SCHEDULE: Knighted Pastures Ends Allied Gaming Proxy Fight

Knighted Pastures, led by Roy Choi, has terminated its proxy contest at Allied Gaming & Entertainment Inc. and is donating its shares to charity, citing legal costs and delays.

Summary

• Knighted Pastures, LLC has terminated its proxy contest at Allied Gaming & Entertainment Inc. and withdrawn its nominations for six board candidates and a business proposal.
• The decision was made after a U.S. District Court issued a preliminary injunction preventing changes to Allied Gaming's Board composition, based on the Issuer's claim of an undisclosed group.
• Knighted Pastures and Roy Choi are in the process of donating their shares to multiple charitable organizations.
• The reporting persons cited the high cost of fighting the lawsuit and the accompanying delay in holding a shareholder vote as reasons for discontinuing the contest.
• Knighted Pastures had previously intervened twice in Delaware Chancery Court to prevent Allied Gaming from issuing shares on unfair terms.
• As of the filing date, Roy Choi directly beneficially owns 1,900,000 shares, constituting approximately 4.99% of the 38,018,882 outstanding shares.
• Knighted Pastures no longer owns any shares as of the filing date.

Sentiment

Score: 3

Explanation: The termination of a proxy contest by an activist investor, citing high legal costs and delays, is generally a negative signal for corporate governance and shareholder value. While the activist claims past successes, their withdrawal suggests a lack of immediate positive change for shareholders. The company's use of legal tactics to deter activism could be seen as entrenching management, which is typically viewed unfavorably by investors.

Positives

• Reporting Persons previously helped preserve shareholder value by stopping two unfair share issuances in Delaware Chancery Court.
• Recipient charitable organizations have indicated they will limit sales of donated shares for certain periods to preserve stock value, subject to market conditions and fiduciary obligations.

Negatives

• The proxy contest, aimed at bringing about board changes, was terminated due to a preliminary injunction and the high cost of litigation.
• The legal dispute caused delays in holding a shareholder vote, making the contest untenable for the Reporting Persons.
• The Reporting Persons will no longer pursue further challenges to the Allied Gaming Board, removing an activist voice.

Risks

• Ongoing litigation with Allied Gaming & Entertainment Inc. regarding the preliminary injunction, which the Reporting Persons have appealed.
• Potential for continued legal expenses for the company related to defending against shareholder challenges.
• Uncertainty regarding future corporate governance challenges given the withdrawal of a significant activist investor.

Future Outlook

Roy Choi intends to dispose of the remainder of his shares by a charitable gift, subject to the same request for recipient organizations to limit sales for certain time periods. The reporting persons will no longer pursue further challenges to the Allied Gaming Board of Directors.

Management Comments

• "The Court's ruling has left us with no alternative but to abandon the proxy contest at Allied Gaming."
• "While we strongly deny the allegations made by Allied Gaming and have appealed the District Court Order, the cost of fighting the Company's lawsuit and the accompanying delay in holding a shareholder vote make continuing with the proxy contest untenable."
• "Unfortunately, Allied Gaming's cynical tactic of suing me and others close to me has made it too costly to continue this proxy contest."
• "By standing up for shareholders through two successful lawsuits, I believe that Knighted Pastures helped preserve shareholder value, twice stopping Allied Gaming in Delaware Chancery Court from executing share issuances on unfair terms prejudicing shareholders."
• "We have gone to great lengths to create meaningful change and unlock value for all shareholders. At this point, we have reached our limit and will no longer pursue further challenges to the Allied Gaming Board of Directors."
• "We wish the Company and its shareholders success in the future."

Industry Context

The termination of a proxy contest due to legal challenges and associated costs highlights the increasing difficulty and expense for activist investors to effect change, especially when faced with aggressive defensive tactics by incumbent management. This event could deter other potential activists from targeting companies with similar legal strategies, potentially reducing external pressure for corporate governance improvements in the industry.

Comparison to Industry Standards

• The successful intervention by Knighted Pastures in Delaware Chancery Court to prevent unfair share issuances demonstrates a commitment to shareholder rights, aligning with best practices for activist investors who seek to protect minority shareholders from dilutive actions.
• The use of legal injunctions by Allied Gaming to thwart a proxy contest, while a common defensive tactic, can be viewed critically by governance advocates as potentially entrenching management and hindering shareholder democracy, contrasting with the spirit of open corporate elections and shareholder engagement seen in leading governance frameworks.

Corporate Governance

Legal Proceedings

• A preliminary injunction order was entered by the United States District Court for the Central District of California, preventing changes to the composition of Allied Gaming's Board.
• The Reporting Persons strongly deny the allegations made by Allied Gaming and have appealed the District Court Order.
• Knighted Pastures previously stopped Allied Gaming twice in Delaware Chancery Court from executing share issuances on unfair terms.

Stakeholder Impact

• **Shareholders:** Loss of an activist voice advocating for change and value creation; potential for continued management entrenchment; uncertainty regarding the long-term impact of the legal dispute and the company's governance.
• **Management/Board:** Reduced immediate pressure from an activist investor; potential for increased stability but also less external accountability and scrutiny.
• **Charitable Organizations:** Beneficiaries of significant share donations from the Reporting Persons.

Next Steps

• Roy Choi intends to dispose of his remaining shares via charitable gift.
• The Reporting Persons will no longer pursue further challenges to the Allied Gaming Board of Directors.
• The appeal of the District Court Order by the Reporting Persons is ongoing.

Key Dates

Recommendation

While the termination of the proxy contest removes immediate uncertainty and potential distraction for management, it also signals the departure of an activist investor who previously challenged management on shareholder-unfriendly actions. The ongoing legal dispute and the company's use of defensive tactics could be a long-term concern for corporate governance. Without new catalysts or a clear resolution of underlying governance issues, a 'hold' recommendation is appropriate, advising investors to monitor the company's performance and governance practices closely for future developments.

Keywords

Allied Gaming & Entertainment, AGAE, Knighted Pastures, Roy Choi, Proxy Contest, Shareholder Activism, Schedule 13D, Corporate Governance, Share Donation, Litigation