was estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.94% and (3) expected life of five years. The option and such units purchased pursuant to the option, as well as the common stock underlying such units, the rights included in such units, the common stock that is issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. BRAC will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or BRAC’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below its exercise price.

 

 

 

  F- 27  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 20 – Income Taxes

 

We account for income taxes under the provisions of ASC Topic 740, Income taxes, which provides for an asset and liability approach for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.

 

The Company will not consolidate income tax returns for BROG and BRAC. For the year ended December 31, 2017 the impact of both returns are combined in the presentation.

 

Our provision for income taxes for the years ended December 31, 2017 and 2016 consisted of the following:

 

    December 31,  
    2017     2016  
Current taxes   $ 85,722     $  
Deferred taxes     (18,678 )      
Net income tax provision (benefit)   $ 67,044     $  

 

The effective income tax rate for the years ended December 31, 2017 and 2016 consisted of the following:

 

    December 31,  
    2017     2016  
    BROG     BRAC     Combined        
Federal statutory income tax rate     35.0%       30.8%       39.6%       35.0%  
State income taxes     3.6%       6.8%       0.1%       3.3%  
Effect of statutory rate change on deferred taxes     38.2%       0.0%       80.2%       1.7%  
Effect of 2018 federal rate change on deferred taxes     (1469.2% )     4.0%       (3092.1% )     0.0%  
Permanent differences     (0.3% )     0.2%       (0.7% )     0.0%  
Change in valuation allowance     1392.7%       0.0%       2926.8%       (40.0% )
Net effective income tax rate     0.0%       41.8%       (46.1% )     0.0%  

  

The 2017 combined reconciliation above is a weighted average of the two separate taxable entities. As one entity has a loss and the other has income, the weighted average produces results that are skewed higher or lower than the individual components, as such we have presented the individual entity reconciliations. BROG’s state income tax rate as of December 31, 2017 increased by 0.3% from 3.3% as of December 31, 2016, to 3.6%. This increase in the effective tax rate is attributable to changes in the Company’s state apportionment factors in the current year. BRAC’s state income tax rate was 6.8% due as all of its income and expenses were from Minnesota, which has a higher tax rate.

 

The components of the deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:

 

    December 31,  
    2017     2016  
Deferred tax assets:                
Federal and state net operating loss carryovers   $ 6,712,288     $ 9,025,553  
Stock compensation     1,947,147       2,715,486  
Property and equipment     501        
Unrealized marketable equity securities held in trust account     18,678        
Reorganization costs     34,001       51,258  
Total deferred tax assets   $ 8,712,615     $ 11,792,297  
                 
Deferred tax liabilities:                
Property and equipment           (3,731 )
Total deferred liabilities           (3,731 )
                 
Net deferred tax assets (liabilities)     8,712,615       11,788,566  
Less: valuation allowance     (8,693,937 )     (11,788,566 )
Deferred tax assets (liabilities)   $ 18,678     $  

 

 

 

  F- 28  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of December 31, 2017, BROG has a net operating loss carryover of approximately $26,449,110. Under existing Federal law, the net operating loss may be utilized to offset taxable income through the year ended December 31, 2035. A portion of the net operating loss carryover begins to expire in 2030.

 

ASC Topic 740 provides that a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. In 2017, BROG decreased its valuation allowance from $11,788,566 to $8,693,937 to adjust for the decrease in net deferred tax assets primarily due to the reduction in the federal tax rate to 21% in 2018. The Company believes it is more likely than not that the benefit of these remaining assets will not be realized by BROG. The Company did not place a valuation allowance on deferred tax asset for BRAC related to the unrealized loss on marketable securities held in trust account. The Company believes it is more likely than not that the benefit of these remaining assets will be realized by BRAC.

 

The Company files annual US Federal income tax returns and annual income tax returns for the states of Minnesota, North Dakota and Montana. We are not subject to income tax examinations by tax authorities for years before 2013 for all returns. Income taxing authorities have conducted no formal examinations of our past federal or state income tax returns and supporting records.

 

The Company adopted the provisions of ASC Topic 740 regarding uncertainty in income taxes. The Company has found no significant uncertain tax positions as of any date on or before December 31, 2017.

 

Note 21 – Commitments and Contingencies

 

The Company is involved in various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The Company is not currently a defendant in any material litigation and is not aware of any threatened litigation that could have a material effect on the Company. Management is not able to estimate the minimum loss to be incurred, if any, as a result of the final outcome of the matters arising in the normal course of business but believes they are not likely to have a material adverse effect upon the Company’s financial position or results of operations and, accordingly, no provision for loss has been recorded.

 

The Company periodically maintains cash balances at banks in excess of federally insured amounts. The extent of loss, if any, to be sustained as a result of any future failure of a bank or other financial institution is not subject to estimation at this time.

 

BRAC’s agreements with underwriters

 

BRAC engaged the underwriters as advisors in connection with its Initial Business Combination to assist it in holding meetings with its shareholders to discuss the potential business combination and the target business’ attributes, introduce it to potential investors that are interested in purchasing its securities, assist it in obtaining shareholder approval for the business combination and assist it with its press releases and public filings in connection with the business combination. BRAC will pay its underwriters a cash fee for such services upon the consummation of its initial business combination in an amount equal to 3.5% of the gross proceeds of its offering (exclusive of any applicable finders’ fees which might become payable).

 

Registration rights

 

The holders of BROG’s shares of BRAC issued and outstanding on the date of BRAC’s Initial Public Offering, as well as the holders of the private units and any units BROG, and its officers, directors or their affiliates may be issued in payment of working capital loans made to BRAC (and all underlying securities), are entitled to registration rights pursuant to a registration rights agreement dated October 4, 2017 . The holders of a majority of these securities are entitled to make up to two demands that BRAC register such securities. The holders of the majority of the BROG’s shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of BRAC’s common stock are to be released from escrow. The holders of a majority of the private units and units issued to BROG, and its officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after BRAC consummates a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. The Company would bear the expenses incurred in connection with the filing of any such registration statements.

 

 

 

  F- 29  

 

BLACK RIDGE OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 22 – Subsequent Events

 

On March 1, 2018, the Board of Directors (the “Board”) of the Company approved and adopted the Black Ridge Gas, Inc. 2018 Management Incentive Plan (the “Plan”) and the form of 2018 Management Incentive Plan Award Agreement (the “Award Agreement”:).

 

In connection with the approval of the Plan and Award Agreement, the Board approved the issuance of awards (the “Awards”) to certain individuals including officers and directors (the “Grantees”), representing a percentage of the shares of BRAC held by the Company as of the date of closing of a business combination for the acquisition of a target business as described in the BRAC prospectus dated October 4, 2017, as follows:

 

 

    Percentage of BRAC Shares Owned by the
Name   Company Granted to the Grantee
Bradley Berman   1.6%
Lyle Berman   1.6%
Benjamin Oehler   1.6%
Joe Lahti   1.6%
Kenneth DeCubellis   4.0%
Michael Eisele   2.8%
James Moe   2.1%

 

 

 

 

  F- 30  

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed by us in the reports we file or furnish to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

As of December 31, 2017 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a –15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Management’s Annual Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting as of December 31, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control — Integrated Framework (2013).” Based on this assessment, management believes that, as of December 31, 2017, our internal control over financial reporting was effective based on those criteria.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting through the date of this report or during the quarter ended December 31, 2017, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

  31  

 

 

Independent Registered Accountant’s Internal Control Attestation

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to applicable law.

 

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  32  

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

The following table lists our executive officers and directors as of April 6, 2018:

 

Name   Age   Position
Kenneth DeCubellis   51   Chief Executive Officer
Michael Eisele   35   Chief Operating Officer
James Moe   60   Chief Financial Officer
Bradley Berman   47   Chairman of the Board of Directors
Benjamin S. Oehler (1)(2)   69   Director
Joseph Lahti (1)(2)   57   Director
Lyle Berman (1)   76   Director

(1) Member of audit committee.

(2) Member of compensation committee.

 

Kenneth DeCubellis has been our chief executive officer since November 9, 2011. Prior to joining Black Ridge, Mr. DeCubellis was the president and chief executive officer of Altra Inc. [1] , a venture capital backed biofuels company based in Los Angeles, California. He joined Altra in June 2006 as vice president, business development and was promoted to president in November of 2007 and chief executive officer in February 2008. From 1996 to 2006, he was an executive with Exxon Mobil Corp in Houston, Texas. Mr. DeCubellis also previously served as the chairman of KD Global Energy Belize Ltd., a company that provides technical and business services for petroleum lease holders in Belize. Mr. DeCubellis holds a B.S. in Mechanical Engineering from Rensselaer Polytechnic Institute, an MBA from Northwestern University’s JL Kellogg Graduate School of Management, and a Masters of Engineering Management from Northwestern University’s McCormick School of Engineering.

 

Mr. DeCubellis’s qualifications:

 

· Leadership experience – Mr. DeCubellis has been our chief executive officer since November 9, 2011, chief executive officer of Altra Inc. (2008 to 2011), vice president- president of Altra Inc. (2006 to 2011), and an executive with Exxon Mobil Corp in Houston, Texas. (1996 to 2006). Mr. DeCubellis has been chief executive officer and chairman of the board of directors of Black Ridge Acquisition Corp. since May 2017.
· Industry experience - Mr. DeCubellis has been our chief executive officer from November 9, 2011 and has broad energy experience as, chief executive officer of Altra Inc., a biofuel company, and executive experience with Exxon Mobil Corp.
· Education experience - Mr. DeCubellis holds a Bachelor of Science degree from Rensselaer Polytechnic Institute (1990), an MBA from Northwestern University’s JL Kellogg Graduate School of Management (1996), and a Masters of Engineering Management from Northwestern University’s McCormick School of Engineering (1996).

 

Michael Eisele has been the chief operating officer of Black Ridge since August 1, 2013, and prior to that had served as the Company’s vice president of land since August 2012, overseeing the Company’s acreage portfolio and managing acquisitions and divestitures. Mr. Eisele brings over ten years of oil and gas lease experience in the Williston Basin and greater Rocky Mountain region. Prior to joining the Company, Mr. Eisele was the co-owner and landman of High West Resources, Ltd. from 2011 to 2012, the owner of Eisele Resources LLC from 2009 to 2012, and a self-employed landman from 2007 to 2009. Mr. Eisele is a graduate of Luther College (B.A.).

 

Mr. Eisele’s qualifications:

 

· Leadership experience – Mr. Eisele has been our chief operating officer since August 1, 2013, and our vice president of land from August 2012 to July 2013, co-owner and landman of High West Resources, Ltd. (2011 to 2012), owner of Eisele Resources LLC (2009 to 2012) and a self-employed landman (2007 to 2009). Mr. Eisele has been chief operating officer of Black Ridge Acquisition Corp. since May 2017.
· Industry experience - Mr. Eisele has been our chief operating officer from August 1, 2013 and has over ten years of oil and gas lease experience in the Williston Basin and greater Rocky Mountain region.
· Education experience - Mr. Eisele holds a Bachelor of Arts degree from Luther College in 2005.

________

1 When Mr. DeCubellis became CEO of Altra Inc in 2008, the company was in deep financial distress. Mr. DeCubellis implemented a comprehensive corporate wide restructuring effort that was completed in 2009. This included restructuring and eliminating all of the debt at Altra Inc, raising capital at Altra Inc and refocusing the strategy of the company on a technology license. As part of this restructuring, certain wholly-owned subsidiaries of Altra, Inc. surrendered assets to lenders or entered in receivership.

 

  33  

 

 

James Moe has been the chief financial officer of Black Ridge since March 14, 2011. Mr. Moe had previously been the chief financial officer of Northern Contours Inc., a multi-state manufacturing company located in Mendota Heights, Minnesota specializing in cabinet doors and work surfaces, since August 2005. From January 2004 to August 2005, he was the chief financial officer of Trimodal Inc., a trucking and container handling company located in Bloomington, Minnesota, which operated in seven cities in the Midwest and East Coast. From April 2000 to December 2003, Mr. Moe was the corporate controller of Simondelivers.com, a venture capital backed start-up company located in Golden Valley, Minnesota providing home delivery of groceries ordered over the internet. From October 1994 to April 2000, he was the corporate controller of Recovery Engineering Inc., a high growth publicly traded manufacturer and distributor of small-scale water filters located in Brooklyn Park, Minnesota. From November 1989 to October 1994, Mr. Moe was the controller of Standard Iron and Wire Works, a privately held multi-division metal fabricator operating three plants in Minnesota. Upon graduating from the University of Minnesota with a Bachelor of Science degree in accounting in 1985, Mr. Moe worked as a senior accountant until November 1989 for Boulay, Heutmaker, Zibell & Company.

 

Mr. Moe’s qualifications:

 

· Leadership experience – Mr. Moe has been our chief financial officer since March 14, 2011, chief financial officer of Northern Contours Inc. (2005 to 2011), and chief financial officer of Trimodal Inc. (2004 to 2005). Mr. Eisele has been chief financial officer of Black Ridge Acquisition Corp. since May 2017.
· Industry experience - Mr. Moe has been our chief financial officer since March 14, 2011 and has served as a chief financial officer for businesses in other industries. Black Ridge is the first oil and gas company for which Mr. Moe has provided management services.
· Education experience - Mr. Moe holds a Bachelor of Science degree in accounting from the University of Minnesota (1985).

 

Bradley Berman has been a director of Black Ridge since our inception and our chairman since November 12, 2010. He was our chief executive officer from November 12, 2010 to November 9, 2011, our chief financial officer between November 12, 2010 and November 15, 2010, and our corporate secretary from November 12, 2010 to February 22, 2011. Mr. Berman has been a director of Black Ridge Acquisition Corp. since May 2017. Mr. Berman is the president of King Show Games, Inc., a company he founded in 1998. Mr. Berman has worked in various capacities in casino gaming from 1992 to 2004 for Grand Casinos, Inc. and then Lakes Entertainment, Inc., achieving the position of Vice President of Gaming, after which he assumed a lesser role in that company. Mr. Berman was a director of Voyager Oil and Gas, Inc. (formerly Ante4 and WPT) from August 2004 to November 2010.

 

Mr. Lyle Berman, who is one of our directors, is Mr. Brad Berman’s father.

 

Mr. Berman’s qualifications:

 

· Leadership experience – Mr. Berman has been our chairman since November 12, 2010 and was our chief executive officer from November 12, 2010 to November 9, 2011 and he is the founder and president of King Show Games, Inc.
· Finance experience – Mr. Berman is the founder and president of King Show Games, Inc.
· Industry experience – Mr. Berman was a director of Voyager Oil & Gas, Inc. until November 2010 and has been a director of Black Ridge Acquisition Corp. since May 2017.
· Education experience - Mr. Berman attended Mankato State University in Minnesota and University of Nevada at Las Vegas in Nevada concentrating in business and computer science.

 

Benjamin S. Oehler has been a director of Black Ridge since November 16, 2010, and chairman of our audit committee and compensation committee since February 22, 2011. Mr. Oehler is a Founding Partner of Windward Mark, LLC which advises business owners with regard to strategic planning, owner governance and education, business continuity, legacy, philanthropy and liquidity. Windward Mark LLC is a continuation of Mr. Oehler’s consulting practice at Bashaw Group, Inc., which he founded in 2007, and served as president from 2007 to 2017. Bashaw Group is also affiliated with a similar company, Linea Capital, LLC. Prior to founding Bashaw Group, Mr. Oehler was from 1999 to 2007 the president and chief executive officer of Waycrosse, Inc., a financial advisory firm for the family owners of Cargill Incorporated. While at Waycrosse, Mr. Oehler was the primary advisor to the five family members who were serving on the Cargill Incorporated board of directors from 1999 to 2006. Mr. Oehler played a key role in two major growth initiatives for Cargill: the merger of Cargill’s fertilizer business into a public company which is now Mosaic, Inc., and the transformation of Cargill’s proprietary financial markets trading group into two major investment management companies: Black River Asset Management, LLC and CarVal Investors, LLC. An investment banker for 20 years, Mr. Oehler’s transaction experience includes public offerings and private placements of debt and equity securities, mergers and acquisitions, fairness opinions and valuations of private companies. Prior to joining Waycrosse, Mr. Oehler was an investment banker for Piper Jaffray. By the time he left Piper Jaffray in 1999, he was group head for Piper’s Industrial Growth Team. He has also played a leadership role in a number of corporate buy-outs and venture stage companies, served on corporate and non-profit boards of directors, and has been involved in the creation and oversight of foundations and charitable organizations, as well as U.S. trusts and off-shore entities. Mr. Oehler has been a director of Black Ridge Acquisition Corp. since May 2017.

 

 

 

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Mr. Oehler has been a board member and founder of many non-profit organizations including the Minnesota Zoological Society, Minnesota Landscape Arboretum, The Lake Country Land School, Greencastle Tropical Study Center, Park Nicollet Institute, Afton Historical Society Press, United Theological Seminary and University of Minnesota Investment Advisor, Inc. He has been a director of Waycrosse, Inc., WayTrust Inc., Dain Equity Partners, Inc., Time Management, Inc., BioNIR, Inc. and Agricultural Solutions, Inc. In September 2007, Mr. Oehler completed the Stanford University Law School Directors Forum, a three-day update on key issues facing corporate directors presented by the Stanford Business School and Stanford Law School. From 1984 through 1999, Mr. Oehler was registered with the National Association of Securities Dealers (“NASD”) as a financial principal. Mr. Oehler is a graduate of the University of Minnesota College of Liberal Arts and has completed all course work at the University of Minnesota Business School with a concentration in finance.

 

Mr. Oehler’s qualifications:

 

· Leadership experience – Mr. Oehler is the Founding Partner of Windward Mark, LLC (2017 to present) , was the president of Bashaw Group, Inc. (2007 to 2017), was the president and chief executive officer of Waycrosse, Inc. (1999 to 2007). He served as an investment banker for Piper Jaffray until 1999, achieving the position of group head of its Industrial Growth Team.
· Industry experience – Mr. Oehler has been a director of Waycrosse, Inc., WayTrust Inc., Dain Equity Partners, Inc., Time Management, Inc., BioNIR, Inc. and Agricultural Solutions, Inc.
· Education experience - Mr. Oehler is a graduate of the University of Minnesota College of Liberal Arts.

 

Joseph Lahti was appointed as a director of the Company to fill a newly-created directorship seat on August 31, 2012. Mr. Lahti is a Minneapolis native and leader in numerous Minnesota business and community organizations. As principal of JL Holdings since 1989, Mr. Lahti has provided funding and management leadership to several early-stage or distressed companies. From 1993 to 2002, he held the positions of chief operating officer, president, chief executive officer and chairman at Shuffle Master, Inc., a company that provided innovative products to the gaming industry. Mr. Lahti served as Chairman of the Board of PokerTek, Inc., a publicly traded company sold in October 2014, and he is also an independent director and Chairman of the Board of AFAM/Innealta. Within the past five years Mr. Lahti served on the board of directors of Voyager Oil & Gas, Inc., and more than five years ago Mr. Lahti served as the Chairman of the Board of directors of Shuffle Master, Inc. and served on the board of directors of Zomax, Inc. Through his public company Board experience, he has participated on, and chaired, both Audit and Compensation Committees. Mr. Lahti has been a director of Black Ridge Acquisition Corp. since May 2017.

 

Mr. Lahti’s qualifications:

 

· Leadership experience – Mr. Lahti is a principal of JL Holdings (1989 to present). Mr. Lahti serves as Chairman of AFAM Capital. He recently served as Chairman of the Board of PokerTek, Inc., a publicly traded company. He served as chief executive officer and chairman of Shuffle Master, Inc., a publicly traded company (1997-2002).
· Industry experience – Mr. Lahti has participated as an independent director in several public companies in a variety of other industries, including serving as an independent director of Voyager Oil & Gas, Inc. and serving as the compensation committee chair for Voyager Oil & Gas, Inc. and Poker Tek, Inc. and compensation committee member of Zomax Inc. and several private companies.
· Education experience – Mr. Lahti holds Bachelor of Arts degree in economics from Harvard University.

 

Lyle Berman was appointed as a director of the Company to fill a newly-created directorship seat on October 26, 2016 and was appointed to our audit committee on December 12, 2016. Mr. Berman began his career with Berman Buckskin, his family's leather business. He helped grow the business into a major specialty retailer with 27 outlets. After selling Berman Buckskin to WJL Grace in 1979, Mr. Berman continued as President and Chief Executive Officer and led the company to become one the county's largest retail leather chains, with over 200 stores nationwide. In 1990, Mr. Berman participated in the founding of Grand Casinos, Inc. Mr. Berman is credited as one of the early visionaries in the development of casinos outside of the traditional gaming markets of Las Vegas and Atlantic City. In less than five years, the company opened eight casino resorts in four states. In 1994, Mr. Berman financed the initial development of Rainforest Cafe. He served as the Chairman and CEO from 1994 unti1 2000. In October 1995, Mr. Berman was honored with the B'nai B'rith "Great American Traditions Award." In April 1996, he received the Gaming Executive of the Year Award; in 2004, Mr. Berman was inducted into the Poker Hall of Fame; and in 2009, he received the Casino Lifetime Achievement Award from Raving Consulting & Casino Journal. In 1998, Lakes Entertainment, Inc. was formed.

 

In 2002, as Chairman of the Board and CEO of Lakes Entertainment, Inc., Mr. Berman was instrumental in creating the World Poker Tour. Mr. Berman served as the Executive Chairman of the Board of WPT Enterprises, Inc. (later known as Voyager Oil & Gas, Inc. and Emerald Oil, Inc.) from its inception in February 2002 until July 2013. Mr. Berman also served as a director of PokerTek, Inc. from January 2005 until October 2014, including serving as Chairman of the Board from January 2005 until October 2011. Mr. Berman has been a director of Black Ridge Acquisition Corp. since May 2017.

 

 

 

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Mr. Bradley Berman, who is the chairman of our Board of Directors, is Mr. Lyle Berman’s son.

 

Mr. Berman’s qualifications:

 

· Leadership experience – Mr. Berman served as Chairman of the Board and CEO of Lakes Entertainment, Inc. (1999-2015). He served as the Chairman of the Board of Directors of Grand Casinos, Inc. (the predecessor to Lakes) (1991-1998). He served as the Executive Chairman of the Board of WPT Enterprises, Inc. (later known as Voyager Oil & Gas, Inc. and Emerald Oil, Inc.) (2002-2013). He served as Chairman of the Board of PokerTek, Inc. (2005-2011). He served as Chairman of the Board and Chief Executive Officer of Rainforest Café, Inc. (1994-2000). Mr. Berman currently serves on the Board of Directors of Golden Entertainment, Inc., Redstone American Grill, Inc., Black Ridge Acquisition Corp., Augeo Affinity Marketing, Inc., Poker52, LLC, LubeZone, Inc., and Mill City Ventures, Ltd.
· Industry experience – He served as the Executive Chairman of the Board of Voyager Oil & Gas, Inc. (later known as Emerald Oil, Inc.) (2010-2013).
· Education experience – Mr. Berman holds a degree in Business Administration from the University of Minnesota.

 

No director is required to make any specific amount or percentage of his business time available to us. Each of our officers intends to devote such amount of his or her time to our affairs as is required or deemed appropriate.

 

CORPORATE GOVERNANCE

 

Director Selection Process

 

The Company does not have a standing nominating committee, but rather the Board of Directors as a whole considers director nominees. The Board of Directors has determined this is appropriate given the size of the Board of Directors and the Company’s current size. The Board will consider candidates suggested by its members, other directors, senior management and stockholders in anticipation of upcoming elections and actual or expected board vacancies. The Board of Directors has not adopted a formal diversity policy or established specific minimum criteria or qualifications because from time to time the needs of the Board and the Company may change. All candidates, including those recommended by stockholders, are evaluated on the same basis in light of the entirety of their credentials and the needs of the Board of Directors and the Company. Of particular importance is the candidate’s wisdom, integrity, ability to make independent analytical inquiries, understanding of the business environment in which the Company operates, as well as his or her potential contribution to the diversity of the Board of Directors and his or her willingness to devote adequate time to fulfill his or her duties as a director. The Board of Directors will consider director candidates recommended by the Company’s stockholders. Stockholders may recommend director candidates by contacting the Chairman of the Board as provided under the heading “Communications with the Board of Directors.” The Company did not employ a search firm or pay fees to other third parties in connection with seeking or evaluating board nominee candidates.

 

Board and Committee Meetings

 

During the year ended December 31, 2017, the Board of Directors held four meetings, the Audit Committee held four meetings, and the Compensation Committee held no meetings. Each of our elected Directors attended at least 75% of all meetings of the Board of Directors and the committees on which he served during the year.

 

Annual Meeting Attendance

 

The Company did not hold an annual meeting of stockholders in 2017. If the Company holds an annual meeting of stockholders in the future, the Board of Directors will encourage Directors to attend such annual meeting.

 

Board Leadership Structure

 

Our Board of Directors has no formal policy with respect to separation of the positions of Chairman and Chief Executive Officer or with respect to whether the Chairman should be a member of management or an independent director, and believes that these are matters that should be discussed and determined by the Board from time to time based on the position and direction of the Company and the membership of the Board. The Board has determined that having Bradley Berman serve as Chairman is in the best interest of the Company’s stockholders at this time due to his extensive knowledge of the Company. Further, the separation of the Chairman and Chief Executive Officer positions allows the Chief Executive Officer to focus on the management of the Company’s day-to-day operations.

 

 

 

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Risk Management

 

Our Board of Directors believes that risk management is an important component of the Company’s corporate strategy. The Board, as a whole, oversees our risk management process, and discusses and reviews with management major policies with respect to risk assessment and risk management. The Board is regularly informed through its interactions with management and committee reports about risks we currently face, as well as the most likely areas of future risk, in the course of our business including economic, financial, operational, legal and regulatory risks.

 

Communications with the Board of Directors

 

Stockholders and other interested persons seeking to communicate directly with the Board of Directors, the independent directors as a group or any of the Audit or Compensation Committees of the Board of Directors, should submit their written comments c/o Corporate Secretary at our principal executive offices at 110 North Fifth Street, Suite 410, Minneapolis MN 55403 and should indicate in the address whether the communication is intended for the Chairman of the Board, the Independent Directors or a Committee Chair. The Chairman of the Board will review any such communication at the next regularly scheduled Board of Directors meeting unless, in his or her judgment, earlier communication to the Board of Directors is warranted.

 

At the direction of the Board of Directors, we reserve the right to screen all materials sent to its directors for potential security risks, harassment purposes or routine solicitations.

 

Code of Ethics

 

Our Board of Directors has adopted a Code of Ethics which applies to our directors, Chief Executive Officer, Chief Financial Officer and other Company employees who perform similar functions.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who own more than 10% of a registered class of the Company’s securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Directors, executive officers and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. To our knowledge, based solely on the review of the copies of these forms furnished to us and representations that no other reports were required, the Company believes that all forms required to be filed under Section 16 of the Exchange Act for the year ended December 31, 2017 were filed timely.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Compensation Overview

 

We currently qualify as a “smaller reporting company” as such term is defined in Rule 405 of the Securities Act and Item 10 of Regulation S-K. Accordingly, and in accordance with relevant SEC rules and guidance, we have elected, with respect to the disclosures required by Item 402 (Executive Compensation) of Regulation S-K, to comply with the disclosure requirements applicable to smaller reporting companies. The following Compensation Overview is not comparable to the “Compensation Discussion and Analysis” that is required of SEC reporting companies that are not smaller reporting companies.

 

The following Compensation Overview describes the material elements of compensation for our executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our board’s compensation committee reviews and recommends policies, practices, and procedures relating to the total direct compensation of our executive officers, including the Named Executive Officers, and the establishment and administration of certain of our employee benefit plans to our board of directors.

 

 

 

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Compensation Program Objectives and Rewards

 

Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following this philosophy, we consider all relevant factors in determining executive compensation, including the competition for talent, our desire to link pay with performance, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork, and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with compensation packages consisting of a combination of competitive base salary and incentive compensation.

 

The compensation received by our Named Executive Officers is based primarily on the levels at which we can afford to retain them and their responsibilities and individual contributions. Our compensation policy also reflects our strategy of minimizing general and administration expenses and utilizing independent professional consultants. Our compensation committee and board of directors apply the compensation philosophy and policies described below to determine the compensation of Named Executive Officers.

 

The primary purpose of the compensation and benefits we consider is to attract, retain, and motivate highly talented individuals who will engage in the behavior necessary to enable us to succeed in our mission, while upholding our values in a highly competitive marketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of our compensation committee who will make recommendations regarding compensation to our board of directors. The following is a brief description of the key elements of our planned executive compensation structure.

 

· Base salary and benefits are designed to attract and retain employees over time.
· Incentive compensation awards are designed to focus employees on the business objectives for a particular year.
· Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements.
· Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete for talented employees in a marketplace where such protections are commonly offered.

 

Benchmarking

 

We have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our compensation committee and board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation. Each executive officer’s compensation relative to the benchmark varies based on the scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.

 

The Elements of The Company’s Compensation Program

 

Base Salary

 

Executive officer base salaries are based on job responsibilities and individual contribution. Our compensation committee and board of directors review the base salaries of our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise. Other than the Change of Control Agreements described below, none of our Named Executive Officers have employment agreements with us. Additional factors reviewed by our compensation committee and board of directors in determining appropriate base salary levels and raises include subjective factors related to corporate and individual performance. For the year ended December 31, 2016, all executive officer base salary decisions were approved by the board of directors.

 

 

 

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Our compensation committee determines and then recommends to the whole board base salaries for the Named Executive Officers at the beginning of each fiscal year. The compensation committee proposes new base salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. The board of directors then approves base salary amounts for the fiscal year. In 2014, we did not have a 401(k) Plan. We put our 401K Plan in place for 2015, but suspended matching contributions for 2016 and 2017, except those mandated by IRS rules. Compensation paid in cash is the only element of compensation that will be used in determining the amount of contributions permitted under the 401(k) Plan.

 

Incentive Compensation Awards

 

Our compensation committee has not yet recommended a formal compensation policy for the determination of bonuses, however, on December 12, 2016, our board of directors granted to our Named Executive Officers bonuses consisting of a total of 2,154,000 non-qualified common stock options to purchase common stock at $0.04 per share, exercisable over 10 years, vesting in three equal annual installments beginning one year from the date of grant. No bonuses were granted in 2017.

 

If our revenue grows, industry conditions improve, and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of the Company: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The board has not adopted specific performance goals and target bonus amounts, but may do so in the future.

 

Equity Incentive Awards

 

Effective June 10, 2010, as amended on February 22, 2011 and March 2, 2012, our board of directors adopted the Amended and Restated 2012 Stock Incentive Plan (the 2012 Plan) under which a total of 7,500,000 shares of our common stock have been reserved for issuance as restricted stock or pursuant to the grant and exercise of stock options. The 2012 Plan has been approved by the holders of a majority of our outstanding shares.

 

Additionally, effective December 12, 2016, our board of directors adopted the 2016 Non-Qualified Stock Option Plan (the 2016 Plan) under which a total of 3,813,500 shares of our common stock have been reserved for issuance pursuant to the grant and exercise of non-qualified stock options.

 

We believe equity incentive awards motivate our employees to work to improve our business and stock price performance, thereby further linking the interests of our senior management and our stockholders. The board considers several factors in determining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or her performance and responsibilities, and the amount of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy prohibits backdating options or granting them retroactively.

 

Benefits and Prerequisites

 

At this stage of our business we have benefits that are generally comparable to those offered by other small private and public companies and no prerequisites for our employees. Other than a 401(k) Plan that we put in place at the beginning of 2015, we do not have any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits for our executive officers in the future.

 

Separation and Change in Control Arrangements

 

We do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of the Company. However, as of the date of this filing, we have entered into Change of Control Agreements (the “CIC Agreements”) with executives, Ken DeCubellis, James Moe, and Michael Eisele. The CIC Agreements provide that, in the event that (i) the executive is terminated, other than for cause, disability, or death, or (ii) there is a “Change in Circumstances”, in either case within 12 months of a “Change in Control,” then the executive is entitled to receive his annual salary in regular distributions over the course of the next 12 months, to take part in the Company’s health and dental group policies, and to receive the same employer contributions for health and dental coverage that the Company provides to its other executive employees as of the executive’s last day of employment with the Company.

 

 

 

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For purposes of the CIC Agreements, a “Change in Control” is broadly defined to include the acquisition by any person, entity, or group of at least 33% of the Company’s outstanding voting securities entitled to vote for the election of directors (excluding equity offerings), a turnover of at least a majority of the board seats from the date of the Change in Control Agreement (subject to exceptions for new board members who are approved by a majority of incumbent directors), and approval by our stockholders of a major corporate transaction such as a sale of substantially all of the Company’s assets, liquidation or dissolution of the Company, or a merger or consolidation in which our stockholders hold 50% or less of the equity in the surviving entity.

 

A “Change in Circumstances” is defined by the Change in Control Agreements to include demotions or substantial changes in material duties, salary reductions that are not applied equally to other similarly situated executives, required relocation to a destination more than 50 miles away, a substantial reduction in benefits and perquisites, or any other material change in the terms and conditions of the applicable executive’s employment. In order for a Change in Circumstances to give rise to the Company’s obligation to provide severance and the benefits described above to an executive, the executive must object to the Change in Circumstances within 30 days of its occurrence.

 

Executive Officer Compensation

 

The following table sets forth the total compensation paid in all forms to our named executive officers of the Company during the periods indicated:

 

Summary Compensation Table                                                            
                                  Non-Equity       Non-Qualified                  
                                  Incentive       Deferred                  
Name and                         Option       Plan       Compensation       All Other          
Principal Position   Year     Salary       Bonus       Awards (1)       Compensation       Earnings       Compensation       Total  
                                                             

Kenneth T. DeCubellis,

Chief Executive Officer

  2017   $ 275,000     $     $     $     $     $     $ 275,000  
    2016   $ 276,058     $     $ 47,925     $     $     $     $ 323,983  
                                                             

Michael Eisele,

Chief Operating Officer

  2017   $ 187,000     $     $     $     $     $     $ 187,000  
    2016   $ 187,719     $     $ 19,903     $     $     $     $ 207,622  
                                                             

James Moe,

Chief Financial Officer

  2017   $ 192,500     $     $     $     $     $     $ 192,500  
    2016   $ 193,240     $     $ 17,912     $     $     $     $ 211,152  

(1) See Note 16 of our audited financial statements included herein for additional information on assumptions made in the valuation of option awards.

 

Employment Agreements

 

Other than the Change in Control Agreements described above, we have not entered into any employment agreements with our executive officers to date. We may enter into employment agreements with them in the future.

 

 

 

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Outstanding Equity Awards

 

The following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awards held by our executive officers at December 31, 2017.

 

Outstanding Option Awards at Fiscal Year-End

Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price Option Expiration Date
         
Kenneth T. DeCubellis, Chief Executive Officer 401,333 802,667 (1) $0.040 December 11, 2026
  80,000 120,000 (2) $0.172 September 29, 2025
  34,800 23,200 (3) $0.280 December 21, 2024
  600,000 150,000 (4) $0.650 December 11, 2023
  320,000 80,000 (5) $0.560 January 23, 2023
  1,000,000 -0- (6) $0.270 September 24, 2022
         
Michael Eisele, Chief Operating Officer 166,667 333,333 (1) $0.040 December 11, 2026
  80,000 120,000 (2) $0.172 September 29, 2025
  24,000 16,000 (3) $0.280 December 21, 2024
  200,000 50,000 (4) $0.650 December 11, 2023
  132,000 33,000 (7) $0.640 July 31, 2023
  132,000 33,000 (5) $0.560 January 23, 2023
  150,000 -0- (8) $0.280 August 9, 2022
         
James Moe, Chief Financial Officer 150,000 300,000 (1) $0.040 December 11, 2026
  60,000 90,000 (2) $0.172 September 29, 2025
  24,000 16,000 (3) $0.280 December 21, 2024
  160,000 40,000 (4) $0.650 December 11, 2023
  92,000 23,000 (5) $0.560 January 23, 2023
  500,000 -0- (6) $0.270 September 24, 2022
  200,000 -0- (9) $1.000 November 1, 2021

(1) Options granted on December 12, 2016, vest in three equal annual installments, commencing one year from the date of grant, and continuing on the next two anniversaries thereof until fully vested.

(2) Options granted on September 30, 2015, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(3) Options granted on December 22, 2014, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(4) Options granted on December 12, 2013, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(5) Options granted on January 24, 2013, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(6) Options granted on September 25, 2012, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(7) Options granted on August 1, 2013, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(8) Options granted on August 10, 2012, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

(9) Options granted on November 2, 2011, vest in five equal annual installments, commencing one year from the date of grant, and continuing on the next four anniversaries thereof until fully vested.

 

 

 

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Option Exercises and Stock Vested

 

None of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the year ended December 31, 2017.

 

Director Compensation

 

No compensation was paid or accrued by us to our directors for the year ended December 31, 2017.

 

Our compensation committee has not yet recommended policy for board compensation, however option awards have been granted to independent directors upon joining the board. The Company has not paid cash fees to directors and has no formal compensation arrangements with its directors. While there is no set policy regarding board compensation, this may be subject to change by the directors.

 

 

 

 

 

 

 

 

 

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 31, 2018, based on information obtained from the persons named below or as filed with the SEC, with respect to the beneficial ownership of shares of our common stock by: (i) each person who is known by us to own beneficially more than 5% of our common stock; (ii) each director; (iii) each named executive officer; and (iv) all of our directors and executive officers as a group. On March 31, 2018, we had 479,799,900 shares of common stock outstanding.

 

As used in the table below and elsewhere in this form, the term “beneficial ownership” with respect to a security consists of sole or shared voting power, including the power to vote or direct the vote and/or sole or shared investment power, including the power to dispose or direct the disposition, with respect to the security through any contract, arrangement, understanding, relationship, or otherwise, including a right to acquire such power(s) during the next 60 days following March 31, 2018. Inclusion of shares in the table does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, (i) each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of capital stock listed as owned by that person or entity, and (ii) the address of each person or entity named in the table is c/o Black Ridge Oil & Gas, Inc., 110 Fifth Street North, Suite 410, Minneapolis, Minnesota 55403.

 

Name, Title and Address of Beneficial Owner Number of Shares Beneficially Owned (1) Percentage of Ownership
Bradley Berman, Chairman of Board and Director (2) 59,026,893 12.3%
Ken DeCubellis, Chief Executive Officer (3) 46,756,416 9.7%
Michael Eisele, Chief Operating Officer (4) 917,667 *
James Moe, Chief Financial Officer and Corporate Secretary (5) 1,209,000 *
Joseph Lahti, Director (6) 7,191,469 1.5%
Benjamin Oehler, Director (7) 8,595,293 1.8%
Lyle Berman, Director (8) 65,442,663 13.6%
All Directors and Executive Officers as a Group (7 persons) 189,139,401 39.4%

Neil Sell (9)

3300 Wells Fargo Center

90 South 7 th Street

Minneapolis, MN 55402

46,788,643 9.8%

Sheldon Fleck (10)

1400 International Centre

900 Second Ave. South

Minneapolis, MN 55402

46,385,143 9.7%

Gary Raimist (11)

10932 Snow Cloud Court

Las Vegas, NV 89135

37,173,130 7.7%

Perkins Capital Management, Inc. (12)

730 Lake Street E.

Wayzata, MN 55391

30,094,032 6.3%

Ernest W. Moody Revocable Trust

175 East Reno Avenue, Suite C6

Las Vegas, NV 89119

25,000,000 5.0%

Morris and Arlene Goldfarb (13)

21 Fairway Drive

Mamaroneck, NY 10543

24,045,878 5.0%

*Indicates beneficial ownership of less than 1%.

 

 

 

  43  

 

 

(1) Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned. The total number of issued and outstanding shares and the total number of shares owned by each person does not include unexercised warrants and stock options owned by parties other than for whom the calculation is presented, and is calculated as of March 15, 2018.

(2) Includes 340,000 shares which may be purchased pursuant to stock options exercisable within 60 days of March 15, 2018, 7,122,290 shares held by certain trusts for the children of Mr. Bradley Berman, and 1,858,980 shares owned by Mr. Bradley Berman’s spouse.

(3) Includes 2,575,196 shares which may be purchased pursuant to stock options and warrants exercisable within 60 days of March 15, 2018, 10,550,383 shares owned by Mr. Ken DeCubellis’ spouse and 19,687 shares which may be purchased pursuant to stock warrants exercisable within 60 days of March 15, 2018.

(4) Includes 887,667 shares which may be purchased pursuant to stock options exercisable within 60 days of March 15, 2018.

(5) Includes 1,209,000 shares which may be purchased pursuant to stock options exercisable within 60 days of March 15, 2018.

(6) Includes 491,250 shares which may be purchased pursuant to stock options and warrants exercisable within 60 days of March 15, 2018 and 200,000 shares held by Mr. Lahti’s spouse.

(7) Includes 580,000 shares which may be purchased pursuant to stock options exercisable within 60 days of March 15, 2018 and 8,000,293 shares and 15,000 shares which may be purchased pursuant to warrants held by Mr. Oehler’s spouse.

(8) Includes 215,709 shares which may be purchased pursuant to stock options and warrants exercisable within 60 days of March 15, 2018. Does not include 37,173,130 shares held by trusts for the children of Mr. Lyle Berman, for which Mr. Neil Sell and Mr. Gary Raimist are co-trustees.

(9) Includes 15,000 shares which may be purchased pursuant to stock warrants exercisable within 60 days of March 15, 2018 and includes an aggregate of 37,173,130 shares owned by certain trusts for the benefit of Mr. Lyle Berman’s children, for which Mr. Sell is a co-trustee with Mr. Raimist. Does not include 180,000 shares held by Mr. Sell’s spouse, for which Mr. Sell disclaims beneficial ownership.

(10) Includes 75,000 shares which may be purchased pursuant to stock warrants exercisable within 60 days of March 15, 2018 and 2,000,000 shares of common stock owned by Mr. Fleck’s spouse.

(11) Includes 37,173,130 shares owned by certain trusts for the benefit of Mr. Lyle Berman’s children, for which Mr. Raimist is a co-trustee with Mr. Sell.

(12) Perkins Capital Management, Inc. is an investment advisor with sole power dispose or to direct the disposition of the shares including 45,000 shares which may be purchased pursuant to stock warrants exercisable within 60 days of March 15, 2018.

(13) Includes 45,000 shares which may be purchased pursuant to stock warrants exercisable within 60 days of March 15, 2018.

 

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

Office Lease

 

Until June 30, 2016 we leased office space on a month to month basis where the lessor is an entity owned by our former CEO and current Chairman of the Board of Directors, Bradley Berman. Pursuant to the lease, we occupied approximately 2,813 square feet of office space. We terminated the lease concurrent with our move to another location on June 30, 2016. We paid a total of $36,183 to this entity during the year ended December 31, 2016.

 

Officers and directors of the Company purchased 173,843,308 shares between the Rights Offering and as participants in the Backstop Agreement for $2,086,120 and received 179,376 warrants to purchase shares of common stock at $0.01 per share for their participation in the Backstop Agreement.

 

Review and Approval of Transactions with Related Persons

 

The Audit Committee has adopted a related party transaction policy whereby any proposed transaction between the Company and any officer or director, any stockholder owning in excess of 5% of the Company’s stock, immediate family member of an officer or director, or an entity that is substantially owned or controlled by one of these individuals, must be approved by a majority of the disinterested members of the Audit Committee. The only exceptions to this policy are for transactions that are available to all employees of the Company generally or involve less than $25,000. If the proposed transaction involves executive or director compensation, it must be approved by the Compensation Committee. Similarly, if a significant opportunity is presented to any of the Company’s officers or directors, such officer or director must first present the opportunity to the Board for consideration.

 

At each meeting of the Audit Committee, the Audit Committee meets with the Company's management to discuss any proposed related party transactions. A majority of disinterested members of the Audit Committee must approve a transaction for the Company to enter into it. If approved, management will update the Audit Committee with any material changes to the approved transaction at its regularly scheduled meetings.

 

Director Independence

 

Our Common Stock is currently quoted on the OTC Bulletin Board. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent. We are not currently subject to corporate governance standards defining the independence of our directors, and we have chosen to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors. Our Board of Directors has determined that each of our directors is “independent” in accordance with the NASDAQ Global Market’s requirements. Thus, a majority of the current Board of Directors is independent.

 

Our Board of Directors will review at least annually the independence of each director. During these reviews, our Board of Directors will consider transactions and relationships between each director (and his or her immediate family and affiliates) and us and our management to determine whether any such transactions or relationships are inconsistent with a determination that the director was independent. The Board of Directors will conduct its annual review of director independence and to determine if any transactions or relationships exist that would disqualify any of the individuals who then served as a director under the rules of the NASDAQ Stock Market, or require disclosure under SEC rules.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

M&K CPAS, PLLC (“M&K”) was the Company’s independent registered public accounting firm for the years ended December 31, 2017 and 2016 and has served the Company as its independent registered public accounting firm since our inception.

 

Audit and Non-Audit Fees

 

The following table presents fees for professional services rendered by M&K for the audit of the Company’s annual financial statements for the years ended December 31, 2017 and 2016.

 

    Years Ended December 31,  
    2017     2016  
Audit fees (1)   $ 28,750     $ 70,350  
Audit related fees            
Tax fees            
All other fees     4,700       8,300  
Total   $ 33,450     $ 78,650  

_________________________________

(1) Audit fees were principally for audit services and work performed in the preparation and review of the Company’s quarterly reports on Form 10-Q.

 

 

 

  45  

 

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm

 

The Audit Committee is responsible for appointing, setting compensation for, and overseeing the work of the Company’s independent registered public accounting firm. The Audit Committee has established a policy regarding pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm, and all such services were approved by the Audit Committee in the years ended December 31, 2017 and 2016.

 

The Audit Committee assesses requests for services by the independent registered public accounting firm using several factors. The Audit Committee will consider whether such services are consistent with the Public Company Accounting Oversight Board’s and SEC’s rules on auditor independence. In addition, the Audit Committee will determine whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service based upon the members’ familiarity with the Company’s business, people, culture, accounting systems, risk profile and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality.

 

Report of the Audit Committee

 

The primary purpose of the Audit Committee is to assist the Board of Directors in its general oversight of the Company’s financial reporting process. The Audit Committee’s function is more fully described in its charter, which can be found on the Company’s website at www.blackridgeoil.com. The Committee reviews the charter on an annual basis. The Board of Directors has determined that each member of the Committee is independent in accordance with the NASDAQ Global Market’s requirements for independent directors. The Board of Directors has also determined that Benjamin Oehler qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. Management has the primary responsibility for the financial statements and reporting process. The independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion on the fairness of the audited financial statements based on the audit conducted in accordance with the standards of the Public Company Accounting Oversight Board.

 

In connection with the Audit Committee’s responsibilities set forth in its charter, the Audit Committee has:

 

  Reviewed and discussed the audited financial statements for the year ended December 31, 2017 with management and M&K CPAS, PLLC, the Company’s independent auditors;

 

  Discussed with M&K CPAS, PLLC the matters required to be discussed by Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 16 (Communication with Audit Committee); and

 

  Received the written disclosures and the letter from M&K CPAS, PLLC required by the applicable requirements of the PCAOB regarding M&K CPAS, PLLC’s communications with the audit committee concerning independence, and has discussed with M&K CPAS, PLLC its independence.

 

The Audit Committee also considered, as it determined appropriate, tax matters and other areas of financial reporting and the audit process over which the Audit Committee has oversight.

 

Based on the Audit Committee’s review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for filing with the SEC.

 

THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
 
Benjamin Oehler, Chairman
Joseph Lahti
Lyle Berman

 

 

 

 

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibits

 

Exhibit No Description
2.1 Distribution Agreement by and between Ante4, Inc. (now Voyager Oil & Gas, Inc.) and Ante5, Inc. (now Black Ridge Oil & Gas, Inc.), dated April 16, 2010 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commissioner by Voyager Oil & Gas, Inc. on April 19, 2010)
   
2.2 Certificate of Ownership and Merger (incorporated by reference to Exhibit 3.3 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on April 3, 2012)
   
2.3 Plan and Agreement of Merger by and between Black Ridge Oil & Gas, Inc. and Black Ridge Oil & Gas, Inc., dated December 10, 2012 (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012)
   
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012)
   
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012)
   
4.1 Black Ridge Oil & Gas, Inc. 2012 Amended and Restated Stock Incentive Plan (incorporated by reference from Schedule 14C filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on April 6, 2012)
   
4.2 Black Ridge Oil & Gas Amendment of 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on September 27, 2012)
   
4.3 Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on September 27, 2012)
   
4.4 2016 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 99.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 14, 2016)
   
4.5 Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 99.2 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 14, 2016)
   
9.1 Form of Voting Agreement used in connection with our private placement which closed on December 16, 2010 (incorporated by reference to Exhibit 9.1 of the Form S-1 filed with the Securities and Exchange Commission by Ante5, Inc. on August 22, 2011)
   
10.1 Subscription Agreement dated April 13, 2010, by and between Ante4, Inc. and Ante5, Inc. (incorporated by reference to Exhibit 10.1 of the Form 10-12G Registration Statement filed by the Company with the Securities and Exchange Commission on April 23, 2010)
   
10.2 Agreement and Plan of Merger by and between Ante4, Inc. (now Voyager Oil & Gas, Inc.), Plains Energy Acquisition Corp. and Plains Energy Investments, Inc. (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commissioner by Voyager Oil & Gas, Inc. on April  9, 2010)
   
10.3 Asset Purchase Agreement dated August 24, 2009 by and among Peerless Media, Ltd. and WPT Enterprises, Inc. (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commission by Voyager Oil & Gas, Inc. on August 24, 2009)
   
10.4 Guaranty Agreement dated August 24, 2009 made by ElectraWorks Ltd. In favor of WPT Enterprises, Inc. (incorporated by reference to Exhibit 2.2 of the Form 8-K filed with the Securities and Exchange Commission by Voyager Oil & Gas, Inc. on August 24, 2009)
   
10.5 Form of Indemnification Agreement with Officers and Directors (incorporated by reference to Exhibit 10.16 of the Form 10-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on March 24, 2013)
     

 

 

 

 

  47  
 

 

10.6 Change of Control Agreement , dated April 5, 2013, by and between Black Ridge Oil & Gas, Inc. and Ken DeCubellis (incorporated by reference to Exhibit 10.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on April 5, 2013)
     
10.7 Change of Control Agreement , dated April 5, 2013, by and between Black Ridge Oil & Gas, Inc. and James Moe (incorporated by reference to Exhibit 10.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on April 5, 2013)
     
10.8 Change of Control Agreemen t, dated August 1, 2013, by and between Black Ridge Oil & Gas, Inc. and Michael Eisele (incorporated by reference to Exhibit 10.3 of the Report on Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on August 1, 2013)
     
10.9 Ω Limited Liability Company Agreement of Merced Black Ridge , LLC dated July 21, 2015 (incorporated by reference to Exhibit 10.1 of the Report on Form 10-Q filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on November 12, 2015)
     
10.10 Ω Management Services Agreement dated July 21, 2015 by and between Black Ridge Oil & Gas, Inc. and Merced Black Ridge, LLC (incorporated by reference to Exhibit 10.2 of the Report on Form 10-Q filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on November 12, 2015)
     
10.11 Limited Liability Company Agreement of Black Ridge Holding Company, LLC dated June 21, 2016 (incorporated by reference to Exhibit 10.3 of the Report on Form 10-Q filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on August 15, 2016)
     
10.12 Management Services Agreement dated June 21, 2016 by and between Black Ridge Oil & Gas, Inc. and Black Ridge Holding Company, LLC (incorporated by reference to Exhibit 10.4 of the Report on Form 10-Q filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on August 15, 2016)
     
10.13 Standby Purchase Agreement, dated as of May 23, 2017, by and among Black Ridge Oil and Gas, Inc. and the Investors named therein (incorporated by reference to Exhibit 10.10 of the Report on Form S-1 filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on May 23, 2017)
     
10.14 Amendment to Standby Purchase Agreement, dated as of September 22, 2017 by and among Black Ridge Oil & Gas, Inc. and the Investors named therein (incorporated by reference to Exhibit 10.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on September 26, 2017)
     
10.15 Assignment Agreement, dated October 2, 2017, by and among Black Ridge Oil & Gas, Inc., Chambers Energy Capital II, LP and CEC II TE, LLC (Incorporated by reference to Exhibit 10.12 on Form S-1 filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2017)
     
10.16 Black Ridge Oil & Gas, Inc. 2018 Management Incentive Plan (incorporated by reference to Exhibit 10.1 of the Report on Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on March 6, 2018)
     
10.17 Form of 2018 Incentive Plan Award Agreement (incorporated by reference to Exhibit 10.2 of the Report on Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on March 6, 2018)
     
10.18* Registration Rights Agreement, dated October 4, 2017, by and among Black Ridge Acquisition Corp. and Black Ridge Oil & Gas, Inc.
     
10.19* Administrative Services Agreement, dated October 4, 2017, by and among Black Ridge Acquisition Corp. and Black Ridge Oil & Gas, Inc.
   
10.20* Warrant Agreement, dated October 4, 2017, between Black Ridge Acquisition Corp. and Continental Stock Transfer & Trust Company.
   
10.21* Rights Agreement, dated October 4, 2017, between Black Ridge Acquisition Corp. and Continental Stock Transfer & Trust Company.
   
10.22* Form of Unit Purchase Option between Black Ridge Acquisition Corp. and EarlyBirdCapital, Inc.
   
10.23* Form of Letter Agreement from each of Black Ridge Acquisition Corp.’s sponsor, officers and directors.
   
10.24* Investment Management Trust Account Agreement dated October 4, 2017, between Black Ridge Acquisition Corp. and Continental Stock Transfer & Trust Company.
   

 

 

 

 

 

  48  
 

 

10.25* Stock Escrow Agreement, dated October 4, 2017, by and among Black Ridge Acquisition Corp., Continental Stock Transfer & Trust Company and Black Ridge Oil & Gas, Inc.
   
10.26* Form of Promissory Note issued by Black Ridge Acquisition Corp. to Black Ridge Oil & Gas, Inc.
     
24.1* Power of Attorney (including on signature pages)
     
31.1* Section 302 Certification of Principal Executive Officer
     
31.2* Section 302 Certification of Principal Accounting Officer
     
32.1* Section 906 Certification of Principal Executive Officer
     
32.2* Section 906 Certification of Principal Accounting Officer
     
101* Interactive Data Files
     
     

* Filed herewith.

Ω Filed subject to confidential treatment request.

 

 

 

  49  

 

 

SIGNATURES

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: April 12, 2018 BLACK RIDGE OIL & GAS, INC.
   
   
  By:   / s/ Kenneth DeCubellis
  Kenneth DeCubellis, Chief Executive Officer (Principal Executive Officer)

 

 

POWER OF ATTORNEY

 

Each of the undersigned members of the Board of Directors of BLACK RIDGE OIL & GAS, Inc., whose signature appears below hereby constitutes and appoints each of James Moe or Kenneth DeCubellis, such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such name, place and stead, in any and all capacities, to sign the Form 10-K for the year ended December 31, 2017 (the “Annual Report”) of Black Ridge Oil & Gas, Inc. and any or all amendments to such Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, as amended, and Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities indicated on the dates indicated.

 

By:  /s/ Kenneth DeCubellis Dated: April 12, 2018
Kenneth DeCubellis, Chief Executive Officer  
(Principal Executive Officer)  
   
   
By:    /s/ James Moe Dated: April 12, 2018
James Moe, Chief Financial Officer  
(Principal Accounting Officer)  
   
   
By:    /s/ Bradley Berman Dated: April 12, 2018
Bradley Berman, Director  
   
   
By:    /s/ Lyle Berman Dated: April 12, 2018
Lyle Berman, Director  
   
   
By:    /s/ Joseph Lahti Dated: April 12, 2018
Joseph Lahti, Director  
   
   
By:    /s/ Benjamin Oehler Dated: April 12, 2018
Benjamin Oehler, Director  

 

 

 

 

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Exhibit 10.18

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is entered into as of the 4 th day of October, 2017, by and among Black Ridge Acquisition Corp., a Delaware corporation (the “ Company ”), and the undersigned parties listed under Investors on the signature page hereto (each, an “ Investor ” and collectively, the “ Investors ”).

 

WHEREAS, the Investors and the Company desire to enter into this Agreement to provide the Investors with certain rights relating to the registration of the securities held by them as of the date hereof;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.           DEFINITIONS . The following capitalized terms used herein have the following meanings:

 

Agreement ” means this Agreement, as amended, restated, supplemented, or otherwise modified from time to time.

 

Business Combination ” means the acquisition of direct or indirect ownership through a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar type of transaction, of one or more businesses or entities having a collective fair market value of at least 80% of the balance in the Company’s trust account at the time of the execution of a definitive agreement for such transaction.

 

Commission ” means the Securities and Exchange Commission, or any other federal agency then administering the Securities Act or the Exchange Act.

 

Common Stock ” means the common stock, par value $0.0001 per share, of the Company.

 

Company ” is defined in the preamble to this Agreement.

 

Demand Registration ” is defined in Section 2.1.1.

 

Demanding Holder ” is defined in Section 2.1.1.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

 

Form S-3 ” is defined in Section 2.3.

 

Indemnified Party ” is defined in Section 4.3.

 

Indemnifying Party ” is defined in Section 4.3.

 

 

 

 

Investor ” is defined in the preamble to this Agreement.

 

Investor Indemnified Party ” is defined in Section 4.1.

 

Maximum Number of Shares ” is defined in Section 2.1.4.

 

Notices ” is defined in Section 6.3.

 

Piggy-Back Registration ” is defined in Section 2.2.1.

 

Private Units ” means the up to 445,000 Units the Investors may be purchasing privately simultaneously with the consummation of the Company’s initial public offering.

 

Register ,” “ Registered” and “ Registration ” mean a registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective.

 

Registrable Securities ” means (i) all of the shares of Common Stock beneficially owned or held by Investors prior to the consummation of the Company’s initial public offering, (ii) all of the Private Units (and underlying securities), and (iii) all of the Working Capital Units (and underlying securities). Registrable Securities include any warrants, shares of capital stock or other securities of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of such shares of Common Stock, Private Units (and underlying securities) and Working Capital Units (and underlying securities). As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when: (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement; (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Securities Act; (c) such securities shall have ceased to be outstanding; or (d) such securities are freely saleable under Rule 144 without volume limitations.

 

Registration Statement ” means a registration statement filed by the Company with the Commission in compliance with the Securities Act and the rules and regulations promulgated thereunder for a public offering and sale of Common Stock (other than a registration statement on Form S-4 or Form S-8, or their successors, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity).

 

Release Date ” means the date on which shares of Common Stock are disbursed from escrow pursuant to Section 3 of that certain Stock Escrow Agreement dated as of October 4, 2017 by and among the parties hereto and Continental Stock Transfer & Trust Company.

 

Rule 144 ” means Rule 144 promulgated under the Securities Act.

 

2  

 

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

 

Underwriter ” means a securities dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer’s market-making activities.

 

Working Capital Units ” means any Units held by Investors, officers or directors of the Company or their affiliates which may be issued in payment of working capital loans made to the Company.

 

2.           REGISTRATION RIGHTS .

 

2.1         Demand Registration .

 

2.1.1.       Request for Registration . At any time and from time to time on or after (i) the date that the Company consummates a Business Combination with respect to the Private Units (or underlying securities) and Working Capital Units (or underlying securities) or (ii) three months prior to the Release Date with respect to all other Registrable Securities, the holders of a majority-in-interest of such Private Units (or underlying securities), Working Capital Units (or underlying securities) or other Registrable Securities, as the case may be, held by the Investors, officers or directors of the Company or their affiliates, or the transferees of the Investors, may make a written demand for registration under the Securities Act of all or part of their Private Units (or underlying securities), Working Capital Units (or underlying securities) or other Registrable Securities, as the case may be (a “ Demand Registration ”). Any demand for a Demand Registration shall specify the number of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. The Company will within 10 days of the Company’s receipt of the Demand Registration notify all holders of Registrable Securities of the demand, and each holder of Registrable Securities who wishes to include all or a portion of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable Securities in such registration, a “ Demanding Holder ”) shall so notify the Company within ten (10) days after the receipt by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have their Registrable Securities included in the Demand Registration, subject to Section 2.1.4 and the provisos set forth in Section 3.1.1. The Company shall not be obligated to effect more than an aggregate of two (2) Demand Registrations under this Section 2.1.1 in respect of all Registrable Securities.

 

2.1.2.       Effective Registration . A registration will not count as a Demand Registration until the Registration Statement filed with the Commission with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations under this Agreement with respect thereto; provided, however, that if, after such Registration Statement has been declared effective, the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of the Commission or any other governmental agency or court, the Registration Statement with respect to such Demand Registration will be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise terminated, and (ii) a majority-in-interest of the Demanding Holders thereafter affirmatively elect to continue the offering and notify the Company in writing, but in no event later than five (5) days of such election; provided, further, that the Company shall not be obligated to file a second Registration Statement until a Registration Statement that has been filed is counted as a Demand Registration or is terminated.

 

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2.1.3.       Underwritten Offering . If a majority-in-interest of the Demanding Holders so elect and such holders so advise the Company as part of their written demand for a Demand Registration, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. In such event, the right of any holder to include its Registrable Securities in such registration shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s Registrable Securities in the underwriting to the extent provided herein. All Demanding Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such underwriting by a majority-in-interest of the holders initiating the Demand Registration.

 

2.1.4.       Reduction of Offering . If the managing Underwriter or Underwriters for a Demand Registration that is to be an underwritten offering advises the Company and the Demanding Holders in writing that the dollar amount or number of shares of Registrable Securities which the Demanding Holders desire to sell, taken together with all other shares of Common Stock or other securities which the Company desires to sell and the shares of Common Stock, if any, as to which registration has been requested pursuant to written contractual piggy-back registration rights held by other stockholders of the Company who desire to sell, exceeds the maximum dollar amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of shares, as applicable, the “ Maximum Number of Shares ”), then the Company shall include in such registration: (i) first, the Registrable Securities as to which Demand Registration has been requested by the Demanding Holders (pro rata in accordance with the number of shares that each such Person has requested be included in such registration, regardless of the number of shares held by each such Person (such proportion is referred to herein as “ Pro Rata ”)) that can be sold without exceeding the Maximum Number of Shares; (ii) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (i), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (iii) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (i) and (ii), the shares of Common Stock or other securities registrable pursuant to the terms of the Unit Purchase Option issued to EarlyBirdCapital, Inc. or its designees in connection with the Company’s initial public offering (the “ Unit Purchase Option ” and such registrable securities, the “ Option Securities ”) as to which “piggy-back” registration has been requested by the holders thereof, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (iv) fourth, to the extent that the Maximum Number of Shares have not been reached under the foregoing clauses (i), (ii), and (iii), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons and that can be sold without exceeding the Maximum Number of Shares.

 

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2.1.5.       Withdrawal . If a majority-in-interest of the Demanding Holders disapprove of the terms of any underwriting or are not entitled to include all of their Registrable Securities in any offering, such majority-in-interest of the Demanding Holders may elect to withdraw from such offering by giving written notice to the Company and the Underwriter or Underwriters of their request to withdraw prior to the effectiveness of the Registration Statement filed with the Commission with respect to such Demand Registration. If the majority-in-interest of the Demanding Holders withdraws from a proposed offering relating to a Demand Registration, then such registration shall not count as a Demand Registration provided for in this Section 2.1.

 

2.2         Piggy-Back Registration .

 

2.2.1.       Piggy-Back Rights . If at any time on or after the date the Company consummates a Business Combination the Company proposes to file a Registration Statement under the Securities Act with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for stockholders of the Company for their account (or by the Company and by stockholders of the Company including, without limitation, pursuant to Section 2.1), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan, (ii) for an exchange offer or offering of securities solely to the Company’s existing stockholders, (iii) for an offering of debt that is convertible into equity securities of the Company or (iv) for a dividend reinvestment plan, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities as soon as practicable but in no event less than ten (10) days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing Underwriter or Underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of shares of Registrable Securities as such holders may request in writing within five (5) days following receipt of such notice (a “ Piggy-Back Registration ”). The Company shall, in good faith, cause such Registrable Securities to be included in such registration and shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities proposing to distribute their securities through a Piggy-Back Registration that involves an Underwriter or Underwriters shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such Piggy-Back Registration.

 

2.2.2.       Reduction of Offering . If the managing Underwriter or Underwriters for a Piggy-Back Registration that is to be an underwritten offering advises the Company and the holders of Registrable Securities in writing that the dollar amount or number of shares of Common Stock which the Company desires to sell, taken together with shares of Common Stock, if any, as to which registration has been demanded pursuant to separate written contractual arrangements with persons or entities other than the holders of Registrable Securities hereunder, the Registrable Securities as to which registration has been requested under this Section 2.2, and the shares of Common Stock, if any, as to which registration has been requested pursuant to the written contractual piggy-back registration rights of other stockholders of the Company, exceeds the Maximum Number of Shares, then the Company shall include in any such registration:

 

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a)          If the registration is undertaken for the Company’s account: (A) the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (B) to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the shares of Common Stock or other securities, if any, comprised of Registrable Securities, as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights of such security holders, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (C) to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual piggy-back registration rights with such persons and that can be sold without exceeding the Maximum Number of Shares; and

 

b)          If the registration is a “demand” registration undertaken at the demand of holders of Option Securities, (A) first, the shares of Common Stock or other securities for the account of the demanding persons, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Registrable Securities, Pro Rata, as to which registration has been requested pursuant to the terms hereof, that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number of Shares; and

 

c)          If the registration is a “demand” registration undertaken at the demand of persons other than either the holders of Registrable Securities or of Option Securities, (A) first, the shares of Common Stock or other securities for the account of the demanding persons that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), collectively the shares of Common Stock or other securities comprised of Registrable Securities and Option Securities, Pro Rata, as to which registration has been requested pursuant to the terms hereof and of the Unit Purchase Option, as applicable, that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number of Shares

 

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2.2.3.       Withdrawal . Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a registration statement at any time prior to the effectiveness of the Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 3.3.

 

2.2.4.       Unlimited Piggy-Back Registration Rights . For purposes of clarity, any registration effected pursuant to Section 2.2 hereof shall not be counted as a registration pursuant to a Demand Registration effected under Section 2.1 hereof.

 

2.3         Registrations on Form S-3 . The holders of Registrable Securities may at any time and from time to time, request in writing that the Company register the resale of any or all of such Registrable Securities on Form S-3 or any similar short-form registration which may be available at such time (“ Form S-3 ”); provided, however, that the Company shall not be obligated to effect such request through an underwritten offering. Upon receipt of such written request, the Company will promptly give written notice of the proposed registration to all other holders of Registrable Securities, and each holder of Registrable Securities who thereafter wishes to include all or a portion of such holder’s Registrable Securities in such registration shall so notify the Company, in writing, within ten (10) days after the receipt by the holder of the notice from the Company, and, as soon as practicable thereafter but not more than twelve (12) days after the Company’s initial receipt of such written request for a registration, effect the registration of all or such portion of such holder’s or holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities or other securities of the Company, if any, of any other holder or holders joining in such request; provided, however, that the Company shall not be obligated to effect any such registration pursuant to this Section 2.3 if: (i) Form S-3 is not available for such offering; or (ii) the holders of the Registrable Securities, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at any aggregate price to the public of less than $500,000. Registrations effected pursuant to this Section 2.3 shall not be counted as Demand Registrations effected pursuant to Section 2.1.

 

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3.           REGISTRATION PROCEDURES .

 

3.1         Filings; Information . Whenever the Company is required to effect the registration of any Registrable Securities pursuant to Section 2, the Company shall use its best efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method(s) of distribution thereof as expeditiously as practicable, and in connection with any such request:

 

3.1.1.       Filing Registration Statement . The Company shall, as expeditiously as possible and in any event within sixty (60) days after receipt of a request for a Demand Registration pursuant to Section 2.1, prepare and file with the Commission a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of all Registrable Securities to be registered thereunder in accordance with the intended method(s) of distribution thereof, and shall use its best efforts to cause such Registration Statement to become and remain effective for the period required by Section 3.1.3; provided, however, that the Company shall have the right to defer any Demand Registration for up to thirty (30) days, and any Piggy-Back Registration for such period as may be applicable to deferment of any demand registration to which such Piggy-Back Registration relates, in each case if the Company shall furnish to the holders a certificate signed by the Chairman of the Board of Directors or President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its stockholders for such Registration Statement to be effected at such time; provided further, however, that the Company shall not have the right to exercise the right set forth in the immediately preceding proviso more than once in any 365-day period in respect of a Demand Registration hereunder.

 

3.1.2.       Copies . The Company shall, prior to filing a Registration Statement or prospectus, or any amendment or supplement thereto, furnish without charge to the holders of Registrable Securities included in such registration, and such holders’ legal counsel, copies of such Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each preliminary prospectus), and such other documents as the holders of Registrable Securities included in such registration or legal counsel for any such holders may request in order to facilitate the disposition of the Registrable Securities owned by such holders.

 

3.1.3.       Amendments and Supplements . The Company shall prepare and file with the Commission such amendments, including post-effective amendments, and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and in compliance with the provisions of the Securities Act until all Registrable Securities and other securities covered by such Registration Statement have been disposed of in accordance with the intended method(s) of distribution set forth in such Registration Statement (which period shall not exceed the sum of one hundred eighty (180) days plus any period during which any such disposition is interfered with by any stop order or injunction of the Commission or any governmental agency or court) or such securities have been withdrawn.

 

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3.1.4.       Notification . After the filing of a Registration Statement, the Company shall promptly, and in no event more than two (2) business days after such filing, notify the holders of Registrable Securities included in such Registration Statement of such filing, and shall further notify such holders promptly and confirm such advice in writing in all events within two (2) business days of the occurrence of any of the following: (i) when such Registration Statement becomes effective; (ii) when any post-effective amendment to such Registration Statement becomes effective; (iii) the issuance or threatened issuance by the Commission of any stop order (and the Company shall take all actions required to prevent the entry of such stop order or to remove it if entered); and (iv) any request by the Commission for any amendment or supplement to such Registration Statement or any prospectus relating thereto or for additional information or of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by such Registration Statement, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly make available to the holders of Registrable Securities included in such Registration Statement any such supplement or amendment; except that before filing with the Commission a Registration Statement or prospectus or any amendment or supplement thereto, including documents incorporated by reference, the Company shall furnish to the holders of Registrable Securities included in such Registration Statement and to the legal counsel for any such holders, copies of all such documents proposed to be filed sufficiently in advance of filing to provide such holders and legal counsel with a reasonable opportunity to review such documents and comment thereon, and the Company shall not file any Registration Statement or prospectus or amendment or supplement thereto, including documents incorporated by reference, to which such holders or their legal counsel shall reasonably object.

 

3.1.5.       Securities Laws Compliance . The Company shall use its best efforts to (i) register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States as the holders of Registrable Securities included in such Registration Statement (in light of their intended plan of distribution) may request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities or securities exchanges, including the Nasdaq Capital Market, as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be necessary or advisable to enable the holders of Registrable Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph or subject itself to taxation in any such jurisdiction.

 

3.1.6.       Agreements for Disposition . The Company shall enter into customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities. The representations, warranties and covenants of the Company in any underwriting agreement which are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of the holders of Registrable Securities included in such registration statement. No holder of Registrable Securities included in such registration statement shall be required to make any representations or warranties in the underwriting agreement except as reasonably requested by the Underwriters and, if applicable, with respect to such holder’s organization, good standing, authority, title to Registrable Securities, lack of conflict of such sale with such holder’s material agreements and organizational documents, and with respect to written information relating to such holder that such holder has furnished in writing expressly for inclusion in such Registration Statement.

 

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3.1.7.       Cooperation . The principal executive officer of the Company, the principal financial officer of the Company, the principal accounting officer of the Company and all other officers and members of the management of the Company shall cooperate fully in any offering of Registrable Securities hereunder, which cooperation shall include, without limitation, the preparation of the Registration Statement with respect to such offering and all other offering materials and related documents, and participation in meetings with Underwriters, attorneys, accountants and potential investors.

 

3.1.8.       Records . The Company shall make available for inspection by the holders of Registrable Securities included in such Registration Statement, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any holder of Registrable Securities included in such Registration Statement or any Underwriter, all financial and other records, pertinent corporate documents and properties of the Company, as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information requested by any of them in connection with such Registration Statement.

 

3.1.9.       Opinions and Comfort Letters . The Company shall furnish to each holder of Registrable Securities included in any Registration Statement a signed counterpart, addressed to such holder, of (i) any opinion of counsel to the Company delivered to any Underwriter and (ii) any comfort letter from the Company’s independent public accountants delivered to any Underwriter. In the event no legal opinion is delivered to any Underwriter, the Company shall furnish to each holder of Registrable Securities included in such Registration Statement, at any time that such holder elects to use a prospectus, an opinion of counsel to the Company to the effect that the Registration Statement containing such prospectus has been declared effective and that no stop order is in effect.

 

3.1.10.     Earnings Statement . The Company shall comply with all applicable rules and regulations of the Commission and the Securities Act, and make available to its stockholders, as soon as reasonably practicable, an earnings statement covering a period of twelve (12) months, beginning within three (3) months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

 

3.1.11.     Listing . The Company shall use its best efforts to cause all Registrable Securities included in any registration to be listed on such exchanges or otherwise designated for trading in the same manner as similar securities issued by the Company are then listed or designated or, if no such similar securities are then listed or designated, in a manner satisfactory to the holders of a majority of the Registrable Securities included in such registration.

 

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3.1.12.     Transfer Agent . The Company shall provide a transfer agent or warrant agent, as applicable, and registrar for all such Registrable Securities no later than the effective date of the registration statement.

 

3.1.13.     Misstatements . The Company shall notify the holders at any time when a prospectus relating to such registration statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or an omission to state a material fact required to be stated in a registration statement or prospectus, or necessary to make the statements therein in the light of the circumstances under which they were made not misleading (a “Misstatement”), and then to correct such Misstatement.

 

3.2         Obligation to Suspend Distribution . Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.1.4(iv), or, in the case of a resale registration on Form S-3 pursuant to Section 2.3 hereof, upon any suspension by the Company, pursuant to a written insider trading compliance program adopted by the Company’s Board of Directors, of the ability of all “insiders” covered by such program to transact in the Company’s securities because of the existence of material non-public information, each holder of Registrable Securities included in any registration shall immediately discontinue disposition of such Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such holder receives the supplemented or amended prospectus contemplated by Section 3.1.4(iv) or the restriction on the ability of “insiders” to transact in the Company’s securities is removed, as applicable, and, if so directed by the Company, each such holder will deliver to the Company all copies, other than permanent file copies then in such holder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice.

 

3.3         Registration Expenses . The Company shall bear all costs and expenses incurred in connection with any Demand Registration pursuant to Section 2.1, any Piggy-Back Registration pursuant to Section 2.2, and any registration on Form S-3 effected pursuant to Section 2.3, and all expenses incurred in performing or complying with its other obligations under this Agreement, whether or not the Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and fees of any securities exchange on which the Common Stock is then listed; (ii) fees and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel for the Underwriters in connection with blue sky qualifications of the Registrable Securities); (iii) printing, messenger, telephone and delivery expenses; (iv) the Company’s internal expenses (including, without limitation, all salaries and expenses of its officers and employees); (v) the fees and expenses incurred in connection with the listing of the Registrable Securities as required by Section 3.1.11; (vi) Financial Industry Regulatory Authority fees; (vii) fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company (including the expenses or costs associated with the delivery of any opinions or comfort letters requested pursuant to Section 3.1.9); (viii) the fees and expenses of any special experts retained by the Company in connection with such registration; and (ix) the fees and expenses of one legal counsel selected by the holders of a majority-in-interest of the Registrable Securities included in such registration. The Company shall have no obligation to pay any underwriting discounts or selling commissions attributable to the Registrable Securities being sold by the holders thereof, which underwriting discounts or selling commissions shall be borne by such holders. Additionally, in an underwritten offering, all selling stockholders and the Company shall bear the expenses of the underwriter pro rata in proportion to the respective amount of shares each is selling in such offering.

 

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3.4         Information . The holders of Registrable Securities shall provide such information as may reasonably be requested by the Company, or the managing Underwriter, if any, in connection with the preparation of any Registration Statement, including amendments and supplements thereto, in order to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 2 and in connection with the Company’s obligation to comply with federal and applicable state securities laws.

 

3.5         Requirements for Participation in Underwritten Offerings . No person may participate in any underwritten offering for equity securities of the Company pursuant to a registration initiated by the Company hereunder unless such person (i) agrees to sell such person’s securities on the basis provided in any underwriting arrangements approved by the Company and (ii) completes and executes all customary questionnaires, powers of attorney, indemnities, lock-up agreements, underwriting agreements and other customary documents as may be reasonably required under the terms of such underwriting arrangements.

 

3.6         Suspension of Sales; Adverse Disclosure . Upon receipt of written notice from the Company that a registration statement or prospectus contains a Misstatement, each of the Holders shall forthwith discontinue disposition of Registrable Securities until it has received copies of a supplemented or amended prospectus correcting the Misstatement (it being understood that the Company hereby covenants to prepare and file such supplement or amendment as soon as practicable after the time of such notice), or until it is advised in writing by the Company that the use of the prospectus may be resumed. If the filing, initial effectiveness or continued use of a registration statement in respect of any registration at any time would require the Company to make an Adverse Disclosure (as defined below) or would require the inclusion in such registration statement of financial statements that are unavailable to the Company for reasons beyond the Company’s control, the Company may, upon giving prompt written notice of such action to the holders, delay the filing or initial effectiveness of, or suspend use of, such registration statement for the shortest period of time, but in no event more than thirty (30) days, determined in good faith by the Company to be necessary for such purpose. In the event the Company exercises its rights under the preceding sentence, the holders agree to suspend, immediately upon their receipt of the notice referred to above, their use of the prospectus relating to any registration in connection with any sale or offer to sell Registrable Securities. The Company shall immediately notify the Holders of the expiration of any period during which it exercised its rights under this Section 3.6. “Adverse Disclosure” shall mean any public disclosure of material non-public information, which disclosure, in the good faith judgment of the principal executive officer or principal financial officer of the Company, after consultation with counsel to the Company, (i) would be required to be made in any registration statement or prospectus in order for the applicable registration statement or prospectus not to contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein (in the case of any prospectus and any preliminary prospectus, in the light of the circumstances under which they were made) not misleading, (ii) would not be required to be made at such time if the registration statement were not being filed, and (iii) the Company has a bona fide business purpose for not making such information public.

 

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3.7         Reporting Obligations . As long as any holder shall own Registrable Securities, the Company, at all times while it shall be reporting under the Exchange Act, covenants to file timely (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly furnish the holders with true and complete copies of all such filings. The Company further covenants that it shall take such further action as any holder may reasonably request, all to the extent required from time to time to enable such holder to sell shares of the Common Stock held by such holder without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions. Upon the request of any holder, the Company shall deliver to such holder a written certification of a duly authorized officer as to whether it has complied with such requirements.

 

4.           INDEMNIFICATION AND CONTRIBUTION .

 

4.1         Indemnification by the Company . The Company agrees to indemnify and hold harmless each Investor and each other holder of Registrable Securities, and each of their respective officers, employees, affiliates, directors, partners, members, attorneys and agents, and each person, if any, who controls an Investor and each other holder of Registrable Securities (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each, an “ Investor Indemnified Party ”), from and against any expenses, losses, judgments, claims, damages or liabilities, whether joint or several, arising out of or based upon any untrue statement (or allegedly untrue statement) of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and the Company shall promptly reimburse the Investor Indemnified Party for any legal and any other expenses reasonably incurred by such Investor Indemnified Party in connection with investigating and defending any such expense, loss, judgment, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or allegedly untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by such selling holder expressly for use therein. The Company also shall indemnify any Underwriter of the Registrable Securities, their officers, affiliates, directors, partners, members and agents and each person who controls such Underwriter on substantially the same basis as that of the indemnification provided above in this Section 4.1.

 

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4.2           Indemnification by Holders of Registrable Securities . Each selling holder of Registrable Securities will, in the event that any registration is being effected under the Securities Act pursuant to this Agreement of any Registrable Securities held by such selling holder, indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any), and each other selling holder and each other person, if any, who controls another selling holder or such underwriter within the meaning of the Securities Act, against any losses, claims, judgments, damages or liabilities, whether joint or several, insofar as such losses, claims, judgments, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or allegedly untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or the alleged omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by such selling holder expressly for use therein, and shall reimburse the Company, its directors and officers, and each other selling holder or controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. Each selling holder’s indemnification obligations hereunder shall be several and not joint and shall be limited to the amount of any net proceeds actually received by such selling holder. Each selling holder of Registrable Securities shall indemnify any Underwriter of the Registrable Securities, their officers, affiliates, directors, partners, members and agents and each person who controls such Underwriter to the same extent as provided in the foregoing with respect to indemnification of the Company.

 

4.3         Conduct of Indemnification Proceedings . Promptly after receipt by any person of any notice of any loss, claim, damage or liability or any action in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2, such person (the “ Indemnified Party ”) shall, if a claim in respect thereof is to be made against any other person for indemnification hereunder, notify such other person (the “ Indemnifying Party ”) in writing of the loss, claim, judgment, damage, liability or action; provided, however, that the failure by the Indemnified Party to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have to such Indemnified Party hereunder, except and solely to the extent the Indemnifying Party is actually prejudiced by such failure. If the Indemnified Party is seeking indemnification with respect to any claim or action brought against the Indemnified Party, then the Indemnifying Party shall be entitled to participate in such claim or action, and, to the extent that it wishes, jointly with all other Indemnifying Parties, to assume control of the defense thereof with counsel satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume control of the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that in any action in which both the Indemnified Party and the Indemnifying Party are named as defendants, the Indemnified Party shall have the right to employ separate counsel (but no more than one such separate counsel) to represent the Indemnified Party and its controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, with the fees and expenses of such counsel to be paid by such Indemnifying Party if, based upon the written opinion of counsel of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, consent to entry of judgment or effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such judgment or settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.

 

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4.4         Contribution .

 

4.4.1.      If the indemnification provided for in the foregoing Sections 4.1, 4.2 and 4.3 is unavailable to any Indemnified Party in respect of any loss, claim, damage, liability or action referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnified Parties and the Indemnifying Parties in connection with the actions or omissions which resulted in such loss, claim, damage, liability or action, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party and any Indemnifying Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such Indemnified Party or such Indemnifying Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

4.4.2.      The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding Section 4.4.1. The amount paid or payable by an Indemnified Party as a result of any loss, claim, damage, liability or action referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, no holder of Registrable Securities shall be required to contribute any amount in excess of the dollar amount of the net proceeds (after payment of any underwriting fees, discounts, commissions or taxes) actually received by such holder from the sale of Registrable Securities which gave rise to such contribution obligation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

4.5         Survival . The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Party or any officer, director or controlling person of such Indemnified Party and shall survive the transfer of securities.

 

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5.           UNDERWRITING AND DISTRIBUTION .

 

5.1         Rule 144 . The Company covenants that it shall file any reports required to be filed by it under the Securities Act and the Exchange Act and shall take such further action as the holders of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holders to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission.

 

6.           MISCELLANEOUS .

 

6.1           Other Registration Rights . The Company represents and warrants that no person, other than a holder of the Registrable Securities, has any right to require the Company to register any shares of the Company’s capital stock for sale or to include shares of the Company’s capital stock in any registration filed by the Company for the sale of shares of capital stock for its own account or for the account of any other person. Further, the Company represents and warrants that this Agreement supersedes any other registration rights agreement or agreement with similar terms and conditions and in the event of a conflict between any such agreement or agreements and this Agreement, the terms of this Agreement shall prevail.

 

6.2         Assignment; No Third Party Beneficiaries . This Agreement and the rights, duties and obligations of the Company hereunder may not be assigned or delegated by the Company in whole or in part. This Agreement and the rights, duties and obligations of the holders of Registrable Securities hereunder may be freely assigned or delegated by such holder of Registrable Securities in conjunction with and to the extent of any transfer of Registrable Securities by any such holder. This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties and the permitted assigns of the Investor or holder of Registrable Securities or of any assignee of the Investor or holder of Registrable Securities. This Agreement is not intended to confer any rights or benefits on any persons that are not party hereto other than as expressly set forth in Article 4 and this Section 6.2. No assignment by any party hereto of such party’s rights, duties and obligations hereunder shall be binding upon or obligate the Company unless and until the Company shall have received (i) written notice of such assignment and (ii) the written agreement of the assignee, in a form reasonably satisfactory to the Company, to be bound by the terms and provisions of this Agreement (which may be accomplished by an addendum or certificate of joinder to this Agreement).

 

6.3         Notices . All notices, demands, requests, consents, approvals or other communications (collectively, “ Notices ”) required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally served, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile; provided, that if such service or transmission is not on a business day or is after normal business hours, then such notice shall be deemed given on the next business day. Notice otherwise sent as provided herein shall be deemed given on the next business day following timely delivery of such notice to a reputable air courier service with an order for next-day delivery.

 

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To the Company:

 

Black Ridge Acquisition Corp. 

c/o Black Ridge Oil & Gas, Inc. 

110 North 5 th Street, Suite 410 

Minneapolis, Minnesota 55403 

Attn: Ken DeCubellis

 

with a copy to:

 

Graubard Miller 

The Chrysler Building 

405 Lexington Avenue 

New York NY 10174 

Attn: David Alan Miller, Esq.

 

To an Investor, to such Investor c/o:

 

Black Ridge Oil & Gas, Inc. 

110 North 5 th Street, Suite 410 

Minneapolis, Minnesota 55403 

Attn: Ken DeCubellis

 

6.4         Severability . This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible that is valid and enforceable.

 

6.5         Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument.

 

6.6         Entire Agreement . This Agreement (including all agreements entered into pursuant hereto and all certificates and instruments delivered pursuant hereto and thereto) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties, whether oral or written.

 

6.7         Modifications and Amendments . Upon the written consent of the Company and the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities at the time in question, compliance with any of the provisions, covenants and conditions set forth in this Agreement may be waived, or any of such provisions, covenants or conditions may be amended or modified; provided, however, that notwithstanding the foregoing, any amendment hereto or waiver hereof that adversely affects one holder of Registrable Securities, solely in its capacity as a holder of the shares of Common Stock of the Company, in a manner that is materially different from the other holders of Registrable Securities (in such capacity) shall require the consent of the holder so affected. No course of dealing between any holders of Registrable Securities or the Company and any other party hereto or any failure or delay on the part of a holder of Registrable Securities or the Company in exercising any rights or remedies under this Agreement shall operate as a waiver of any rights or remedies of any holder of Registrable Securities or the Company. No single or partial exercise of any rights or remedies under this Agreement by a party shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or thereunder by such party.

 

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6.8         Titles and Headings . Titles and headings of sections of this Agreement are for convenience only and shall not affect the construction of any provision of this Agreement.

 

6.9         Waivers and Extensions . Any party to this Agreement may waive any right, breach or default which such party has the right to waive, provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No waiver or extension of time for performance of any obligations or acts shall be deemed a waiver or extension of the time for performance of any other obligations or acts.

 

6.10       Remedies Cumulative . In the event that the Company fails to observe or perform any covenant or agreement to be observed or performed under this Agreement, the Investor or any other holder of Registrable Securities may proceed to protect and enforce its rights by suit in equity or action at law, whether for specific performance of any term contained in this Agreement or for an injunction against the breach of any such term or in aid of the exercise of any power granted in this Agreement or to enforce any other legal or equitable right, or to take any one or more of such actions, without being required to post a bond. None of the rights, powers or remedies conferred under this Agreement shall be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to any other right, power or remedy, whether conferred by this Agreement or now or hereafter available at law, in equity, by statute or otherwise.

 

6.11       Governing Law . This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed within the State of New York, without giving effect to any choice-of-law provisions thereof that would compel the application of the substantive laws of any other jurisdiction.

 

6.12       Waiver of Trial by Jury . Each party hereby irrevocably and unconditionally waives the right to a trial by jury in any action, suit, counterclaim or other proceeding (whether based on contract, tort or otherwise) arising out of, connected with or relating to this Agreement, the transactions contemplated hereby, or the actions of the Investor in the negotiation, administration, performance or enforcement hereof.

 

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IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be executed and delivered by their duly authorized representatives as of the date first written above.

 

    BLACK RIDGE ACQUISITION CORP.
     
  By: /s/ Ken DeCubellis
    Name: Ken DeCubellis
    Title: Chief Executive Officer
     
    INVESTORS:
     
    BLACK RIDGE OIL & GAS, INC.
     
  By: /s/ Ken DeCubellis
    Ken DeCubellis, CEO

 

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Exhibit 10.19

 

BLACK RIDGE ACQUISITION CORP.

c/o Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, Minnesota 55403

 

October 9, 2017

 

Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, Minnesota 55403

 

Ladies and Gentlemen:

 

This letter will confirm our agreement that, commencing on the effective date (the “ Effective Date ”) of the registration statement (the “ Registration Statement ”) for the initial public offering (the “ IPO ”) of the securities of Black Ridge Acquisition Corp. (the “ Company ”) and continuing until the earlier of (i) the consummation by the Company of an initial business combination or (ii) the Company’s liquidation (in each case as described in the Registration Statement) (such earlier date hereinafter referred to as the “ Termination Date ”), Black Ridge Oil & Gas, Inc. shall make available to the Company certain office space and administrative and support services as may be required by the Company from time to time, situated at 110 North 5 th Street, Suite 410, Minneapolis, Minnesota 55403 (or any successor location). In exchange therefor, the Company shall pay Black Ridge Oil & Gas, Inc. the sum of $10,000 per month on the Effective Date and continuing monthly thereafter until the Termination Date. Black Ridge Oil & Gas, Inc. hereby agrees that it does not have any right, title, interest or claim of any kind in or to any monies that may be set aside in a trust account (the “ Trust Account ”) that may be established upon the consummation of the IPO as a result of this letter agreement (the “ Claim ”) and hereby waives any Claim it may have in the future as a result of, or arising out of, this letter agreement and will not seek recourse against the Trust Account for any reason whatsoever.

 

  Very truly yours,
     
  BLACK RIDGE ACQUISITION CORP.
     
  By:  /s/ Ken DeCubellis
    Name: Ken DeCubellis
    Title: Chief Executive Officer

 

AGREED TO AND ACCEPTED BY:  
     
BLACK RIDGE OIL & GAS, INC.  
     
By:  /s/ James Moe  
  Name: James Moe  
  Title: Chief Financial Officer  

 

 

Exhibit 10.20

 

WARRANT AGREEMENT

 

THIS WARRANT AGREEMENT (“Agreement”) dated as of October 4, 2017 is between Black Ridge Acquisition Corp., a Delaware corporation, (“Company”), and Continental Stock Transfer & Trust Company, a New York corporation (“Warrant Agent”).

 

WHEREAS, the Company has received a binding commitment from Black Ridge Oil & Gas, Inc., the Company’s sponsor (“Sponsor”), to purchase up to an aggregate of 445,000 units (each a “Unit”), each Unit comprised of one share of common stock of the Company, par value $0.0001 per share (“Common Stock”), one right to receive one-tenth of one share of Common Stock and one warrant, each warrant to purchase one share of Common Stock for $11.50 per share, subject to adjustment as described herein, and in connection therewith, will issue and deliver up to an aggregate of 445,000 warrants (“Sponsor’s Warrants”) upon consummation of such private placement; and

 

WHEREAS, the Company is engaged in a public offering (“Public Offering”) of Units and, in connection therewith, has determined to issue and deliver (i) up to 13,800,000 warrants (the “Public Warrants”), to the public investors and (ii) 600,000 warrants (underlying unit purchase options) to EarlyBirdCapital, Inc. (“EBC”) and/or its designees (the “EBC Warrants”); and

 

WHEREAS, following consummation of the Public Offering, the Company may issue additional warrants (“Post IPO Warrants” and together with the Sponsor’s Warrants, Public Warrants and EBC Warrants, the “Warrants”) in connection with, or following the consummation by the Company of, a Business Combination (defined below); and

 

WHEREAS, the Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1, No. 333-220516 (“Registration Statement”) for the registration, under the Securities Act of 1933, as amended (“Act”), of, among other securities, the Public Warrants and the EBC Warrants; and

 

WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange, redemption and exercise of the Warrants; and

 

WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and

 

 

 

 

WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant Agent, as provided herein, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

 

1.             Appointment of Warrant Agent . The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Agreement.

 

2.             Warrants .

 

2.1.             Form of Warrant . Each Warrant shall be issued in registered form only, shall be in substantially the form of Exhibit A hereto, the provisions of which are incorporated herein and shall be signed by, or bear the facsimile signature of, the Chairman of the Board of Directors or Chief Executive Officer and Treasurer, Secretary or Assistant Secretary of the Company and shall bear a facsimile of the Company’s seal. In the event the person whose facsimile signature has been placed upon any Warrant shall have ceased to serve in the capacity in which such person signed the Warrant before such Warrant is issued, it may be issued with the same effect as if he or she had not ceased to be such at the date of issuance.

 

2.2.             Uncertificated Warrants . Notwithstanding anything herein to the contrary, any Warrant, or portion thereof, may be issued as part of, and be represented by, a Unit, and any Warrant may be issued in uncertificated or book-entry form through the Warrant Agent and/or the facilities of The Depository Trust Company (the “Depositary”) or other book-entry depositary system, in each case as determined by the Board of Directors of the Company or by an authorized committee thereof. Any Warrant so issued shall have the same terms, force and effect as a certificated Warrant that has been duly countersigned by the Warrant Agent in accordance with the terms of this Agreement.

 

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2.3.             Effect of Countersignature . Except with respect to uncertificated Warrants as described above, unless and until countersigned by the Warrant Agent pursuant to this Agreement, a Warrant shall be invalid and of no effect and may not be exercised by the holder thereof.

 

2.4.             Registration .

 

    2.4.1.             Warrant Register . The Warrant Agent shall maintain books (“Warrant Register”) for the registration of original issuance and the registration of transfer of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Warrant Agent by the Company.

 

    2.4.2.             Registered Holder . Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name such Warrant is then registered in the Warrant Register (“registered holder”) as the absolute owner of such Warrant and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant certificate made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

 

2.5.             Detachability of Warrants . The securities comprising the Units will not be separately transferable until the 90 th day following the date of the prospectus or, if such 90 th day is not on a day, other than Saturday, Sunday or federal holiday, on which banks in New York City are generally open for normal business (a “Business Day”), then on the immediately succeeding Business Day following such date, or earlier with the consent of EBC, but in no event will EBC allow separate trading of the securities comprising the Units until (i) the Company has filed a Current Report on Form 8-K which includes an audited balance sheet reflecting the receipt by the Company of the gross proceeds of the Public Offering including the proceeds received by the Company from the exercise of the underwriters’ over-allotment option in the Public Offering, if the over-allotment option is exercised prior to the filing of the Form 8-K, and (ii) the Company has issued a press release and has filed a Current Report on Form 8-K announcing when such separate trading shall begin (the “Detachment Date”).

 

2.6.             Sponsor’s Warrant Attributes . The Sponsor’s Warrants will be issued in the same form as the Public Warrants but they (i) will not be redeemable by the Company and (ii) may be exercised for cash or on a cashless basis at the holder’s option, in either case as long as the Sponsor’s Warrants are held by the Sponsor or its affiliates and permitted transferees (as prescribed in Section 5.6 hereof). Once a Sponsor’s Warrant is transferred to a holder other than an affiliate or permitted transferee, it shall be treated as a Public Warrant hereunder for all purposes.

 

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2.7.             EBC Warrants . The EBC Warrants, when issued, shall have the same terms and be in the same form as the Public Warrants. The provisions of this Section 2.7 may not be modified, amended or deleted without the prior consent of EBC.

 

2.8             Post IPO Warrants . The Post IPO Warrants, when and if issued, shall have the same terms and be in the same form as the Public Warrants.

 

3.             Terms and Exercise of Warrants

 

3.1.             Warrant Price . Each whole Warrant shall, when countersigned by the Warrant Agent, entitle the registered holder thereof, subject to the provisions of such Warrant and of this Agreement, to purchase from the Company the number of shares of Common Stock stated therein, at the price of $11.50 per share, subject to the adjustments provided in Section 4 hereof and in the last sentence of this Section 3.1. The term “Warrant Price” as used in this Agreement refers to the price per share at which the shares of Common Stock may be purchased at the time a Warrant is exercised. The Company in its sole discretion may lower the Warrant Price at any time prior to the Expiration Date (as defined below) for a period of not less than twenty (20) Business Days; provided, that the Company shall provide at least twenty (20) days prior written notice of such reduction to registered holders of the Warrants and, provided further that any such reduction shall be applied consistently to all of the Warrants.

 

3.2.             Duration of Warrants . A Warrant may be exercised only during the period commencing on the later of 30 days after the consummation by the Company of a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (“Business Combination”) (as described more fully in the Registration Statement) or 12 months from the closing of the Public Offering, and terminating at 5:00 p.m., New York City time on the earlier to occur of (i) five years from the consummation of a Business Combination and (ii) the Redemption Date as provided in Section 6.2 of this Agreement (“Expiration Date”). The period of time from the date the Warrants will first become exercisable until the expiration of the Warrants shall hereafter be referred to as the “Exercise Period.” Except with respect to the right to receive the Redemption Price (as set forth in Section 6 hereunder), each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease at the close of business on the Expiration Date. The Company in its sole discretion may extend the duration of the Warrants by delaying the Expiration Date; provided, however, that the Company will provide at least twenty (20) days prior written notice of any such extension to registered holders and, provided further that any such extension shall be applied consistently to all of the Warrants.

 

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3.3.           Exercise of Warrants .

 

 3.3.1.             Payment . Subject to the provisions of the Warrant and this Agreement, a Warrant, when countersigned by the Warrant Agent, may be exercised by the registered holder thereof by surrendering it, at the office of the Warrant Agent, or at the office of its successor as Warrant Agent, in the Borough of Manhattan, City and State of New York, with the subscription form, as set forth in the Warrant, duly executed, and by paying in full the Warrant Price for each share of Common Stock as to which the Warrant is exercised and any and all applicable taxes due in connection with the exercise of the Warrant, as follows:

 

 (a)            by good certified check or good bank draft payable to the order of the Company (or as otherwise agreed to by the Company); or

 

 (b)            in the event of redemption pursuant to Section 6 hereof in which the Company’s management has elected to force all holders of Warrants to exercise such Warrants on a “cashless basis,” by surrendering the Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the difference between the Warrant Price and the “Fair Market Value” (defined below) by (y) the Fair Market Value. Solely for purposes of this Section 3.3.1(b), the “Fair Market Value” shall mean the average reported last sale price of the Common Stock for the five (5) trading days ending on the third trading day prior to the date on which the notice of redemption is sent to holders of the Warrants pursuant to Section 6 hereof; or

 

 (c)            with respect to any Sponsor’s Warrants, so long as such Sponsor’s Warrants are held by the Sponsor or its permitted transferees, by surrendering such Sponsor’s Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the difference between the exercise price of the Warrants and the “Fair Market Value” by (y) the Fair Market Value; provided, however, that no cashless exercise shall be permitted unless the Fair Market Value is equal to or higher than the exercise price. Solely for purposes of this Section 3.3.1(c), the “Fair Market Value” shall mean the average reported last sale price of the Common Stock for the five (5) trading days ending on the third trading day prior to the date of exercise; or

 

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(d)                in the event the registration statement required by Section 7.4 hereof is not effective and current within ninety (90) days after the closing of a Business Combination, by surrendering such Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the difference between the exercise price of the Warrants and the “Fair Market Value” by (y) the Fair Market Value; provided, however, that no cashless exercise shall be permitted unless the Fair Market Value is equal to or higher than the exercise price. Solely for purposes of this Section 3.3.1(d), the “Fair Market Value” shall mean the average reported last sale price of the Common Stock for the five (5) trading days ending on the day prior to the date of exercise.

 

 3.3.2.             Issuance of Certificates . As soon as practicable after the exercise of any Warrant and the clearance of the funds in payment of the Warrant Price (if any), the Company shall issue to the registered holder of such Warrant a certificate or certificates for the number of shares of Common Stock to which he, she or it is entitled, registered in such name or names as may be directed by him, her or it, and if such Warrant shall not have been exercised in full, a new countersigned Warrant for the number of shares as to which such Warrant shall not have been exercised. Notwithstanding the foregoing, in no event will the Company be required to net cash settle the Warrant exercise. No Warrant shall be exercisable and the Company shall not be obligated to issue shares of Common Stock upon exercise of a Warrant unless the Common Stock issuable upon such Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants. In the event that the condition in the immediately preceding sentence is not satisfied with respect to a Warrant, the holder of such Warrant shall not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless, in which case the purchaser of a Unit containing such Public Warrants shall have paid the full purchase price for the Unit solely for the shares of Common Stock underlying such Unit. Warrants may not be exercised by, or securities issued to, any registered holder in any state in which such exercise would be unlawful.

 

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3.3.3.             Valid Issuance . All shares of Common Stock issued upon the proper exercise of a Warrant in conformity with this Agreement shall be validly issued, fully paid and nonassessable.

 

3.3.4.             Date of Issuance . Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the share transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the share transfer books are open.

 

3.3.5.             Maximum Percentage . A holder of a Warrant may notify the Company in writing in the event it elects to be subject to the provisions contained in this subsection 3.3.5; however, no holder of a Warrant shall be subject to this subsection 3.3.5 unless he, she or it makes such election. If the election is made by a holder, the Warrant Agent shall not effect the exercise of the holder’s Warrant, and such holder shall not have the right to exercise such Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the Warrant Agent’s actual knowledge, would beneficially own in excess of 9.8% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such person and its affiliates shall include the number of shares of Common Stock issuable upon exercise of the Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock that would be issuable upon (x) exercise of the remaining, unexercised portion of the Warrant beneficially owned by such person and its affiliates and (y) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For purposes of the Warrant, in determining the number of outstanding shares of Common Stock, the holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent annual report on Form 10-K, quarterly report on Form 10-Q, current report on Form 8-K or other public filing with the Securities and Exchange Commission as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or Continental Stock Transfer & Trust Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written request of the holder of the Warrant, the Company shall, within two (2) Business Days, confirm orally and in writing to such holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of equity securities of the Company by the holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the holder of a Warrant may from time to time increase or decrease the Maximum Percentage applicable to such holder to any other percentage specified in such notice; provided, however, that any such increase shall not be effective until the sixty-first (61st) day after such notice is delivered to the Company.

 

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4.             Adjustments .

 

4.1.             Stock Dividends; Split Ups . If after the date hereof, the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock, or by a split up of shares of Common Stock, or other similar event, then, on the effective date of such stock dividend, split up or similar event, the number of shares of Common Stock issuable on exercise of each Warrant shall be increased in proportion to such increase in outstanding shares of Common Stock.

 

4.2.             Aggregation of Shares . If after the date hereof, the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each Warrant shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

 

4.3             Extraordinary Dividends . If the Company, at any time while the Warrants are outstanding and unexpired, shall pay a dividend or make a distribution in cash, securities or other assets to the holders of the shares of Common Stock or other shares of the Company’s capital stock into which the Warrants are convertible (an “Extraordinary Dividend”), then the Warrant Price shall be decreased, effective immediately after the effective date of such Extraordinary Dividend, by the amount of cash and the fair market value (as determined by the Company’s Board of Directors, in good faith) of any securities or other assets paid on each share of Common Stock in respect of such Extraordinary Dividend; provided, however, that none of the following shall be deemed an Extraordinary Dividend for purposes of this provision: (a) any adjustment described in subsection 4.1 above, (b) any cash dividends or cash distributions which, when combined on a per share basis with all other cash dividends and cash distributions paid on the Common Stock during the 365-day period ending on the date of declaration of such dividend or distribution does not exceed $0.50 (as adjusted to appropriately reflect any of the events referred to in other subsections of this Section 4 and excluding cash dividends or cash distributions that resulted in an adjustment to the Warrant Price or to the number of shares of Common Stock issuable on exercise of each Warrant) but only with respect to the amount of the aggregate cash dividends or cash distributions equal to or less than $0.50, (c) any payment to satisfy the conversion rights of the holders of the shares of Common Stock in connection with a proposed initial Business Combination or (d) any payment in connection with the Company’s liquidation and the distribution of its assets upon its failure to consummate a Business Combination. Solely for purposes of illustration, if the Company, at a time while the Warrants are outstanding and unexpired, pays a cash dividend of $0.35 and previously paid an aggregate of $0.40 of cash dividends and cash distributions on the Common Stock during the 365-day period ending on the date of declaration of such $0.35 dividend, then the Warrant Price will be decreased, effectively immediately after the effective date of such $0.35 dividend, by $0.25 (the absolute value of the difference between $0.75 (the aggregate amount of all cash dividends and cash distributions paid or made in such 365-day period, including such $0.35 dividend) and $0.50 (the greater of (x) $0.50 and (y) the aggregate amount of all cash dividends and cash distributions paid or made in such 365-day period prior to such $0.35 dividend)).

 

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4.4             Adjustments in Exercise Price . Whenever the number of shares of Common Stock purchasable upon the exercise of the Warrants is adjusted, as provided in Sections 4.1 and 4.2 above, the Warrant Price shall be adjusted (to the nearest cent) by multiplying such Warrant Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of the Warrants immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter.

 

4.5.             Replacement of Securities upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding shares of Common Stock (other than a change covered by Section 4.1, 4.2 or 4.3 hereof or that solely affects the par value of the Common Stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Warrant holders shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the Warrant holder would have received if such Warrant holder had exercised his, her or its Warrant(s) immediately prior to such event; and if any reclassification also results in a change in the Common Stock covered by Section 4.1, 4.2 or 4.3, then such adjustment shall be made pursuant to Sections 4.1, 4.2, 4.3, 4.4 and this Section 4.5. The provisions of this Section 4.5 shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers.

 

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4.6.             Notices of Changes in Warrant . Upon every adjustment of the Warrant Price or the number of shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1, 4.2, 4.3, 4.4 or 4.5, then, in any such event, the Company shall give written notice to each Warrant holder, at the last address set forth for such holder in the Warrant Register, of the record date or the effective date of the event. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event.

 

4.7.             No Fractional Warrants or Shares . No fractional Warrants will be issued hereunder. Additionally, notwithstanding any provision contained in this Agreement to the contrary, the Company shall not issue fractional shares upon exercise of Warrants. If, by reason of any adjustment made pursuant to this Section 4, the holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, round up to the nearest whole number of shares of Common Stock to be issued to the Warrant holder.

 

4.8.             Form of Warrant . The form of Warrant need not be changed because of any adjustment pursuant to this Section 4, and Warrants issued after such adjustment may state the same Warrant Price and the same number of shares as is stated in the Warrants initially issued pursuant to this Agreement. However, the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed.

 

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4.9              Other Events . In case any event shall occur affecting the Company as to which none of the provisions of preceding subsections of this Section 4 are strictly applicable, but which would require an adjustment to the terms of the Warrants in order to (i) avoid an adverse impact on the Warrants and (ii) effectuate the intent and purpose of this Section 4, then, in each such case, the Company shall appoint a firm of independent public accountants, investment banking or other appraisal firm of recognized national standing, which shall give its opinion as to whether or not any adjustment to the rights represented by the Warrants is necessary to effectuate the intent and purpose of this Section 4 and, if they determine that an adjustment is necessary, the terms of such adjustment. The Company shall adjust the terms of the Warrants in a manner that is consistent with any adjustment recommended in such opinion.

 

5.             Transfer and Exchange of Warrants .

 

5.1.             Registration of Transfer . The Warrant Agent shall register the transfer, from time to time, of any outstanding Warrant upon the Warrant Register, upon surrender of such Warrant for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer. Upon any such transfer, a new Warrant representing an equal aggregate number of Warrants shall be issued and the old Warrant shall be cancelled by the Warrant Agent. The Warrants so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request.

 

5.2.             Procedure for Surrender of Warrants . Warrants may be surrendered to the Warrant Agent, together with a written request for exchange or transfer, and thereupon the Warrant Agent shall issue in exchange therefor one or more new Warrants as requested by the registered holder of the Warrants so surrendered, representing an equal aggregate number of Warrants; provided, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend, the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange therefor until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend.

 

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5.3.             Fractional Warrants . The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a warrant certificate for a fraction of a warrant.

 

5.4.             Service Charges . No service charge shall be made for any exchange or registration of transfer of Warrants.

 

5.5.             Warrant Execution and Countersignature . The Warrant Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Agreement, the Warrants required to be issued pursuant to the provisions of this Section 5, and the Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose.

 

5.6.             Sponsor’s Warrants . The Warrant Agent shall not register any transfer of Sponsor’s Warrants until after the consummation by the Company of an initial Business Combination, except for transfers (i) to the Sponsor’s or the Company’s officers, directors, employees, consultants or their affiliates, (ii) to a holder’s officers, directors, employees or members upon the holder’s liquidation, in each case if the holder is an entity, (iii) by bona fide gift to a member of the holder’s immediate family or to a trust, the beneficiary of which is the holder or a member of the holder’s immediate family 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 the Company for no value for cancellation in connection with the consummation of a Business Combination or (vii) in connection with the consummation of a Business Combination, by private sales at prices no greater than the price at which the Sponsor’s Warrants were originally purchased, in each case (except for clause (vi)) on the condition that prior to such registration for transfer, the Warrant Agent shall be presented with written documentation pursuant to which each transferee or the trustee or legal guardian for such transferee agrees to be bound by the terms of the Founder Warrants Purchase Agreement and any other applicable agreement the transferor is bound by.

 

5.7.             Transfers prior to Detachment . Prior to the Detachment Date, the Public Warrants may be transferred or exchanged only together with the Unit in which such Warrant is included, and only for the purpose of effecting, or in conjunction with, a transfer or exchange of such Unit. Furthermore, each transfer of a Unit on the register relating to such Units shall operate also to transfer the Warrants included in such Unit. Notwithstanding the foregoing, the provisions of this Section 5.7 shall have no effect on any transfer of Warrants on or after the Detachment Date.

 

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6.             Redemption .

 

6.1.             Redemption . Subject to Section 6.4 hereof, not less than all of the outstanding Warrants may be redeemed, at the option of the Company, at any time during the Exercise Period (so long as there is a current registration statement in effect with respect to the shares of Common Stock underlying the Warrants), at the office of the Warrant Agent, upon the notice referred to in Section 6.2, at the price of $0.01 per Warrant (“Redemption Price”), provided that the last sales price of the Common Stock equals or exceeds $18.00 per share (subject to adjustment in accordance with Section 4 hereof), on each of twenty (20) trading days within any thirty (30) trading day period ending on the third business day prior to the date on which notice of redemption is given.

 

6.2.             Date Fixed for, and Notice of, Redemption . In the event the Company shall elect to redeem all of the Public Warrants, the Company shall fix a date for the redemption (the “Redemption Date”). Notice of redemption shall be mailed by first class mail, postage prepaid, by the Company not less than thirty (30) days prior to the Redemption Date to the registered holders of the Warrants to be redeemed at their last addresses as they shall appear on the registration books. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the registered holder received such notice.

 

6.3.             Exercise After Notice of Redemption . The Public Warrants may be exercised, for cash (or on a “cashless basis” in accordance with Section 3 of this Agreement) at any time after notice of redemption shall have been given by the Company pursuant to Section 6.2 hereof and prior to the Redemption Date. In the event the Company determines to require all holders of Public Warrants to exercise their Warrants on a “cashless basis” pursuant to Section 3.3.1(b), the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the Warrants, including the “Fair Market Value” in such case. On and after the Redemption Date, the record holder of the Warrants shall have no further rights except to receive, upon surrender of the Warrants, the Redemption Price.

 

6.4             Exclusion of Certain Warrants . The Company understands that the redemption rights provided for by this Section 6 apply only to outstanding Warrants. To the extent a person holds rights to purchase Warrants, such purchase rights shall not be extinguished by redemption. However, once such purchase rights are exercised, the Company may redeem the Warrants issued upon such exercise provided that the criteria for redemption is met. Additionally, the Company agrees that the redemption rights provided in this Section 6 shall not apply to the Sponsor’s Warrants if at the time of the redemption such Sponsor’s Warrants continue to be held by the Sponsor or its permitted transferees. However, once such Sponsor’s Warrants are transferred (other than to permitted transferees under Section 5.6), the Company may redeem the Sponsor’s Warrants in the same manner as the Public Warrants. The provisions of this Section 6.4 may not be modified, amended or deleted without the prior written consent of EBC.

 

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7.             Other Provisions Relating to Rights of Holders of Warrants .

 

7.1.             No Rights as Stockholder . A Warrant does not entitle the registered holder thereof to any of the rights of a stockholder of the Company, including, without limitation, the right to receive dividends, or other distributions, exercise any preemptive rights to vote or to consent or to receive notice as stockholders in respect of the meetings of stockholders or the election of directors of the Company or any other matter.

 

7.2.             Lost, Stolen, Mutilated, or Destroyed Warrants . If any Warrant is lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination, tenor, and date as the Warrant so lost, stolen, mutilated, or destroyed. Any such new Warrant shall constitute a substitute contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any time enforceable by anyone.

 

7.3.             Reservation of Shares of Common Stock . The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Agreement.

 

7.4.             Registration of Shares of Common Stock . The Company agrees that as soon as practicable after the closing of its initial Business Combination, it shall use its best efforts to file with the Securities and Exchange Commission a registration statement for the registration, under the Act, of the shares of Common Stock issuable upon exercise of the Warrants, and it shall use its best efforts to take such action as is necessary to register or qualify for sale, in those states in which the Warrants were initially offered by the Company and in those states where holders of Warrants then reside, the shares of Common Stock issuable upon exercise of the Warrants, to the extent an exemption is not available. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement until the expiration of the Warrants in accordance with the provisions of this Agreement. If any such registration statement has not been declared effective by the 90th day following the closing of the Business Combination, holders of the Warrants shall have the right, during the period beginning on the 91st day after the closing of the Business Combination and ending upon such registration statement being declared effective by the Securities and Exchange Commission, and during any other period when the Company shall fail to have maintained an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants, to exercise such Warrants on a “cashless basis” as determined in accordance with Section 3.3.1(d). The Company shall provide the Warrant Agent with an opinion of counsel for the Company (which shall be an outside law firm with securities law experience) stating that (i) the exercise of the Warrants on a cashless basis in accordance with this Section 7.4 is not required to be registered under the Act and (ii) the shares of Common Stock issued upon such exercise will be freely tradable under U.S. federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Act) of the Company and, accordingly, will not be required to bear a restrictive legend. For the avoidance of any doubt, unless and until all of the Warrants have been exercised on a cashless basis, the Company shall continue to be obligated to comply with its registration obligations under the first three sentences of this Section 7.4. The provisions of this Section 7.4 may not be modified, amended or deleted without the prior written consent of EBC.

 

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8.             Concerning the Warrant Agent and Other Matters .

 

8.1.             Payment of Taxes . The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of Common Stock upon the exercise of Warrants, but the Company shall not be obligated to pay any transfer taxes in respect of the Warrants or such shares.

 

8.2.             Resignation, Consolidation, or Merger of Warrant Agent .

 

    8.2.1.             Appointment of Successor Warrant Agent . The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving sixty (60) days’ notice in writing to the Company. If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the holder of the Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the holder of any Warrant may apply to the Supreme Court of the State of New York for the County of New York for the appointment of a successor Warrant Agent at the Company’s cost. Any successor Warrant Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing under the laws of the State of New York, in good standing and having its principal office in the Borough of Manhattan, City and State of New York, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed; but if for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations.

 

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8.2.2.             Notice of Successor Warrant Agent . In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the transfer agent for the shares of Common Stock not later than the effective date of any such appointment.

 

8.2.3.             Merger or Consolidation of Warrant Agent . Any corporation into which the Warrant Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party shall be the successor Warrant Agent under this Agreement without any further act.

 

8.3.          Fees and Expenses of Warrant Agent .

 

8.3.1.             Remuneration . The Company agrees to pay the Warrant Agent reasonable remuneration for its services as such Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder.

 

8.3.2.             Further Assurances . The Company agrees to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing of the provisions of this Agreement.

 

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8.4.           Liability of Warrant Agent .

 

8.4.1.             Reliance on Company Statement . Whenever in the performance of its duties under this Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement signed by the Chief Executive Officer or Chairman of the Board of Directors of the Company and delivered to the Warrant Agent. The Warrant Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the provisions of this Agreement.

 

8.4.2.             Indemnity . The Warrant Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith. The Company agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent’s gross negligence, willful misconduct, or bad faith.

 

8.4.3.             Exclusions . The Warrant Agent shall have no responsibility with respect to the validity of this Agreement or with respect to the validity or execution of any Warrant (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant; nor shall it be responsible to make any adjustments required under the provisions of Section 4 hereof or responsible for the manner, method, or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Warrant or as to whether any shares of Common Stock will, when issued, be valid and fully paid and nonassessable.

 

8.5.            Acceptance of Agency . The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth and among other things, shall account promptly to the Company with respect to Warrants exercised and concurrently account for, and pay to the Company, all monies received by the Warrant Agent for the purchase of shares of Common Stock through the exercise of Warrants.

 

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9.             Miscellaneous Provisions .

 

9.1.             Successors . All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.

 

9.2.             Notices . Any notice, statement or demand authorized by this Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or on the Company shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five (5) days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows:

 

Black Ridge Acquisition Corp.

c/o Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, Minnesota 55403

Attn:

 

Any notice, statement or demand authorized by this Agreement to be given or made by the holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows:

 

Continental Stock Transfer & Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Compliance Department

 

with a copy in each case to:

Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Attn: David Alan Miller, Esq.

 

and

 

Stinson Leonard Street LLP

150 South Fifth Street, Suite 2300

Minneapolis, MN 55402

Attn: Jill R. Radloff

 

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and

Greenberg Traurig, LLP

Met Life Building

200 Park Avenue

New York, New York 10166

Attn: Alan I. Annex, Esq.

 

and

EarlyBirdCapital, Inc.

366 Madison Avenue, 8th Floor

New York, New York 10017

Attn: David M. Nussbaum, Chairman

 

9.3.             Applicable Law . The validity, interpretation, and performance of this Agreement and of the Warrants shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. The Company hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.2 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim.

 

9.4.             Persons Having Rights under this Agreement . Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the registered holders of the Warrants and, for the purposes of Sections 2.7, 6.4, 7.4, 9.4 and 9.8 hereof, EBC, any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof. EBC shall be deemed to be a third-party beneficiary of this Agreement with respect to Sections 2.7, 6.4, 7.4, 9.4 and 9.8 hereof. All covenants, conditions, stipulations, promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto (and EBC with respect to the Sections 2.7, 6.4, 7.4, 9.4 and 9.8 hereof) and their successors and assigns and of the registered holders of the Warrants.

 

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9.5.             Examination of the Warrant Agreement . A copy of this Agreement shall be available at all reasonable times at the office of the Warrant Agent in the Borough of Manhattan, City and State of New York, for inspection by the registered holder of any Warrant. The Warrant Agent may require any such holder to submit his Warrant for inspection by it.

 

9.6.             Counterparts . This Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

9.7.             Effect of Headings . The section headings herein are for convenience only and are not part of this Agreement and shall not affect the interpretation thereof.

 

9.8             Amendments . This Agreement may be amended by the parties hereto (and EBC, if required) without the consent of any registered holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Agreement as the parties may deem necessary or desirable and that the parties deem shall not adversely affect the interest of the registered holders. All other modifications or amendments, including any amendment to increase the Warrant Price or shorten the Exercise Period, shall require the written consent or vote of the registered holders of (i) a majority of the then outstanding Public Warrants, Sponsor’s Warrants and EBC Warrants if such modification or amendment is being undertaken prior to, or in connection with, the consummation of a Business Combination or (ii) a majority of the then outstanding Warrants if such modification or amendment is being undertaken after the consummation of a Business Combination. Notwithstanding the foregoing, the Company may lower the Warrant Price or extend the duration of the Exercise Period pursuant to Sections 3.1 and 3.2, respectively, without the consent of the registered holders.

 

20  

 

 

9.9             Trust Account Waiver . The Warrant Agent acknowledges and agrees that it shall not make any claims or proceed against the trust account established by the Company in connection with the Public Offering (as more fully described in the Registration Statement) (“Trust Account”), including by way of set-off, and shall not be entitled to any funds in the Trust Account under any circumstance. In the event that the Warrant Agent has a claim against the Company under this Agreement, the Warrant Agent will pursue such claim solely against the Company and not against the property held in the Trust Account.

 

9.10              Severability . This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

 

[signature page follows]

 

21  

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

  BLACK RIDGE ACQUISITION CORP.
     
  By: /s/ Ken DeCubellis
      Name: Ken DeCubellis
      Title:   Chief Executive Officer
     
  CONTINENTAL STOCK TRANSFER & TRUST COMPANY
     
  By: /s/ Kevin Jennings
      Name: Kevin Jennings
      Title:   Vice President

 

22

Exhibit 10.21

 

RIGHTS AGREEMENT

 

Agreement made as of October 4, 2017 between Black Ridge Acquisition Corp., a Delaware corporation, with offices at 110 North 5th Street, Suite 410, Minneapolis, Minnesota 55403 (“Company”), and Continental Stock Transfer & Trust Company, a New York corporation, with offices at 1 State Street, New York, New York 10004 (“Right Agent”).

 

WHEREAS, the Company is engaged in a public offering (“Public Offering”) and has filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-1, No. 333-220516 (“Registration Statement”), for the registration, under the Securities Act of 1933, as amended (“Act”) of its units, with each unit (“Unit”) containing one right to receive one-tenth of one share of common stock, par value $0.0001 per share, of the Company (“Common Stock”) upon the happening of the triggering event described herein and, in connection therewith, will issue and deliver up to 13,800,000 rights (“Public Rights”) to the investors in the Public Offering; and

 

WHEREAS, the Company has received a binding commitment from its initial stockholder (the “Initial Stockholder”) to purchase in a private placement (“Private Offering”) up to an aggregate of 445,000 Units, and in connection therewith, will issue and deliver up to an aggregate of 445,000 rights (“Private Rights”) upon consummation of such Private Offering; and

 

WHEREAS, the Company has entered into that certain Unit Purchase Option, dated as of October 4, 2017, pursuant to which the Company will issue and deliver to EarlyBirdCapital, Inc. (the “Representative”), as representative of the underwriters of the Public Offering (and/or its designees), an aggregate of 600,000 Units, including 600,000 rights underlying such Units (the “Purchase Option Rights” and, together with the Public Rights and the Private Rights, the “Rights”); and

 

WHEREAS, the Company may issue up to an additional 150,000 Rights in consideration of certain working capital loans that may be made by the Company’s Initial Stockholder, officers, directors or their affiliates; and

 

 

 

 

WHEREAS, the Company desires the Right Agent to act on behalf of the Company, and the Right Agent is willing to so act, in connection with the issuance, registration, transfer and exchange of the Rights; and

 

WHEREAS, the Company desires to provide for the form and provisions of the Rights, the terms upon which they shall be issued, and the respective rights, limitation of rights, and immunities of the Company, the Right Agent, and the holders of the Rights; and

 

WHEREAS, all acts and things have been done and performed which are necessary to make the Rights, when executed on behalf of the Company and countersigned by or on behalf of the Right Agent, as provided herein, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

 

1.            Appointment of Right Agent . The Company hereby appoints the Right Agent to act as agent for the Company for the Rights, and the Right Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Agreement.

 

2.            Rights .

 

2.1.           Form of Right . Each Right shall be issued in registered form only, shall be in substantially the form of Exhibit A hereto, the provisions of which are incorporated herein and shall be signed by, or bear the facsimile signature of, the Chairman of the Board, President or Chief Executive Officer and Treasurer, Secretary or Assistant Secretary of the Company and shall bear a facsimile of the Company’s seal. In the event the person whose facsimile signature has been placed upon any Right shall have ceased to serve in the capacity in which such person signed the Right before such Right is issued, it may be issued with the same effect as if he or she had not ceased to be such at the date of issuance.

 

 

 

 

2.2.          Effect of Countersignature . Unless and until countersigned by the Right Agent pursuant to this Agreement, a Right shall be invalid and of no effect and may not be exchanged for Common Stock.

 

2.3.          Registration .

 

2.3.1.           Right Register . The Right Agent shall maintain books (“Right Register”) for the registration of original issuance and the registration of transfer of the Rights. Upon the initial issuance of the Rights, the Right Agent shall issue and register the Rights in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Right Agent by the Company.

 

2.3.2.           Registered Holder . Prior to due presentment for registration of transfer of any Right, the Company and the Right Agent may deem and treat the person in whose name such Right shall be registered upon the Right Register (“registered holder”) as the absolute owner of such Right and of each Right represented thereby (notwithstanding any notation of ownership or other writing on the Right Certificate made by anyone other than the Company or the Right Agent), for the purpose of the exchange thereof, and for all other purposes, and neither the Company nor the Right Agent shall be affected by any notice to the contrary.

 

2.4.          Detachability of Rights . The securities comprising the Units, including the Rights, will not be separately transferable until the ninetieth (90 th ) day after the date hereof unless EarlyBirdCapital, Inc. informs the Company of its decision to allow earlier separate trading, but in no event will separate trading of the securities comprising the Units begin until (i) the Company files a Current Report on Form 8-K which includes an audited balance sheet reflecting the receipt by the Company of the gross proceeds of the Public Offering including the proceeds received by the Company from the exercise of the over-allotment option, if the over-allotment option is exercised on the date hereof, and (ii) the Company issues a press release and files a Current Report on Form 8-K announcing when such separate trading shall begin.

 

3.            Terms and Exchange of Rights

 

3.1.          Rights . Each Right shall entitle the holder thereof to receive one-tenth of one share of Common Stock upon the happening of an Exchange Event (described below). No additional consideration shall be paid by a holder of Rights in order to receive his, her or its shares of Common Stock upon an Exchange Event as the purchase price for such Common Stock has been included in the purchase price for the Units. In no event will the Company be required to net cash settle the Rights. The provisions of this Section 3.1 may not be modified, amended or deleted without the prior written consent of the Representative.

 

 

 

 

3.2.          Exchange Event . An Exchange Event shall occur upon the Company’s consummation of an initial Business Combination (as defined in the Company’s Amended and Restated Certificate of Incorporation).

 

3.3.          Exchange of Rights .

 

3.3.1.           Issuance of Certificates . As soon as practicable upon the occurrence of an Exchange Event, the Company shall direct holders of the Rights to return their Rights certificates to the Right Agent. Upon receipt of a valid Rights certificate, the Company shall issue to the registered holder of such Right(s) a certificate or certificates for the full number of shares of Common Stock to which he, she or it is entitled, registered in such name or names as may be directed by him, her or it. Notwithstanding the foregoing, or any provision contained in this Rights Agreement to the contrary, in no event will the Company be required to net cash settle the Rights. The Company shall not issue fractional shares upon exchange of Rights. At the time of an Exchange Event, the Company will either instruct the Rights Agent to round up to the nearest whole share of Common Stock or otherwise inform it how fractional shares will be addressed, in accordance with Section 155 of the Delaware General Corporation Law. Each holder of a Right will be required to affirmatively convert his, her or its Rights in order to receive the one-tenth of a share underlying each Right (without paying any additional consideration) upon consummation of the Exchange Event. Each holder of a Right will be required to indicate his, her or its election to convert the Rights into the underlying shares as well as to return the original certificates evidencing the Rights to the Company.

 

3.3.2.           Valid Issuance . All shares of Common Stock issued upon an Exchange Event in conformity with this Agreement, and registered on the Company’s register of members, shall be validly issued, fully paid and nonassessable.

 

 

 

 

3.3.3.           Date of Issuance . Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date that he is registered on the Company’s register of members.

 

3.3.4           Company Not Surviving Following Exchange Event . Upon an Exchange Event in which the Company does not continue as the publicly held reporting entity, the definitive agreement with the target business for a Business Combination will provide for the holders of Rights to receive the same per share consideration the holders of the shares of Common Stock will receive in such transaction, for the number of shares such holder is entitled to pursuant to Section 3.3.1 above.

 

3.5          Duration of Rights . If an Exchange Event does not occur within the time period set forth in the Company’s Amended and Restated Certificate of Incorporation, as the same may be amended from time to time, the Rights shall expire and shall be worthless.

 

4.            Transfer and Exchange of Rights .

 

4.1.          Registration of Transfer . The Right Agent shall register the transfer, from time to time, of any outstanding Right upon the Right Register, upon surrender of such Right for transfer, properly endorsed with signatures properly guaranteed and accompanied by appropriate instructions for transfer. Upon any such transfer, a new Right certificate representing an equal aggregate number of Rights shall be issued and the old Right certificate shall be cancelled by the Right Agent. The Right certificate(s) so cancelled shall be delivered by the Right Agent to the Company from time to time upon request.

 

4.2.          Procedure for Surrender of Rights . Rights may be surrendered to the Right Agent, together with a written request for exchange or transfer, and thereupon the Right Agent shall issue in exchange therefor one or more new Right certificate(s) as requested by the registered holder of the Rights so surrendered, representing an equal aggregate number of Rights; provided, however, that in the event that a Right surrendered for transfer bears a restrictive legend, the Right Agent shall not cancel such Right certificate and issue new Right certificate(s) in exchange therefor until the Right Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Right certificate(s) must also bear a restrictive legend.

 

 

 

 

4.3.           Fractional Rights . The Right Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a Right certificate for a fraction of a Right.

 

4.4.           Service Charges . No service charge shall be made for any exchange or registration of transfer of Rights.

 

4.5.           Adjustments to Conversion Ratios . The number of shares of Common Stock that the holders of Rights are entitled to receive as a result of the occurrence of an Exchange Event shall be equitably adjusted to reflect appropriately the effect of any share split, reverse share split, share dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to the shares of Common Stock occurring on or after the date hereof and prior to the Exchange Event.

 

4.6           Right Execution and Countersignature . The Right Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Agreement, the Rights required to be issued pursuant to the provisions of this Section 4, and the Company, whenever required by the Right Agent, will supply the Right Agent with Rights duly executed on behalf of the Company for such purpose.

 

5.            Other Provisions Relating to Rights of Holders of Rights .

 

5.1.           No Rights as Shareholder . Until exchange of a Right for shares of Common Stock as provided for herein, a Right does not entitle the registered holder thereof to any of the rights of a shareholder of the Company, including, without limitation, the right to receive dividends, or other distributions, exercise any preemptive rights to vote or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors of the Company or any other matter.

 

5.2.           Lost, Stolen, Mutilated, or Destroyed Right Certificate(s). If any Right certificate(s) is lost, stolen, mutilated, or destroyed, the Company and the Right Agent may on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Right certificate, include the surrender thereof), issue a new Right certificate of like denomination, tenor, and date as the Right certificate so lost, stolen, mutilated, or destroyed. Any such new Right certificate shall constitute a substitute contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed Right certificate shall be at any time enforceable by anyone.

 

 

 

 

5.3.          Reservation of Shares . The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exchange of all outstanding Rights issued pursuant to this Agreement.

 

6.            Concerning the Right Agent and Other Matters .

 

6.1.          Payment of Taxes . The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Right Agent in respect of the issuance or delivery of shares of Common Stock upon the exchange of Rights, but the Company shall not be obligated to pay any transfer taxes in respect of the Rights or such shares.

 

6.2.          Resignation, Consolidation, or Merger of Right Agent .

 

6.2.1.           Appointment of Successor Right Agent . The Right Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving sixty (60) days’ notice in writing to the Company. If the office of the Right Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Right Agent in place of the Right Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the Right Agent or by the holder of the Right (who shall, with such notice, submit his, her or its Right for inspection by the Company), then the holder of any Right may apply to the Supreme Court of the State of New York for the County of New York for the appointment of a successor Right Agent at the Company’s cost. Any successor Right Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing under the laws of the State of New York, in good standing and having its principal office in the Borough of Manhattan, City and State of New York, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After appointment, any successor Right Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Right Agent with like effect as if originally named as Right Agent hereunder, without any further act or deed; but if for any reason it becomes necessary or appropriate, the predecessor Right Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Right Agent all the authority, powers, and rights of such predecessor Right Agent hereunder; and upon request of any successor Right Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Right Agent all such authority, powers, rights, immunities, duties, and obligations.

 

 

 

 

6.2.2.           Notice of Successor Right Agent . In the event a successor Right Agent shall be appointed, the Company shall give notice thereof to the predecessor Right Agent and the transfer agent for the shares of Common Stock not later than the effective date of any such appointment.

 

6.2.3.           Merger or Consolidation of Right Agent . Any corporation into which the Right Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Right Agent shall be a party shall be the successor Right Agent under this Agreement without any further act.

 

6.3.          Fees and Expenses of Right Agent .

 

6.3.1.           Remuneration . The Company agrees to pay the Right Agent reasonable remuneration for its services as such Right Agent hereunder and will reimburse the Right Agent upon demand for all expenditures that the Right Agent may reasonably incur in the execution of its duties hereunder.

 

6.3.2.           Further Assurances . The Company agrees to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Right Agent for the carrying out or performing of the provisions of this Agreement.

 

 

 

 

6.4.          Liability of Right Agent .

 

6.4.1.           Reliance on Company Statement . Whenever in the performance of its duties under this Right Agreement, the Right Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement signed by the President, Chief Executive Officer or Chief Financial Officer and delivered to the Right Agent. The Right Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the provisions of this Agreement.

 

6.4.2.           Indemnity . The Right Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith. The Company agrees to indemnify the Right Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Right Agent in the execution of this Agreement except as a result of the Right Agent’s gross negligence, willful misconduct, or bad faith.

 

6.4.3.           Exclusions . The Right Agent shall have no responsibility with respect to the validity of this Agreement or with respect to the validity or execution of any Right (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Right or as to whether any shares of Common Stock will when issued be valid and fully paid and nonassessable.

 

6.5.          Acceptance of Agency . The Right Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth.

 

6.6          Waiver . The Right Agent hereby waives any right of set-off or any other right, title, interest or claim of any kind (“Claim”) in, or to any distribution of, the Trust Account (as defined in that certain Investment Management Trust Agreement, dated as of the date hereof, by and between the Company and the Right Agent as trustee thereunder) and hereby agrees not to seek recourse, reimbursement, payment or satisfaction for any Claim against the Trust Account for any reason whatsoever.

 

 

 

 

7.            Miscellaneous Provisions .

 

7.1.           Successors . All the covenants and provisions of this Agreement by or for the benefit of the Company or the Right Agent shall bind and inure to the benefit of their respective successors and assigns.

 

7.2.           Notices . Any notice, statement or demand authorized by this Right Agreement to be given or made by the Right Agent or by the holder of any Right to or on the Company shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Company with the Right Agent), as follows:

 

Black Ridge Acquisition Corp.

c/o Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, Minnesota 55403

Attn: Chief Executive Officer

 

Any notice, statement or demand authorized by this Agreement to be given or made by the holder of any Right or by the Company to or on the Right Agent shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Right Agent with the Company), as follows:

 

Continental Stock Transfer & Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Steve Nelson

 

 

 

 

with a copy (which shall not constitute notice) in each case to:

 

Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Attn: David Alan Miller, Esq.

 

and

 

Greenberg Traurig, LLP

Met Life Building

200 Park Avenue

New York, NY 10166

Attn: Alan I. Annex, Esq.

 

and

 

EarlyBirdCapital, Inc.

366 Madison Avenue

8 th Floor

New York, New York 10017

Attn: General Counsel and Investment Banking Department

Facsimile: 212-661-0200

 

7.3.           Applicable Law . The validity, interpretation, and performance of this Agreement and of the Rights shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. The Company hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.2 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim.

 

 

 

 

7.4.           Persons Having Rights under this Agreement . Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the registered holders of the Rights and, for the purposes of Sections 3, 7.4 and 7.8 hereof, the Representative, any right, remedy, or claim under or by reason of this Right Agreement or of any covenant, condition, stipulation, promise, or agreement hereof. The Representative shall be deemed to be a third-party beneficiary of this Agreement with respect to Sections 3, 7.4 and 7.8 hereof. All covenants, conditions, stipulations, promises, and agreements contained in this Right Agreement shall be for the sole and exclusive benefit of the parties hereto (and the Representative with respect to the Sections 3, 7.4 and 7.8 hereof) and their successors and assigns and of the registered holders of the Rights. The provisions of this Section 7.4 may not be modified, amended or deleted without the prior written consent of the Representative.

 

7.5.           Examination of the Right Agreement . A copy of this Agreement shall be available at all reasonable times at the office of the Right Agent in the Borough of Manhattan, City and State of New York, for inspection by the registered holder of any Right. The Right Agent may require any such holder to submit his, her or its Right for inspection by it.

 

7.6.           Counterparts . This Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

7.7.           Effect of Headings . The Section headings herein are for convenience only and are not part of this Right Agreement and shall not affect the interpretation thereof.

 

 

 

 

7.8           Amendments . This Agreement may be amended by the parties hereto without the consent of any registered holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Agreement as the parties may deem necessary or desirable and that the parties deem shall not adversely affect the interest of the registered holders. All other modifications or amendments shall require the written consent or vote of the registered holders of a majority of the then outstanding Rights. The provisions of this Section 7.8 may not be modified, amended or deleted without the prior written consent of the Representative.

 

7.9           Severability . This Right Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Right Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Right Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

  BLACK RIDGE ACQUISITION CORP.
     
  By: /s/ Ken DeCubellis
         Name:  Ken DeCubellis
         Title:    Chief Executive Officer
     
  CONTINENTAL STOCK TRANSFER & TRUST COMPANY
     
  By: /s/ Kevin Jennings
         Name:  Kevin Jennings
         Title:    Vice President

 

 

Exhibit 10.22

 

THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE OPTION AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE OPTION FOR A PERIOD OF 180 DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) EARLYBIRDCAPITAL, INC. (“ EBC ”) OR AN UNDERWRITER OR SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF EBC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER, EXCEPT IN ACCORDANCE WITH FINRA RULE 5110(G)(2). Additionally, pursuant to FINRA Conduct Rule 5110(g), the Purchase Option (or the COMMON STOCK, RIGHTS and Warrants underlying this Purchase Option) will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the Effective Date.

 

THIS PURCHASE OPTION IS NOT EXERCISABLE PRIOR TO THE LATER OF THE CONSUMMATION BY BLACK RIDGE ACQUISITION CORP. (“ COMPANY ”) OF A MERGER, SHARE EXCHANGE, ASSET ACQUISITION, SHARE PURCHASE, RECAPITALIZATION, REORGANIZATION OR OTHER SIMILAR BUSINESS COMBINATION WITH ONE OR MORE BUSINESSES OR ENTITIES (“ BUSINESS COMBINATION ”) (AS DESCRIBED MORE FULLY IN THE COMPANY’S REGISTRATION STATEMENT (DEFINED HEREIN)) AND __________, 2018. VOID AFTER 5:00 P.M. NEW YORK CITY LOCAL TIME, ON THE EXPIRATION DATE (DEFINED HEREIN).

 

UNIT PURCHASE OPTION

 

FOR THE PURCHASE OF

 

__________ UNITS

 

OF

 

BLACK RIDGE ACQUISITION CORP.

 

1.            Purchase Option .

 

THIS CERTIFIES THAT, in consideration of $___ duly paid by or on behalf of _________ (“ Holder ”), as registered owner of this Purchase Option, to Black Ridge Acquisition Corp. (“ Company ”), Holder is entitled, at any time or from time to time upon the later of the consummation of a Business Combination or ____________, 2018 (“ Commencement Date ”), and at or before 5:00 p.m., New York City local time, on the five year anniversary of the effective date (“ Effective Date ”) of the Company’s registration statement (“ Registration Statement ”) pursuant to which Units are offered for sale to the public (“ Offering ”), but not thereafter (“ Expiration Date ”), to subscribe for, purchase and receive, in whole or in part, up to ______________ (_______) units (“ Units ”) of the Company, each Unit consisting of one share of common stock of the Company, par value $0.0001 per share (“ Common Stock ”), one right (“ Right(s) ”) entitling the Holder to receive one tenth (1/10) of a share of Common Stock upon consummation of a Business Combination, and one warrant (“ Warrant(s) ”), each warrant to purchase one share of Common Stock.  Each Right is the same as the right included in the Units being registered for sale to the public by way of the Registration Statement. Each Warrant is the same as the warrant included in the Units being registered for sale to the public by way of the Registration Statement (“ Public Warrants ”).  If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Option may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. Notwithstanding anything to the contrary, neither this Purchase Option nor the Warrants underlying this Purchase Option may be exercisable after the five year anniversary of the Effective Date. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate the Purchase Option. This Purchase Option is initially exercisable at $11.50 per Unit so purchased; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Option, including the exercise price per Unit and the number of Units (and shares of Common Stock, Rights and Warrants) to be received upon such exercise, shall be adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context.

 

 

 

 

2.            Exercise.

 

2.1          Exercise Form . In order to exercise this Purchase Option, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Option and payment of the Exercise Price for the Units being purchased payable in cash or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., New York City local time, on the Expiration Date this Purchase Option shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

 

2.2          Legend . Each certificate for the securities purchased under this Purchase Option shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (“ Act ”):

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (“Act”) or applicable state law. The securities may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law.”

 

2.3          Cashless Exercise .

 

2.3.1            Determination of Amount . In lieu of the payment of the Exercise Price multiplied by the number of Units for which this Purchase Option is exercisable (and in lieu of being entitled to receive shares of Common Stock and Warrants) in the manner required by Section 2.1, and subject to Section 6.1 hereof, the Holder shall have the right (but not the obligation) to convert any exercisable but unexercised portion of this Purchase Option into Units (“ Cashless Exercise Right ”) as follows:  upon exercise of the Cashless Exercise Right, the Company shall deliver to the Holder (without payment by the Holder of any of the Exercise Price in cash) that number of Units (or that number of shares of Common Stock, Rights and Warrants comprising that number of Units) equal to the number of Units to be exercised multiplied by the quotient obtained by dividing (x) the “Value” (as defined below) of the portion of the Purchase Option being exercised by (y) the Current Market Value (as defined below).  The “Value” of the portion of the Purchase Option being exercised shall equal the remainder derived from subtracting (a) (i) the Exercise Price multiplied by (ii) the number of Units underlying the portion of this Purchase Option being exercised from (b) the Current Market Value of a Unit multiplied by the number of Units underlying the portion of the Purchase Option being exercised.  As used herein, the term “Current Market Value” per Unit at any date means: (A) in the event that the Units, Common Stock and Public Warrants are still trading, (i) if the Units are listed on a national securities exchange or quoted on the OTC Bulletin Board (or successor exchange), the average reported last sale price of the Units in the principal trading market for the Units as reported by the exchange, Nasdaq or the Financial Industry Regulatory Authority (“ FINRA ”), as the case may be, for the three trading days preceding the date in question; or (ii) if the Units are not listed on a national securities exchange or quoted on the OTC Bulletin Board (or successor exchange), but is traded in the residual over-the-counter market, the average reported last sale price for Units for the three trading days preceding the date in question for which such quotations are reported by the Pink Sheets, LLC or similar publisher of such quotations; (B) in the event that the Units are not still trading but the Common Stock and Public Warrants underlying the Units are still trading, the aggregate of (i) the product of (x) the Current Market Price of the Common Stock and (y) the number of shares of Common Stock underlying one Unit (which shall include the portion of a share of Common Stock the holder of a Unit would automatically receive in connection with the Right included in each such Unit) plus (ii) the product of (x) the Current Market Price of the Public Warrants and (y) the number of the Warrants included in one Unit; or (C) in the event that neither the Units nor Public Warrants are still trading, the aggregate of (i) the product of (x) the Current Market Price of the Common Stock and (y) the number of shares of Common Stock underlying one Unit (which shall include the portion of a share of Common Stock the holder of a Unit would automatically receive in connection with the Right included in each such Unit) plus (ii) the remainder derived from subtracting (x) the exercise price of the Warrants multiplied by the number of shares of Common Stock issuable upon exercise of the Warrants underlying one Unit from (y) the product of (aa) the Current Market Price of the Common Stock multiplied by (bb) the number of shares of Common Stock underlying the Warrants included in each such Unit. The “ Current Market Price ” shall mean (i) if the Common Stock (or Public Warrants, as the case may be) is listed on a national securities exchange or quoted on the OTC Bulletin Board (or successor exchange), the average reported last sale price of the Common Stock (or Public Warrants) in the principal trading market for the Common Stock (or Public Warrants) as reported by the exchange, Nasdaq or FINRA, as the case may be, for the three trading days preceding the date in question; (ii) if the Common Stock (or Public Warrants, as the case may be) is not listed on a national securities exchange or quoted on the OTC Bulletin Board (or successor exchange), but is traded in the residual over-the-counter market, the average reported last sale price for the Common Stock (or Public Warrants) on for the three trading days preceding the date in question for which such quotations are reported by the Pink Sheets, LLC or similar publisher of such quotations; and (iii) if the fair market value of the Common Stock cannot be determined pursuant to clause (i) or (ii) above, such price as the Board of Directors of the Company shall determine, in good faith.  In the event the Public Warrants have expired and are no longer exercisable, no “Value” shall be attributed to the Warrants underlying this Purchase Option or Common Stock issuable upon exercise of the Warrant.

 

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2.3.2            Mechanics of Cashless Exercise . The Cashless Exercise Right may be exercised by the Holder on any business day on or after the Commencement Date and not later than the Expiration Date by delivering the Purchase Option with the duly executed exercise form attached hereto with the cashless exercise section completed to the Company, exercising the Cashless Exercise Right and specifying the total number of Units the Holder will purchase pursuant to such Cashless Exercise Right.

 

2.4          No Obligation to Net Cash Settle . Notwithstanding anything to the contrary contained in this Purchase Option, in no event will the Company be required to net cash settle the exercise of the Purchase Option or the Rights and Warrants underlying the Purchase Option. The holder of the Purchase Option and the Warrants underlying the Purchase Option will not be entitled to exercise the Purchase Option or the Warrants underlying such Purchase Option unless it exercises such Purchase Option pursuant to the Cashless Exercise Right or a registration statement is effective, or an exemption from the registration requirements is available at such time and, if the holder is not able to exercise the Purchase Option or underlying Warrants, the Purchase Option and/or the underlying Warrants, as applicable, will expire worthless.

 

3.            Transfer .

 

3.1          General Restrictions . The registered Holder of this Purchase Option, by its acceptance hereof, agrees that it will not sell, transfer, assign, pledge or hypothecate this Purchase Option (or the Common Stock, Rights and Warrants underlying this Purchase Option) for a period of 180 days pursuant to FINRA Conduct Rule 5110(g)(1) following the Effective Date to anyone other than (i) EBC or an underwriter or selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of EBC or of any such underwriter or selected dealer. Additionally, pursuant to FINRA Conduct Rule 5110(g), the Purchase Option (or the Common Stock, Rights and Warrants underlying this Purchase Option) will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the Effective Date. On and after the 181 st day following the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Option and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five business days transfer this Purchase Option on the books of the Company and shall execute and deliver a new Purchase Option or Purchase Options of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Units purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

 

3.2          Restrictions Imposed by the Act . The securities evidenced by this Purchase Option shall not be transferred unless and until (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of Graubard Miller shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to such securities has been filed by the Company and declared effective by the Securities and Exchange Commission (the “ Commission ”) and compliance with applicable state securities law has been established.

 

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4.             New Purchase Options to be Issued .

 

4.1          Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Option may be exercised or assigned in whole or in part.  In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Option for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price (except to the extent that the Holder elects to exercise this Purchase Option by means of a cashless exercise as provided in Section 2.3 above) and/or transfer tax, the Company shall cause to be delivered to the Holder without charge a new Purchase Option of like tenor to this Purchase Option in the name of the Holder evidencing the right of the Holder to purchase the number of Units purchasable hereunder as to which this Purchase Option has not been exercised or assigned.

 

4.2          Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Option and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Option of like tenor and date. Any such new Purchase Option executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

     

5.             Registration Rights .

 

5.1          Demand Registration .

 

5.1.1            Grant of Right . The Company, upon written demand (“ Initial Demand Notice ”) of the Holder(s) of at least 51% of the Purchase Options and/or the underlying Units and/or the underlying securities (“ Majority Holders ”), agrees to use its best efforts to register (the “ Demand Registration ”) under the Act on one occasion, all or any portion of the Purchase Options requested by the Majority Holders in the Initial Demand Notice and all of the securities underlying such Purchase Options, including the Units, Common Stock, the Warrants and the Common Stock underlying the Rights and Warrants (collectively, the “ Registrable Securities ”). On such occasion, the Company will use its best efforts to file a registration statement or a post-effective amendment to the Registration Statement covering the Registrable Securities within sixty days after receipt of the Initial Demand Notice and use its best efforts to have such registration statement or post-effective amendment declared effective as soon as possible thereafter. The demand for registration may be made at any time during a period of five years beginning on the Effective Date.  The Initial Demand Notice shall specify the number of shares of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. The Company will notify all holders of the Purchase Options and/or Registrable Securities of the demand within ten days from the date of the receipt of any such Initial Demand Notice. Each holder of Registrable Securities who wishes to include all or a portion of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable Securities in such registration, a “ Demanding Holder ”) shall so notify the Company within fifteen (15) days after the receipt by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have their Registrable Securities included in the Demand Registration, subject to Section 5.1.4. The Company shall not be obligated to effect more than one (1) Demand Registration under this Section 5.1 in respect of all Registrable Securities.

 

5.1.2            Effective Registration . A registration will not count as a Demand Registration until the registration statement filed with the Commission with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations under this Agreement with respect thereto.

 

5.1.3            Underwritten Offering . If the Majority Holders so elect and such holders so advise the Company as part of the Initial Demand Notice, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. In such event, the right of any holder to include its Registrable Securities in such registration shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s Registrable Securities in the underwriting to the extent provided herein. All Demanding Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Majority Holders.

 

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5.1.4            Reduction of Offering . If the managing underwriter or underwriters for a Demand Registration that is to be an underwritten offering advises the Company and the Demanding Holders in writing that the dollar amount or number of shares of Registrable Securities which the Demanding Holders desire to sell, taken together with all other Common Stock or other securities which the Company desires to sell and the Common Stock, if any, as to which registration has been requested pursuant to written contractual piggy-back registration rights held by other stockholders of the Company who desire to sell, exceeds the maximum dollar amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of shares, as applicable, the “ Maximum Number of Shares ”), then the Company shall include in such registration: (i) first, the Registrable Securities as to which Demand Registration has been requested by the Demanding Holders (pro rata in accordance with the number of shares that each such Person has requested be included in such registration, regardless of the number of shares held by each such Person (such proportion is referred to herein as “ Pro Rata ”)) that can be sold without exceeding the Maximum Number of Shares; (ii) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (i), the Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (iii) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (i) and (ii), the Common Stock or other securities registrable pursuant to the terms of the Registration Rights Agreement between the Company and the initial investors in the Company, dated as of ____________, 2017 (the “ Registration Rights Agreement ” and such registrable securities, the “ Investor Securities ”) as to which “piggy-back” registration has been requested by the holders thereof, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (iv) fourth, to the extent that the Maximum Number of Shares have not been reached under the foregoing clauses (i), (ii), and (iii), the Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons and that can be sold without exceeding the Maximum Number of Shares.

 

5.1.5            Withdrawal . If a majority-in-interest of the Demanding Holders disapprove of the terms of any underwriting or are not entitled to include all of their Registrable Securities in any offering, such majority-in-interest of the Demanding Holders may elect to withdraw from such offering by giving written notice to the Company and the underwriter or underwriters of their request to withdraw prior to the effectiveness of the registration statement filed with the Commission with respect to such Demand Registration. If the majority-in-interest of the Demanding Holders withdraws from a proposed offering relating to a Demand Registration, then the Company does not have to continue its obligations under Section 5.1 with respect to such proposed offering.

 

5.1.6            Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities, including the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but the Holders shall pay any and all underwriting commissions. The Company agrees to use its reasonable best efforts to qualify or register the Registrable Securities in such states as are reasonably requested by the Majority Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a state in which such registration would cause (i) the Company to be obligated to qualify to do business in such state, or would subject the Company to taxation as a foreign corporation doing business in such jurisdiction or (ii) the principal stockholders of the Company to be obligated to escrow their shares of Common Stock of the Company. The Company shall use its best efforts to cause any registration statement or post-effective amendment filed pursuant to the demand rights granted under Section 5.1.1 to remain effective for a period of nine consecutive months from the effective date of such registration statement or post-effective amendment.

 

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5.2          Piggy-Back Registration .

 

5.2.1            Piggy-Back Rights . If at any time during the seven year period commencing on the Effective Date the Company proposes to file a registration statement under the Act with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for stockholders of the Company for their account (or by the Company and by stockholders of the Company including, without limitation, pursuant to Section 5.1), other than a registration statement (i) filed in connection with any employee share option or other benefit plan, (ii) for an exchange offer or offering of securities solely to the Company’s existing stockholders, (iii) for an offering of debt that is convertible into equity securities of the Company or (iv) for a dividend reinvestment plan, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities as soon as practicable but in no event less than ten (10) days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of shares of Registrable Securities as such holders may request in writing within five (5) days following receipt of such notice (a “ Piggy-Back Registration ”). The Company shall cause such Registrable Securities to be included in such registration and shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities proposing to distribute their securities through a Piggy-Back Registration that involves an underwriter or underwriters shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration.

 

5.2.2            Reduction of Offering . If the managing underwriter or underwriters for a Piggy-Back Registration that is to be an underwritten offering advises the Company and the holders of Registrable Securities in writing that the dollar amount or number of shares of Common Stock which the Company desires to sell, taken together with Common Stock, if any, as to which registration has been demanded pursuant to written contractual arrangements with persons other than the holders of Registrable Securities hereunder, the Registrable Securities as to which registration has been requested under this Section 5.2, and the Common Stock, if any, as to which registration has been requested pursuant to the written contractual piggy-back registration rights of other stockholders of the Company, exceeds the Maximum Number of Shares, then the Company shall include in any such registration:

 

(a)           If the registration is undertaken for the Company’s account: (A) first, the Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the Common Stock or other securities, if any, comprised of  Registrable Securities and Investor Securities, as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights of such security holders, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (C) third, to the extent that the Maximum Number of shares has not been reached under the foregoing clauses (A) and (B), the Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual piggy-back registration rights with such persons and that can be sold without exceeding the Maximum Number of Shares;

 

(b)           If the registration is a Demand Registration undertaken at the demand of holders of Investor Securities, (A) first, the Common Stock or other securities for the account of the demanding persons, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Registrable Securities, Pro Rata, as to which registration has been requested pursuant to the terms hereof, that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C), the Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number of Shares; and

 

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(c)           If the registration is a Demand Registration undertaken at the demand of persons other than either the holders of Registrable Securities or of Investor Securities, (A) first, the Common Stock or other securities for the account of the demanding persons that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), collectively the Common Stock or other securities comprised of Registrable Securities and Investor Securities, Pro Rata, as to which registration has been requested pursuant to the terms hereof and of the Registration Rights Agreement, as applicable, that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C), the Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number of Shares.

 

5.2.3            Withdrawal . Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the registration statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a registration statement at any time prior to the effectiveness of the registration statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 5.2.4.

 

5.2.4            Terms . The Company shall bear all fees and expenses attendant to registering the Registrable Securities, including the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities but the Holders shall pay any and all underwriting commissions related to the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than fifteen days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each applicable registration statement filed (during the period in which the Purchase Option is exercisable) by the Company until such time as all of the Registrable Securities have been registered and sold. The Holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice, within ten days of the receipt of the Company’s notice of its intention to file a registration statement. The Company shall use its best efforts to cause any registration statement filed pursuant to the above “piggyback” rights to remain effective for at least nine months from the date that the Holders of the Registrable Securities are first given the opportunity to sell all of such securities.

 

5.3          General Terms .

 

5.3.1            Indemnification . The Company shall, to the fullest extent permitted by applicable law, indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against litigation, commenced or threatened, or any claim whatsoever whether arising out of any action between the underwriter and the Company or between the underwriter and any third party or otherwise) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the underwriters contained in Section 5 of the Underwriting Agreement between the Company, EBC and the other underwriters named therein dated the Effective Date. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5 of the Underwriting Agreement pursuant to which the underwriters have agreed to indemnify the Company.

 

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5.3.2            Exercise of Purchase Options . Nothing contained in this Purchase Option shall be construed as requiring the Holder(s) to exercise their Purchase Options or Warrants underlying such Purchase Options prior to or after the initial filing of any registration statement or the effectiveness thereof.

 

5.3.3            Documents Delivered to Holders . The Company shall furnish EBC, as representative of the Holders participating in any of the foregoing offerings, a signed counterpart, addressed to the participating Holders, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) if such registration statement is filed in connection of an underwritten public offering, a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to EBC, as representative of the Holders participating in the offering, the correspondence and memoranda described below and copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit EBC, as representative of the Holders, to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as EBC, as representative of the Holders, shall reasonably request. The Company shall not be required to disclose any confidential information or other records to EBC, as representative of the Holders, or to any other person, until and unless such persons shall have entered into reasonable confidentiality agreements (in form and substance reasonably satisfactory to the Company), with the Company with respect thereto.

 

5.3.4            Underwriting Agreement . The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 5, which managing underwriter shall be reasonably acceptable to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. Such Holders, however, shall agree to such covenants and indemnification and contribution obligations for selling stockholders as are customarily contained in agreements of that type used by the managing underwriter. Further, such Holders shall execute appropriate custody agreements and otherwise cooperate fully in the preparation of the registration statement and other documents relating to any offering in which they include securities pursuant to this Section 5. Each Holder shall also furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of the Registrable Securities.

 

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5.3.5            Rule 144 Sale . Notwithstanding anything contained in this Section 5 to the contrary, the Company shall have no obligation pursuant to Sections 5.1 or 5.2 to use its best efforts to obtain the registration of Registrable Securities held by any Holder (i) where such Holder would then be entitled to sell under Rule 144 within any three-month period (or such other period prescribed under Rule 144 as may be provided by amendment thereof) all of the Registrable Securities then held by such Holder, and (ii) where the number of Registrable Securities held by such Holder is within the volume limitations under paragraph (e) of Rule 144 (calculated as if such Holder were an affiliate within the meaning of Rule 144).

 

5.3.6            Supplemental Prospectus . Each Holder agrees, that upon receipt of any notice from the Company of the happening of any event as a result of which the prospectus included in the registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, such Holder will immediately discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder’s receipt of the copies of a supplemental or amended prospectus, and, if so desired by the Company, such Holder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of such destruction) all copies, other than permanent file copies then in such Holder’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

 

6.            Adjustments.

 

6.1          Adjustments to Exercise Price and Number of Securities . The Exercise Price and the number of Units underlying the Purchase Option shall be subject to adjustment from time to time as hereinafter set forth:

 

6.1.1            Share Dividends - Split-Ups . If after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding shares of Common Stock is increased by a share dividend payable in Common Stock or by a split-up of Common Stock or other similar event, then, on the effective date thereof, the number of shares of Common Stock underlying each of the Units purchasable hereunder shall be increased in proportion to such increase in outstanding shares. In such case, the number of shares of Common Stock, and the exercise price applicable thereto, underlying the Warrants underlying each of the Units purchasable hereunder shall be adjusted in accordance with the terms of the Warrants.

 

6.1.2            Aggregation of Shares . If after the date hereof, and subject to the provisions of Section 6.3, the number of outstanding shares of Common Stock is decreased by a consolidation, combination or reclassification of Common Stock or other similar event, then, on the effective date thereof, the number of shares of Common Stock underlying each of the Units purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares. In such case, the number of shares of Common Stock, and the exercise price applicable thereto, underlying the Warrants underlying each of the Units purchasable hereunder shall be adjusted in accordance with the terms of the Warrants.

 

6.1.3            Replacement of Securities upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding Common Stock other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Common Stock, or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Common Stock), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Option shall have the right thereafter (until the expiration of the right of exercise of this Purchase Option) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of shares of Common Stock of the Company obtainable upon exercise of this Purchase Option and the underlying Rights and Warrants immediately prior to such event; and if any reclassification also results in a change in Common Stock covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers.

 

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6.1.4            Changes in Form of Purchase Option . This form of Purchase Option need not be changed because of any change pursuant to this Section, and Purchase Options issued after such change may state the same Exercise Price and the same number of Units as are stated in the Purchase Options initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Options reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.

 

6.2          Substitute Purchase Option . In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental Purchase Option providing that the holder of each Purchase Option then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Option) to receive, upon exercise of such Purchase Option, the kind and amount of shares and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such Purchase Option might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental Purchase Option shall provide for adjustments which shall be identical to the adjustments provided in Section 6. The above provision of this Section shall similarly apply to successive consolidations or mergers.

 

6.3          Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of shares of Common Stock or Rights or Warrants upon the exercise of the Purchase Option, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down to the nearest whole number of Warrants, Rights or shares of Common Stock or other securities, properties or rights (or as otherwise provided pursuant to the Warrants Agreement and Rights Agreement, as the case may be).

 

7.             Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issuance upon exercise of the Purchase Options or the Rights and Warrants underlying the Purchase Option, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Options and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. The Company further covenants and agrees that upon exercise of the Warrants underlying the Purchase Options and payment of the respective Warrant exercise price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Options shall be outstanding, the Company shall use its best efforts to cause all (i) Units and Common Stock issuable upon exercise of the Purchase Options (including the Common Stock underlying the Rights), (ii) Warrants issuable upon exercise of the Purchase Options, (iii) Common Stock issuable upon conversion of the Rights included in the Units issuable upon exercise of the Purchase Option and (iv) Common Stock issuable upon exercise of the Warrants included in the Units issuable upon exercise of the Purchase Option to be listed (subject to official notice of issuance) on all securities exchanges (or, if applicable on the OTC Bulletin Board or any successor trading market) on which the Units, the Common Stock or the Public Warrants issued to the public in connection herewith may then be listed and/or quoted.

 

  10  

 

 

8.             Certain Notice Requirements .

 

8.1          Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or consent as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Options and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.

 

8.2          Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, or (ii) the Company shall offer to all the holders of its Common Stock any additional shares of the Company or securities convertible into or exchangeable for shares of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business shall be proposed.

 

8.3          Notice of Change in Exercise Price . The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s President and Chief Financial Officer.

 

8.4          Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Option shall be in writing and shall be deemed to have been duly made when hand delivered, or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Option, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to the following address or to such other address as the Company may designate by notice to the Holders:

 

Black Ridge Acquisition Corp.

110 North 5th Street

Suite 410

Minneapolis, MN 55403

Attn: Ken DeCubellis, Chief Executive Officer

Email: _______________

 

9.             Miscellaneous.

 

9.1          Amendments . The Company and EBC may from time to time supplement or amend this Purchase Option without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and EBC may deem necessary or desirable and that the Company and EBC deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

 

9.2          Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Option.

 

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9.3          Entire Agreement . This Purchase Option (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Option) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

9.4          Binding Effect . This Purchase Option shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Option or any provisions herein contained.

 

9.5          Governing Law; Submission to Jurisdiction . This Purchase Option shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Option shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.

 

9.6          Waiver, Etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Option shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Option or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Option shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach or non-compliance.

 

9.7          Execution in Counterparts . This Purchase Option may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto.

 

9.8          Exchange Agreement . As a condition of the Holder’s receipt and acceptance of this Purchase Option, Holder agrees that, at any time prior to the complete exercise of this Purchase Option by Holder, if the Company and EBC enter into an agreement (“ Exchange Agreement ”) pursuant to which they agree that all outstanding Purchase Options will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

 

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IN WITNESS WHEREOF, the Company has caused this Purchase Option to be signed by its duly authorized officer as of the ____ day of __________, 2017.

 

  BLACK RIDGE ACQUISITION CORP.
     
  By:  
    Name:
    Title:

 

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Form to be used to exercise Purchase Option:

 

Black Ridge Acquisition Corp.

110 North 5th Street

Suite 410

Minneapolis, MN 55403

Attn: Ken DeCubellis

 

Date:_________________, 20___

 

The undersigned hereby elects irrevocably to exercise all or a portion of the within Purchase Option and to purchase ____ Units of Black Ridge Acquisition Corp. and hereby makes payment of $____________ (at the rate of $11.50 per Unit) in payment of the Exercise Price pursuant thereto. Please issue the securities as to which this Purchase Option is exercised in accordance with the instructions given below.

or

 

The undersigned hereby elects irrevocably to convert its right to purchase _________ Units purchasable under the within Purchase Option by surrender of the unexercised portion of the attached Purchase Option (with a “Value” based of $_______ based on a “Market Price” of $_______). Please issue the securities comprising the Units as to which this Purchase Option is exercised in accordance with the instructions given below.

 

 

  NOTICE:  The signature to this assignment must correspond with the name as written upon the face of the purchase option in every particular, without alteration or enlargement or any change whatever.

 

Signature(s) Guaranteed:

 

 

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15).

 

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

 

Name

 

 
(Print in Block Letters)

 

Address

 

 

 

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Form to be used to assign Purchase Option:

 

ASSIGNMENT

 

(To be executed by the registered Holder to effect a transfer of the within Purchase Option):

 

FOR VALUE RECEIVED,______________________________________________ does hereby sell, assign and transfer unto___________________________________________ the right to purchase __________ Units of Black Ridge Acquisition Corp. (“ Company ”) evidenced by the within Purchase Option and does hereby authorize the Company to transfer such right on the books of the Company.

 

Dated: ___________________, 20__

 

   
  Signature
   
   
  NOTICE:  The signature to this assignment must correspond with the name as written upon the face of the purchase option in every particular, without alteration or enlargement or any change whatever.

 

Signature(s) Guaranteed:

 

 

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15).

 

  15  

Exhibit 10.23

 

____________ __, 2017 

 

Black Ridge Acquisition Corp. 

c/o Black Ridge Oil & Gas, Inc. 

110 North 5 th Street, Suite 410 

Minneapolis, Minnesota 55403 

 

EarlyBirdCapital, Inc. 

366 Madison Avenue, 8 th Floor 

New York, New York 10017 

 

Re:   Initial Public Offering 

 

Gentlemen: 

 

This letter is being delivered to you in accordance with the Underwriting Agreement (the “ Underwriting Agreement ”) entered into by and between Black Ridge Acquisition Corp., a Delaware corporation (the “ Company ”), and EarlyBirdCapital, Inc. as representative (the “ Representative ”) of the several Underwriters named in Schedule I thereto (the “ Underwriters ”), relating to an underwritten initial public offering (the “ IPO ”) of the Company’s units (the “ Units ”), each comprised of one share of the Company’s common stock, par value $0.0001 per share (the “ Common Stock ”), one right to receive one-tenth of one share of Common Stock (each, a “Right”) and one warrant, each whole warrant exercisable for one share of Common Stock (each, a “ Warrant ”). Certain capitalized terms used herein are defined in paragraph 13 hereof. 

 

In order to induce the Company and the Underwriters to enter into the Underwriting Agreement and to proceed with the IPO, and in recognition of the benefit that such IPO will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby agrees with the Company as follows: 

 

1.       If the Company solicits approval of its stockholders of a Business Combination, the undersigned will vote all shares of Common Stock beneficially owned by him, whether acquired before, in or after the IPO, in favor of such Business Combination. 

 

 

 

 

2.       In the event that the Company fails to consummate a Business Combination within the time period set forth in the Company’s Certificate of Incorporation, as the same may be amended from time to time, the undersigned will, as promptly as possible, cause the Company to (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible, but not more than 10 business days thereafter, redeem 100% of the Common Stock sold as part of the Units in the IPO (the “Offering Shares”), at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the Trust Account not previously released to the Company to pay its income and other taxes, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the cases of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and other requirements of applicable law. The undersigned hereby waives any and all right, title, interest or claim of any kind in or to any distribution of the Trust Account and any remaining net assets of the Company as a result of such liquidation with respect to his shares of Founders’ Common Stock (“Claim”) and hereby waives any Claim the undersigned may have in the future as a result of, or arising out of, any contracts or agreements with the Company and will not seek recourse against the Trust Account for any reason whatsoever. The undersigned acknowledges and agrees that there will be no distribution from the Trust Account with respect to any Warrants or Rights, all rights of which will terminate on the Company’s liquidation. 

 

3.       The undersigned acknowledges and agrees that prior to entering into a Business Combination with a target business that is affiliated with any Insiders of the Company or their affiliates, such transaction must be approved by a majority of the Company’s disinterested independent directors and the Company must obtain an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business the Company is seeking to acquire, that such Business Combination is fair to the Company’s unaffiliated stockholders from a financial point of view. 

 

4.       Neither the undersigned, any member of the family of the undersigned, nor any affiliate of the undersigned will be entitled to receive and will not accept any compensation or other cash payment prior to, or for services rendered in order to effectuate, the consummation of the Business Combination; provided that the Company shall be allowed to make the payments set forth in the Registration Statement under the caption “Prospectus Summary – The Offering – Limited payments to insiders.” Notwithstanding the foregoing, the undersigned and any affiliate of the undersigned shall be entitled to reimbursement from the Company for their out-of-pocket expenses incurred in connection with identifying, investigating and consummating a Business Combination. 

 

5.       Neither the undersigned, any member of the family of the undersigned, nor any affiliate of the undersigned will be entitled to receive or accept a finder’s fee or any other compensation in the event the undersigned, any member of the family of the undersigned or any affiliate of the undersigned originates a Business Combination. 

 

2  

 

 

6.       The undersigned will place into escrow all of his shares of Founders’ Common Stock, if any, pursuant to the terms of a Stock Escrow Agreement which the Company will enter into with the undersigned and an escrow agent. 

 

7.       (a)      In order to minimize potential conflicts of interest that may arise from multiple corporate affiliations, the undersigned hereby agrees that until the earliest of the Company’s initial Business Combination or liquidation, the undersigned shall present to the Company for its consideration, prior to presentation to any other entity, any target business that has a fair market value of at least 80% of the assets held in the Trust Account (excluding deferred underwriting commissions and taxes payable on the income accrued on the Trust Account), subject to any pre-existing fiduciary or contractual obligations the undersigned might have. 

 

(b)     The undersigned hereby agrees and acknowledges that (i) each of the Underwriters and the Company may be irreparably injured in the event of a breach of any of the obligations contained in this letter, (ii) monetary damages may not be an adequate remedy for such breach and (iii) the non-breaching party shall be entitled to injunctive relief, in addition to any other remedy that such party may have in law or in equity, in the event of such breach. 

 

8.       The undersigned agrees to be an Officer and/or Director of the Company until the earlier of the consummation by the Company of a Business Combination or the liquidation of the Company. The undersigned’s biographical information previously furnished to the Company and the Representative is true and accurate in all respects, does not omit any material information with respect to the undersigned’s background and contains all of the information required to be disclosed pursuant to Item 401 of Regulation S-K, promulgated under the Securities Act of 1933. The undersigned’s FINRA Questionnaire previously furnished to the Company and the Representative is true and accurate in all respects. The undersigned represents and warrants that: 

 

(a) he is not subject to, or a respondent in, any legal action for, any injunction, cease-and-desist order or order or stipulation to desist or refrain from any act or practice relating to the offering of securities in any jurisdiction;

 

(b) he has never been convicted of or pleaded guilty to any crime (i) involving any fraud or (ii) relating to any financial transaction or handling of funds of another person, or (iii) pertaining to any dealings in any securities and he is not currently a defendant in any such criminal proceeding; and

 

(c) he has never been suspended or expelled from membership in any securities or commodities exchange or association or had a securities or commodities license or registration denied, suspended or revoked.

 

9.         The undersigned has full right and power, without violating any agreement by which he is bound, to enter into this letter agreement and to serve as an Officer and/or Director of the Company.

 

3  

 

 

10.       The undersigned hereby waives his right to exercise conversion rights with respect to any shares of the Company’s common stock owned or to be owned by the undersigned, directly or indirectly (or to sell such shares to the Company in a tender offer), whether such shares be part of the Founders’ Common Stock or shares purchased by the undersigned in the IPO or in the aftermarket, and agrees that he will not seek conversion with respect to such shares in connection with any vote to approve a Business Combination (or sell such shares to the Company in a tender offer in connection with such a Business Combination). 

 

11.       The undersigned hereby agrees to not propose, or vote in favor of, an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the ability of holders of IPO Shares to convert or sell their shares to the Company in connection with a Business Combination or affect the substance or timing of the Company’s obligation to redeem 100% of the IPO Shares if the Company does not complete a Business Combination within the time period set forth in the Company’s Amended and Restated Certificate of Incorporation unless the Company provides public stockholders with the opportunity to convert their IPO Shares upon such approval in accordance with the charter. 

 

12.       This letter agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction . The undersigned hereby (i) agrees that any action, proceeding or claim against him arising out of or relating in any way to this letter agreement (a “Proceeding”) shall be brought and enforced in the courts of the State of New York of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive, (ii) waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum and (iii) irrevocably agrees to appoint Graubard Miller as agent for the service of process in the State of New York to receive, for the undersigned and on his behalf, service of process in any Proceeding. If for any reason such agent is unable to act as such, the undersigned will promptly notify the Company and the Representative and appoint a substitute agent acceptable to each of the Company and the Representative within 30 days and nothing in this letter will affect the right of either party to serve process in any other manner permitted by law. 

 

13.       As used herein, (i) a “Business Combination” shall mean a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities; (ii) “Insiders” shall mean all officers, directors and sponsors of the Company immediately prior to the IPO; (iii) “Founders’ Common Stock” shall mean all of the shares of Common Stock of the Company acquired by an Insider prior to the IPO; (iv) “IPO Shares” shall mean the shares of Common Stock issued in the Company’s IPO; (v) “Private Units” shall mean the units that are being sold privately by the Company simultaneously with the consummation of the IPO; (vi) “Trust Account” shall mean the trust account into which a portion of the net proceeds of the Company’s IPO will be deposited; and (vii) “Registration Statement” means the Company’s registration statement on Form S-1 (SEC File No. 333-220516) filed with the Securities and Exchange Commission. 

 

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14.       This Letter Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby. This Letter Agreement may not be changed, amended, modified or waived (other than to correct a typographical error) as to any particular provision, except by a written instrument executed by all parties hereto. 

 

15.       The undersigned acknowledges and understands that the Underwriters and the Company will rely upon the agreements, representations and warranties set forth herein in proceeding with the IPO. Nothing contained herein shall be deemed to render the Underwriters a representative of, or a fiduciary with respect to, the Company, its stockholders or any creditor or vendor of the Company with respect to the subject matter hereof. 

 

16.       This letter agreement shall be binding on the undersigned and such person’s respective successors, heirs, personal representatives and assigns. This letter agreement shall terminate on the earlier of (i) the consummation of a Business Combination and (ii) the liquidation of the Company; provided , that such termination shall not relieve the undersigned from liability for any breach of this agreement prior to its termination. 

 

[Signature Page Follows]

 

5  

 

 

    Print Name of Insider  
       
    Signature  
       
    Acknowledged and Agreed:  
       
    Black Ridge Acquisition Corp.  
       
  By:     
    Name:  
    Title:  

 

6  

 

____________ __, 2017

 

Black Ridge Acquisition Corp.

c/o Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, Minnesota 55403

 

EarlyBirdCapital, Inc.

366 Madison Avenue, 8 th Floor

New York, New York 10017

 

Re:        Initial Public Offering

 

Gentlemen:

 

This letter is being delivered to you in accordance with the Underwriting Agreement (the “ Underwriting Agreement ”) entered into by and between Black Ridge Acquisition Corp., a Delaware corporation (the “ Company ”), and EarlyBirdCapital, Inc. as representative (the “ Representative ”) of the several Underwriters named in Schedule I thereto (the “ Underwriters ”), relating to an underwritten initial public offering (the “ IPO ”) of the Company’s units (the “ Units ”), each comprised of one share of the Company’s common stock, par value $0.0001 per share (the “ Common Stock ”), one right to receive one-tenth of one share of Common Stock (each, a “ Right ”) and one warrant, each whole warrant exercisable for one share of Common Stock (each, a “ Warrant ”). Certain capitalized terms used herein are defined in paragraph 14 hereof.

 

In order to induce the Company and the Underwriters to enter into the Underwriting Agreement and to proceed with the IPO, and in recognition of the benefit that such IPO will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the undersigned hereby agrees with the Company as follows:

 

1.            If the Company solicits approval of its stockholders of a Business Combination, each of the undersigned will vote all shares of Common Stock beneficially owned by it, whether acquired before, in or after the IPO, in favor of such Business Combination.

 

 

 

2.            In the event that the Company fails to consummate a Business Combination within the time period set forth in the Company’s Certificate of Incorporation, as the same may be amended from time to time, each of the undersigned will, as promptly as possible, cause the Company to (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible, but not more than 10 business days thereafter, redeem 100% of the Common Stock sold as part of the Units in the IPO (the “Offering Shares”), at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the Trust Account not previously released to the Company to pay its income and other taxes, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the cases of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and other requirements of applicable law. Each of the undersigned hereby waives any and all right, title, interest or claim of any kind in or to any distribution of the Trust Account and any remaining net assets of the Company as a result of such liquidation with respect to the shares of Founders’ Common Stock owned by the undersigned (“Claim”) and hereby waives any Claim the undersigned may have in the future as a result of, or arising out of, any contracts or agreements with the Company and will not seek recourse against the Trust Account for any reason whatsoever. In the event of the liquidation of the Trust Account, Black Ridge Oil & Gas, Inc. agrees to indemnify and hold harmless the Company for any debts and obligations to target businesses or vendors or other entities that are owed money by the Company for services rendered or contracted for or products sold to the Company, but only to the extent necessary to ensure that such debt or obligation does not reduce the amount of funds in the Trust Account below $10.05 per share; provided that such indemnity shall not apply (i) if such vendor or prospective target business executed an agreement waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (ii) as to any claims under the Company’s obligation to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Each of the undersigned acknowledges and agrees that there will be no distribution from the Trust Account with respect to any Warrants or Rights, all rights of which will terminate on the Company’s liquidation.

 

3.            Each of the undersigned acknowledges and agrees that prior to entering into a Business Combination with a target business that is affiliated with any Insiders of the Company or their affiliates, such transaction must be approved by a majority of the Company’s disinterested independent directors and the Company must obtain an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business the Company is seeking to acquire, that such Business Combination is fair to the Company’s unaffiliated stockholders from a financial point of view.

 

4.            Neither of the undersigned, any member of the family of the undersigned, nor any affiliate of the undersigned will be entitled to receive and will not accept any compensation or other cash payment prior to, or for services rendered in order to effectuate, the consummation of the Business Combination; provided that the Company shall be allowed to make the payments set forth in the Registration Statement under the caption “Prospectus Summary – The Offering – Limited payments to insiders.”

 

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5.            Neither of the undersigned, any member of the family of the undersigned, nor any affiliate of the undersigned will be entitled to receive or accept a finder’s fee or any other compensation in the event either of the undersigned, any member of the family of the undersigned or any affiliate of the undersigned originates a Business Combination.

 

6.            (a)            Black Ridge Oil & Gas, Inc. will place into escrow all shares of Founders’ Common Stock, portions of which shall be subject to forfeiture in the event the Underwriters do not exercise their over-allotment option in full, pursuant to the terms of a Stock Escrow Agreement which the Company will enter into with Black Ridge Oil & Gas, Inc. and an escrow agent.

 

(b)            Black Ridge Oil & Gas, Inc. agrees that until after the Company consummates a Business Combination, the undersigned’s Private Units (and underlying securities) will be subject to the transfer restrictions described in the subscription agreement relating to the undersigned’s Private Unit purchase.

 

7.            (a)            In order to minimize potential conflicts of interest that may arise from multiple corporate affiliations, each of the undersigned hereby agrees that until the earliest of the Company’s initial Business Combination or liquidation, the undersigned shall present to the Company for its consideration, prior to presentation to any other entity, any suitable target business, subject to any pre-existing fiduciary or contractual obligations the undersigned might have.

 

(b)            Each of the undersigned agrees not to participate in the formation of, or become an officer or director of, any blank check company until the Company has entered into a definitive agreement regarding its initial Business Combination or the Company has failed to complete an initial Business Combination within the time period set forth in the Company’s Certificate of Incorporation as the same may be amended from time to time.

 

8.            Ken DeCubellis agrees to be the Chairman of the Board and Chief Executive Officer of the Company until the earlier of the consummation by the Company of a Business Combination or the liquidation of the Company. Mr. DeCubellis’ biographical information previously furnished to the Company and the Representative is true and accurate in all respects, does not omit any material information with respect to the undersigned’s background and contains all of the information required to be disclosed pursuant to Item 401 of Regulation S-K, promulgated under the Securities Act. Mr. DeCubellis’ FINRA Questionnaire previously furnished to the Company and the Representative is true and accurate in all respects. Mr. DeCubellis represents and warrants that:

 

(a) he is not subject to, or a respondent in, any legal action for, any injunction, cease-and-desist order or order or stipulation to desist or refrain from any act or practice relating to the offering of securities in any jurisdiction;

 

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(b) he has never been convicted of or pleaded guilty to any crime (i) involving any fraud or (ii) relating to any financial transaction or handling of funds of another person, or (iii) pertaining to any dealings in any securities and he is not currently a defendant in any such criminal proceeding; and

 

(c) he has never been suspended or expelled from membership in any securities or commodities exchange or association or had a securities or commodities license or registration denied, suspended or revoked.

 

9.            Each of the undersigned has full right and power, without violating any agreement by which he or it is bound, to enter into this letter agreement and with respect to Mr. DeCubellis, to serve as an officer of the Company.

 

10.          Each of the undersigned hereby waives any right to exercise conversion rights with respect to any shares of the Company’s common stock owned or to be owned by the undersigned, directly or indirectly (or to sell such shares to the Company in a tender offer), whether such shares be part of the Founders’ Common Stock or shares purchased by the undersigned in the IPO or in the aftermarket, and each agrees not to seek conversion with respect to such shares in connection with any vote to approve a Business Combination (or sell such shares to the Company in a tender offer in connection with such a Business Combination).

 

11.          Each of the undersigned hereby agrees to not propose, or vote in favor of, an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the ability of holders of IPO Shares to convert or sell their shares to the Company in connection with a Business Combination or affect the substance or timing of the Company’s obligation to redeem 100% of the IPO Shares if the Company does not complete a Business Combination within the time period set forth in the Company’s Amended and Restated Certificate of Incorporation unless the Company provides public stockholders with the opportunity to convert their IPO Shares upon such approval in accordance with the charter.

 

12.          In the event that the Company does not consummate a Business Combination and must liquidate and its remaining net assets are insufficient to complete such liquidation, Black Ridge Oil & Gas, Inc. agrees to advance such funds necessary to complete such liquidation and agrees not to seek repayment for such expenses.

 

13.          This letter agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. Each of the undersigned hereby (i) agrees that any action, proceeding or claim against him arising out of or relating in any way to this letter agreement (a “Proceeding”) shall be brought and enforced in the courts of the State of New York of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive, (ii) waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum and (iii) irrevocably agrees to appoint Graubard Miller as agent for the service of process in the State of New York to receive, for the undersigned and on his behalf, service of process in any Proceeding. If for any reason such agent is unable to act as such, the undersigned will promptly notify the Company and the Representative and appoint a substitute agent acceptable to each of the Company and the Representative within 30 days and nothing in this letter will affect the right of either party to serve process in any other manner permitted by law.

 

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14.          As used herein, (i) a “Business Combination” shall mean a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities; (ii) “Insiders” shall mean all officers, directors and sponsor of the Company immediately prior to the IPO; (iii) “Founders’ Common Stock” shall mean all of the shares of Common Stock of the Company acquired by an Insider prior to the IPO; (iv) “IPO Shares” shall mean the shares of Common Stock issued in the Company’s IPO; (v) “Private Units” shall mean the units that are being sold privately by the Company simultaneously with the consummation of the IPO; (vi) “Trust Account” shall mean the trust account into which a portion of the net proceeds of the IPO will be deposited; and (vii) “Registration Statement” means the Company’s registration statement on Form S-1 (SEC File No. 333-220516) filed with the Securities and Exchange Commission.

 

15.          This Letter Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby. This Letter Agreement may not be changed, amended, modified or waived (other than to correct a typographical error) as to any particular provision, except by a written instrument executed by all parties hereto.

 

16.          Each of the undersigned acknowledges and understands that the Underwriters and the Company will rely upon the agreements, representations and warranties set forth herein in proceeding with the IPO. Nothing contained herein shall be deemed to render the Underwriters a representative of, or a fiduciary with respect to, the Company, its stockholders or any creditor or vendor of the Company with respect to the subject matter hereof.

 

17.          Each of the undersigned acknowledges and agrees that (a) each of the Underwriters and the Company would be irreparably injured in the event of a breach by the undersigned of its obligations in this letter agreement, (b) monetary damages may not be an adequate remedy for such breach and (c) the non-breaching party shall be entitled to injunctive relief, in addition to any other remedy that such party may have in law or in equity, in the event of such breach.

 

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17.          This letter agreement shall be binding on the undersigned and such person’s respective successors, heirs, personal representatives and assigns. This letter agreement shall terminate on the earlier of (i) the consummation of a Business Combination and (ii) the liquidation of the Company; provided , that such termination shall not relieve the undersigned from liability for any breach of this agreement prior to its termination.

 

[Signature Page Follows]

 

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    Ken DeCubellis
    Print Name of Insider
     
    Signature
     
    Black Ridge Oil & Gas, Inc.
    Print Name of Insider
     
  By:  
     
    Signature
     
    Acknowledged and Agreed:
     
    Black Ridge Acquisition Corp.
     
  By:  
    Name:
    Title:
     
    EarlyBirdCapital, Inc.
     
  By:  
    Name:
    Title:

 

7

Exhibit 10.24

 

INVESTMENT MANAGEMENT TRUST AGREEMENT

 

This Agreement is made as of __________, 2017 by and between Black Ridge Acquisition Corp. (the “Company”) and Continental Stock Transfer & Trust Company (“Trustee”).

 

WHEREAS, the Company’s registration statement on Form S-1, No. 333-_______ (“Registration Statement”) for its initial public offering of securities (“IPO”) has been declared effective as of the date hereof (“Effective Date”) by the Securities and Exchange Commission (capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Registration Statement); and

 

WHEREAS, EarlyBirdCapital, Inc. (“EarlyBirdCapital”) is acting as the representative of the underwriters in the IPO; and

 

WHEREAS, as described in the Registration Statement, and in accordance with the Company’s Amended and Restated Certificate of Incorporation, $100,500,000 ($115,575,000 if the over-allotment option is exercised in full) of the proceeds from the IPO and a simultaneous private placement of units will be delivered to the Trustee to be deposited and held in a trust account for the benefit of the Company and the holders of the Company’s common stock, par value $.0001 per share (“Common Stock”), issued in the IPO as hereinafter provided (the proceeds to be delivered to the Trustee will be referred to herein as the “Property”; the stockholders for whose benefit the Trustee shall hold the Property will be referred to as the “Public Stockholders,” and the Public Stockholders and the Company will be referred to together as the “Beneficiaries”); and

 

WHEREAS, the Company and the Trustee desire to enter into this Agreement to set forth the terms and conditions pursuant to which the Trustee shall hold the Property;

 

IT IS AGREED:

 

1.        Agreements and Covenants of Trustee . The Trustee hereby agrees and covenants to:

 

(a)       Hold the Property in trust for the Beneficiaries in accordance with the terms of this Agreement in a segregated trust account (“Trust Account”) established by the Trustee at JP Morgan Chase Bank, NA in the United States, maintained by Trustee, and at a brokerage institution selected by the Trustee that is reasonably satisfactory to the Company;

 

(b)       Manage, supervise and administer the Trust Account subject to the terms and conditions set forth herein;

 

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(c)       In a timely manner, upon the written instruction of the Company, invest and reinvest the Property in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 180 days or less, and/or in any open ended investment company registered under the Investment Company Act that holds itself out as a money market fund selected by the Company meeting the conditions of paragraph (d) of Rule 2a-7 promulgated under the Investment Company Act, which invest only in direct U.S. government treasury obligations; it being understood that the Trust Account will earn no interest while account funds are uninvested awaiting the Company’s instructions hereunder;

 

(d)       Collect and receive, when due, all principal and income arising from the Property, which shall become part of the “Property,” as such term is used herein;

 

(e)       Notify the Company and EarlyBirdCapital of all communications received by it with respect to any Property requiring action by the Company;

 

(f)        Supply any necessary information or documents as may be requested by the Company in connection with the Company’s preparation of its tax returns;

 

(g)       Participate in any plan or proceeding for protecting or enforcing any right or interest arising from the Property if, as and when instructed by the Company to do so;

 

(h)       Render to the Company monthly written statements of the activities of and amounts in the Trust Account reflecting all receipts and disbursements of the Trust Account;

 

(i)        Commence liquidation of the Trust Account only after and promptly after receipt of, and only in accordance with, the terms of a letter (“Termination Letter”), in a form substantially similar to that attached hereto as either Exhibit A or Exhibit B, signed on behalf of the Company by its President, Chief Executive Officer or Vice President and Secretary or Assistant Secretary, affirmed by counsel for the Company and, in the case of a Termination Letter in a form substantially similar to that attached hereto as Exhibit A, acknowledged and agreed to by EarlyBirdCapital, and complete the liquidation of the Trust Account and distribute the Property in the Trust Account only as directed in the Termination Letter and the other documents referred to therein; provided, however, that in the event that a Termination Letter has not been received by the Trustee within the period of time provided in the Company’s Amended and Restated Certificate of Incorporation, as the same may be amended from time to time (“Last Date”), the Trust Account shall be liquidated in accordance with the procedures set forth in the Termination Letter attached as Exhibit B hereto and distributed to the Public Stockholders as of the Last Date. The provisions of this Section 1(i) may not be modified, amended or deleted under any circumstances; and

 

(j)        Distribute upon receipt of an Amendment Notification Letter (defined below), to Public Stockholders who exercised their conversion rights in connection with an Amendment (defined below) an amount equal to the pro rata share of the Property relating to the Common Stock for which such Public Stockholders have exercised conversion rights in connection with such Amendment.

 

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2.        Limited Distributions of Income from Trust Account .

 

(a)       Upon written request from the Company, which may be given from time to time in a form substantially similar to that attached hereto as Exhibit C, the Trustee shall distribute to the Company the amount of interest income earned on the Trust Account requested by the Company to cover any income or other tax obligation owed by the Company as a result of such interest income.

 

(b)       Upon written request from the Company, which may be given in connection with the Company’s liquidation and dissolution in a form substantially similar to that attached hereto as Exhibit D, the Trustee shall distribute to the Company the amount of interest income earned on the Trust Account requested by the Company to cover such liquidation and dissolution expenses up to $50,000; provided, however, that the Company will not be allowed to withdraw interest income earned on the Trust A ccount unless there is an amount of interest income available in the Trust Account sufficient to pay the Company’s tax obligations on such interest income.

 

(c)       The limited distributions referred to in Sections 2(a) and 2(b) above shall be made only from income collected on the Property. Except as provided in Section 2(a), and 2(b) above, no other distributions from the Trust Account shall be permitted except in accordance with Sections 1(i) or 1(j) hereof.

 

(d)       The Company shall provide EarlyBirdCapital with a copy of any Termination Letters and/or any other correspondence that it issues to the Trustee with respect to any proposed withdrawal from the Trust Account promptly after such issuance.

 

3.        Agreements and Covenants of the Company . The Company hereby agrees and covenants to:

 

(a)       Give all instructions to the Trustee hereunder in writing, signed by the Company’s Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer, President or Chief Financial Officer. In addition, except with respect to its duties under Sections 1(i), 1(j), 2(a) and 2(b) above, the Trustee shall be entitled to rely on, and shall be protected in relying on, any verbal or telephonic advice or instruction which it in good faith believes to be given by any one of the persons authorized above to give written instructions, provided that the Company shall promptly confirm such instructions in writing;

 

(b)       Subject to the provisions of Sections 5 and 7(g) of this Agreement, hold the Trustee harmless and indemnify the Trustee from and against, any and all expenses, including reasonable counsel fees and disbursements, or loss suffered by the Trustee in connection with any claim, potential claim, action, suit or other proceeding brought against the Trustee involving any claim, or in connection with any claim or demand which in any way arises out of or relates to this Agreement, the services of the Trustee hereunder, or the Property or any income earned from investment of the Property, except for expenses and losses resulting from the Trustee’s gross negligence or willful misconduct. Promptly after the receipt by the Trustee of notice of demand or claim or the commencement of any action, suit or proceeding, pursuant to which the Trustee intends to seek indemnification under this paragraph, it shall notify the Company in writing of such claim (hereinafter referred to as the “Indemnified Claim”). The Trustee shall have the right to conduct and manage the defense against such Indemnified Claim, provided, that the Trustee shall obtain the consent of the Company with respect to the selection of counsel, which consent shall not be unreasonably withheld. The Trustee may not agree to settle any Indemnified Claim without the prior written consent of the Company, which consent shall not be unreasonably withheld. The Company may participate in such action with its own counsel;

 

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(c)       Pay the Trustee an initial acceptance fee, an annual fee and a transaction processing fee for each disbursement made pursuant to Sections 2(a) and 2(b) as set forth on Schedule A hereto, which fees shall be subject to modification by the parties from time to time. It is expressly understood that the Property shall not be used to pay such fees and further agreed that any fees owed to the Trustee shall be deducted by the Trustee from the disbursements made to the Company pursuant to Sections 1(i) solely in connection with the consummation of a Business Combination, or pursuant to Section 2(b). The Company shall pay the Trustee the initial acceptance fee and first year’s fee at the consummation of the IPO and thereafter on the anniversary of the Effective Date;

 

(d)       In connection with any vote of the Company’s stockholders regarding a Business Combination, provide to the Trustee an affidavit or certificate of a firm regularly engaged in the business of soliciting proxies and/or tabulating stockholder votes verifying the vote of the Company’s stockholders regarding such Business Combination;

 

(e)       In the event that the Company directs the Trustee to commence liquidation of the Trust Account pursuant to Section 1(i), the Company agrees that it will not direct the Trustee to make any payments that are not specifically authorized by this Agreement; and

 

(f)        If the Company seeks to amend any provisions of Article Sixth of its amended and restated certificate of incorporation (in each case, an “Amendment”), provide the Trustee with a letter (an “Amendment Notification Letter”) in the form of Exhibit E providing instructions for the distribution of funds to Public Stockholders who exercise their conversion option in connection with such Amendment.

 

4.        Limitations of Liability . The Trustee shall have no responsibility or liability to:

 

(a)       Take any action with respect to the Property, other than as directed in Sections 1 and 2 hereof and the Trustee shall have no liability to any party except for liability arising out of its own gross negligence or willful misconduct;

 

(b)       Institute any proceeding for the collection of any principal and income arising from, or institute, appear in or defend any proceeding of any kind with respect to, any of the Property unless and until it shall have received instructions from the Company given as provided herein to do so and the Company shall have advanced or guaranteed to it funds sufficient to pay any expenses incident thereto;

 

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(c)       Change the investment of any Property, other than in compliance with Section 1(c);

 

(d)       Refund any depreciation in principal of any Property;

 

(e)       Assume that the authority of any person designated by the Company to give instructions hereunder shall not be continuing unless provided otherwise in such designation, or unless the Company shall have delivered a written revocation of such authority to the Trustee;

 

(f)        The other parties hereto or to anyone else for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and in the exercise of its own best judgment, except for its gross negligence or willful misconduct. The Trustee may rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Trustee), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is believed by the Trustee, in good faith, to be genuine and to be signed or presented by the proper person or persons. The Trustee shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement or any of the terms hereof, unless evidenced by a written instrument delivered to the Trustee signed by the proper party or parties and, if the duties or rights of the Trustee are affected, unless it shall give its prior written consent thereto;

 

(g)       Verify the correctness of the information set forth in the Registration Statement or to confirm or assure that any acquisition made by the Company or any other action taken by it is as contemplated by the Registration Statement;

 

(h)       File local, state and/or federal tax returns or information returns with any taxing authority on behalf of the Trust Account and payee statements with the Company documenting the taxes, if any, payable by the Company or the Trust Account, relating to the income earned on the Property;

 

(i)        Pay any taxes on behalf of the Trust Account (it being expressly understood that the Property shall not be used to pay any such taxes and that such taxes, if any, shall be paid by the Company from funds not held in the Trust Account or released to it under Section 2(a) hereof);

 

(j)        Imply obligations, perform duties, inquire or otherwise be subject to the provisions of any agreement or document other than this agreement and that which is expressly set forth herein; or

 

(k)       Verify calculations, qualify or otherwise approve Company requests for distributions pursuant to Section 1(i), 2(a) or 2(b) above.

 

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5.        Trust Account Waiver . The Trustee has no right of set-off or any right, title, interest or claim of any kind (“Claim”) to, or to any monies in, the Trust Account, and hereby irrevocably waives any Claim to, or to any monies in, the Trust Account that it may have now or in the future. In the event the Trustee has any Claim against the Company under this Agreement, including, without limitation, under Section 3(b) or Section 3(c) hereof, the Trustee shall pursue such Claim solely against the Company and its assets outside the Trust Account and not against the Property or any monies in the Trust Account.

 

6.        Termination . This Agreement shall terminate as follows:

 

(a)       If the Trustee gives written notice to the Company that it desires to resign under this Agreement, the Company shall use its reasonable efforts to locate a successor trustee during which time the Trustee shall act in accordance with this Agreement. At such time that the Company notifies the Trustee that a successor trustee has been appointed by the Company and has agreed to become subject to the terms of this Agreement, the Trustee shall transfer the management of the Trust Account to the successor trustee, including but not limited to the transfer of copies of the reports and statements relating to the Trust Account, whereupon this Agreement shall terminate; provided, however, that, in the event that the Company does not locate a successor trustee within ninety days of receipt of the resignation notice from the Trustee, the Trustee may submit an application to have the Property deposited with any court in the State of New York or with the United States District Court for the Southern District of New York and upon such deposit, the Trustee shall be immune from any liability whatsoever; or

 

(b)       At such time that the Trustee has completed the liquidation of the Trust Account in accordance with the provisions of Section 1(i) hereof, and distributed the Property in accordance with the provisions of the Termination Letter, this Agreement shall terminate except with respect to Section 3(b).

 

7.        Miscellaneous .

 

(a)       The Company and the Trustee each acknowledge that the Trustee will follow the security procedures set forth below with respect to funds transferred from the Trust Account. The Company and the Trustee will each restrict access to confidential information relating to such security procedures to authorized persons. Each party must notify the other party immediately if it has reason to believe unauthorized persons may have obtained access to such information, or of any change in its authorized personnel. In executing funds transfers, the Trustee will rely upon all information supplied to it by the Company, including account names, account numbers and all other identifying information relating to a beneficiary, beneficiary’s bank or intermediary bank. The Trustee shall not be liable for any loss, liability or expense resulting from any error in the information or transmission of the wire.

 

(b)       This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. This Agreement may be executed in several original or facsimile counterparts, each one of which shall constitute an original, and together shall constitute but one instrument.

 

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(c)           This Agreement contains the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. Except for Sections 1(i) and 1(j) (which may not be amended under any circumstances), this Agreement or any provision hereof may only be changed, amended or modified by a writing signed by each of the parties hereto; provided, however, that no such change, amendment or modification may be made without the prior written consent of EarlyBirdCapital. As to any claim, cross-claim or counterclaim in any way relating to this Agreement, each party waives the right to trial by jury. The Trustee may require from Company counsel an opinion as to the propriety of any proposed amendment.

 

(d)           The parties hereto consent to the jurisdiction and venue of any state or federal court located in the City of New York, Borough of Manhattan, for purposes of resolving any disputes hereunder.

 

(e)           Any notice, consent or request to be given in connection with any of the terms or provisions of this Agreement shall be in writing and shall be sent by express mail or similar private courier service, by certified mail (return receipt requested), by hand delivery or by facsimile transmission:

 

if to the Trustee, to:

 

Continental Stock Transfer & Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Fran Wolf and Sharmin Carter

Fax No.: (212) 509-5150

 

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if to the Company, to:

 

Black Ridge Acquisition Corp.

c/o Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, Minnesota 55403

Attn: Ken DeCubellis, Chief Executive Officer

Fax No.: (___) ___-____

 

in either case with a copy (which copy shall not constitute notice) to:

 

EarlyBirdCapital, Inc.

366 Madison Avenue

New York, New York 10017

Attn: General Counsel and Investment Banking Department

Facsimile: (___) ___-____

 

and

 

Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Attn: David Alan Miller, Esq.

Fax No.: (212) 818-8881

 

and

 

Stinson Leonard Street LLP

150 South Fifth Street, Suite 2300

Minneapolis, MN 55402

Attn: Jill R. Radloff

Fax No.: (612) 335-1657

 

and

 

Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, New York 10166

Attn: Alan I. Annex, Esq.

Fax No.: (212) 801-9200

 

(f)           This Agreement may not be assigned by the Trustee without the prior consent of the Company.

 

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(g)       Each of the Trustee and the Company hereby represents that it has the full right and power and has been duly authorized to enter into this Agreement and to perform its respective obligations as contemplated hereunder. The Trustee acknowledges and agrees that it shall not make any claims or proceed against the Trust Account, including by way of set-off, and shall not be entitled to any funds in the Trust Account under any circumstance. In the event that the Trustee has a claim against the Company under this Agreement, the Trustee will pursue such claim solely against the Company and not against the Property held in the Trust Account

 

(h)       Each of the Company and the Trustee hereby acknowledge that EarlyBirdCapital is a third party beneficiary of this Agreement.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have duly executed this Investment Management Trust Agreement as of the date first written above.

 

  CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Trustee
       
  By:     
    Name:  
    Title:  

 

  BLACK RIDGE ACQUISITION CORP.
       
  By:     
    Name:  
    Title:  

 

10  

 

 

SCHEDULE A

 

Fee Item Time and method of payment Amount
Initial acceptance fee Initial closing of IPO by wire transfer [$2,000]
Annual fee First year, initial closing of IPO by wire transfer; thereafter on the anniversary of the effective date of the IPO by wire transfer or check [$10,000]
Transaction processing fee for disbursements to Company under Section 2 Deduction by Trustee from accumulated income following disbursement made to Company under Section 2 [$250]
Paying Agent services as required pursuant to section 1(i) Billed to Company upon delivery of service pursuant to section 1(i)

Prevailing rates

 

 

11  

 

 

EXHIBIT A

 

[Letterhead of Company]

 

[Insert date]

 

Continental Stock Transfer

& Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Fran Wolf and Sharmin Carter

 

Re:        Trust Account No.                                 - Termination Letter

 

Gentlemen:

 

Pursuant to Section 1(i) of the Investment Management Trust Agreement between Black Ridge Acquisition Corp. (“Company”) and Continental Stock Transfer & Trust Company (“Trustee”), dated as of __________, 2017 (“Trust Agreement”), this is to advise you that the Company has entered into an agreement with [__________________] (“Target Business”) to consummate a business combination with Target Business (“Business Combination”) on or about [insert date] . The Company shall notify you at least 48 hours in advance of the actual date of the consummation of the Business Combination (“Consummation Date”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Trust Agreement.

 

In accordance with the terms of the Trust Agreement, we hereby authorize you to liquidate the Trust Account investments on [__________] and to transfer the proceeds to the above-referenced account at [____________] to the effect that, on the Consummation Date, all of funds held in the Trust Account will be immediately available for transfer to the account or accounts that the Company shall direct on the Consummation Date. It is acknowledged and agreed that while the funds are on deposit in the trust account awaiting distribution, the Company will not earn any interest or dividends.

 

On the Consummation Date (i) counsel for the Company shall deliver to you written notification that the Business Combination has been consummated and (ii) the Company shall deliver to you (a) [an affidavit] [a certificate] of [__________________], which verifies the vote of the Company’s stockholders in connection with the Business Combination if a vote is held and (b) joint written instructions from the Company and EarlyBirdCapital, Inc. with respect to the transfer of the funds held in the Trust Account (“Instruction Letter”). You are hereby directed and authorized to transfer the funds held in the Trust Account immediately upon your receipt of the counsel’s letter and the Instruction Letter, in accordance with the terms of the Instruction Letter. In the event that certain deposits held in the Trust Account may not be liquidated by the Consummation Date without penalty, you will notify the Company of the same and the Company shall direct you as to whether such funds should remain in the Trust Account and distributed after the Consummation Date to the Company. Upon the distribution of all the funds in the Trust Account pursuant to the terms hereof, the Trust Agreement shall be terminated.

 

12  

 

 

In the event that the Business Combination is not consummated on the Consummation Date described in the notice thereof and we have not notified you on or before the original Consummation Date of a new Consummation Date, then upon receipt by the Trustee of written instructions from the Company, the funds held in the Trust Account shall be reinvested as provided in the Trust Agreement on the business day immediately following the Consummation Date as set forth in the notice.

 

  Very truly yours,
   
  BLACK RIDGE ACQUISITION CORP.
       
  By:     
  Ken DeCubellis, Chief Executive Officer  
       
  By:     
    James Moe, Chief Financial Officer  

 

AGREED TO AND

ACKNOWLEDGED BY

 

EARLYBIRDCAPITAL, INC.

 

By:     

 

13  

 

 

EXHIBIT B

 

[Letterhead of Company]

 

[Insert date]

 

Continental Stock Transfer

& Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Fran Wolf and Sharmin Carter

 

Re:        Trust Account No.                     - Termination Letter

 

Gentlemen:

 

Pursuant to Section 1(i) of the Investment Management Trust Agreement between Black Ridge Acquisition Corp. (“Company”) and Continental Stock Transfer & Trust Company (“Trustee”), dated as of _______, 2017 (“Trust Agreement”), this is to advise you that the Company has been unable to effect a Business Combination with a Target Company within the time frame specified in the Company’s Amended and Restated Certificate of Incorporation, as described in the Company’s prospectus relating to its IPO. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Trust Agreement.

 

In accordance with the terms of the Trust Agreement, we hereby authorize you to liquidate all the Trust Account investments on [______________] and to transfer the total proceeds to the Trust Checking Account at [_______]_to await distribution to the Public Stockholders. The Company has selected [____________, 20__] as the record date for the purpose of determining the Public Stockholders entitled to receive their share of the liquidation proceeds. It is acknowledged that no interest will be earned by the Company on the liquidation proceeds while on deposit in the Trust Checking Account. You agree to be the Paying Agent of record and in your separate capacity as Paying Agent, to distribute said funds directly to the Public Stockholders in accordance with the terms of the Trust Agreement and the Amended and Restated Certificate of Incorporation of the Company. Upon the distribution of all the funds in the Trust Account, your obligations under the Trust Agreement shall be terminated.

 

  Very truly yours,
   
  BLACK RIDGE ACQUISITION CORP.
       
  By:     
  Ken DeCubellis, Chief Executive Officer  
       
  By:     
    James Moe, Chief Financial Officer  

 

cc: EarlyBirdCapital, Inc.

 

14  

 

 

EXHIBIT C

 

[Letterhead of Company]

 

[Insert date]

 

Continental Stock Transfer

& Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Fran Wolf and Sharmin Carter

 

Re:        Trust Account No.

 

Gentlemen:

 

Pursuant to Section 2(a) of the Investment Management Trust Agreement between Black Ridge Acquisition Corp. (“Company”) and Continental Stock Transfer & Trust Company (“Trustee”), dated as of _________, 2017 (“Trust Agreement”), the Company hereby requests that you deliver to the Company [$_______] of the interest income earned on the Property as of the date hereof. The Company needs such funds to pay for its tax obligations as a result of such interest income. In accordance with the terms of the Trust Agreement, you are hereby directed and authorized to transfer (via wire transfer) such funds promptly upon your receipt of this letter to the Company’s operating account at:

 

[WIRE INSTRUCTION INFORMATION]

 

  BLACK RIDGE ACQUISITION CORP.
       
  By:     
  Ken DeCubellis, Chief Executive Officer  
       
  By:     
    James Moe, Chief Financial Officer  

 

cc: EarlyBirdCapital, Inc.

 

15  

 

 

EXHIBIT D

 

[Letterhead of Company]

 

[Insert date]

 

Continental Stock Transfer

& Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Fran Wolf and Sharmin Carter

 

Re:        Trust Account No.

 

Gentlemen:

 

Pursuant to Section 2(b) of the Investment Management Trust Agreement between Black Ridge Acquisition Corp. (“Company”) and Continental Stock Transfer & Trust Company (“Trustee”), dated as of __________, 2017 (“Trust Agreement”), the Company hereby requests that you deliver to the Company [$_______] of the interest income earned on the Property as of the date hereof. The Company needs such funds to cover its liquidation and dissolution expenses. In accordance with the terms of the Trust Agreement, you are hereby directed and authorized to transfer (via wire transfer) such funds promptly upon your receipt of this letter to the Company’s operating account at:

 

[WIRE INSTRUCTION INFORMATION]

 

  Very truly yours,
   
  BLACK RIDGE ACQUISITION CORP.
       
  By:     
  Ken DeCubellis, Chief Executive Officer  
       
  By:     
    James Moe, Chief Financial Officer  

 

cc: EarlyBirdCapital, Inc.

 

16  

 

 

EXHIBIT E

 

[Letterhead of Company]

 

[Insert date]

 

Continental Stock Transfer

& Trust Company

1 State Street Plaza

New York, New York 10004

Attn: Fran Wolf and Sharmin Carter

 

Re:        Trust Account No.                                 - Termination Letter

 

Gentlemen:

 

Reference is made to the Investment Management Trust Agreement between Black Ridge Acquisition Corp. (“Company”) and Continental Stock Transfer & Trust Company, dated as of __________, 2017 (“Trust Agreement”). Capitalized words used herein and not otherwise defined shall have the meanings ascribed to them in the Trust Agreement.

 

Pursuant to Section 1(j) of the Trust Agreement, this is to advise you that the Company has sought an Amendment. Accordingly, in accordance with the terms of the Trust Agreement, we hereby authorize you to liquidate the Trust Account on [          ] and to transfer $_____ of the proceeds of the Trust to the checking account at [             ] for distribution to the stockholders that have requested conversion of their shares in connection with such Amendment. The remaining funds shall be reinvested by you as previously instructed.

 

Very truly yours,

 

  BLACK RIDGE ACQUISITION CORP.
       
  By:     
  Ken DeCubellis, Chief Executive Officer  
       
  By:     
    James Moe, Chief Financial Officer  

 

cc: EarlyBirdCapital, Inc.

 

17

Exhibit 10.25

 

STOCK ESCROW AGREEMENT

 

STOCK ESCROW AGREEMENT, dated as of [_____], 2017 (“Agreement”), by and among BLACK RIDGE ACQUISITION CORP., a Delaware corporation (“Company”), BLACK RIDGE OIL & GAS, INC., a Nevada corporation (the “Sponsor” and any permitted transferee of the Sponsor after the date hereof in accordance with the terms hereof being referred to as an “Initial Stockholder”) and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York corporation (“Escrow Agent”).

 

WHEREAS, the Company has entered into an Underwriting Agreement, dated [_____], 2017 (“Underwriting Agreement”), with EarlyBirdCapital, Inc. (the “Representative”) acting as representative of the several underwriters (collectively, the “Underwriters”), pursuant to which, among other matters, the Underwriters have agreed to purchase 10,000,000 units (“Units”) of the Company, plus an additional 1,500,000 Units if the Representative exercises the over-allotment option in full. Each Unit consists of one share of the Company’s common stock, par value $.0001 per share (“Common Stock”), one right to receive one-tenth of one share of Common Stock upon the consummation by the Company of a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (“Business Combination”), and one half of one Warrant, each whole Warrant to purchase one share of Common Stock, in the Company’s initial public offering (the “IPO”), all as more fully described in the Company’s final Prospectus, dated [_____], 2017 (“Prospectus”) comprising part of the Company’s Registration Statement on Form S-1 (File No. 333-_________) under the Securities Act of 1933, as amended (“Registration Statement”), declared effective on [_____], 2017 (“Effective Date”).

 

WHEREAS, the Sponsor has agreed as a condition of the sale of the Units to deposit its 2,875,000 shares of Common Stock of the Company in escrow as hereinafter provided.

 

WHEREAS, the Company and the Sponsor desire that the Escrow Agent accept the shares, in escrow, to be held and disbursed as hereinafter provided.

 

IT IS AGREED:

 

1.              Appointment of Escrow Agent . The Company and the Sponsor hereby appoint the Escrow Agent to act in accordance with and subject to the terms of this Agreement and the Escrow Agent hereby accepts such appointment and agrees to act in accordance with and subject to such terms.

 

2.              Deposit of Shares . On or before the Effective Date, the Sponsor shall have delivered to the Escrow Agent a certificate representing such Sponsor’s shares, to be held and disbursed subject to the terms and conditions of this Agreement. The Sponsor acknowledges that the certificate representing such Sponsor’s shares is legended to reflect the deposit of such shares under this Agreement.

 

3.              Disbursement of the Escrow Shares .

 

3.1       If the Underwriters do not exercise in full their over-allotment option to purchase up to an additional 1,500,000 Units of the Company within 45 days of the date of the Prospectus (as described in the Underwriting Agreement), the Sponsor agrees that the Escrow Agent shall return to the Company for cancellation, at no cost, a number of shares determined by multiplying 375,000 by a fraction, (i) the numerator of which is 1,500,000 minus the number of shares of Common Stock, if any, purchased by the Underwriters upon the exercise of their over-allotment option, and (ii) the denominator of which is 1,500,000. The Company shall promptly provide notice to the Escrow Agent of the expiration or termination of the Underwriters’ over-allotment option and the number of Units, if any, purchased by the Underwriters in connection with their exercise thereof.

 

 

 

 

3.2       Except as otherwise set forth herein, the Escrow Agent shall hold the shares remaining after any cancellation required pursuant to Section 3.1 above (such remaining shares to be referred to herein as the “Escrow Shares”) until (i) with respect to 50% of the Escrow Shares, on the earlier of (x) one year after the date of the consummation of the Company’s initial Business Combination and (y) the date on which the closing price of the Company’s Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after the Company’s initial Business Combination and (ii) with respect to the remaining 50% of the Escrow Shares, one year after the date of the consummation of an initial Business Combination (the “Escrow Period”). The Company shall promptly provide notice of the consummation of a Business Combination to the Escrow Agent. Upon completion of the Escrow Period, the Escrow Agent shall disburse such amount of each Initial Stockholder’s Escrow Shares (and any applicable share power) to such Initial Stockholder; provided, however, that if the Escrow Agent is notified by the Company pursuant to Section 6.7 hereof that the Company is being liquidated because it failed to consummate a Business Combination within the time period specified in the Prospectus, then the Escrow Agent shall promptly destroy the certificates representing the Escrow Shares; provided further, however, that if, within one year after the Company consummates a Business Combination, the Company (or the surviving entity) subsequently consummates a liquidation, merger, stock exchange or other similar transaction which results in all of the stockholders of such entity having the right to exchange their shares of Common Stock for cash, securities or other property, then the Escrow Agent will, upon receipt of a notice executed by the Chairman of the Board, Chief Executive Officer or other authorized officer of the Company, in form reasonably acceptable to the Escrow Agent, certifying that such transaction is then being consummated or such conditions have been achieved, as applicable, release the Escrow Shares to the Initial Stockholders. The Escrow Agent shall have no further duties hereunder after the disbursement or destruction of the Escrow Shares in accordance with this Section 3.

 

4.             Rights of Initial Stockholder in Escrow Shares .

 

4.1        Voting Rights as a Stockholder . Subject to the terms of the Insider Letters described in Section 4.4 hereof and except as herein provided, the Initial Stockholders shall retain all of their rights as stockholders of the Company as long as any shares are held in escrow pursuant to this Agreement, including, without limitation, the right to vote such shares.

 

4.2        Dividends and Other Distributions in Respect of the Escrow Shares . For as long as any shares are held in escrow pursuant to this Agreement, all dividends payable in cash with respect to the Escrow Shares shall be paid to the Initial Stockholders, but all dividends payable in stock or other non-cash property (“Non-Cash Dividends”) shall be delivered to the Escrow Agent to hold in accordance with the terms hereof. As used herein, the term “Escrow Shares” shall be deemed to include the Non-Cash Dividends distributed thereon, if any.

 

  2

 

 

4.3        Restrictions on Transfer . During the Escrow Period, the only permitted transfers of the Escrow Shares will be (i) to the Initial Stockholders’ or the Company’s officers, directors, employees, consultants or their affiliates, (ii) to an Initial Stockholders’ officers, directors, employees or members upon the Initial Stockholders’ liquidation, in each case if the Initial Stockholder is an entity, (iii) by bona fide gift to a member of the Initial Stockholders’ immediate family or to a trust, the beneficiary of which is the Initial Stockholder or a member of the Initial Stockholders’ immediate family 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 the Company for no value for cancellation in connection with the consummation of a Business Combination or (vii) in connection with the consummation of an initial Business Combination, by private sales of the Escrow Shares at prices no greater than the price at which the Escrow Shares were originally purchased; provided, however, that except for clause (vi) or with the Company’s prior written consent, such permissive transfers may be implemented only upon the respective transferee’s written agreement to be bound by the terms and conditions of this Agreement and of the Insider Letter signed by the Sponsor transferring the shares.

 

4.4        Insider Letter . The Sponsor has executed a letter agreement with the Company and the Representative, dated as indicated on Exhibit A hereto, the form of which is filed as an exhibit to the Registration Statement (“Insider Letter”), respecting the rights and obligations of the Sponsor in certain events, including, but not limited to, the liquidation of the Company.

 

5.             Concerning the Escrow Agent .

 

5.1        Good Faith Reliance . The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and in the exercise of its own best judgment, and may rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement unless evidenced by a writing delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall have given its prior written consent thereto.

 

5.2        Indemnification . The Escrow Agent shall be indemnified and held harmless by the Company from and against any expenses, including reasonable counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or other proceeding involving any claim which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, or the Escrow Shares held by it hereunder, other than expenses or losses arising from the gross negligence or willful misconduct of the Escrow Agent. Promptly after the receipt by the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall notify the other parties hereto in writing. In the event of the receipt of such notice, the Escrow Agent, in its sole discretion, may commence an action in the nature of interpleader in an appropriate court to determine ownership or disposition of the Escrow Shares or it may deposit the Escrow Shares with the clerk of any appropriate court or it may retain the Escrow Shares pending receipt of a final, non-appealable order of a court having jurisdiction over all of the parties hereto directing to whom and under what circumstances the Escrow Shares are to be disbursed and delivered. The provisions of this Section 5.2 shall survive in the event the Escrow Agent resigns or is discharged pursuant to Sections 5.5 or 5.6 below.

 

5.3        Compensation . The Escrow Agent shall be entitled to reasonable compensation from the Company for all services rendered by it hereunder. The Escrow Agent shall also be entitled to reimbursement from the Company for all reasonable expenses paid or incurred by it in the administration of its duties hereunder including, but not limited to, all counsel, advisors’ and agents’ fees and disbursements and all taxes or other governmental charges.

 

  3

 

 

5.4        Further Assurances . From time to time on and after the date hereof, the Company and the Sponsor shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do or cause to be done such further acts as the Escrow Agent shall reasonably request to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

 

5.5        Resignation . The Escrow Agent may resign at any time and be discharged from its duties as escrow agent hereunder by its giving the other parties hereto written notice and such resignation shall become effective as hereinafter provided. Such resignation shall become effective at such time that the Escrow Agent shall turn over to a successor escrow agent appointed by the Company and approved by the Representative, which approval will not be unreasonably withheld, conditioned or delayed, the Escrow Shares held hereunder. If no new escrow agent is so appointed within the 60-day period following the giving of such notice of resignation, the Escrow Agent may deposit the Escrow Shares with any court it reasonably deems appropriate in the State of New York.

 

5.6        Discharge of Escrow Agent . The Escrow Agent shall resign and be discharged from its duties as escrow agent hereunder if so requested in writing at any time by the other parties hereto, jointly, provided, however, that such resignation shall become effective only upon acceptance of appointment by a successor escrow agent as provided in Section 5.5.

 

5.7        Liability . Notwithstanding anything herein to the contrary, the Escrow Agent shall not be relieved from liability hereunder for its own gross negligence, fraud or willful misconduct.

 

5.8        Waiver . The Escrow Agent hereby waives any right of set-off or any other right, title, interest or claim of any kind (“Claim”) in, or to any distribution of, the Trust Account (as defined in that certain Investment Management Trust Agreement, dated as of the date hereof, by and between the Company and the Escrow Agent as trustee thereunder) and hereby agrees not to seek recourse, reimbursement, payment or satisfaction for any Claim against the Trust Account for any reason whatsoever.

 

6.             Miscellaneous .

 

6.1        Governing Law . This Agreement shall for all purposes be deemed to be made under and shall be construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. Each of the parties hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and irrevocably submits to such personal jurisdiction, which jurisdiction shall be exclusive. Each of the parties hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.

 

6.2        Third Party Beneficiaries . The Sponsor hereby acknowledges that the Underwriters are third party beneficiaries of this Agreement.

 

6.3        Entire Agreement . This Agreement and each Insider Letter contain the entire agreement of the parties hereto with respect to the subject matter hereof and, except as expressly provided herein, may not be changed or modified except by an instrument in writing signed by the party to be charged.

 

6.4        Headings . The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation thereof.

 

  4

 

 

6.5        Binding Effect . This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their legal representatives, successors and assigns.

 

6.6        Notices . Any notice or other communication required or which may be given hereunder shall be in writing and either be delivered personally or be mailed, certified or registered mail, or by private national courier service, return receipt requested, postage prepaid, and shall be deemed given when so delivered personally or, if mailed, four business days after the date of mailing, as follows:

 

  If to the Company, to:
     
    Black Ridge Acquisition Corp.
    c/o Black Ridge Oil & Gas, Inc.
    110 North 5th Street, Suite 410,
    Minneapolis, Minnesota 55403
    Attn: Ken DeCubellis
     
  If to the Sponsor, to its address set forth in Exhibit A.
     
  and if to the Escrow Agent, to:
     
    Continental Stock Transfer & Trust Company
    1 State Street Plaza
    New York, New York 10004
    Attn: Chairman
     
  A copy of any notice sent hereunder shall be sent to:
     
    EarlyBirdCapital, Inc.
    366 Madison Avenue
    5 th Floor
    New York, New York 10017
    Attn: General Counsel and Investment Banking Department
    Facsimile: (212) 661-0200
     
  with a copy to:
     
    Graubard Miller
    The Chrysler Building
    405 Lexington Avenue
    New York, New York 10174
    Attn: David Alan Miller, Esq.

 

  5

 

 

  and:
     
    Greenberg Traurig, LLP
    Met Life Building
    200 Park Avenue
    New York, New York 10166
    Attn: Alan I. Annex, Esq.
     
  and:
     
    Stinson Leonard Street LLP
    150 South Fifth Street, Suite 2300
    Minneapolis, MN 55402
    Attn: Jill R. Radloff

 

The parties may change the persons and addresses to which the notices or other communications are to be sent by giving written notice to any such change in the manner provided herein for giving notice.

 

6.7        Liquidation of the Company . The Company shall give the Escrow Agent written notification of the liquidation and dissolution of the Company in the event that the Company fails to consummate a Business Combination within the time period specified in the Prospectus.

 

6.8        Counterparts . This Agreement may be executed in several counterparts, each one of which shall constitute an original and may be delivered by facsimile transmission and together shall constitute one instrument.

 

 

[Signature Page Follows]

 

  6

 

  

  WITNESS the execution of this Agreement as of the date first above written.

 

    BLACK RIDGE ACQUISITION CORP.  
         
  By:          
         
    SPONSOR:  
         
    BLACK RIDGE OIL & GAS, INC.  
         
  By:        
    Name: Ken DeCubellis  
    Title: Chief Executive Officer  
         
    CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
 
         
    By:    
      Name:  
      Title:  

 

  7

 

 

EXHIBIT A

 

 

Name and Address

 

Number

of Shares  

 

Stock  

Certificate Number

 

Date of 

Insider Letter 

             

Black Ridge Oil & Gas, Inc.

110 North 5th Street, Suite 410,

Minneapolis, Minnesota 55403

  2,875,000   1   [_____]

 

8

Exhibit 10.26

 

PROMISSORY NOTE

 

$125,000.00 As of May 31, 2017

 

Black Ridge Acquisition Corp. (“Maker”) promises to pay to the order of Black Ridge Oil & Gas, Inc. (“Payee”) the principal sum of One Hundred Twenty Five Thousand Dollars and No Cents ($125,000.00) in lawful money of the United States of America, on the terms and conditions described below.

 

1.            Principal . The principal balance of this Note shall be repayable on the earlier of (i) June 1, 2018, (ii) the date on which Maker consummates an initial public offering of its securities (“IPO”) or (iii) the date on which Maker determines to not proceed with such IPO.

 

2.            Interest . No interest shall accrue on the unpaid principal balance of this Note.

 

3.            Application of Payments . All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this Note, including (without limitation) reasonable attorneys’ fees, then to the payment in full of any late charges and finally to the reduction of the unpaid principal balance of this Note.

 

4.            Events of Default . The following shall constitute Events of Default:

 

(a)           Failure to Make Required Payments . Failure by Maker to pay the principal of this Note within five (5) business days following the date when due.

 

(b)           Voluntary Bankruptcy, Etc. The commencement by Maker of a voluntary case under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency, reorganization, rehabilitation or other similar law, or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Maker or for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the failure of Maker generally to pay its debts as such debts become due, or the taking of corporate action by Maker in furtherance of any of the foregoing.

 

(c)           Involuntary Bankruptcy, Etc. The entry of a decree or order for relief by a court having jurisdiction in the premises in respect of maker in an involuntary case under the Federal Bankruptcy Code, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Maker or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days.

 

 

 

 

5.            Remedies .

 

(a)          Upon the occurrence of an Event of Default specified in Section 4(a), Payee may, by written notice to Maker, declare this Note to be due and payable, whereupon the principal amount of this Note, and all other amounts payable thereunder, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the documents evidencing the same to the contrary notwithstanding.

 

(b)          Upon the occurrence of an Event of Default specified in Sections 4(b) and 4(c), the unpaid principal balance of, and all other sums payable with regard to, this Note shall automatically and immediately become due and payable, in all cases without any action on the part of Payee.

 

6.            Waivers . Maker and all endorsers and guarantors of, and sureties for, this Note waive presentment for payment, demand, notice of dishonor, protest, and notice of protest with regard to the Note, all errors, defects and imperfections in any proceedings instituted by Payee under the terms of this Note, and all benefits that might accrue to Maker by virtue of any present or future laws exempting any property, real or personal, or any part of the proceeds arising from any sale of any such property, from attachment, levy or sale under execution, or providing for any stay of execution, exemption from civil process, or extension of time for payment; and Maker agrees that any real estate that may be levied upon pursuant to a judgment obtained by virtue hereof, on any writ of execution issued hereon, may be sold upon any such writ in whole or in part in any order desired by Payee.

 

7.            Unconditional Liability . Maker hereby waives all notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note, and agrees that its liability shall be unconditional, without regard to the liability of any other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee, and consents to any and all extensions of time, renewals, waivers, or modifications that may be granted by Payee with respect to the payment or other provisions of this Note, and agree that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to them or affecting their liability hereunder.

 

8.            Notices . Any notice called for hereunder shall be deemed properly given if (i) sent by certified mail, return receipt requested, (ii) personally delivered, (iii) dispatched by any form of private or governmental express mail or delivery service providing receipted delivery, (iv) sent by telefacsimile or (v) sent by e-mail, to the following addresses or to such other address as either party may designate by notice in accordance with this Section:

 

If to Maker:

 

Black Ridge Acquisition Corp.

c/o Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, MN 55403

  2  

 

 

If to Payee:

 

Black Ridge Oil & Gas, Inc.

110 North 5 th Street, Suite 410

Minneapolis, MN 55403

 

Notice shall be deemed given on the earlier of (i) actual receipt by the receiving party, (ii) the date shown on a telefacsimile transmission confirmation, (iii) the date on which an e-mail transmission was received by the receiving party’s on-line access provider (iv) the date reflected on a signed delivery receipt, or (vi) two (2) Business Days following tender of delivery or dispatch by express mail or delivery service.

 

9.            Construction . This Note shall be construed and enforced in accordance with the domestic, internal law, but not the law of conflict of laws, of the State of New York.

 

10.          Severability . Any provision contained in this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused this Note to be duly executed by its Chief Executive Officer the day and year first above written.

 

  BLACK RIDGE ACQUISITION CORP.
     
  By: /s/ Ken DeCubellis
    Name:  Ken DeCubellis
    Title: CEO

 

  3  

 

Exhibit 31.1

CERTIFICATIONS

 

 

I, Kenneth DeCubellis, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Black Ridge Oil & Gas, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on Black Ridge Oil & Gas’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: April 12, 2018

 

 

By: /s/ Kenneth DeCubellis                   

       Kenneth DeCubellis, Chief Executive Officer

       (Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS

 

I, James Moe, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Black Ridge Oil & Gas, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on Black Ridge Oil & Gas’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: April 12, 2018

 

 

By: /s/ James Moe          

       James Moe, Chief Financial Officer

       (Principal Accounting Officer)

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Black Ridge Oil & Gas, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2017 (the “Report”), I, Kenneth DeCubellis, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Dated: April 12, 2018

 

 

 

 

By: /s/ Kenneth DeCubellis          

          Kenneth DeCubellis, Chief Executive Officer

          (Principal Executive Officer)

 

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Black Ridge Oil & Gas, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2017 (the “Report”) I, James Moe, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Dated: April 12, 2018

 

 

 

 

By: /s/ James Moe          

       James Moe, Chief Financial Officer

       (Principal Accounting Officer)

 

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.