Hydra Industries is a Delaware special
purpose acquisition company incorporated on May 30, 2014 for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination involving Hydra Industries and one or more businesses.
Hydra Industries’ securities are
traded on The NASDAQ Capital Market (“NASDAQ”) under the ticker symbols “HDRA,” “HDRAU,” “HDRAR”
and “HDRAW.” We have applied to continue the listing of our common stock, rights and warrants on NASDAQ under the
new symbols “INSE,” “INSER” and “INSEW”, respectively, upon the closing of the Business Combination.
The mailing address of Hydra Industries’
principal executive office is 250 West 57
th
Street, Suite 2223, New York, New York 10107 and its phone number is (646)
565-3861.
DMWSL 633 Limited (“Target Parent”)
is an English private limited company incorporated on March 3, 2010 with unrestricted objects under its constitution.
The mailing address of Target Parent’s
principal executive office is 3 The Maltings, Wetmore Road, Burton on Trent, Staffs, DE14 1SE, United Kingdom and its phone number
is 00 44 (0) 1283 512777.
Inspired is a global gaming technology
company, supplying Virtual Sports and Server Based Gaming (“SBG”) systems to regulated lottery, betting and gaming
operators worldwide through an “omni-channel” distribution strategy. Inspired provides end-to-end digital gaming solutions
on its proprietary and secure network that accommodates a wide range of devices, including land-based gaming machine products,
mobile devices such as smartphones and tablets, as well as PC and social applications. Inspired believes this omni-channel distribution
strategy, combined with its common technology platform, allows it to keep pace with evolving requirements in game play, security,
technology and regulations in the global gaming and lottery industry.
Global gaming and lottery growth has been
steady and resilient to economic cycles over the last decade. According to H2 Gambling Capital, it has grown at a 3.8% compounded
annual growth rate from 2005 to 2015, driven by increased consumer spend and the introduction of new regulated markets.
During this period, digital gaming and
lottery (online and mobile) have grown at a faster pace. According to H2 Gambling Capital, it has grown at a 10.6% compound annual
growth rate, driven by rapid growth in the deployment of digital games and technologies such as Virtual Sports and digital SBG
terminals into land-based venues in markets such as the U.K. and Italy, where regulators have supported the transition to digital,
online and retail channels. According to H2 Gambling Capital, Digital now accounts for over 30% of gaming revenues in both the
U.K. and Italy.
Inspired believes that the overall global
gaming and lottery industry will continue to grow steadily, with more robust growth in mobile and land-based digital gaming and
lottery markets. Inspired believes the industry is content driven and, much like music, videogames and motion pictures, will continue
to be transformed by the propagation of digitally-networked technologies.
The following diagram illustrates the organizational
structure of the Company immediately following the Business Combination.
Pursuant to the existing charter, in connection
with the Business Combination, holders of our public shares may elect to have their shares redeemed for cash at the applicable
redemption price per share calculated in accordance with the existing charter. As of June 30, 2016, this would have amounted to
approximately $10.00 per share. If a holder exercises its redemption rights, then such holder will be exchanging its shares of
Hydra Industries common stock for cash and will no longer own shares of Hydra Industries common stock and will have no right to
participate in, or have any interest in, the future growth of the Company, if any. Such a holder will be entitled to receive cash
for its public shares only if it (i) affirmatively votes for or against the Business Combination Proposal and (ii) properly requests
redemption and delivers its shares (either physically or electronically) to our transfer agent at least two business days prior
to the special meeting in accordance with the procedures described herein. See the section entitled “Special Meeting in
Lieu of 2016 Annual Meeting of Hydra Industries Stockholders—Redemption Rights” for the procedures to be followed
if you wish to redeem your shares for cash.
It is anticipated that, following completion
of the Business Combination and if there are no redemptions, Hydra Industries’ public stockholders will retain an ownership
interest of approximately 42% in Hydra Industries and our initial stockholders and affiliates will retain an ownership interest
of approximately 23% in Hydra Industries. If Hydra Industries’ stockholders exercise their redemption rights, the ownership
interest in Hydra Industries of Hydra Industries’ public stockholders will decrease. Upon completion of the Business Combination,
Hydra Industries will own 100% of the outstanding equity and shareholder loan notes of Target. If the actual facts are different
than these assumptions (which they are likely to be), the percentage ownership retained by Hydra Industries’ existing stockholders
in Hydra Industries will be different. If the Company’s available cash at closing is insufficient to pay all liabilities
and obligations of the Company and Target due and required to be paid at closing or by reason of closing, the Selling Group may
elect to not consummate the Business Combination. At June 30, 2016, the balance in our trust account was approximately $80 million.
The following table illustrates varying
potential future ownership levels in Hydra Industries assuming varying illustrative levels of redemptions by Hydra Industries’
public stockholders (and assuming consummation of the Business Combination as of September 24, 2016):
* Includes 440,000 founder shares transferred from our Sponsors
to our independent directors and officers and an advisor in connection with the IPO.
It is anticipated that, following completion
of the Business Combination and if there are no redemptions, our existing public stockholders will retain an ownership interest
of approximately 42% in Hydra Industries and our initial stockholders and affiliates will retain an ownership interest of approximately
23% in Hydra Industries. If any of our existing public stockholders exercise their redemption rights, the ownership interest in
Hydra Industries of Hydra Industries’ public stockholders will decrease and the ownership interest in Hydra Industries of
the Selling Group will increase. These illustrative ownership percentages with respect to Hydra Industries following the Business
Combination do not take into account (i) the issuance of any shares upon completion of the Business Combination under the Company’s
proposed 2016 Long-Term Incentive Plan (the “Incentive Plan”) or (ii) the 17,500,000 warrants to purchase up to a total
of 8,750,000 shares of Hydra Industries common stock that will remain outstanding following the Business Combination. If the actual
facts are different than these assumptions (which they are likely to be), the percentage ownership retained by our existing stockholders
in Hydra Industries will be different.
At the special meeting, the Company’s
stockholders will be asked to approve and adopt separate proposals for amendments to the existing charter to:
Appraisal rights are not available to our
stockholders in connection with the Business Combination.
We were organized for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one
or more businesses. We have sought to capitalize on the ability of our management team to identify, acquire and partner with management
to operate a business, focusing on the international gaming industry. The Business Combination was the result of a thorough search
for a potential transaction utilizing the extensive network and investing and operating experience of our management team and
board of directors. The terms of the Business Combination were the result of thorough negotiations between the representatives
of Hydra Industries and Target.
From the date of our IPO through execution
of the Sale Agreement on July 13, 2016, we identified and preliminarily evaluated more than 140 potential acquisition target companies,
conducted initial business and financial due diligence or had meaningful discussions with representatives of 12 potential acquisition
targets (other than Inspired), provided an initial non-binding indication of interest to five potential acquisition targets (other
than Inspired) and submitted a letter of intent and commenced further due diligence with respect to two potential acquisition
targets (other than Inspired). In doing so, we followed the initial set of criteria and guidelines outlined below which we believed
were important in evaluating prospective targets. In reviewing the Target opportunity, our board considered the following factors
consistent with our strategy:
A quorum of Hydra Industries stockholders
is necessary to hold a valid meeting. A quorum will be present at the special meeting if a majority of the common stock outstanding
and entitled to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes
of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum.
Approval of the Business Combination Proposal,
the Incentive Plan Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by stockholders
present in person or represented by proxy at the special meeting. Accordingly, a Hydra Industries stockholder’s failure
to vote by proxy or to vote in person at the special meeting or the failure of a Hydra Industries stockholder who holds his or
her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other
nominee (a “broker non-vote”) will result in that stockholder’s shares not being counted towards the number
of shares of Hydra Industries common stock required to validly establish a quorum, but if a valid quorum is otherwise established,
it will have no effect on the outcome of any vote on the Business Combination Proposal, the Incentive Plan Proposal or the Adjournment
Proposal. Abstentions will also have no effect on the outcome of the Business Combination Proposal, the Incentive Plan Proposal
or the Adjournment Proposal.
The approval of the Charter Proposals requires
the affirmative vote of the holders of a majority of the outstanding shares of our common stock. Accordingly, a Hydra Industries
stockholder’s failure to vote by proxy or to vote in person at the special meeting, an abstention from voting, or a broker
non-vote with regard to any Charter Proposal will have the same effect as a vote “AGAINST” such Charter Proposal.
Directors are elected by a plurality of
all of the votes cast by holders of shares of our common stock represented in person or by proxy and entitled to vote thereon
at the special meeting. This means that the six nominees will be elected if they receive more affirmative votes than any other
nominee for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Abstentions
and broker non-votes will have no effect on the election of directors.
The transactions contemplated by the Sale
Agreement will be consummated only if the Business Combination Proposal and, unless waived, the Director Election Proposal and
Charter Proposals are approved at the special meeting. In addition, (i) the Incentive Plan Proposal is conditioned on the approval
of the Business Combination Proposal, (ii) the Charter Proposals are conditioned on the approval of the Business Combination Proposal
and (iii) the Director Election Proposal is conditioned on the approval of Proposal 3.
The Adjournment Proposal does not require
the approval of any other proposal to be effective. It is important for you to note that in the event that the Business Combination
Proposal and, unless waived, the Director Election Proposal and Charter Proposals do not receive the requisite vote for approval,
then we will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an
initial business combination by October 29, 2016 (subject to the requirements of law), we will be required to dissolve and liquidate
our trust account by returning the then remaining funds in such account to the public stockholders.
When you consider the recommendation of
our board of directors in favor of approval of these proposals, you should keep in mind that our directors, officers and nominees
to our board of directors have interests in the Business Combination that are different from or in addition to (and which may
conflict with) your interests as a stockholder. These interests include, among other things:
These interests may influence our directors
in making their recommendation that you vote in favor of the approval of the Business Combination. These interests were considered
by our Board when our Board approved the Business Combination.
In evaluating the proposals set forth in
this proxy statement, you should carefully read this proxy statement, including the annexes, and especially consider the factors
discussed in the section entitled “Risk Factors” beginning on page [__].
The following table sets forth selected historical Hydra financial
information. Our balance sheet data as of June 30, 2016 and 2015 and our income statement data for the six months ended June 30,
2016 and 2015 are derived from our unaudited financial statements included elsewhere in this proxy statement. Our balance sheet
data as of December 31, 2015 and 2014 and income statement data for the year ended December 31, 2015 and for the period from May
30, 2014 (inception) through December 31, 2014 are derived from our audited financial statements included elsewhere in this proxy
statement.
The following information is only a summary and should be read in conjunction with our financial statements
and related notes contained elsewhere in this proxy statement and information discussed under “
Hydra’s Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
” The historical results included below and
elsewhere in this proxy statement are not indicative of our future performance.
The following table sets forth selected historical Target financial
information. Target’s balance sheet data as of April 9, 2016 and its income statement data for the interim periods ended
April 9, 2016 and April 11, 2015 are derived from its unaudited financial statements included elsewhere in this proxy statement.
Target’s balance sheet data as of September 26, 2015 and September 27, 2014 and income statement data for the fiscal periods
ended September 26, 2015 and September 27, 2014 are derived from its audited financial statements included elsewhere in this proxy
statement.
The following information is only a summary and should be read
in conjunction with Target’s financial statements and related notes contained elsewhere in this proxy statement and information
discussed under "
Target’s Management's Discussion and Analysis of Financial Condition and Results of Operations.
"
The historical results included below and elsewhere in this proxy statement are not indicative of Target’s future performance,
or our future performance following the Business Combination.
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Period Ended
|
|
(dollars in thousands)
|
|
April 9,
2016
|
|
|
April 11,
2015
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
63,624
|
|
|
$
|
66,271
|
|
|
$
|
127,573
|
|
|
$
|
146,798
|
|
Gross profit
|
|
|
53,968
|
|
|
|
56,133
|
|
|
|
103,346
|
|
|
|
96,660
|
|
Operating income/(loss)
|
|
|
1,010
|
|
|
|
(2,123
|
)
|
|
|
(1,960
|
)
|
|
|
(13,487
|
)
|
Net loss
|
|
|
(31,178
|
)
|
|
|
(33,187
|
)
|
|
|
(60,538
|
)
|
|
|
(68,550
|
)
|
|
|
As of
|
|
|
As of
|
|
(dollars in thousands)
|
|
April 9,
2016
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,985
|
|
|
$
|
4,060
|
|
|
$
|
19,252
|
|
Accounts receivable, net
|
|
|
41,509
|
|
|
|
42,828
|
|
|
|
39,957
|
|
Property and equipment, net
|
|
|
61,679
|
|
|
|
75,786
|
|
|
|
73,006
|
|
Capitalized software development costs
|
|
|
31,878
|
|
|
|
30,463
|
|
|
|
21,771
|
|
Goodwill and intangibles
|
|
|
109,686
|
|
|
|
120,493
|
|
|
|
133,868
|
|
Total assets
|
|
|
264,265
|
|
|
|
293,326
|
|
|
|
312,048
|
|
Senior bank debt
|
|
|
120,892
|
|
|
|
114,751
|
|
|
|
115,899
|
|
Deferred revenue
|
|
|
27,118
|
|
|
|
31,271
|
|
|
|
32,224
|
|
Total liabilities
|
|
|
504,791
|
|
|
|
521,235
|
|
|
|
487,016
|
|
Total stockholders' deficit
|
|
$
|
(240,526
|
)
|
|
$
|
(227,909
|
)
|
|
|
(174,968
|
)
|
SELECTED UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
We are providing the following unaudited pro
forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination.
The following unaudited pro forma condensed combined
balance sheet as of June 30, 2016 combines the unaudited historical condensed consolidated balance sheet of Target as of April
9, 2016 with the unaudited historical condensed balance sheet of Hydra as of June 30, 2016, giving effect to the Business Combination
as if it had been consummated as of that date.
The following unaudited pro
forma condensed combined income statement for the six months ended June 30, 2016 combines the unaudited historical condensed consolidated
statement of operations of Target for the twenty-eight week period ended April 9, 2016 with the unaudited historical condensed
statement of operations of Hydra for the six months ended June 30, 2016, giving effect to the Business Combination as if it had
occurred on January 1, 2016.
The following unaudited pro forma condensed combined
income statement for the year ended December 31, 2015 combines the audited historical consolidated statement of operations of
Target for the fiscal period ended September 26, 2015 with the audited historical statement of operations of Hydra for the year
ended December 31, 2015, giving effect to the Business Combination as if it had occurred on January 1, 2015.
The unaudited pro forma condensed combined balance
sheet as of June 30, 2016, the unaudited pro forma condensed combined income statements for the six months ended June 30, 2016
and the unaudited pro forma condensed combined income statements for the year ended December 31, 2015 have been prepared assuming
the following circumstances: (1) no holders of Hydra common stock exercise their right to have their shares redeemed upon the consummation
of the Business Combination and (2) holders of no more than 6,108,323 shares of Hydra common stock elect to have their shares redeemed
upon consummation of the Business Combination at a redemption price of approximately $10.00 per share, which represents the maximum
redemption amount such that no cash consideration is to be paid to the Selling Group.
The historical financial information has been adjusted
to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable
and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited
pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary
for an accurate understanding of the combined company upon consummation of the Business Combination.
The historical financial statements of Hydra and
Target have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The historical financial information of Target was derived from the audited consolidated financial statements
of Target as of September 26, 2015 and September 27, 2014 and for the fiscal periods ended September 26, 2015, September 27, 2014
and September 28, 2013 included elsewhere in this proxy statement. The historical financial information for Target as of April
9, 2016 and for the twenty eight week period ended April 9, 2016 has been derived from Target’s unaudited financial statements.
The historical financial information of Hydra was derived from the audited financial statements of Hydra for the years ended December
31, 2015 and 2014 and the unaudited condensed financial statements of Hydra for the six months ended June 30, 2016 and 2015 included
elsewhere in this proxy statement. This information should be read together with Target’s and Hydra’s audited and unaudited
financial statements and related notes, “
Target’s Management’s Discussion and Analysis of Financial Condition
and Results of Operations
,”
“Hydra’s Management’s Discussion and Analysis of Financial Condition
and Results of Operations
” and other financial information included elsewhere in this proxy statement.
The unaudited pro forma condensed combined financial
information is for illustrative purposes only. The financial results may have been different had the companies always been combined.
You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical
results that would have been achieved had the companies always been combined or the future results that the combined company will
experience. Target and Hydra have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma
adjustments were required to eliminate activities between the companies.
Selected Unaudited Pro Forma
Financial Information
(dollars in thousands except
per share amounts)
|
|
Target
|
|
|
Hydra
|
|
|
Pro Forma
Combined
Assuming No
Redemption
|
|
|
Pro Forma
Combined
Assuming
Maximum
Redemption
|
|
Statement of Operations Data – For the Twenty Eight Weeks Ended April 9, 2016 (Target) and Six Months Ended June 30, 2016 (Hydra)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
63,624
|
|
|
$
|
—
|
|
|
$
|
63,624
|
|
|
$
|
63,624
|
|
Operating expenses
|
|
$
|
52,958
|
|
|
$
|
1,492
|
|
|
$
|
52,495
|
|
|
$
|
52,495
|
|
Operating (loss) income
|
|
$
|
1,010
|
|
|
$
|
(1,492
|
)
|
|
$
|
1,473
|
|
|
$
|
1,473
|
|
Net loss
|
|
$
|
(31,178
|
)
|
|
$
|
(1,423
|
)
|
|
$
|
(7,202
|
)
|
|
$
|
(7,340
|
)
|
Net loss per common share – basic and diluted
|
|
|
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data – As of April 9, 2016 (Target) and June 30, 2016 (Hydra)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
61,022
|
|
|
$
|
268
|
|
|
$
|
67,389
|
|
|
$
|
67,389
|
|
Total assets
|
|
$
|
264,265
|
|
|
$
|
80,299
|
|
|
$
|
270,632
|
|
|
$
|
270,632
|
|
Total current liabilities
|
|
$
|
68,363
|
|
|
$
|
4,038
|
|
|
$
|
55,641
|
|
|
$
|
61,581
|
|
Total liabilities
|
|
$
|
504,791
|
|
|
$
|
6,838
|
|
|
$
|
184,859
|
|
|
$
|
190,799
|
|
Total stockholders’ equity (deficit)
|
|
$
|
(240,526
|
)
|
|
$
|
5,000
|
|
|
$
|
85,773
|
|
|
$
|
79,833
|
|
|
|
Target
|
|
|
Hydra
|
|
|
Pro Forma
Combined
Assuming No
Redemption
|
|
|
Pro Forma
Combined
Assuming
Maximum
Redemption
|
|
Statement of Operations Data – For the Year Ended September 26, 2015 (Target) and Year Ended December 31, 2015 (Hydra)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
127,573
|
|
|
$
|
—
|
|
|
$
|
127,573
|
|
|
$
|
127,573
|
|
Operating expenses
|
|
$
|
105,306
|
|
|
$
|
3,530
|
|
|
$
|
105,784
|
|
|
$
|
105,784
|
|
Operating loss
|
|
$
|
(1,960
|
)
|
|
$
|
(3,530
|
)
|
|
$
|
(2,438
|
)
|
|
$
|
(2,438
|
)
|
Net loss
|
|
$
|
(60,538
|
)
|
|
$
|
(3,526
|
)
|
|
$
|
(18,802
|
)
|
|
$
|
(19,078
|
)
|
Net loss per common share – basic and diluted
|
|
|
|
|
|
$
|
(1.27
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.95
|
)
|
COMPARATIVE PER SHARE
DATA
The following table sets forth the per share
data of Hydra and Target on a stand-alone basis and the unaudited pro forma condensed combined per share data for the six months
ended June 30, 2016 and the year ended December 31, 2015 after giving effect to the Business Combination, assuming (1) no holders
of the Company’s common stock exercise their right to have their shares redeemed upon the consummation of the Business Combination
and (2) holders of no more than 6,108,323 shares of Hydra common stock elect to have their shares converted upon consummation of
the Business Combination.
You should read the information in the following
table in conjunction with the selected historical financial information summary included elsewhere in this proxy statement,
and the historical financial statements of Hydra and Target and related notes that are included elsewhere in this proxy statement.
The unaudited Hydra and Target pro forma combined per share information is derived from, and should be read in conjunction with,
the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this proxy statement.
The unaudited pro forma combined earnings per
share information below does not purport to represent the earnings per share which would have occurred had the companies been combined
during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value
per share information below does not purport to represent what the value of Hydra and Target would have been had the companies
been combined during the period presented
|
|
Target
|
|
|
Hydra
|
|
|
Pro Forma
Combined
Assuming No
Redemption
|
|
|
Pro Forma
Combined
Assuming
Maximum
Redemption
|
|
|
|
(in thousands except share and per share amounts)
|
|
Twenty Eight Weeks Ended April 9, 2016 (Target) and Six Months Ended June 30, 2016 (Hydra)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,178
|
)
|
|
$
|
(1,423
|
)
|
|
$
|
(7,202
|
)
|
|
$
|
(7,340
|
)
|
Stockholders’ equity (deficit) at June 30, 2016
|
|
$
|
(240,526
|
)
|
|
$
|
5,000
|
|
|
$
|
85,773
|
|
|
$
|
79,833
|
|
Weighted average shares outstanding – basic and diluted
|
|
|
|
|
|
|
3,026,265
|
|
|
|
20,933,059
|
|
|
|
20,341,451
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.36
|
)
|
Stockholders’ equity per share - basic and diluted – at June 30, 2016
|
|
|
|
|
|
$
|
1.65
|
|
|
$
|
4.10
|
|
|
$
|
3.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 9, 2016 (Target) and Year Ended December 31, 2016 (Hydra)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(60,538
|
)
|
|
$
|
(3,526
|
)
|
|
$
|
(18,802
|
)
|
|
$
|
(19,078
|
)
|
Weighted average shares outstanding – basic and diluted
|
|
|
|
|
|
|
2,787,207
|
|
|
|
20,838,130
|
|
|
|
20,102,393
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(1.27
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.95
|
)
|
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this
proxy statement. These forward-looking statements relate to expectations for future financial performance, business strategies
or expectations for our business, and the timing and ability for us to complete the Business Combination. Specifically, forward-looking
statements may include statements relating to:
|
·
|
the benefits of
the Business Combination;
|
|
·
|
the future financial
performance of the Company following the Business Combination;
|
|
·
|
changes in the
market for Target’s products and services;
|
|
·
|
expansion plans
and opportunities, including future acquisitions or additional business combinations;
and
|
|
·
|
other statements
preceded by, followed by or that include the words “estimate,” “plan,”
“project,” “forecast,” “intend,” “expect,”
“anticipate,” “believe,” “seek,” “target”
or similar expressions.
|
These forward-looking statements are based
on information available as of the date of this proxy statement, and current expectations, forecasts and assumptions, and involve
a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing
our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events
or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as
may be required under applicable securities laws.
You should not place undue reliance on
these forward-looking statements in deciding how to grant your proxy or instruct how your vote should be cast or vote your shares
on the proposals set forth in this proxy statement. As a result of a number of known and unknown risks and uncertainties, our
actual results or performance may be materially different from those expressed or implied by these forward-looking statements.
Some factors that could cause actual results to differ include:
|
·
|
the occurrence
of any event, change or other circumstances that could give rise to the termination of
the Sale Agreement;
|
|
·
|
the outcome of
any legal proceedings that may be instituted against Target or Hydra Industries following
announcement of the proposed Business Combination and related transactions;
|
|
·
|
the inability
to complete the transactions contemplated by the proposed Business Combination due to
the failure to obtain approval of the stockholders of Hydra Industries, or to satisfy
other conditions to closing in the Sale Agreement;
|
|
·
|
the inability
to maintain the listing of the Company’s common stock on NASDAQ following the Business
Combination;
|
|
·
|
the risk that
the proposed Business Combination disrupts current plans and operations as a result of
the announcement and consummation of the transactions described herein;
|
|
·
|
the ability to
recognize the anticipated benefits of the Business Combination, which may be affected
by, among other things, competition and the ability of the business to grow and manage
growth profitably;
|
|
·
|
costs related
to the Business Combination;
|
|
·
|
changes in applicable
laws or regulations;
|
|
·
|
the possibility
that Target or Hydra Industries may be adversely affected by other economic, business,
and/or competitive factors; and
|
|
·
|
other risks and
uncertainties indicated in this proxy statement, including those described under “Risk
Factors,” or indicated in the accompanying Annual Report on Form 10-K for the year
ended December 31, 2015.
|
RISK FACTORS
The following risk factors apply to
the business and operations of Target, Hydra Industries, the Business Combination and the business and operations of the combined
company following the completion of the Business Combination. These risk factors are not exhaustive, and investors are encouraged
to perform their own investigation with respect to the business, financial condition and prospects of Target. You should carefully
consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed
in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” as well as in the accompanying
Annual Report on Form 10-K for the year ended December 31, 2015. We may face additional risks and uncertainties that are not presently
known to us, or that we currently deem immaterial, which may also impair our business. The following discussion should be read
in conjunction with the financial statements and notes to the financial statements included elsewhere in this proxy statement.
RISK FACTORS RELATING TO TARGET’S BUSINESS AND INDUSTRY
Target operates in highly competitive industries and its
success depends on its ability to effectively compete with numerous worldwide businesses.
Target faces competition from a number
of worldwide businesses, some of which have substantially greater financial resources and operating scale than it does. Such competition
could impact Target’s ability to win new contracts and renew existing contracts. Target continues to operate in a period
of intense price-based competition in some key markets, which could affect the profitability of the contracts it does win.
Moreover, Target’s businesses in
certain markets also face competition from suppliers or operators, who offer products for internet gaming in illegal, unregulated
or lightly regulated markets, but are still permitted to supply into certain regulated markets. As Target generally operates only
with regulated products in regulated markets, these competitors often have substantially greater financial resources which could
impact the Target’s ability to win new contracts and renew existing contracts that can affect its future profitability.
Target’s business is subject to evolving technology.
The markets for all of Target’s products
and services are affected by changing technology, new regulations and evolving industry standards. Target’s ability to anticipate
or respond to such changes and to develop and introduce new and enhanced products and services on a timely basis will be a significant
factor in its ability to expand, remain competitive, attract new customers and retain existing contracts.
There can be no assurance that Target will
achieve the necessary technological advances, have the financial resources, introduce new products or services on a timely basis
or otherwise have the ability to compete effectively in the markets it serves.
Target is heavily dependent on its ability to renew its
long-term contracts with its customers and it could lose substantial revenue if it is unable to renew certain of these contracts.
Generally, Target’s Virtual Sports
contracts are for initial terms of three to five years, with renewals at the customer’s option. SBG terminal contracts typically
are for terms of four to six years, but certain customers have options for early termination under certain circumstances and there
may be competitive pressure to renew or upgrade terminals during the life of the contract. This can adversely affect revenues
and / or return on capital and leave Target with surplus terminals. Certain key contracts in the UK and Italy are subject to renewal
or early termination options in the next two years.
There can be no assurance that Target’s
current contracts will be extended or that it will be awarded new contracts as a result of competitive bidding processes in the
future. The termination, expiration or failure to renew one or more of Target’s contracts could cause it to lose substantial
revenue. Additionally, certain customer contracts contain change of control provisions allowing the customer to terminate the
contract which may be triggered by completion of the Transaction.
Changes in applicable gambling regulations
or taxation regimes may affect the revenues or profits generated by the contracts which Target enters into with its customers.
Many of the contracts which Target has with its customers are on revenue-sharing terms, and therefore changes which adversely
affect Target's customers may also adversely affect Target. In addition, such changes may cause Target's customers to seek to
renegotiate their contracts or may alter the terms on which such customers are prepared to renew their contracts.
Target’s ability to bid on new contracts is dependent
upon its ability to fund any required up-front capital expenditures through Target’s cash from operations, incurrence of
indebtedness or raising additional equity capital.
Target’s SBG terminal contracts in
UK and in Italy often require significant up-front capital expenditures for terminal assembly, software customization and implementation,
systems and equipment installation and telecommunications configuration. Historically, Target has funded these up-front costs
through cash flows generated from operations, available cash on hand and borrowings under its credit facilities. Target’s
ability to continue to procure new contracts will depend on, among other things, its liquidity levels at the time or its ability
to obtain additional debt or equity funding at commercially acceptable terms to finance the initial up-front costs. If Target
does not have adequate liquidity or is unable to obtain other funding for these up-front costs on favorable terms or at all, it
may not be able to bid on certain contracts, which could restrict its ability to grow and have a material adverse effect on its
ability to retain existing contracts and therefore on future profitability.
Target’s business depends on the protection of its
intellectual property and proprietary information.
Target believes that its success depends,
in part, on protecting its intellectual property in the United Kingdom and in other countries. Target’s intellectual property
includes certain patents and trademarks relating to its systems, as well as proprietary or confidential information that is not
subject to patent or similar protection. Target’s intellectual property protects the integrity of its games, systems, products
and services, which is a core value of the industries in which it operates. Competitors may independently develop similar or superior
products, software, systems or business models. In cases where Target’s intellectual property is not protected by an enforceable
patent, or other intellectual property protection, such independent development may result in a significant diminution in the
value of its intellectual property.
There can be no assurance that Target will
be able to protect its intellectual property. Target enters into confidentiality or license agreements with its employees, vendors,
consultants and, to the extent legally permissible, its customers, and generally controls access to, and the distribution of,
its game designs, systems and other software documentation and other proprietary information, as well as the designs, systems
and other software documentation and other information it licenses from others. Despite Target’s efforts to protect these
proprietary rights, unauthorized parties may try to copy its gaming products, business models or systems, use certain of its confidential
information to develop competing products, or develop independently or otherwise obtain and use its gaming products or technology,
any of which could have a material adverse effect on its business. Policing unauthorized use of Target’s technology is difficult
and expensive, particularly because of the global nature of its operations. The laws of other countries may not adequately protect
Target’s intellectual property.
There can be no assurance that Target’s
business activities, games, products and systems will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against it. Any such claim and any resulting litigation, should it occur, could subject Target
to significant liability for damages and could result in invalidation of its proprietary rights, distract management, and/or require
it to enter into costly and burdensome royalty and licensing agreements. Such royalty and licensing agreements, if required, may
not be available on terms acceptable to Target, or may not be available at all. In the future, Target may also need to file lawsuits
to defend the validity of its intellectual property rights and trade secrets, or to determine the validity and scope of the proprietary
rights of others. Such litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources.
Target also relies on certain products
and technologies that it licenses from third parties. There can be no assurance that these third-party licenses, or the support
for such licenses, will continue to be available to Target on commercially reasonable terms.
Target’s business competes on the basis of the stability,
security and integrity of its software, networks, systems, games and products.
Target believes that its success depends,
in part, on providing secure products and systems to its vendors and customers with high levels of uptime, quality and availability.
Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, players, employees
and others. Target’s ability to monitor and ensure quality of its products is periodically reviewed and enhanced. There
can be no assurance that Target’s business might not be affected by a security breach, virus, Denial of Service attack,
or technical error, failure or lapse which could have a material adverse impact on its business.
Additionally, Target maintains a large
number of games and terminals and jackpot systems, which rely on algorithms and software designed to pay out winnings to players
at certain ratios. Target’s systems, testing and processes to monitor and ensure the payout of games are periodically reviewed
and enhanced, and are additionally reviewed and tested by third-party expert test houses. There can be no assurance that Target’s
business might not be affected by a malicious or unintentional breach or technical error, failure or lapse which could have a
material adverse impact on payout ratios which would consequently have a material adverse effect on its business in the form of
lost revenues or penalty payments to players or customers. Gaming regulators may take enforcement action against the Target (including
the imposition of significant fines) where the payout ratios fall below the ratios advertised to customers, or the Target's software,
networks, systems, games and/or products otherwise suffer from technical error, failure or lapse.
Target’s industry is subject to strict government
regulations that may limit its existing operations and have a negative impact on its ability to grow.
In many jurisdictions, forms of wagering,
betting and lottery must be expressly authorized by law. Once authorized, such activities are typically subject to extensive and
evolving governmental regulation. Moreover, such gaming regulatory requirements vary from jurisdiction to jurisdiction. Therefore,
Target is subject to a wide range of complex gaming laws and regulations in the jurisdictions in which it is licensed. Most jurisdictions
require that Target be licensed, that its key personnel and certain of its security holders be found suitable or be licensed,
and that its products be reviewed, tested and approved before placement. If a license, approval or finding of suitability is required
by a regulatory authority and Target fails to seek or does not receive the necessary approval, license or finding of suitability,
then it may be prohibited from distributing its products for use in the respective jurisdiction. Additionally, such prohibition
could trigger reviews of Target by regulatory bodies in other jurisdictions.
The regulatory environment in any particular
jurisdiction may change in the future, and any such change could have a material adverse effect on Target’s results of operations.
Moreover, there can be no assurance that the operation of Server Based Gaming terminals, Video Lottery Terminals, Virtual Sports
Betting, Gaming or Lottery, Internet or Mobile gaming, betting, lottery or other forms of wagering systems will be approved by
additional jurisdictions or that those jurisdictions in which these activities are currently permitted will continue to permit
such activities. While Target believes that it has developed procedures and policies designed to comply with the requirements
of evolving laws, there can be no assurance that law enforcement or gaming regulatory authorities will not seek to restrict its
business in their jurisdictions or even institute enforcement proceedings. Moreover, in addition to the risk of enforcement action,
Target is also at risk from loss of business reputation in the event of any potential legal or regulatory investigation whether
or not Target is ultimately accused of or found to have committed any violations.
Target supplies certain of its products
to operators who operate gaming websites. Some of those operators may accept customers from so-called 'grey markets' in which
the provision of online gaming is unregulated or where there may be uncertainty as to the legal standing for the provision of
online gaming. If any of those operators is subjected to investigatory or enforcement action by local regulatory or police authorities,
that may result in the operator withdrawing from that market which may adversely affect such operator’s revenues. The suppliers
to such operators may themselves become subject to investigatory or enforcement action (if and to the extent that local laws impose
secondary liability on suppliers for the activities of the customers that they supply). Target takes steps which are common within
the online gaming industry to protect itself against any secondary liability for the activities of the operators that it supplies,
including contractually requiring those operators not to operate in certain territories and only supplying operators who are considered
to uphold high standards of regulatory compliance. Nonetheless, there is a risk that Target may become subject to local investigatory
or enforcement action should any of its customers be accused of breaching local laws. Such action may adversely impact the management
time of Target, and impact its standing with its own gaming regulators.
Target is required to obtain and maintain
licenses from various state and local jurisdictions in order to operate certain aspects of its business and it is subject to extensive
background investigations and suitability standards. Target may also become subject to regulation in any other jurisdiction where
its customers operate in the future. There can be no assurance that Target will be able to obtain new licenses or renew any of
its existing licenses, and the loss, denial or non-renewal of any of its licenses could have a material adverse effect on its
business. Generally, regulatory authorities have broad discretion when granting, renewing or revoking approvals and licenses.
Target’s failure, or the failure of any of its key personnel, systems or machines, in obtaining or retaining a required
license or approval in one jurisdiction could negatively impact Target’s ability (or the ability of any of its key personnel,
systems or gaming machines) to obtain or retain required licenses and approvals in other jurisdictions. The failure to obtain
or retain a required license or approval in any jurisdiction would decrease the geographic area where Target may operate and generate
revenues, decrease its share in the gaming marketplace and put it at a disadvantage compared with its competitors.
Some jurisdictions also require extensive
personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage (typically
5% or more) of equity securities of licensed or regulated businesses. Following the Business Combination, the failure of beneficial
owners of Hydra Industries’ common stock to submit to such background checks and provide required disclosure could jeopardize
Target’s business. In light of these regulations and the potential impact on Target’s business, the Board of Directors
of Hydra Industries has proposed the adoption of an amendment to our restated certificate of incorporation, subject to a vote
of the stockholders at the special meeting, which amendment would allow for the prohibition of stock ownership by persons or entities
who fail to comply with informational or other regulatory requirements under applicable gaming law, who are found unsuitable to
hold our stock by gaming authorities or whose stock ownership adversely affects our ability to obtain, maintain, renew or qualify
for a license, contract, franchise or other regulatory approval from a gaming authority. The licensing procedures and background
investigations of the authorities that regulate our businesses and the proposed amendment may inhibit potential investors from
becoming significant stockholders or inhibit existing shareholders from retaining or increasing their ownership.
Target has developed and implemented an
internal compliance program in an effort to ensure that it will comply with legal requirements imposed in connection with its
wagering-related activities. Following the Business Combination, the compliance program will be run on a day-to-day basis by its
Chief Legal Officer with compliance and technical advice provided by its Compliance Director and outside experts. The compliance
program is expected to be overseen by the Audit Committee of our Board of Directors (or a separate Compliance Committee of our
Board of Directors, if our Board elects to establish one), consisting of [___] outside directors. There can be no assurance that
such steps will prevent the violation of one or more laws or regulations, or that a violation by us or an employee will not result
in the imposition of a monetary fine or suspension or revocation of one or more of our licenses.
Gaming opponents persist in their efforts to curtail legalized
gaming, which, if successful, could limit Target’s existing operations.
Legalized gaming is subject to opposition
from gaming opponents, including in the UK, Italy and other markets where Target is active. There can be no assurance that this
opposition will not succeed in preventing the legalization of gaming in jurisdictions where these activities are presently prohibited
or prohibiting or limiting the expansion or continuance of gaming where it is currently permitted, in either case to the detriment
of Target’s business, financial condition, results and prospects.
Target’s industry is subject to taxation by government
and by regulations that set parameters for levels of gaming or wagering duty, tax, stake, prize and return to player.
In most jurisdictions in which Target operates
or expects to seek to operate, the level of duty and/ or taxation and the stake, prize and return to player of wagering, betting
and lottery games, and the speed at which players can participate in gaming, is defined in government regulations which are subject
to change. Those regulations may also affect the premises in which gaming activities may take place (
i.e
., by limiting
the number of gaming machines which may be housed in licensed gaming premises, or by restricting the locations in which licensed
gaming premises may be situated). Once authorized, such parameters are subject to extensive and evolving governmental regulation.
Moreover, such gaming regulatory requirements vary from jurisdiction to jurisdiction. Therefore, Target is subject to a wide range
of complex gaming parameters in the jurisdictions in which it is licensed. If a key parameter is changed, such as the level of
taxation or duty or the maximum stake or prize or return to player of a game, then it may be to the detriment of Target’s
business, financial condition, results and prospects and / or the Target may be unable to distribute its products profitably for
use in the prospective jurisdiction or existing products in which the Target has invested may become economically unviable.
Following the Business Combination, our inability to complete
future acquisitions of gaming and related businesses and integrate those businesses successfully could limit our future growth,
if any.
Following the Business Combination, we
expect to pursue expansion and acquisition opportunities in gaming and related businesses and we could face significant challenges
in managing and integrating the expanded or combined operations including acquired assets, operations and personnel. There can
be no assurance that acquisition opportunities will be available on acceptable terms or at all or that we will be able to obtain
necessary financing or regulatory approvals to complete potential acquisitions. Our ability to succeed in implementing our strategy
will depend to some degree upon the ability of our management to identify, complete and successfully integrate commercially viable
acquisitions. Acquisition transactions may disrupt our ongoing business and distract management from other responsibilities. Any
future acquisition transactions involving the use of company stock have the potential of dilution to our existing shareholders
and earnings per share.
Target’s business may be affected by changes in general
and local economic and political conditions.
The demand for Target’s services
is sensitive to general and local economic conditions over which Target has no control, including changes in the levels of consumer
disposable income and geographical exposure to macro-economic trends and taxation. In addition, the economic stability of certain
Eurozone countries where Target conducts or intends to conduct business may become affected by sovereign debt crises. Adverse
changes in economic conditions may affect Target’s business generally or may be more prevalent or concentrated in particular
markets in which Target operates. Any deterioration in economic conditions or the continuation of uncertain economic conditions
could have a material adverse effect on Target’s business, financial condition, results of operations and prospects. Other
economic risks which may adversely impact Target’s performance include high interest rates, inflation and volatile foreign
exchange markets.
The performance of Target’s business
may also be subject to political risks in certain jurisdictions where it operates, including change of government, political unrest,
war or terrorism.
Target’s revenues fluctuate due to seasonal, weather
and other variations and you should not rely upon its periodic operating results as indications of future performance.
Target’s revenues are subject to
seasonal and other variations. Wagering equipment sales and software license revenues usually reflect a limited number of large
transactions, which may not recur on an annual basis. Consequently, revenues and operating results can vary substantially from
period to period as a result of the timing of revenue recognition for major equipment sales and software license revenue. In addition,
revenues may vary depending on the season and timing of contract awards, changes in customer budgets and general economic conditions.
Revenues may also vary based on adverse sequences of payouts of prizes, unusual jackpot wins, and other variations in game margin.
Target’s business could also be impacted
by natural or man-made disasters such as floods, storms or terrorist attacks. Target has taken steps to have disaster recovery
plans in place but there can be no assurance that such an event would not have a significant adverse impact on its business.
Target is dependent on its suppliers and contract manufacturers,
and any failure of these parties to meet its performance and quality standards or requirements or unexpected price raises could
cause it to incur additional costs or lose customers.
Target is dependent on a select group of
suppliers and manufacturers. In addition, Target’s business has signed a number of significant contracts whose performance
depends on third party suppliers delivering equipment on schedule for Target to meet its contract commitments. Failure of the
suppliers to meet their delivery commitments could result in Target being in breach of and subsequently losing those contracts,
which loss could have a material adverse effect on its revenue.
Target has operations in a variety of countries, which subjects
it to additional risks.
Target’s business in foreign markets
subjects it to risks customarily associated with such operations, including:
foreign withholding taxes on its subsidiaries’
earnings that could reduce cash flow available to meet its required debt service and its other obligations;
the complexity of foreign laws, regulations and markets;
the impact of foreign labor laws and disputes;
other economic, tax and regulatory policies of local
governments; and
the ability to attract and retain key personnel in
foreign jurisdictions.
Target’s consolidated financial results
are, and our consolidated financial results following the Business Combination will be, significantly affected by foreign currency
exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactions
denominated in currencies other than UK pounds or, following the Business Combination, U.S. dollars, and from the translation
of foreign currency balance sheet accounts into UK pound-denominated or U.S. dollar-denominated balance sheet accounts. Exposure
to currency exchange rate fluctuations exists and will continue because a significant portion of Target’s revenues are denominated
in currencies other than the U.S. dollar, particularly the British pound sterling and the Euro. Exchange rate fluctuations have
in the past adversely affected operating results and cash flows and may continue to adversely affect results of operations and
cash flows and the value of assets.
There can be no assurance that Target will
be able to operate successfully in any foreign market.
Target’s business is capital intensive and the retention
of customers may be influenced by Target’s ability to deploy additional capital.
Customers of Target’s server based
gaming products frequently request Target to incur capital expenditures to provide gaming terminals to support their land-based
operations. While Target seeks to obtain what it believes to be satisfactory rates of return on such investments, these
capital expenditures can be meaningful and may be concentrated within short periods of time. To the extent that Target has
insufficient access to capital and/or liquidity at the time that a customer, or prospective customer, makes such a request, Target
may be at a competitive disadvantage in retaining or attracting such customer. Such a circumstance could have a material
adverse effect on Target’s business, financial condition, results of operations or prospects.
The Business Combination is subject to the receipt of approvals,
consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on Target or,
if not obtained, could prevent completion of the Business Combination.
Completion of the Business Combination
is conditioned upon the receipt of certain governmental approvals, including, without limitation, gaming regulatory approvals.
Although each party has agreed to use their respective reasonable best efforts to obtain the requisite governmental approvals,
there can be no assurance that these approvals will be obtained and that the other conditions to completing the Business Combination
will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions
on the completion of the Business Combination or require changes to the terms of the Business Combination or other agreements
to be entered into in connection with the Sale Agreement. Such conditions or changes and the process of obtaining regulatory approvals
could have the effect of delaying or impeding consummation of the transaction or of imposing additional costs or limitations on
us following completion of the Business Combination, any of which might have an adverse effect on us following completion of the
Business Combination.
Target
may be adversely affected by disruptions in
its transaction gaming and lottery systems, as well as internal enterprise and information technology systems.
Target’s operations are dependent
upon its transactional gaming, lottery and information technology systems. Target relies upon such systems to manage customer
systems on a timely basis, to coordinate its sales and installation activities across all of its locations and to manage invoicing.
A substantial disruption in Target’s transactional gaming, lottery and information technology systems for any prolonged
time period (arising from, for example, system capacity limits from unexpected increases in Target’s volume of business,
outages, computer viruses, unauthorized access or delays in its service) could result in delays in serving its customers, which
could adversely affect Target’s reputation and customer relationships. Target’s systems might be damaged or interrupted
by natural or man-made events or by computer viruses, physical or electronic break-ins, or similar disruptions affecting the Internet
and Target’s disaster recovery plan may be ineffective at mitigating the effects of these risks. Such delays, problems or
costs could have a material adverse effect on Target’s financial condition, results of operations and cash flows.
Target
may be subject to claims arising from the
operations of its various businesses for periods prior to the dates Target acquired them.
Target has consummated two acquisitions
since 2010. Target may be subject to claims or liabilities arising from the ownership or operation of acquired businesses for
the periods prior to its acquisition of them, including environmental, employee-related and other liabilities and claims not covered
by insurance. These claims or liabilities could be significant. Target’s ability to seek indemnification from the former
owners of its acquired businesses for these claims or liabilities may be limited by various factors, including the specific time,
monetary or other limitations contained in the respective acquisition agreements and the financial ability of the former owners
to satisfy its indemnification claims. In addition, insurance companies may be unwilling to cover claims that have arisen from
acquired businesses or locations, or claims may exceed the coverage limits that Target’s acquired businesses had in effect
prior to the date of acquisition. If Target is unable to successfully obtain insurance coverage of third-party claims or enforce
its indemnification rights against the former owners, or if the former owners are unable to satisfy their obligations for any
reason, including because of their current financial position, Target could be held liable for the costs or obligations associated
with such claims or liabilities, which could adversely affect Target’s financial condition and results of operations.
Target’s success depends on its key personnel.
Target’s business results depend
largely upon the continued contributions of its chief executive officer and other members of its management team, as well as certain
key technical specialists, game designers, operational experts and other developers and operators of key intellectual property
and processes. If Target loses the services of one or more members of its management team or key employees, its business, financial
condition and results of operations, as well as the market price of its securities, could be adversely affected.
The long-term performance of Target’s businesses relies
on its ability to attract, develop and retain talented personnel and its labor force while controlling its labor costs.
To be successful, Target must attract,
develop and retain highly qualified and talented personnel who have the experience, knowledge and expertise to successfully implement
its key business strategies. Target also must attract, develop and retain its labor force while maintaining labor costs. Target
competes for employees, including sales people, regional management, executive officers and others, with a broad range of employers
in many different industries, including large multinational firms, and Target invests significant resources in recruiting, developing,
motivating and retaining them. The failure to attract and retain key employees, or to develop effective succession planning to
assure smooth transitions of those employees and the knowledge, customer relationships and expertise they possess, could negatively
affect Target’s competitive position and its operating results. Further, if Target is unable to cost-effectively recruit,
train and retain sufficient skilled personnel, it may not be able to adequately satisfy increased demand for its products and
services, which could impact Target’s operating results.
The obligations associated with being a public company will
require significant resources and management attention.
Following the Business Combination, we
and Target will face legal, accounting, administrative and other costs and expenses applicable to a U.S. public company that Target
did not incur as a private company, particularly after we are no longer an emerging growth company. In addition, Target has been
a private company with limited accounting personnel and other related resources and will need to add personnel in areas such as
accounting, financial reporting, investor relations and legal in connection with its operations as a public company. Target expects
to incur incremental costs related to operating as a public company of approximately $2.0 million annually, although there can
be no assurance that these costs will not be higher, particularly when Target no longer qualifies as an emerging growth company.
The combined company will be subject to the reporting requirements of the Exchange Act, which requires us to file annual, quarterly
and current reports with respect to our business and financial condition and proxy and other information statements, and the rules
and regulations implemented by the SEC, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, the Public Company Accounting Oversight
Board and the NASDAQ, each of which imposes additional reporting and other obligations on public companies. Target’s senior
management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such
increased legal, regulatory compliance and reporting requirements, including establishing and maintaining internal controls over
financial reporting. Target’s compliance with existing and evolving regulatory requirements will result in increased administrative
expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities,
which could have a material adverse effect on Target’s business, financial condition, results of operations and cash flows.
Target
depends upon a limited number of customers
in any given period to generate a substantial portion of its revenue, the loss of any of which may adversely affect Target’s
business or results of operations.
Certain key customers, including certain
U.K. and Italian SBG Terminal customers and certain Virtual Sports customers make a significant contribution to Target’s
revenues and profitability. Target’s top ten customers generated 69% of total revenues and 81% of recurring revenues in
its most recently ended fiscal year. The loss of any of these customers, whether through contract expiry and non-renewal, exercise
of change of control rights, breach of contract or other adverse factors may materially adversely affect revenues and / or return
on capital and leave Target with surplus terminal and or software assets. If any of these customers experiences reduced sales
or revenue, such reduction may materially impact any revenue-share arrangements Target has with those customers.
Restrictions in Target’s existing credit agreement,
or any other indebtedness Target may incur in the future, could adversely affect its business, financial condition, results of
operations, and our ability to make distributions to stockholders and the value of our common stock.
Target’s existing credit agreement,
or any future credit facility or other indebtedness it enters into, may limit its, or our, ability to, among other things:
incur or guarantee additional
debt;
make distributions or dividends
on or redeem or repurchase shares of common stock;
make certain investments and
acquisitions;
make capital expenditures;
incur certain liens or permit
them to exist;
enter into certain types of
transactions with affiliates;
acquire, merge or consolidate
with another company; and
transfer, sell or otherwise
dispose of all or substantially all of Target’s assets.
The provisions of Target’s existing
credit agreement or other debt instruments may affect its ability to obtain future financing and pursue attractive business opportunities
and its flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the
provisions of Target’s credit agreement, any future credit facility or other debt instruments could result in a default
or an event of default that could enable its lenders or other debt holders to declare the outstanding principal of that debt,
together with accrued and unpaid interest, to be immediately due and payable. If the payment of Target’s debt is accelerated,
its assets may be insufficient to repay such debt in full, and we or you could experience a partial or total loss of our investment.
Target may have future capital needs and may not be able
to obtain additional financing on acceptable terms.
Economic and credit market conditions,
the performance of the gaming industry, and Target’s financial performance, as well as other factors, may constrain its
financing abilities. Target’s ability to secure additional financing, if available, and to satisfy its financial obligations
under indebtedness outstanding from time to time will depend upon its future operating performance, the availability of credit,
economic conditions and financial, business and other factors, many of which are beyond Target’s control.
Target may be unable to identify sufficient new products
and product lines and integrate them into its existing business, which may impact Target’s ability to compete; Target’s
expansion into new markets may present competitive and regulatory challenges that differ from current ones.
Target’s business depends in part
on its ability to identify future products and product lines that complement existing products and product lines and that respond
to its customers’ needs. Target may not be able to compete effectively unless its product selection keeps up with trends
in the markets in which it competes or trends in new products. In addition, Target’s ability to integrate new products and
product lines into its existing business could affect its ability to compete. Furthermore, the success of new products and product
lines will depend on market demand and there is a risk that new products and product lines will not deliver expected results,
which could negatively impact Target’s future sales and results of operations. Target’s expansion into new markets
may present competitive, distribution and regulatory challenges that differ from current ones. Target may be less familiar with
new product categories and may face different or additional risks, as well as increased or unexpected costs, compared to existing
operations.
Risk Factors Relating to Hydra Industries and the Business
Combination
Following the consummation of the Business Combination,
our only significant asset will be ownership of 100% of Target Parent’s capital stock, and we do not currently intend to
pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation
in the price of our common stock.
Following the consummation of the Business
Combination, we will have no direct operations and no significant assets other than the ownership of 100% of Target Parent’s
capital stock through a subsidiary. We will depend on Target Parent and its subsidiaries for distributions, loans and other payments
to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company, and to
pay any dividends with respect to our common stock. Legal and contractual restrictions in agreements governing the current indebtedness
of Target and future indebtedness we intend to incur in connection with the Business Combination, as well as the financial condition
and operating requirements of Target, may limit our ability to obtain cash from Target Parent. Thus, we do not expect to pay cash
dividends on our common stock. Any future dividend payments are within the absolute discretion of our board of directors and will
depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial
condition, level of indebtedness, contractual restrictions with respect to payment of dividends, business opportunities, anticipated
cash needs, provisions of applicable law and other factors that our board of directors may deem relevant.
We may not be able to timely and effectively implement controls
and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002 that will be applicable to us after the Business Combination.
Neither we nor Target are currently subject
to Section 404 of the Sarbanes-Oxley Act of 2002. However, following the Business Combination, the combined company will be required
to provide management’s attestation on internal controls commencing with the Company’s annual report for the year
ending December 31, 2016. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act of 2002 are
significantly more stringent than those required of Target as a privately held company. Management may not be able to effectively
and timely implement controls and procedures that adequately respond to the regulatory compliance and reporting requirements that
will be applicable to the Company after the Business Combination. If we are not able to implement the additional requirements
of Section 404 in a timely manner or with adequate compliance, we may not be able to assess whether our internal controls over
financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence
and the market price of our common stock.
Subsequent to the consummation of the Business Combination,
we may be required to recognize impairment charges related to goodwill, identified intangible assets and property and equipment
or to take writedowns or write-offs, restructuring or other charges that could have a significant negative effect on our financial
condition, results of operations and stock price, which could have an adverse effect on your investment.
Following the consummation of the Business
Combination, we expect to have substantial balances of goodwill and identified intangible assets. We are required to test goodwill
and any other intangible asset with an indefinite life for possible impairment on the same date each year and on an interim basis
if there are indicators of a possible impairment. We are also required to evaluate amortizable intangible assets and property
and equipment for impairment if there are indicators of a possible impairment. There is significant judgment required in the analysis
of a potential impairment of goodwill, identified intangible assets and property and equipment. If, as a result of a general economic
slowdown, deterioration in one or more of the markets in which we operate or impairment in Target’s financial performance
and/or future outlook, the estimated fair value of its long-lived assets decreases, we may determine that one or more of Target’s
long-lived assets is impaired. An impairment charge would be determined based on the estimated fair value of the assets and any
such impairment charge could have a material adverse effect on combined company’s financial condition and results of operations.
Although we have conducted due diligence
on Target, we cannot assure you that this diligence revealed all material issues that may be present in Target’s business,
that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside
of our and Target’s control will not later arise. As a result, we may be forced to later write down or write-off assets,
restructure its operations, or incur other charges that could result in losses. Even if our due diligence successfully identifies
certain risks, unexpected events may occur and previously known risks may materialize in a manner not consistent with our preliminary
risk analysis.
Even though these charges may be non-cash
items and would not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute
to negative market perceptions about the combined company or its securities. In addition, charges of this nature may cause us
to be unable to obtain future financing on favorable terms or at all.
Our initial stockholders have agreed to vote in favor of
our initial business combination, regardless of how our public stockholders vote.
Unlike many other blank check companies
in which the founders agree to vote their founder shares in accordance with the majority of the votes cast by the public stockholders
in connection with an initial business combination, our initial stockholders have agreed to vote any shares of Hydra Industries
common stock owned by them, and purchased prior to our IPO, in favor of our initial business combination. As of the date hereof,
our initial stockholders and affiliates own shares equal to 20% of our issued and outstanding shares of common stock. Accordingly,
it is more likely that the necessary stockholder approval will be received for the Business Combination than would be the case
if our initial stockholders agreed to vote any shares of Hydra Industries common stock owned by them in accordance with the majority
of the votes cast by our public stockholders.
We will incur significant transaction and transition costs
in connection with the Business Combination. If we fail to consummate the Business Combination, we may not have sufficient cash
available to pay such costs.
We expect to incur significant, non-recurring
costs in connection with consummating the Business Combination. Some of these costs are payable regardless of whether the Business
Combination is completed. Hydra Industries’ transaction expenses as a result of the Business Combination are currently estimated
at approximately $[__] million, which are comprised of (i) approximately $[__] million in fees to our financial advisors (other
than [__]) and for deferred underwriting commissions payable to the underwriters (other than [__]) from our IPO, (iii) an estimated
$[__] million in legal fees and expenses and (iv) approximately $[__] million relating to other fees and expenses incurred in
connection with the Business Combination. Additionally, this amount includes the expenses incurred in connection with the filing,
printing and mailing of this proxy statement and the solicitation of the approval of our stockholders, and all filing and other
fees paid to the SEC, which are estimated at approximately $[__]. If Hydra Industries and Target do not consummate the Business
Combination, each party will be required to pay its own fees and expenses, and Hydra Industries likely will not have sufficient
cash available to pay its fees and expenses unless and until it completes a subsequent business combination transaction. Going
forward, the combined company will incur transition costs and costs relating to being part of a public company.
The unaudited pro forma financial information included in
this document may not be indicative of what our actual financial position or results of operations would have been.
The unaudited pro forma financial information
in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial
position or results of operations would have been had the Business Combination been completed on the dates indicated. See the
section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for more information.
We may have limited rights of recourse in the event of a
breach of Warranties.
Warranties relating to the business affairs
and tax liabilities of Target are being given by certain key members of Target's management team (the "Management Warrantors")
to Hydra Industries under the terms of a management warranty deed. In addition, a Warranty & Indemnity Insurance Policy (the
"W&I Policy") has been entered into by Hydra Industries with AIG Europe Limited ("AIG") which should provide
a level of additional protection in the event of a breach of certain of the warranties being given by the Management Warrantors.
Other than in the event of fraud, the aggregate
liability of the Management Warrantors is capped at £500,000. The liability of the Management Warrantors is also subject
to certain customary limitations on liability, including individual and basket
de minimis
thresholds and time limits on
the bringing of claims. The liability of AIG under the W&I Policy is capped at £40 million, and is subject to a variety
of conditions and limitations under the terms of the W&I Policy.
Each member of the Selling Group is providing
warranties confirming (i) its title to the shares and/or shareholder loan notes in the Target which it is selling to Hydra Industries
and (ii) its capacity to enter into the Sale Agreement. Such warranties are given on a several basis, such that each member of
the Selling Group is liable only for a breach of the warranties that it has given (and is not liable for a breach of warranty
by any other member of the Selling Group) and its liability in the event of breach is capped at the amount of consideration received
by it under the Sale Agreement.
Hydra Industries believes that the level
of warranty protection which it has obtained (including the W&I Policy) should be reasonable under the circumstances of the
Business Combination, including the fact that the Selling Group consists principally of certain institutional investors. However,
the level of warranty protection relating to the business affairs and tax liabilities of the Target is substantially less than
the Purchase Price payable by Hydra Industries in connection with the Business Combination, and might not be sufficient to compensate
Hydra Industries in the event of any breach.
We may be unable to obtain Debt Financing if necessary to
fund the operations and growth of Target.
If we consummate the Business Combination,
we may require additional financing to fund the operations or growth of Target. The failure to secure additional financing could
have a material adverse effect on the continued development or growth of Target. None of our officers, directors or stockholders
is required to provide any financing to us in connection with or after the Business Combination.
We may waive one or more of the conditions to the Business
Combination.
We may agree to waive, in whole or in part,
some of the conditions to our obligations to complete the Business Combination, to the extent permitted by our amended and restated
certificate of incorporation and applicable laws. For example, it is a condition to our obligations to close the Business Combination
that Target’s representations and warranties are true and correct in all respects as of the closing date, except for such
inaccuracies that, individually or in the aggregate, would not result in a Material Adverse Effect (as defined in the Sale Agreement).
However, if our board of directors determines that it is in our stockholders’ best interest to waive any such breach, then
the board may elect to waive that condition and close the Business Combination. We are not able to waive the condition that our
stockholders approve the Business Combination.
Even if we consummate the Business Combination, there is
no guarantee that the public warrants will ever be in the money, and they may expire worthless and the terms of our warrants may
be amended.
The exercise price for our warrants is
$5.75 per one-half of one share ($11.50 per whole share), subject to adjustment. Warrants may be exercised only for a whole number
of shares of Hydra Industries’ common stock. No fractional shares will be issued upon exercise of the warrants. There is
no guarantee that the public warrants will ever be in the money prior to their expiration and they may expire worthless.
In addition, the warrant agreement between
Continental Stock Transfer & Trust Company, as warrant agent, and us provides that the terms of the warrants may be amended
without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders
of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered
holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least 65% of the
then outstanding public warrants approve of such amendment. Examples of such amendments could be amendments to, among other things,
increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of our common stock
purchasable upon exercise of a warrant.
Our Sponsors, directors and officers have a conflict of
interest in determining to pursue the merger with Target, since certain of their interests, and certain interests of their affiliates
and associates, are different from or in addition to (and which may conflict with) the interests of our stockholders.
Our initial stockholders, including our
officers and directors, have interests in and arising from the Business Combination that are different from or in addition to
(and which may conflict with) the interests of our public stockholders, which may result in a conflict of interest. These interests
include:
the fact that our Sponsors
and our independent directors paid an aggregate of approximately $3,775,000 for their founder shares and placement warrants and
such securities should have a significantly higher value at the time of the Business Combination;
the fact that certain directors
and officers may enter into employment agreements with the Company after the consummation of the Business Combination;
the Macquarie Forward Purchase;
the fact that A. Lorne Weil, our Chairman and Chief
Executive Officer and the managing member of our Hydra Sponsor, has agreed that he will be liable to us, and our Macquarie Sponsor
has agreed to indemnify Mr. Weil for 50% of any such liability, if and to the extent any claims by a vendor for services rendered
or products sold to us, or the Target, reduce the amount of funds in the Trust Account to below $10.00 per public share or such
lesser amount per public share held in the Trust Account as of the date of the liquidation of the trust account, due to reductions
in value of the trust assets other than due to the failure to obtain such waiver, in each case net of the amount of interest which
may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access
to the Trust Account and except as to any claims under our indemnity of the underwriters of our IPO against certain liabilities,
including liabilities under the Securities Act;
the continuation of one of
our five existing directors as a director of the combined company; and
the continued indemnification
of current directors and officers of the Company and the continuation of directors’ and officers’ liability insurance
after the Business Combination.
These interests may have influenced our
directors in making their recommendation that you vote in favor of the Business Combination Proposal and the other transactions
contemplated by the Sale Agreement collectively.
The exercise of our directors’ and officers’
discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when
determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in our
stockholders’ best interest.
In the period leading up to the closing of the
Business Combination, events may occur that, pursuant to the Sale Agreement, would require Hydra Industries to agree to amend the
Sale Agreement, to consent to certain actions taken by Target or to waive rights that Hydra Industries is entitled to under the
Sale Agreement. Such events could arise because of changes in the course of Target’s business, a request by Target to undertake
actions that would otherwise be prohibited by the terms of the Sale Agreement or the occurrence of other events that would have
a material adverse effect on Target’s business and would entitle Hydra Industries to terminate the Sale Agreement. In any
of such circumstances, it would be at Hydra Industries’ discretion, acting through its board of directors, to grant its consent
or waive those rights. The existence of the financial and personal interests of our officers and directors described in the preceding
risk factors may result in a conflict of interest on the part of one or more of the directors between what he or they may believe
is best for Hydra Industries and what he or they may believe is best for himself or themselves in determining whether or not to
take the requested action. As of the date of this proxy statement, Hydra Industries does not believe there will be any changes
or waivers that Hydra Industries’ directors and officers would be likely to make after stockholder approval of the Business
Combination Proposal has been obtained. While certain changes could be made without further stockholder approval, Hydra Industries
will circulate a new or amended proxy statement and re-solicit Hydra Industries’ stockholders if changes to the terms of
the transaction that would have a material impact on its stockholders are required prior to the vote on the Business Combination
Proposal.
Concentration of ownership after the Business Combination may
have the effect of delaying or preventing a change in control.
It is anticipated that, following the completion
of the Business Combination and if there are no redemptions, the existing common stockholders of Target will own 35% of the post-combination
company. The ownership percentage with respect to Target existing common stockholders following the Business Combination does not
take into account (i) the issuance of any shares upon completion of the Business Combination under the Company’s proposed
2016 Long-Term Incentive Plan or (ii) any or all of the 17,500,000 warrants to purchase up to a total of 8,750,000 shares of Hydra
Industries common stock that will remain outstanding following the Business Combination. If the actual facts are different than
these assumptions, the percentage ownership of the existing common stockholders of Target may be different. As a result, the existing
common stockholders of Target may have the ability to strongly influence the outcome of corporate actions of the Company requiring
stockholder approval. This concentration of ownership may have the effect of delaying or preventing a change in control and might
adversely affect the market price of our common stock.
Our ability to successfully effect the Business Combination and
successfully operate the business thereafter will be largely dependent upon the efforts of certain key personnel, including the
key personnel of Target, all of whom we expect to stay with Target following the Business Combination. The loss of such key personnel
could negatively impact the operations and profitability of the post-combination business.
Our ability to successfully effect the Business
Combination and successfully operate the business is dependent upon the efforts of certain key personnel, including the key personnel
of Target. Although we expect all of such key personnel to remain with Target following the Business Combination, it is possible
that we will lose some key personnel, the loss of which could negatively impact the operations and profitability of our post-combination
business. Furthermore, while we have scrutinized individuals we intend to engage to stay with Target following the Business Combination,
our assessment of these individuals may not prove to be correct. These individuals may be unfamiliar with the requirements of operating
a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such
requirements.
If the results of the Business Combination do not meet expectations,
a market for our securities may not continue, which would adversely affect the liquidity and price of our securities.
Following the Business Combination, the price
of our securities may fluctuate significantly due to the market’s reaction to the Business Combination and general market
and economic conditions. An active trading market for our securities following the Business Combination may never develop or, if
developed, it may not be sustained. In addition, the price of our securities after the Business Combination can vary due to general
economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our
securities are not listed on, or become delisted from, NASDAQ for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer
automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities
may be more limited than if we were quoted or listed on NASDAQ or another national securities exchange. You may be unable to sell
your securities unless a market can be established or sustained.
Our initial stockholders and/or their affiliates may enter into
agreements concerning our securities prior to the special meeting, which may have the effect of increasing the likelihood of consummation
of the Business Combination, decreasing the value of our common stock or reducing the public “float” of our common
stock.
At any time prior to the special meeting, during
a period when they are not then aware of any material nonpublic information regarding the Company or its securities, the initial
stockholders and/or their affiliates may enter into a written plan to purchase the Company’s securities pursuant to Rule
10b5-1 of the Exchange Act, and may engage in other public market purchases, as well as private purchases, of securities. In addition,
at any time prior to the special meeting, during a period when they are not then aware of any material nonpublic information regarding
the Company or its securities, the initial stockholders and/or their respective affiliates may purchase shares from institutional
and other investors who vote, or indicate an intention to vote, against the Business Combination Proposal, or execute agreements
to purchase such shares from them in the future, or they may enter into transactions with such persons and others to provide them
with incentives to acquire shares of the Company’s common stock or vote their shares in favor of the Business Combination
Proposal. Such an agreement may include a contractual acknowledgement that such stockholder, although still the record holder of
our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event
that our initial stockholders or their affiliates purchase shares in privately negotiated transactions from public stockholders
who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior
elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood
of satisfaction of the requirements that the holders of a majority of the public shares present and entitled to vote at the special
meeting to approve the Business Combination Proposal vote in its favor, that the cash requirements of the transaction are met and
that the Company will have at least $5,000,001 in net tangible assets upon closing of the business combination after taking into
account holders of public shares that properly demanded redemption of their public shares into cash, when it appears that such
requirements would otherwise not be met. While the exact nature of any such incentives has not been determined as of the date of
this proxy statement, they might include, without limitation, arrangements to protect such investors or holders against potential
loss in value of their shares, including the granting of put options and the transfer to such investors or holders of shares or
warrants owned by the initial stockholders for nominal value.
Entering into any such arrangements may have
a depressive effect on the Company’s common stock. For example, as a result of these arrangements, an investor or holder
may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares
it owns, either prior to or immediately after the special meeting. In addition, if such arrangements are made, the public “float”
of our common stock and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain
or obtain the quotation, listing or trading of our securities on a national securities exchange.
As of the date of this proxy statement, there
have been no such discussions and no agreements to such effect have been entered into with any such investor or holder. The Company
will file a Current Report on Form 8-K to disclose arrangements entered into or significant purchases made by any of the aforementioned
persons that would affect the vote on the Business Combination Proposal and the Charter Proposals or the redemption threshold.
Although we expect our common stock, rights and warrants will
remain listed on NASDAQ after the Business Combination, there can be no assurance that our common stock, rights and warrants will
continue to be so listed or, if listed, that we will be able to comply with the continued listing standards of NASDAQ.
We have applied to continue listing our securities
on NASDAQ subsequent to the closing of the Business Combination. To continue listing our securities on NASDAQ subsequent to the
closing of the Business Combination, we will be required to demonstrate compliance with NASDAQ’s initial listing standards,
which are more rigorous than NASDAQ’s continued listing requirements. For instance, we must maintain a minimum number of
holders (300 round-lot holders). We cannot assure you that we will be able to meet those initial listing standards at that time.
If, after the Business Combination, NASDAQ delists
our common stock or warrants from trading on its exchange due to our failure to meet NASDAQ’s initial and/or continued listing
standards, we and our securityholders could face significant material adverse consequences including:
a limited availability of market
quotations for our securities;
a determination that our common
stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules,
possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
a limited amount of analyst coverage;
and
a decreased ability to issue additional
securities or obtain additional financing in the future.
Pursuant to the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”), our independent registered public accounting firm will not be required to attest to the effectiveness
of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are
an “emerging growth company.”
Section 404 of the Sarbanes-Oxley Act of 2002
requires annual management assessments of the effectiveness of our internal control over financial reporting, and generally requires
in the same report a report by our independent registered public accounting firm on the effectiveness of our internal control over
financial reporting. Following the Business Combination, the combined company will be required to provide management’s attestation
on internal controls effective with respect to the year ending December 31, 2016. However, under the JOBS Act, our independent
registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company.” We could
be an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following October 29,
2019, the fifth anniversary of our IPO, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which
we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates
exceeds $700 million as of the last business day of our prior second fiscal quarter, and (2) the date on which we have issued more
than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act also
provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An “emerging growth company”
can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen not to “opt out” of such extended transition period, which means that when a standard is issued or revised
and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or
revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements
with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accounting standards used.
If the results of the Business Combination do not meet the expectations
of investors, stockholders or financial analysts, the market price of our securities may decline.
If the results of the Business Combination do
not meet the expectations of investors or securities analysts, the market price of the Company’s securities prior to the
closing of the Business Combination may decline. The market values of our securities at the time of the Business Combination may
vary significantly from their prices on the date the Sale Agreement was executed, the date of this proxy statement, or the date
on which our stockholders vote on the Business Combination.
In addition, following the Business Combination,
fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Prior to the Business
Combination, there has not been a public market for Target’s stock and trading in the shares of the Company’s common
stock has not been active. Accordingly, the valuation ascribed to Target and our common stock in the Business Combination may not
be indicative of the price that will prevail in the trading market following the Business Combination. If an active market for
our securities develops and continues, the trading price of our securities following the Business Combination could be volatile
and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed
below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly
below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience
a further decline.
Factors affecting the trading price of the Company’s
securities following the Business Combination may include:
market conditions affecting the
gaming industry;
quarterly variations in our results
of operations;
changes in government regulations;
the announcement of acquisitions
by us or our competitors;
changes in general economic and
political conditions;
volatility in the financial markets;
results of our operations and the
operations of others in our industry;
changes in interest rates;
threatened or actual litigation
and government investigations;
the addition or departure of key
personnel;
actions taken by our stockholders,
including the sale or disposition of their shares of our common stock; and
differences between our actual
financial and operating results and those expected by investors and analysts and changes in analysts’ recommendations or
projections.
Broad market and industry factors may materially
harm the market price of our securities irrespective of our operating performance. The stock market in general, and NASDAQ in particular,
have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance
of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable.
A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar
to the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations.
A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our
ability to obtain additional financing in the future.
Following the Business Combination, the Company’s business
and stock price may suffer as a result of its lack of public company operating experience and if securities or industry analysts
do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their
recommendations regarding our common stock adversely, the price and trading volume of our common stock could decline.
Prior to the completion of the Business Combination,
we have been a blank check company. The Company’s lack of public company operating experience may make it difficult to forecast
and evaluate its future prospects. If the Company is unable to execute its business strategy, either as a result of its inability
to manage effectively its business in a public company environment or for any other reason, the Company’s business, prospects,
financial condition and operating results may be harmed.
The trading market for our common stock will
be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market,
or our competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities
or industry analysts commence coverage of the Company, our stock price and trading volume would likely be negatively impacted.
If any of the analysts who may cover the Company change their recommendation regarding our stock adversely, or provide more favorable
relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover
the Company were to cease coverage of the Company or fail to regularly publish reports on it, we could lose visibility in the financial
markets, which could cause our stock price or trading volume to decline.
We have not registered the shares of our common stock issuable
upon exercise of the rights and warrants under the Securities Act or state securities laws at this time, and such registration
may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its
warrants and causing such warrants to expire worthless.
We have not registered the public shares issuable
upon exercise of the rights and warrants under the Securities Act or any state securities laws at this time. We have agreed to
use our best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the common
stock issuable upon exercise of the warrants as soon as practicable after the closing of the Business Combination (but in no event
later than fifteen (15) business days thereafter) and cause the same to become effective and to maintain the effectiveness of such
registration statement, and a current prospectus relating thereto, until the warrants expire or are redeemed. Until such time as
the shares issuable upon exercise of public warrants are registered under the Securities Act, we will be required, commencing on
the 61st day following the closing of the Business Combination, to permit holders to exercise their warrants on a cashless basis
under certain circumstances specified in the warrant agreement. However, no warrant will be exercisable for cash or on a cashless
basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the
shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, unless an
exemption is available. In no event will we be required to issue cash, securities or other compensation in exchange for the warrants
in the event that we are unable to register or qualify the shares underlying the warrants under the Securities Act or applicable
state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified, the holder
of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such
event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for
the shares of common stock and the rights included in the units.
The future exercise of registration rights may adversely affect
the market price of our common stock.
Our common stock is subject to registration
rights agreements. We are obligated to register founder shares, placement warrants and shares issuable upon exercise of placement
warrants pursuant to a registration rights agreement signed in connection with our IPO and we are obligated to register the shares
purchased in the Macquarie Forward Purchase pursuant to a registration rights agreement signed in connection with the private placement.
In addition, pursuant to the Sale Agreement, we are obligated to promptly file a resale “shelf” registration statement
to register the shares of our common stock being issued to existing Target equity holders and loan note holders in the Business
Combination. Sales of restricted securities pursuant to these agreements may substantially depress the market price of our common
stock.
Warrants will become exercisable for our common stock and, upon
the closing of the Business Combination, the rights will be automatically converted, which would increase the number of shares
eligible for future resale in the public market and result in dilution to our stockholders.
Outstanding public warrants to purchase an
aggregate of 4,000,000 shares of our common stock and outstanding placement warrants to purchase an aggregate of 3,750,000
shares of our common stock will become exercisable 30 days after the completion of the Business Combination, along with
warrants to purchase an additional 1,000,000 shares of our common stock issuable pursuant to the Macquarie Forward Purchase.
Each warrant entitles the holder thereof to purchase one-half of one share of Hydra Industries’ common stock at a price
of $5.75 per half share ($11.50 per whole share), subject to adjustment. Warrants may be exercised only for a whole number
of shares of Hydra Industries’ common stock. No fractional shares will be issued upon exercise of the warrants. To
the extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution
to the then existing holders of common stock of the Company and increase the number of shares eligible for resale in
the public market. In addition, there are rights covering in the aggregated 1,000,000 shares that will automatically convert
into such shares upon the closing of the Business Combination. Sales of substantial numbers of such shares in the
public market could adversely affect the market price of our common stock.
Our public stockholders may experience dilution as a consequence
of certain transactions. Having a minority share position may reduce the influence that our current stockholders have on the management
of the Company.
It is anticipated that, assuming completion
of the Business Combination as of September 24, 2016 and if there are no redemptions, Hydra Industries’ public stockholders
will retain an ownership interest of approximately 42% in Hydra Industries and our initial stockholders and affiliates will retain
an ownership interest of approximately 23% in Hydra Industries. In addition, if any of Hydra Industries’ stockholders exercise
their redemption rights, the ownership interest in Hydra Industries of Hydra Industries’ public stockholders will decrease.
The ownership percentage with respect to Hydra Industries following the Business Combination does not take into account (i) the
issuance of any shares upon completion of the Business Combination under the Company’s proposed 2016 Long-Term Incentive
Plan or (ii) any or all of the 17,500,000 warrants to purchase up to a total of 8,750,000 shares of Hydra Industries common stock
that will remain outstanding following the Business Combination. If the actual facts are different than these assumptions (which
they are likely to be), the percentage ownership retained by Hydra Industries’ existing stockholders in Hydra Industries
will be different. See “Unaudited Pro Forma Condensed Combined Financial Information” for further information. To the
extent that any of the warrants are converted into Hydra Industries common stock or any shares of Hydra Industries common stock
are issued pursuant to the proposed 2016 Long-Term Incentive Plan, current stockholders may experience substantial dilution. Such
dilution could, among other things, limit the ability of our current stockholders to influence management of the Company through
the election of directors following the Business Combination.
We may redeem any public warrants prior to their exercise at
a time that is disadvantageous to warrantholders, thereby making their warrants worthless.
We will have the ability to redeem the public
warrants at any time after they become exercisable and prior to their expiration at a price of $0.01 per warrant, provided that
(i) the last reported sale price of our common stock equals or exceeds $24.00 per share for any 20 trading days within the 30 trading-day
period ending on the third business day before we send the notice of such redemption (on [___], 2016, (ii) the last reported sale
price for shares of our common stock was $[___]) and (iii) on the date we give notice of redemption and during the entire period
thereafter until the time the warrants are redeemed, there is an effective registration statement under the Securities Act covering
the shares of our common stock issuable upon exercise of the public warrants and a current prospectus relating to them is available
unless warrants are exercised on a cashless basis. Redemption of the outstanding public warrants could force holders of public
warrants:
to exercise their warrants and
pay the exercise price therefor at a time when it may be disadvantageous for them to do so;
to sell their warrants at the then-current
market price when they might otherwise wish to hold their warrants; or
to accept the nominal redemption
price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market
value of their warrants.
Anti-takeover provisions contained in our certificate of incorporation
and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
The Company’s certificate of incorporation
(as proposed to be amended) and bylaws contain provisions that could have the effect of delaying or preventing changes in control
or changes in our management without the consent of our board of directors. These provisions include:
no cumulative voting in the election
of directors, which limits the ability of minority stockholders to elect director candidates;
the exclusive right of our board
of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death,
or removal of a director with or without cause by stockholders, which prevents stockholders from being able to fill vacancies on
our board of directors;
the ability of our board of directors
to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including
preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile
acquirer;
limiting the liability of, and
providing indemnification to, our directors and officers;
controlling the procedures for
the conduct and scheduling of stockholder meetings; and
advance notice procedures that
stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon
at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies
to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
These provisions, alone or together, could delay
hostile takeovers and changes in control of the Company or changes in our board of directors and management.
As a Delaware corporation, we are also subject
to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more than 15% of our
outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of
Hydra Industries’ outstanding common stock. Any provision of our amended and restated certificate of incorporation or bylaws
or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders
to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay
for our common stock.
Our directors and key personnel are subject to the approval of
certain regulatory authorities, which, if withheld, will require us to sever our relationship with non-approved individuals, which
could adversely impact our operations.
Our members, managers, directors, officers and
key employees must also be approved by certain government and state regulatory authorities. If such regulatory authorities were
to find a person occupying any such position unsuitable, we would be required to sever our relationship with that person. We may
thereby lose key personnel which would have a negative effect on our operations. Certain public and private issuances of securities
and certain other transactions by us also require the approval of certain state regulatory authorities. Further, our gaming regulators
can require us to disassociate ourselves from suppliers or business partners found unsuitable by the regulators. For a summary
of some of the significant gaming regulations that affect our business, see ‘‘Regulation and Licensing.” The
regulatory environment in any particular jurisdiction may change in the future and any such change could have a material adverse
effect on our results of operations. In addition, we are subject to various gaming taxes, which are subject to increase at any
time.
Target is subject to extensive regulation at various levels,
and licensing and gaming authorities have significant control over its operations, which could have a negative effect on our business
and could cause us to redeem certain shareholders on potentially disadvantageous terms.
The operations of Target’s business are
contingent upon obtaining and maintaining all necessary licenses, permits, approvals, registrations, findings of suitability, orders
and authorizations. The laws, regulations and ordinances requiring these licenses, permits and other approvals generally relate
to the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially
interested or involved in gaming operations. The scope of the approvals required to operate Target’s business is extensive.
Regulatory authorities have broad powers to
request detailed financial and other information, to limit, condition, suspend or revoke a registration, gaming license or related
approval and to approve changes in our operations. Substantial fines or forfeiture of assets for violations of gaming laws or regulations
may be levied. The suspension or revocation of any license which may be granted to us or the levy of substantial fines or forfeiture
of assets could significantly harm our business, financial condition and results of operations. Furthermore, compliance costs associated
with gaming laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to our business
or a violation of any current or future laws or regulations applicable to our business or gaming licenses could require us to make
substantial expenditures or could otherwise negatively affect our gaming operations and results of operations.
Our certificate of incorporation is proposed
to be amended to provide that, to the extent required by the gaming authority making the determination of unsuitability or to the
extent the board of directors determines, in its sole discretion, that a person is likely to jeopardize the Company’s or
any affiliate’s application for, receipt of, approval for, right to the use of, or entitlement to, any gaming license, shares
of our capital stock that are owned or controlled by an unsuitable person or its affiliates are subject to mandatory redemption
by us. The redemption price may be paid in cash, by promissory note, or both, as required, and pursuant to the terms established
by, the applicable gaming authority and, if not, as we elect. Such a redemption could occur on terms that a shareholder believes
to be disadvantageous.
If we are unable to effect the Business Combination and fail
to complete an alternative initial business combination by October 29, 2016, we will cease all operations except for the purpose
of winding up, redeeming 100% of the outstanding public shares and, subject to the approval of our remaining stockholders and our
board of directors, dissolving and liquidating. In such event, the warrants will expire worthless and third parties may bring claims
against Hydra Industries and, as a result, the proceeds held in trust could be reduced and the per share liquidation price received
by stockholders could be less than $10.00 per share.
If we do not consummate the Business Combination
and fail to complete an alternative initial business combination by October 29, 2016 (subject to the requirements of law), the
existing charter provides that we will (a) cease all operations except for the purpose of winding up, (b) 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 taxes payable
and working capital released to us, and less up to $50,000 of interest to pay dissolution expenses) 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 (c) as promptly as reasonably possible
following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate,
subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable
law. Holders of our founder shares have waived any right to any liquidation distribution with respect to those shares. In the event
of liquidation, there will be no distribution with respect to our outstanding warrants. Accordingly, the warrants will expire worthless.
In addition, third parties may bring claims
against Hydra Industries. Although Hydra Industries has obtained waiver agreements from certain Selling Group and service providers
it has engaged and owes money to, and the prospective target businesses it has negotiated with, whereby such parties have waived
any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee
that they or other Selling Group who did not execute such waivers will not seek recourse against the trust account notwithstanding
such agreements. Furthermore, there is no guarantee that a court will uphold the validity of such agreements. Accordingly, the
proceeds held in the trust account could be subject to claims which could take priority over those of Hydra Industries’ public
stockholders. A. Lorne Weil, our Chairman and Chief Executive Officer and the managing member of our Hydra Sponsor, has agreed
that he will be liable to us, and our Macquarie Sponsor has agreed to indemnify Mr. Weil for 50% of any such liability, if and
to the extent any claims by a vendor for services rendered or products sold to us, or the Target, reduce the amount of funds in
the Trust Account to below $10.00 per public share or such lesser amount per public share held in the Trust Account as of the date
of the liquidation of the trust account, due to reductions in value of the trust assets other than due to the failure to obtain
such waiver, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third
party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under our indemnity
of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act. In the event that an
executed waiver is deemed to be unenforceable against a third party, then Mr. Weil will not be responsible to the extent of any
liability for such third-party claims. We cannot assure you, however, that Mr. Weil would be able to satisfy those obligations.
None of our other officers will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective
target businesses.
In the event that the proceeds in the trust
account are reduced below the lesser of (i) $10.00 per share or (ii) other than due to the failure to obtain such waiver, such
lesser amount per share held in the trust account as of the date of the liquidation of the trust account due to reductions in the
value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes or working capital expenses, and
Mr. Weil asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular
claim, our independent directors would determine whether to take legal action against Mr. Weil to enforce his indemnification obligations.
While we currently expect that our independent directors would take legal action on our behalf against Mr. Weil to enforce his
indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose
not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations,
the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.00 per
share.
Hydra Industries’ stockholders may be held liable for claims
by third parties against Hydra Industries to the extent of distributions received by them.
Under the DGCL, stockholders may be held liable
for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata
portion of the trust account distributed to our public stockholders upon the redemption of 100% of our public shares in the event
we do not consummate an initial business combination by October 29, 2016 may be considered a liquidation distribution under Delaware
law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable
provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against
the corporation, a 90- day period during which the corporation may reject any claims brought, and an additional 150-day waiting
period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating
distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the
stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, we intend
to redeem our public shares as soon as reasonably possible following October 29, 2016 in the event we do not consummate an initial
business combination and, therefore, we do not intend to comply with those procedures.
Because we will not be complying with Section
280 of the DGCL, Section 281(b) of the DGCL requires the Company to adopt a plan, based on facts known to us at such time that
will provide for the payment of all existing and pending claims or claims that may be potentially brought against the Company within
the 10 years following dissolution. However, because we are a blank check company, rather than an operating company, and our operations
have been limited to searching for prospective target businesses, the only likely claims to arise would be from the Selling Group
(such as lawyers, investment bankers, and consultants) or prospective target businesses. If the Company’s plan of distribution
complies with Section 281(b) of the DGCL, any liability of our stockholders with respect to a liquidating distribution is limited
to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability
of the stockholder would likely be barred after the third anniversary of the dissolution. There can be no assurance that we will
properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for
any claims to the extent of distributions received by them (but no more) and any liability of its stockholders may extend beyond
the third anniversary of such date. Furthermore, if the pro rata portion of the trust account distributed to our public stockholders
upon the redemption of 100% of our public shares in the event we do not consummate an initial business combination within the required
timeframe is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful,
then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the
unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution.
If we are forced to file a bankruptcy case or
an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be
viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent
conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore,
because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after October 29, 2016
in the event we do not consummate an initial business combination, this may be viewed or interpreted as giving preference to our
stockholders over any potential creditors with respect to access to or distributions from the Company’s assets. Furthermore,
our board of directors may be viewed as having breached its fiduciary duties to the Company’s creditors and/or may have acted
in bad faith, thereby exposing itself and the Company to claims of punitive damages, by paying our stockholders from the trust
account prior to addressing the claims of creditors. There can be no assurance that claims will not be brought against the Company
for these reasons.
Activities taken by affiliates of the Company to purchase, directly
or indirectly, public shares will increase the likelihood of approval of the Business Combination Proposal and other proposals
and may affect the market price of the Company’s securities during the buyback period.
Our initial stockholders, directors, officers,
advisors or their affiliates may purchase shares in privately negotiated transactions either prior to or following the consummation
of the Business Combination. None of our initial stockholders or their affiliates will make any such purchases when such parties
are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation
M under the Exchange Act. Although none of our initial stockholders, directors, officers, advisors or their affiliates currently
anticipate paying any premium purchase price for such public shares, in the event such parties do, the payment of a premium may
not be in the best interest of those stockholders not receiving any such additional consideration. There is no limit on the number
of shares that could be acquired by our initial stockholders or their affiliates, or the price such parties may pay.
If such transactions are effected, the consequence
could be to cause the Business Combination to be approved in circumstances where such approval could not otherwise be obtained.
Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Business Combination
Proposal and other proposals and would likely increase the chances that such proposals would be approved. If the market does not
view the Business Combination positively, purchases of public shares may have the effect of counteracting the market’s view,
which would otherwise be reflected in a decline in the market price of our securities. In addition, the termination of the support
provided by these purchases may materially adversely affect the market price of our securities.
As of the date of this proxy statement, no agreements
with respect to the private purchase of public shares by the Company or the persons described above have been entered into with
any such investor or holder. We will file a Current Report on Form 8-K with the SEC to disclose private arrangements entered into
or significant private purchases made by any of the aforementioned persons that would affect the vote on the Business Combination
Proposal or other proposals.
Changes in laws or regulations, or a failure to comply with any
laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted
by national, regional and local governments, including non-U.S. governments. In particular, we are 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 our 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 our business and results of
operations.
We are dependent upon our executive officers and directors and
their departure could adversely affect our ability to complete the Business Combination.
Our operations are dependent upon a relatively
small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the
continued service of our executive officers and directors, at least until we have completed the Business Combination. In addition,
our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will
have conflicts of interest in allocating management time among various business activities, including assessing the potential Business
Combination and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the
life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive
officers could adversely impact our ability to complete the Business Combination.
Since our Sponsors, executive officers and directors will lose
their entire investment in us if the Business Combination is not completed, a conflict of interest may arise in determining whether
Target is appropriate for our initial business combination.
In July 2014, our Sponsors purchased
2,875,000 founder shares for a purchase price of $25,000, or approximately $0.01 per share. The number of founder shares
issued was determined based on the expectation that such founder shares would represent 20.0% of the outstanding shares upon
completion of the IPO. In July 2014, our Hydra Sponsor transferred 389,942 founder shares to members of Hydra
Industries’ management and consultants. 300,000 founder shares were forfeited as a result of the underwriters’
determination not to exercise their over-allotment option, and 575,000 founder shares were returned to the Company and
subsequently canceled prior to the IPO. The founder shares will be worthless if we do not complete an initial business
combination. In addition, our Sponsors and Hydra Industries’ officer, Martin E. Schloss, purchased an aggregate of 7.5
million placement warrants, each exercisable for one-half of one share of our common stock at $5.75 per half share ($11.50
per whole share), for a purchase price of $3,750,000, or $0.50 per warrant, that will also be worthless if we do not complete
a business combination. In addition, each of our Sponsors has provided us with a working capital loan in the amount of
$250,000, or $500,000 in the aggregate, which loans are expected to be repaid upon closing of the Business Combination and
may not be repaid if we fail to consummate a transaction.
The personal and financial interests of our
executive officers and directors may have influenced their motivation in identifying and selecting Target for its target business
combination, completing an initial business combination and influencing the operation of the business following the initial business
combination.
Since our Sponsors, executive officers and directors will not
be eligible to be reimbursed for their out-of-pocket expenses if the Business Combination is not completed, a conflict of interest
may arise in determining whether Target is appropriate for our initial business combination.
At the closing of the Business Combination,
our Sponsors, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as 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
in connection with activities on our behalf. These financial interests of our Sponsors, executive officers and directors may have
influenced their motivation in identifying and selecting Target for the Business Combination.
Certain of our executive officers and directors are now, and
all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted
by us after the Business Combination and, accordingly, may have conflicts of interest in determining to which entity a particular
business opportunity should be presented to our company or to another entity.
Following the completion of the Business Combination,
we intend to identify and combine with one or more businesses. Our executive officers and directors are, or may in the future become,
affiliated with entities that are engaged in similar businesses.
Our officers and directors also may become aware
of business opportunities which may be appropriate for presentation to us and the other entities to which they owe certain fiduciary
or contractual duties. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity
should be presented — to our company or to another entity. These conflicts may not be resolved in our favor and a potential
target business may be presented to another entity prior to its presentation to us. Our proposed second amended and restated certificate
of incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless
such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and
such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue.
Members of our management team may directly
or indirectly own common stock, rights, warrants and stock options following the Business Combination, and, accordingly, may have
a conflict of interest in determining whether a particular target business is an appropriate business with which to combine. Further,
each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination
if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement
with respect to a particular business combination.
For a complete discussion of our executive officers’
and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see “Certain
Relationships and Related Party Transactions.”
We will be a holding company and will conduct all of our operations
through our subsidiaries.
Upon consummation of the Business Combination,
we will be a holding company and will derive all of our operating income from Target and its subsidiaries. Other than any cash
we may retain, all of our assets will be held by our direct and indirect subsidiaries. We will rely on the earnings and cash flows
of Target and its subsidiaries, which will be paid to us by our subsidiaries, if and only to the extent available, in the form
of dividends and other payments or distributions, to meet our debt service obligations. The ability of our subsidiaries to pay
dividends or make other payments or distributions to us will depend on their respective operating results and may be restricted
by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment
of dividends and other distributions to us), the terms of existing and future indebtedness and other agreements of our subsidiaries
and the covenants of any future outstanding indebtedness we or our subsidiaries incur.
RISK FACTORS RELATING TO THE REDEMPTION
Unlike many blank check companies, we do not have a specified
maximum percentage redemption threshold, but Target may elect to not consummate the Business Combination if, after redemptions,
the Company’s available cash at closing is insufficient to pay all liabilities and obligations of the Company and Target
due and required to be paid at closing or by reason of closing. Each redemption of shares of Hydra Industries common stock by our
public stockholders will decrease the amount in our trust account. Accordingly, unless this right is waived by Target, we may be
unable to consummate the Business Combination if there are substantial redemptions by our public stockholders.
Since we have no specified percentage threshold
for redemption in our amended and restated certificate of incorporation other than the 25% threshold referred to below, our structure
is different in this respect from the structure that has been used by many blank check companies. Many blank check companies would
not be able to consummate a business combination if the holders of the company’s public shares voted against a proposed business
combination and elected to redeem or convert more than a specified percentage of the shares sold in such company’s initial
public offering, which percentage threshold has typically been between 19.99% and 39.99%. The absence of such a redemption threshold
makes it easier for us to consummate a business combination with which a substantial number of our stockholders may not agree.
Each redemption of public shares by our public stockholders will decrease the amount in our trust account, which holds approximately
$80 million as of June 30, 2016.
In addition, we are limited by the need to have
at least $5,000,001 in net tangible assets. This condition effectively requires that holders of no more than 6,843,439 shares as
of June 30, 2016 redeem their public shares. Accordingly, holders of no more than 68.4% of the 10,000,000 shares outstanding as
of June 30, 2016 may redeem their shares in connection with the Business Combination if the Business Combination were consummated
as of that date. As a result, we may be able to consummate the Business Combination even though holders of a majority of our public
shares have chosen to redeem their shares.
If you or a “group” of stockholders of which you
are a part are deemed to hold an aggregate of 25% or more of our common stock issued in the IPO, you (or, if a member of such a
group, all of the members of such group in the aggregate) will lose the ability to redeem all such shares of 25% or more of our
common stock issued in the IPO.
A public stockholder, together with any of his,
her or its affiliates or any other person with whom it is acting in concert or as a “group” (as defined under Section
13 of the Exchange Act), will be restricted from redeeming in the aggregate his, her or its shares or, if part of such a group,
the group’s shares, of 25% or more of the outstanding shares issued in the IPO. We refer to such shares aggregating 25% or
more of the shares issued in the IPO as “Excess Shares”. In order to determine whether a stockholder is acting in concert
or as a group with another stockholder, the Company will require each public stockholder seeking to exercise redemption rights
to certify to the Company whether such stockholder is acting in concert or as a group with any other stockholder. Such certifications,
together with other public information relating to stock ownership available to the Company at that time, such as Section 13D,
Section 13G and Section 16 filings under the Exchange Act, will be the sole basis on which the Company makes the above-referenced
determination. A public stockholder’s inability to redeem any Excess Shares will reduce that stockholder’s influence
over our ability to consummate the Business Combination. A stockholder could suffer a material loss on its investment in us if
it sold Excess Shares in open market transactions. Additionally, a stockholder will not receive redemption distributions with respect
to its Excess Shares if we consummate the Business Combination. As a result, any such stockholder will continue to hold that number
of shares equal to its Excess Shares and, in order to dispose of such shares, would be required to sell its stock in open market
transactions, potentially at a loss. Notwithstanding the foregoing, stockholders may challenge the Company’s determination
as to whether a stockholder is acting in concert or as a group with another stockholder in a court of competent jurisdiction.
There is no guarantee that a stockholder’s decision whether
to redeem its shares for a pro rata portion of the trust account will put the stockholder in a better future economic position.
We can give no assurance as to the price at
which a stockholder may be able to sell its public shares in the future following the completion of the Business Combination or
any alternative business combination. Certain events following the consummation of any business combination, including the Business
Combination, may cause an increase in our share price, and may result in a lower value realized now than a stockholder of Hydra
Industries might realize in the future had the stockholder not elected to redeem such stockholder’s shares. Similarly, if
a stockholder does not redeem its shares, the stockholder will bear the risk of ownership of the public shares after the consummation
of any business combination, and there can be no assurance that a stockholder can sell its shares in the future for a greater amount
than the redemption price set forth in this proxy statement. A stockholder should consult the stockholder’s own tax and/or
financial advisor for assistance on how this may affect his, her or its individual situation.
If our stockholders fail to comply with the redemption requirements
specified in this proxy statement, they will not be entitled to redeem their shares of our common stock for a pro rata portion
of the funds held in our trust account.
Holders of public shares are required to affirmatively
vote either for or against the Business Combination Proposal in order to exercise their rights to redeem their shares for a pro
rata portion of the trust account. In addition, in order to exercise their redemption rights, they are required to submit a request
in writing and deliver their stock (either physically or electronically) to our transfer agent at least two business days prior
to the special meeting. Stockholders electing to redeem their shares will receive their pro rata portion of the trust account less
franchise and income taxes payable, calculated as of two business days prior to the anticipated consummation of the Business Combination.
See the section entitled “Special Meeting in Lieu of 2016 Annual Meeting of Hydra Industries Stockholders — Redemption
Rights” for additional information on how to exercise your redemption rights.
RISK FACTORS RELATING TO GLOBAL ECONOMIC CONDITIONS
Volatility or disruption in the financial markets could materially
adversely affect our business and the trading price of our common stock.
Target’s business has relied, and we and
Target following the Business Combination will continue to rely, on stable and efficient financial markets. Any disruption in the
credit and capital markets could adversely impact our ability to obtain financing on acceptable terms. Volatility in the financial
markets could also result in difficulties for financial institutions and other parties that we and Target do business with, which
could potentially affect the ability to access financing under existing arrangements. We are exposed to the impact of any global
or domestic economic disruption, including any potential impact of the recent vote by the United Kingdom to exit the European Union
(commonly referred to as "Brexit") and the sovereign debt crises in certain Eurozone countries where Target does business.
Our ability to continue to fund operating expenses, capital expenditures and other cash requirements over the long term may require
access to additional sources of funds, including equity and debt capital markets, and market volatility and general economic conditions
may adversely affect our ability to access capital markets. In addition, the inability of our vendors to access capital and liquidity
with which to maintain their inventory, production levels and product quality and to operate their businesses, or the insolvency
of our vendors, could lead to their failure to deliver merchandise. If we are unable to purchase products when needed, our sales
could be materially adversely impacted. Accordingly, volatility or disruption in the financial markets could impair our ability
to execute our growth strategy and could have a material adverse effect on the trading price of our common stock.
Currency exchange rate fluctuations could result in lower revenues,
higher costs and decreased margins and earnings.
We will conduct purchase and sale transactions
in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates globally. Additionally,
there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom's June 23, 2016
referendum in which voters approved the United Kingdom's exit from the European Union, commonly referred to as “Brexit.”
It is possible that sovereign debt crises in certain Eurozone countries could lead to the abandonment of the Euro and the reintroduction
of national currencies in those countries. International revenues and expenses generally are derived from sales and operations
in various foreign currencies, and these revenues and expenses could be affected by currency fluctuations, specifically amounts
recorded in foreign currencies and translated into U.S. Dollars for consolidated financial reporting, as weakening of foreign currencies
relative to the U.S. Dollar will adversely affect the U.S. Dollar value of the Company's foreign currency-denominated sales and
earnings. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that produce our
products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations
could have an adverse effect on our results of operations and financial condition.
We may hedge certain foreign currency exposures
to lessen and delay, but not to completely eliminate, the effects of foreign currency fluctuations on our financial results. Since
the hedging activities are designed to lessen volatility, they not only reduce the negative impact of a stronger U.S. Dollar or
other trading currency, but they also reduce the positive impact of a weaker U.S. Dollar or other trading currency. Our future
financial results could be significantly affected by the value of the U.S. Dollar in relation to the foreign currencies in which
we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon
our hedging activities.
Global economic conditions could have a material adverse effect
on our business, operating results and financial condition.
The uncertain state of the global economy continues
to impact businesses around the world, most acutely in emerging markets and developing economies. If global economic and financial
market conditions do not improve or deteriorate, the following factors could have a material adverse effect on our business, operating
results and financial condition:
Slower consumer spending may result in reduced demand for
our products, reduced orders from retailers for our products, order cancellations, lower revenues, higher discounts, increased
inventories and lower gross margins;
In the future, we may be unable to access
financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so;
We will conduct transactions in various currencies, which
increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar. Continued volatility in
the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our
reported operating results and financial condition;
Continued volatility in the availability and prices for
commodities and raw materials we use in our products and in our supply chain could have a material adverse effect on our costs,
gross margins and profitability;
If operators or distributors of our products experience
declining revenues or experience difficulty obtaining financing in the capital and credit markets to purchase our products, this
could result in reduced orders for our products, order cancellations, late retailer payments, extended payment terms, higher accounts
receivable, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense;
If operators or distributors of our products experience
severe financial difficulty, some may become insolvent and cease business operations, which could negatively impact the sale of
our products to consumers; and
If contract manufacturers of our products or other participants
in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to
finance capital equipment and other general working capital needs, it may result in delays or non-delivery of shipments of our
products.
Risk Relating to the Referendum on the U.K.’s Membership
in the European Union
The announcement of the U.K.’s advisory
referendum vote to exit from the European Union (“Brexit”) could cause disruptions to and create uncertainty surrounding
Target’s business, including affecting Target’s relationships with existing and potential customers, suppliers and
employees. The referendum is non-binding; however, if the U.K’s government initiates the process for the U.K. to leave the
E.U., negotiations would then commence to determine the terms of the U.K’s future relationship with the E.U., including the
terms of trade between the U.K. and the E.U. The effects of Brexit will depend on any agreements the U.K. makes to retain access
to E.U. markets either during a transitional period or more permanently. The measures could potentially disrupt some of Target’s
markets and jurisdictions in which it operates, and adversely change tax benefits or liabilities in these or other jurisdictions.
In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines
which E.U. laws to replace or replicate. In addition, the announcement of Brexit has caused significant volatility in global stock
markets and currency exchange rate fluctuations, including the strengthening of the U.S. dollar against some foreign currencies
and the weakening of the U.K. pound against some foreign currencies. The announcement of Brexit also may create global economic
uncertainty, which may cause customers and potential customers to monitor their costs and reduce their budgets for products and
services. Any of these effects of Brexit, among others, could materially adversely affect the business, business opportunities,
results of operations, financial condition and cash flows of each of Target and us following the Business Combination.
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
Hydra is providing the following unaudited
pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination.
The following unaudited pro forma condensed
combined balance sheet as of June 30, 2016 combines the unaudited historical condensed consolidated balance sheet of Target as
of April 9, 2016 with the unaudited historical condensed balance sheet of Hydra as of June 30, 2016, giving effect to the Business
Combination as if it had been consummated as of that date.
The following unaudited pro forma condensed
combined income statement for the six months ended June 30, 2016 combines the unaudited historical condensed consolidated statement
of operations of Target for the twenty eight week period ended April 9, 2016 with the unaudited historical condensed statement
of operations of Hydra for the six months ended June 30, 2016, giving effect to the Business Combination as if it had occurred
on January 1, 2015.
The following unaudited pro forma condensed
combined income statement for the year ended December 31, 2015 combines the audited historical consolidated statement of operations
of Target for the fiscal period ended September 26, 2015 with the audited historical statement of operations of Hydra for the year
ended December 31, 2015, giving effect to the Business Combination as if it had occurred on January 1, 2015.
The historical financial information has been
adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually
supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the
unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information
necessary for an accurate understanding of the combined company upon consummation of the Business Combination.
The historical financial information of Target was derived from the audited consolidated financial statements
of Target as of September 26, 2015 and September 27, 2014 and for the fiscal periods ended September 26, 2015, September 27, 2014
and September 28, 2013 included elsewhere in this proxy statement. The historical financial information for Target as of April
9, 2016 and for the twenty eight week period ended April 9, 2016 has been derived from Target’s unaudited financial statements.
The historical financial information of Hydra was derived from the audited financial statements of Hydra for the years ended December
31, 2015 and 2014 and the unaudited condensed financial statements of Hydra for the six months ended June 30, 2016 and 2015 included
elsewhere in this proxy statement. This information should be read together with Target’s and Hydra’s audited and unaudited
financial statements and related notes, “
Target’s Management’s Discussion and Analysis of Financial Condition
and Results of Operations
,”
“Hydra’s Management’s Discussion and Analysis of Financial Condition
and Results of Operations
” and other financial information included elsewhere in this proxy statement.
The unaudited pro forma condensed combined
financial information is for illustrative purposes only. The financial results may have been different had the companies always
been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the
historical results that would have been achieved had the companies always been combined or the future results that the combined
company will experience. Target and Hydra have not had any historical relationship prior to the Business Combination. Accordingly,
no pro forma adjustments were required to eliminate activities between the companies.
The Business Combination will be accounted
for as a reverse merger in accordance with accounting principles generally accepted in the United States of America. Under this
method of accounting, Hydra will be treated as the “acquired” company for financial reporting purposes. This determination
was primarily based on Target comprising the ongoing operations of the combined entity, Target comprising a majority of the governing
body of the combined company, and Target’s senior management comprising the senior management of the combined company. Accordingly,
for accounting purposes, the Business Combination will be treated as the equivalent of Target issuing stock for the net assets
of Hydra, accompanied by a recapitalization. The net assets of Hydra will be stated at historical cost, with no goodwill or other
intangible assets recorded. Operations prior to the Business Combination will be those of Target.
Pursuant to the Sale Agreement, the “Base
Consideration” to be paid for the equity and shareholder loan notes pursuant to the Sale Agreement will equal (i) £100,363,394,
plus any amount by which the Company’s transaction expenses (“Purchaser Costs”) referred to in Schedule 6 to
the Sale Agreement exceeds £8,237,909, minus (iii) certain expenses of the Selling Group noticed by its representatives,
not to exceed £3,000,000, minus (iv) certain excess interest payments owing on the Inspired Group’s existing financing
arrangements. The Selling Group will be paid the Base Consideration, adjusted for the Accruing Negative Consideration (the “Completion
Payment”), partially in cash (the “Cash Consideration”), to the extent available after the payment of transaction
expenses and working capital adjustments, if any, and partially in newly-issued shares of Hydra common stock (“Purchaser
Shares”) at a value of $10.00 per share (the “Stock Consideration”).
The Cash Consideration represents the cash
Hydra will have available at closing to pay the Completion Payment. The Cash Consideration will equal (i) the Company’s then
current cash in trust (after any redemptions), the $20,004,348 proceeds of the Macquarie Private Placement and any other available
funds, minus (ii) an agreed amount of Purchaser Costs (including expenses incurred in connection with the preparation of the proxy
statement and meetings with Hydra stockholders), minus (iii) an agreed amount of the Selling Group’s transaction expenses,
minus (iv) the amount of repayment required under certain of the Inspired Group’s financing arrangements, minus (v) £5
million for the purposes of retaining cash on the Company’s balance sheet.
The Cash Consideration is anticipated to be
funded through a combination of (i) cash held in our trust account after redemptions, (ii) the proceeds of the Macquarie Private
Placement and (iii) additional funds, if any, otherwise available at closing.
The Stock Consideration will be the number
of Purchaser Shares equal to the amount of the Completion Payment minus the Cash Consideration, divided by $10.00 per share. As
a result of the Business Combination, assuming that no Hydra stockholders elect to redeem their shares into cash, the Selling Group
will own approximately 35.9% of the Company’s common stock to be outstanding immediately after the Business Combination,
and the other Hydra stockholders will own approximately 64.1% of the Company’s outstanding common stock, based on the number
of shares of Hydra common stock outstanding as of June 30, 2016. If 6,108,323 shares of common stock are converted into cash, which
assumes the maximum redemption of Hydra’s common stock after the maximum drawdown of available capacity under Target’s
revolving credit agreement and the payment of expenses resulting in no cash consideration to be paid to the Selling Group, the
Selling Group will own approximately 63.9% and other Hydra stockholders will own approximately 36.1% of the Company’s common
stock to be outstanding immediately after the Business Combination.
Hydra cannot predict how many of its public
stockholders will elect to convert their shares into cash. As a result, it has elected to provide pro forma financial statements
under the following two circumstances: (1) no holders of Hydra common stock exercise their right to have their shares redeemed
upon the consummation of the Business Combination and (2) holders of no more than 6,108,323 shares of Hydra common stock elect
to have their shares converted upon consummation of the Business Combination at a conversion price of approximately $10.00 per
share, which represents the maximum redemption amount such that no cash consideration is to be paid to the Selling Group. The actual
results are likely to be in between the results shown, but there can be no assurance that will be the case.
Included in the shares outstanding and
weighted average shares outstanding as presented in the pro forma condensed combined financial statements are 7,563,355 and 13,080,070
shares of the Company’s common stock to be issued to Target stockholders assuming no redemptions of common stock and maximum
redemptions of common stock, respectively.
PRO FORMA CONDENSED COMBINED BALANCE
SHEET AS OF JUNE 30, 2016
(UNAUDITED) (in thousands)
|
|
(A)
|
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Balance Sheet
|
|
|
Assuming
|
|
|
Assuming
|
|
|
|
|
|
|
|
|
|
Assuming No
|
|
|
Assuming No
|
|
|
Maximum
|
|
|
Maximum
|
|
|
|
Target
|
|
|
Hydra
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
Redemptions
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,985
|
|
|
$
|
217
|
|
|
$
|
80,031
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,874
|
)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,817
|
)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,419
|
)
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,134
|
)
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,025
|
)
(9)
|
|
|
|
|
|
$
|
5,940
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,167
|
)
(10)
|
|
|
|
|
|
|
55,167
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
(11)
|
|
$
|
8,301
|
|
|
|
(61,107
|
)
(13)
|
|
$
|
8,301
|
|
Accounts receivable
|
|
|
41,509
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,509
|
|
|
|
-
|
|
|
|
41,509
|
|
Inventory
|
|
|
8,128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,128
|
|
|
|
-
|
|
|
|
8,128
|
|
Prepaid expenses and current assets
|
|
|
9,400
|
|
|
|
51
|
|
|
|
-
|
|
|
|
9,451
|
|
|
|
-
|
|
|
|
9,451
|
|
Total Current Assets
|
|
|
61,022
|
|
|
|
268
|
|
|
|
6,099
|
|
|
|
67,389
|
|
|
|
-
|
|
|
|
67,389
|
|
Long term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities held in Trust
Account
|
|
|
-
|
|
|
|
80,031
|
|
|
|
(80,031
|
)
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
61,679
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,679
|
|
|
|
-
|
|
|
|
61,679
|
|
Intangible assets
|
|
|
49,591
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,591
|
|
|
|
-
|
|
|
|
49,591
|
|
Goodwill
|
|
|
91,973
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,973
|
|
|
|
-
|
|
|
|
91,973
|
|
Other assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Long Term Assets
|
|
|
203,243
|
|
|
|
80,031
|
|
|
|
(80,031
|
)
|
|
|
203,243
|
|
|
|
-
|
|
|
|
203,243
|
|
Total Assets
|
|
$
|
264,265
|
|
|
$
|
80,299
|
|
|
$
|
(73,932
|
)
|
|
$
|
270,632
|
|
|
$
|
-
|
|
|
$
|
270,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
35,767
|
|
|
$
|
3,538
|
|
|
$
|
(3,538
|
)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(588
|
)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,134
|
)
(8)
|
|
$
|
23,045
|
|
|
$
|
-
|
|
|
$
|
23,045
|
|
Convertible promissory notes - related parties
|
|
|
-
|
|
|
|
500
|
|
|
|
(500
|
)
(11)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Corporate tax ad other current taxes payable
|
|
|
4,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,313
|
|
|
|
-
|
|
|
|
4,313
|
|
Deferred revenue
|
|
|
9,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,313
|
|
|
|
-
|
|
|
|
9,313
|
|
Other current liabilities
|
|
|
7,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,554
|
|
|
|
-
|
|
|
|
7,554
|
|
Current portion of long-term debt
|
|
|
11,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,416
|
|
|
|
5,940
|
(4)
|
|
|
17,356
|
|
Total Current Liabilities
|
|
|
68,363
|
|
|
|
4,038
|
|
|
|
(16,760
|
)
|
|
|
55,641
|
|
|
|
5,940
|
|
|
|
61,581
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
415,494
|
|
|
|
-
|
|
|
|
(1,419
|
)
(7)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,791
|
)
(12)
|
|
|
108,284
|
|
|
|
-
|
|
|
|
108,284
|
|
Deferred revenue, net of current portion
|
|
|
17,805
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,805
|
|
|
|
-
|
|
|
|
17,805
|
|
Deferred underwriting fees
|
|
|
-
|
|
|
|
2,800
|
|
|
|
(2,800
|
)
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
3,129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,129
|
|
|
|
-
|
|
|
|
3,129
|
|
Total Liabilities
|
|
|
504,791
|
|
|
|
6,838
|
|
|
|
(326,770
|
)
|
|
|
184,859
|
|
|
|
5,940
|
|
|
|
190,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to possible redemption
|
|
|
-
|
|
|
|
68,461
|
|
|
|
(68,461
|
)
(13)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
165
|
|
|
|
-
|
|
|
|
1
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165
|
)
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(14)
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
450
|
|
|
|
10,090
|
|
|
|
20,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,536
|
)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,229
|
)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,167
|
)
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,025
|
)
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305,791
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,460
|
(13)
|
|
|
|
|
|
|
55,167
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,926
|
)
(14)
|
|
|
326,912
|
|
|
|
(61,107
|
)
(13)
|
|
|
320,972
|
|
Accumulated other comprehensive loss
|
|
|
7,604
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,604
|
|
|
|
-
|
|
|
|
7,604
|
|
Accumulated deficit
|
|
|
(248,745
|
)
|
|
|
(5,090
|
)
|
|
|
5,090
|
(14)
|
|
|
(248,745
|
)
|
|
|
-
|
|
|
|
(248,745
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
|
(240,526
|
)
|
|
|
5,000
|
|
|
|
321,299
|
|
|
|
85,773
|
|
|
|
(5,940
|
)
|
|
|
79,833
|
|
Total Liabilities and Stockholders’ Equity
(Deficit)
|
|
$
|
264,265
|
|
|
$
|
80,299
|
|
|
$
|
(73,932
|
)
|
|
$
|
270,632
|
|
|
$
|
-
|
|
|
$
|
270,632
|
|
Pro Forma Adjustments to the Unaudited Condensed
Combined Balance Sheet
|
(A)
|
Derived from the unaudited condensed consolidated balance sheet of Target as of April 9, 2016.
|
|
(B)
|
Derived from the unaudited condensed balance sheet of Hydra as of June 30, 2016.
|
|
(1)
|
To liquidate investments held in the trust account.
|
|
(2)
|
To record $20 million proceeds from Macquarie Private Placement
|
|
(3)
|
To record Macquarie Private Placement of 500,000 shares of Hydra common stock.
|
|
(4)
|
To record $5,940 maximum drawdown of available capacity under Target’s revolving credit agreement in the case of maximum
redemptions to be used to pay estimated transaction costs and expenses.
|
|
(5)
|
To reflect payment of deferred underwriting fee payable and estimated fees and expenses incurred by Hydra related to the Business
Combination.
|
|
(6)
|
To reflect payment of estimated fees and expenses incurred by Target related to the Business Combination.
|
|
(7)
|
To record debt issuance costs incurred in connection with the extension of the maturity date of the Target’s senior debt.
|
|
(8)
|
To record payment of accrued interest on third party debt.
|
|
(9)
|
To record payment of estimated management bonuses, legal, financial advisory, accounting, printing and other professional fees
related to the Business Combination.
|
|
(10)
|
To reflect the payment of the Cash Consideration to the Selling Group assuming no redemptions. Assuming maximum redemptions,
no Cash Consideration would be paid to the Selling Group.
|
|
(11)
|
To record repayment of convertible promissory notes to Sponsors.
|
|
(12)
|
To record adjustment to shareholder loan notes and subsequent purchase of shareholder loan notes by Hydra. The shareholder
loan notes purchased by Hydra would become intercompany loans and, therefore, would eliminate in consolidation.
|
|
(13)
|
Assuming no Hydra stockholders exercise their redemption rights, the common stock subject to redemption amounting to $68,461
would be transferred to permanent equity. Assuming the maximum amount of shares are redeemed by the Hydra stockholders, $61,107
of the common stock subject to redemption would be paid out in cash and the remaining balance of $7,354 would be transferred to
permanent equity.
|
|
(14)
|
Assuming no Hydra stockholders exercise their redemption rights, 10,000,000 rights would convert into 1,000,000 shares of common
stock at a par value of $0.0001 per share. Assuming the maximum amount of shares are redeemed by the Hydra stockholders, 3,891,677
rights would convert into 389,168 shares of common stock at a par value of $0.0001 per share.
|
|
(15)
|
To reflect recapitalization of Target through issuance of 7,563,355 shares of Hydra’s common stock, assuming no redemptions
of Hydra’s common stock, or 13,080,070 shares of Hydra’s common stock, assuming maximum redemptions of Hydra’s
common stock, and the elimination of the historical accumulated deficit of Hydra, the accounting acquire.
|
Management is currently evaluating any potential
accounting impacts from the earn-out payments contemplated in the Sale Agreement, which are variable in nature, and dependent on
Target’s future performance.
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2016
(UNAUDITED)
(in thousands except share and per share
amounts)
|
|
(A)
|
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Income
|
|
|
Adjustments
|
|
|
Statement
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Statement
|
|
|
Assuming
|
|
|
Assuming
|
|
|
|
|
|
|
|
|
|
Assuming No
|
|
|
Assuming No
|
|
|
Maximum
|
|
|
Maximum
|
|
|
|
Target
|
|
|
Hydra
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
63,624
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
63,624
|
|
|
$
|
-
|
|
|
$
|
63,624
|
|
Cost of sales
|
|
|
(9,656
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,656
|
)
|
|
|
-
|
|
|
|
(9,656
|
)
|
Gross profit
|
|
|
53,968
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,968
|
|
|
|
-
|
|
|
|
53,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
(33,197
|
)
|
|
|
(1,492
|
)
|
|
|
1,955
|
(2)
|
|
|
(32,734
|
)
|
|
|
-
|
|
|
|
(32,734
|
)
|
Depreciation and amortization
|
|
|
(19,761
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,761
|
)
|
|
|
-
|
|
|
|
(19,761
|
)
|
Total operating expenses
|
|
|
(52,958
|
)
|
|
|
(1,492
|
)
|
|
|
1,955
|
|
|
|
(52,495
|
)
|
|
|
-
|
|
|
|
(52,495
|
)
|
Net operating income (loss)
|
|
|
1,010
|
|
|
|
(1,492
|
)
|
|
|
1,955
|
|
|
|
1,473
|
|
|
|
-
|
|
|
|
1,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities held in Trust Account
|
|
|
-
|
|
|
|
11
|
|
|
|
(11
|
)
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
58
|
|
|
|
(58
|
)
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
(31,901
|
)
|
|
|
-
|
|
|
|
(157
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,582
|
(4)
|
|
|
(10,476
|
)
|
|
|
(172
|
)
(5)
|
|
|
(10,648
|
)
|
Loss before income taxes
|
|
|
(30,891
|
)
|
|
|
(1,423
|
)
|
|
|
23,311
|
|
|
|
(9,003
|
)
|
|
|
(172
|
)
|
|
|
(9,175
|
)
|
Provision for income taxes
|
|
|
(287
|
)
|
|
|
-
|
|
|
|
2,088
|
(6)
|
|
|
1,801
|
|
|
|
34
|
(6)
|
|
|
1,835
|
|
Net loss
|
|
$
|
(31,178
|
)
|
|
$
|
(1,423
|
)
|
|
$
|
25,399
|
|
|
$
|
(7,202
|
)
|
|
$
|
(138
|
)
|
|
$
|
(7,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
3,026,265
|
|
|
|
17,906,794
|
(7)
|
|
|
20,933,059
|
|
|
|
(591,608)
|
(7)
|
|
|
20,341,451
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(0.47
|
)
|
|
|
|
|
|
$
|
(0.34
|
)
|
|
|
|
|
|
$
|
(0.36
|
)
|
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
(UNAUDITED)
(in thousands except share and per share
amounts)
|
|
(C)
|
|
|
(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Income
|
|
|
Adjustments
|
|
|
Statement
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Statement
|
|
|
Assuming
|
|
|
Assuming
|
|
|
|
|
|
|
|
|
|
Assuming No
|
|
|
Assuming No
|
|
|
Maximum
|
|
|
Maximum
|
|
|
|
Target
|
|
|
Hydra
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
Redemptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
127,573
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
127,573
|
|
|
$
|
-
|
|
|
$
|
127,573
|
|
Cost of sales
|
|
|
(24,227
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,227
|
)
|
|
|
-
|
|
|
|
(24,227
|
)
|
Gross profit
|
|
|
103,346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103,346
|
|
|
|
-
|
|
|
|
103,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
(65,229
|
)
|
|
|
(3,530
|
)
|
|
|
3,052
|
(2)
|
|
|
(65,707
|
)
|
|
|
-
|
|
|
|
(65,707
|
)
|
Depreciation and amortization
|
|
|
(40,077
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,077
|
)
|
|
|
-
|
|
|
|
(40,077
|
)
|
Total operating expenses
|
|
|
(105,306
|
)
|
|
|
(3,530
|
)
|
|
|
3,052
|
|
|
|
(105,784
|
)
|
|
|
-
|
|
|
|
(105,784
|
)
|
Net operating loss
|
|
|
(1,960
|
)
|
|
|
(3,530
|
)
|
|
|
3,052
|
|
|
|
(2,438
|
)
|
|
|
-
|
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities held in Trust Account
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
10
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
646
|
|
|
|
14
|
|
|
|
(14
|
)
(1)
|
|
|
646
|
|
|
|
-
|
|
|
|
646
|
|
Interest expense
|
|
|
(58,100
|
)
|
|
|
-
|
|
|
|
(315
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,198
|
(4)
|
|
|
(21,217
|
)
|
|
|
(345
|
)
(5)
|
|
|
(21,562
|
)
|
Other finance costs
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
(153
|
)
|
|
|
-
|
|
|
|
(153
|
)
|
Loss from equity method investee
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
-
|
|
|
|
(340
|
)
|
Loss before income taxes
|
|
|
(59,907
|
)
|
|
|
(3,526
|
)
|
|
|
39,931
|
|
|
|
(23,502
|
)
|
|
|
(345
|
)
|
|
|
(23,847
|
)
|
Provision for income taxes
|
|
|
(631
|
)
|
|
|
-
|
|
|
|
5,331
|
(6)
|
|
|
4,700
|
|
|
|
69
|
(6)
|
|
|
4,769
|
|
Net loss
|
|
$
|
(60,538
|
)
|
|
$
|
(3,526
|
)
|
|
$
|
45,262
|
|
|
$
|
(18,802
|
)
|
|
$
|
(276
|
)
|
|
$
|
(19,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
2,787,207
|
|
|
|
18,050,923
|
(7)
|
|
|
20,838,130
|
|
|
|
(735,737
|
)
(7)
|
|
|
20,102,393
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(1.27
|
)
|
|
|
|
|
|
$
|
(0.90
|
)
|
|
|
|
|
|
$
|
(0.95
|
)
|
Pro Forma Adjustments to the Unaudited Condensed
Combined Income Statements
|
(A)
|
Derived from the unaudited condensed consolidated statements of operations of Target for the twenty eight week period ended
April 9, 2016.
|
|
(B)
|
Derived from the unaudited condensed statements of operations of Hydra for the six months ended June 30, 2016.
|
|
(C)
|
Derived from the audited consolidated statements of operations of Target for the fiscal period ended September 26, 2015.
|
|
(D)
|
Derived from the audited statements of operations of Hydra for the year ended December 31, 2015.
|
|
(1)
|
To eliminate unrealized gain (loss) and interest income on marketable securities held in the trust account as of the beginning
of the periods.
|
|
(2)
|
To eliminate direct, incremental costs of the Business Combination which are reflected in the historical financial statements
of Target and Hydra in the amount of $818 and $1,137 as of June 30, 2016, respectively, and $0 and $3,052 as of December 31, 2015,
respectively.
|
|
(3)
|
To record amortization of debt issue costs to interest expense in connection with the extension of the maturity date of the
Target’s senior debt.
|
|
(4)
|
To eliminate interest expense on shareholder loan notes exchanged and purchased in connection with Business Combination as
of the beginning of the periods.
|
|
(5)
|
To record interest expense on the $5,940 drawdown of the Target’s revolving credit agreement in the case of maximum redemptions.
|
|
(6)
|
To record normalized income tax benefit of 20.0% for pro forma financial presentation purposes.
|
|
(7)
|
As the Business Combination is being reflected as if it had occurred at the beginning of the periods presented, the calculation
of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the
Business Combination have been outstanding for each of the periods presented. Weighted average common shares outstanding—basic
and diluted is calculated as follows:
|
|
|
Combined
(Assuming
No Redemptions)
|
|
|
Combined
(Assuming
Maximum Redemptions)
|
|
|
|
Six
Months
Ended
June 30,
2016
|
|
|
Year
Ended
December 31,
2015
|
|
|
Six
Months
Ended
June 30,
2016
|
|
|
Year
Ended
December 31,
2015
|
|
Hydra weighted average shares outstanding
|
|
|
3,026,265
|
|
|
|
2,787,207
|
|
|
|
3,026,265
|
|
|
|
2,787,207
|
|
Hydra rights converted to shares and shares issued to Macquarie
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
Hydra rights converted to shares
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
800,000
|
|
Hydra shares subject to redemption reclassified to equity
|
|
|
6,843,439
|
|
|
|
6,987,568
|
|
|
|
735,116
|
|
|
|
735,116
|
|
Hydra shares issued in Business Combination
|
|
|
7,563,355
|
|
|
|
7,563,355
|
|
|
|
13,080,070
|
|
|
|
13,080,070
|
|
Weighted average shares outstanding
|
|
|
20,933,059
|
|
|
|
20,838,130
|
|
|
|
20,341,451
|
|
|
|
20,102,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of shares owned by Target holders
|
|
|
36.1
|
%
|
|
|
36.3
|
%
|
|
|
66.3
|
%
|
|
|
67.1
|
%
|
Percent of shares owned by Hydra and Macquarie
|
|
|
63.9
|
%
|
|
|
63.7
|
%
|
|
|
33.7
|
%
|
|
|
32.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares calculation, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing Target holders
|
|
|
7,563,355
|
|
|
|
7,563,355
|
|
|
|
13,080,070
|
|
|
|
13,080,070
|
|
Hydra holders and Macquarie
|
|
|
13,369,704
|
|
|
|
13,274,775
|
|
|
|
7,261,381
|
|
|
|
7,022,323
|
|
Weighted average shares, basic and diluted
|
|
|
20,933,059
|
|
|
|
20,838,130
|
|
|
|
20,341,451
|
|
|
|
20,102,393
|
|
The computation of diluted loss per share excludes the effect of
warrants to purchase 8,750,000 shares of the Company’s common stock because their inclusion would be anti-dilutive.
SPECIAL MEETING IN LIEU
OF 2016 ANNUAL MEETING OF HYDRA INDUSTRIES STOCKHOLDERS
General
We are furnishing this proxy statement to our
stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting of stockholders to
be held on _______________, 2016, and at any adjournment or postponement thereof. This proxy statement is first being furnished
to our stockholders on or about _________________, 2016. This proxy statement provides you with information you need to know to
be able to vote or instruct your vote to be cast at the special meeting. In connection with the special meeting, we are also providing
you with our Annual Report on Form 10-K for the year ended December 31, 2015.
Date, Time and Place of Special Meeting
The special meeting will be held at _______________________
Eastern time, on __________________, 2016, at the offices of Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas,
New York, New York 10036, or such other date, time and place to which such meeting may be adjourned or postponed, to consider and
vote upon the proposals set forth in this proxy statement.
Voting Power; Record Date
You will be entitled to vote or direct votes
to be cast at the special meeting if you owned shares of our common stock at the close of business on _____________, 2016, which
is the record date for the special meeting. You are entitled to one vote for each share of our common stock that you owned as of
the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account,
you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly
counted. On the record date, there were 10,000,000 shares of Hydra Industries common stock outstanding, of which 8,000,000 are
public shares and 2,000,000 are shares held by our Sponsors, independent directors and affiliates.
Vote of Sponsors
In connection with our IPO, we entered into
letter agreements (the “2014 Letter Agreements”) with each of our initial stockholders, consisting of the Sponsors,
our directors, our executive officers and our advisor, pursuant to which each agreed to vote any shares of Hydra Industries common
stock owned by them in favor of the Business Combination Proposal.
In addition, concurrently with the execution
of the Sale Agreement, our Sponsors entered into Voting and Support Letter Agreements with Target (the “Voting and Support
Letter Agreements”), copies of which are attached hereto as
Annex E
. Pursuant to the Voting and Support Letter Agreements,
the Sponsors, among other things, have confirmed their obligations under the 2014 Letter Agreements to vote all of the shares of
Hydra Industries common stock held by them (representing as of the record date approximately [__]% of the voting power of the Company)
in favor of the Business Combination, and agreed that the Selling Group would be entitled to enforce such obligations.
Our initial stockholders have waived any redemption
rights, including with respect to shares of common stock purchased in our IPO or in the aftermarket, in connection with the Business
Combination. The founder shares and placement warrants held by our initial stockholders have no redemption rights upon our liquidation
and will be worthless if no business combination is effected by us by October 29, 2016 (subject to the requirements of law). However,
our initial stockholders are entitled to redemption rights upon our liquidation with respect to any public shares they may own.
Quorum and Required Vote for Proposals for
the Special Meeting
A quorum of our stockholders is necessary to
hold a valid meeting. A quorum will be present at the special meeting if a majority of the common stock outstanding and entitled
to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing
a quorum. Broker non-votes will not be counted for the purpose of determining the existence of a quorum.
Approval of the Business Combination Proposal,
the Incentive Plan Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by stockholders
present in person or represented by proxy. Accordingly, a Hydra Industries stockholder’s failure to vote by proxy or to vote
in person at the special meeting or the failure of a Hydra Industries stockholder who holds his or her shares in “street
name” through a broker or other nominee to give voting instructions to such broker or other nominee (a “broker non-vote”)
will not be counted towards the number of shares of Hydra Industries common stock required to validly establish a quorum, but if
a valid quorum is otherwise established, it will have no effect on the outcome of any vote on the Business Combination Proposal,
the Incentive Plan Proposal or the Adjournment Proposal. Abstentions will be counted in connection with the determination of whether
a valid quorum is established, but will have no effect on the outcome of the Business Combination Proposal, the Incentive Plan
Proposal or the Adjournment Proposal.
The approval of the Charter Proposals requires
the affirmative vote of the holders of a majority of the outstanding shares of our common stock. Accordingly, a Hydra Industries
stockholder’s failure to vote by proxy or to vote in person at the special meeting, an abstention from voting, or a broker
non-vote with regard to any Charter Proposal will have the same effect as a vote “AGAINST” such Charter Proposal.
Directors are elected by a plurality of all
of the votes cast by holders of shares of our common stock represented in person or by proxy and entitled to vote thereon at the
special meeting. This means that the six nominees will be elected if they receive more affirmative votes than any other nominee
for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Abstentions and broker
non-votes will have no effect on the election of directors.
The transactions contemplated by the Sale Agreement
will consummated only if the Business Combination Proposal and, unless waived the Director Election Proposal and the Charter Proposals
are approved at the special meeting. In addition, (i) the Incentive Plan Proposal is conditioned on the approval of the Business
Combination Proposal, (ii) the Charter Proposals are conditioned on the approval of the Business Combination Proposal and (iii)
the Director Election Proposal is conditioned on the approval of Proposal 3. The Adjournment Proposal does not require the approval
of any other proposal to be effective. It is important for you to note that in the event that the Business Combination Proposal
or, unless waived, the Director Election Proposal and Charter Proposals do not receive the requisite vote for approval, then we
will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial
business combination by October 29, 2016 (subject to the requirements of law), we will be required to dissolve and liquidate our
trust account by returning the then remaining funds in such account to the public stockholders.
Recommendation to Hydra Industries Stockholders
Our board of directors believes that each of
the Business Combination Proposal, the Charter Proposals, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment
Proposal to be presented at the special meeting is in the best interests of the Company and our stockholders and unanimously recommends
that its stockholders vote “FOR” each of these proposals.
When you consider the recommendation of our
board of directors in favor of approval of the Business Combination Proposal, you should keep in mind that our directors and officers
have interests in the Business Combination that are different from or in addition to (or which may conflict with) your interests
as a stockholder. These interests include, among other things:
|
·
|
the fact that our Sponsors and our independent directors paid an aggregate of approximately $3,775,000 for their founder shares
and placement warrants and such securities should have a significantly higher value at the time of the Business Combination;
|
|
·
|
the fact that certain directors and officers may enter into employment agreements with the Company after the consummation of
the Business Combination;
|
|
·
|
the Macquarie Forward Purchase;
|
|
·
|
the fact that A. Lorne Weil, our Chairman and Chief Executive Officer and the managing member of our Hydra Sponsor, has agreed
that he will be liable to us, and our Macquarie Sponsor has agreed to indemnify Mr. Weil for 50% of any such liability, if and
to the extent any claims by a vendor for services rendered or products sold to us, or the Target, reduce the amount of funds in
the Trust Account to below $10.00 per public share or such lesser amount per public share held in the Trust Account as of the date
of the liquidation of the trust account, due to reductions in value of the trust assets other than due to the failure to obtain
such waiver, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third
party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under our indemnity
of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act;
|
|
·
|
the continuation of one of our five existing directors as a director of the Company; and
|
|
·
|
the continued indemnification of current directors and officers of the Company and the continuation of directors’ and
officers’ liability insurance after the Business Combination.
|
These interests may influence our directors
in making their recommendation that you vote in favor of the approval of the Business Combination. These interests were considered
by our Board when our Board approved the Business Combination.
Broker Non-Votes and Abstentions
Under the rules of various national and regional
securities exchanges, your broker, bank or other nominee cannot vote your shares with respect to non-discretionary matters unless
you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank
or other nominee. We believe the proposals presented to our stockholders will be considered non-discretionary and therefore your
broker, bank or other nominee cannot vote your shares without your instructions. If you do not provide instructions with your proxy,
your broker, bank or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication
that a broker, bank or nominee is not voting your shares is referred to as a “broker non-vote.”
Abstentions are considered present for the purposes
of establishing a quorum but will have the same effect as a vote “AGAINST” the Charter Proposals. Broker non-votes
will have the effect of a vote “AGAINST” the Charter Proposals but, assuming a quorum is otherwise validly established,
broker non-votes and abstentions will have no effect on the other proposals to be considered at the special meeting.
Voting Your Shares
Each share of our common stock that you own
in your name entitles you to one vote on each of the proposals for the special meeting. Your one or more proxy cards show the number
of shares of our common stock that you own.
|
·
|
You can vote your shares in advance of the special meeting by completing, signing, dating and returning the enclosed proxy
card in the postage-paid envelope provided. If you hold your shares in “street name” through a broker, bank or other
nominee, you will need to follow the instructions provided to you by your broker, bank or other nominee to ensure that your shares
are represented and voted at the special meeting. If you vote by proxy card, your “proxy,” whose name is listed on
the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give
instructions on how to vote your shares, your shares of our common stock will be voted as recommended by our board of directors.
Our board of directors recommends voting “FOR” the Business Combination Proposal, “FOR” each of the Charter
Proposals, “FOR” the Director Election Proposal, “FOR” the Incentive Plan Proposal and “FOR”
the Adjournment Proposal.
|
|
·
|
You can attend the special meeting and vote in person even if you have previously voted by submitting a proxy. You will be
given a ballot when you arrive. However, if your shares of common stock are held in the name of your broker, bank or other nominee,
you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee
has not already voted your shares of common stock.
|
Revoking Your Proxy
If you give a proxy, you may revoke it at any
time before the special meeting or at such meeting by doing any one of the following:
|
·
|
you may send another proxy card with a later date;
|
|
·
|
you may notify
Martin Schloss, the Company’s Executive Vice President, General Counsel and Secretary,
by telephone at (646) 565-3861, by email at
marty@hydramgmt.com
or in writing
to c/o Hydra Industries Acquisition Corp., 250 W. 57
th
Street, New York 10107
before the special meeting that you have revoked your proxy; or
|
|
·
|
you may attend the special meeting, revoke your proxy, and vote in person, as indicated above.
|
No Additional Matters May Be Presented at
the Special Meeting
The special meeting has been called only to
consider the approval of the Business Combination Proposal, the Charter Proposals, the Director Election Proposal, the Incentive
Plan Proposal and the Adjournment Proposal. Under our bylaws, other than procedural matters incident to the conduct of the special
meeting, no other matters may be considered at the special meeting if they are not included in this proxy statement, which serves
as the notice of the special meeting.
Who Can Answer Your Questions About Voting
If you have any questions about how to vote
or direct a vote in respect of your shares of our common stock, you may call [Proxy Solicitor], our proxy solicitor, at [___] (toll
free) or banks and brokers can call collect at [____].
Redemption Rights
Pursuant to our currently existing charter,
any holders of our public shares may demand that such shares be redeemed in exchange for a pro rata share of the aggregate amount
on deposit in the trust account, less taxes payable, calculated as of two business days prior to the consummation of the Business
Combination. If you affirmatively vote for or against the Business Combination Proposal, your request is properly made and the
Business Combination is consummated, these shares, immediately prior to the Business Combination, will cease to be outstanding
and will represent only the right to receive a pro rata share of the aggregate amount on deposit in the trust account which holds
the proceeds of our IPO (calculated as of two business days prior to the consummation of the Business Combination, less taxes payable
or amounts released to us for working capital). For illustrative purposes, based on funds in the trust account of approximately
$80 million on June 30, 2016, the estimated per share redemption price would have been approximately $10.00.
In order to exercise your redemption rights,
you must:
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check the box on the proxy card to elect redemption;
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check the box on the proxy card marked “Shareholder Certification”;
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affirmatively vote for or against the Business Combination Proposal;
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submit a request in writing prior to 5:00 p.m., Eastern time on ,
2016 (two business days before the special meeting) that we redeem your public shares for cash to Continental Stock Transfer &
Trust Company, our transfer agent, at the following address:
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Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
Attn:
E-mail: [____]@continentalstock.com
and
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deliver your public shares either physically or electronically through DTC to our transfer agent at least two business days
before the special meeting. Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates
should allot sufficient time to obtain physical certificates from the transfer agent and time to effect delivery. It is our understanding
that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, we
do not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name
will have to coordinate with their broker, bank or other nominee to have the shares certificated or delivered electronically. If
you do not submit a written request and deliver your public shares as described above, your shares will not be redeemed.
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Any demand for redemption, once made, may be
withdrawn at any time until the deadline for exercising redemption requests (and submitting shares to the transfer agent) and thereafter,
with our consent, until the vote is taken with respect to the Business Combination. If you delivered your shares for redemption
to our transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that our
transfer agent return the shares (physically or electronically). You may make such request by contacting our transfer agent at
the phone number or address listed above.
Prior to exercising redemption rights, stockholders
should verify the market price of our common stock, as they may receive higher proceeds from the sale of their common stock in
the public market than from exercising their redemption rights if the market price per share is higher than the redemption price.
We cannot assure you that you will be able to sell your shares of our common stock in the open market, even if the market price
per share is higher than the redemption price stated above, as there may not be sufficient liquidity in our common stock when you
wish to sell your shares.
If you exercise your redemption rights, your
shares of our common stock will cease to be outstanding immediately prior to the Business Combination and will only represent the
right to receive a pro rata share of the aggregate amount on deposit in the trust account. You will no longer own those shares
and will have no right to participate in, or have any interest in, the future growth of the Company, if any. You will be entitled
to receive cash for these shares only if you properly and timely request redemption.
If the Business Combination is not approved
and we do not consummate an initial business combination by October 29, 2016 (subject to the requirements of law), we will be required
to dissolve and liquidate our trust account by returning the then remaining funds in such account to the public stockholders and
our warrants to purchase common stock, as well as our rights to receive shares of our common stocks upon consummation of an initial
business combination, will expire worthless.
Holders of outstanding units must separate the
underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares.
If you hold units registered in your own name,
you must deliver the certificate for such units to Continental Stock Transfer & Trust Company with written instructions to
separate such units into public shares and public warrants. This must be completed far enough in advance to permit the mailing
of the public share certificates back to you so that you may then exercise your redemption rights with respect to the public shares
upon the separation of the public shares from the units.
If a broker, dealer, commercial bank, trust
company or other nominee holds your units, you must instruct such nominee to separate your units. Your nominee must send written
instructions by facsimile to Continental Stock Transfer & Trust Company. Such written instructions must include the number
of units to be split and the nominee holding such units. Your nominee must also initiate electronically, using DTC’s deposit
withdrawal at custodian (DWAC) system, a withdrawal of the relevant units and a deposit of an equal number of public shares and
public warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights with respect
to the public shares upon the separation of the public shares from the units. While this is typically done electronically the same
business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your public shares
to be separated in a timely manner, you will likely not be able to exercise your redemption rights.
Appraisal Rights
Appraisal rights are not available to holders
of shares of our common stock in connection with the Business Combination.
THE BUSINESS COMBINATION
PROPOSAL
We are asking our stockholders to approve and
adopt the Sale Agreement and the other transactions contemplated thereby, including the Business Combination. Our stockholders
should read carefully this proxy statement in its entirety for more detailed information concerning the Sale Agreement and the
Business Combination. Please see the subsections below for additional information and a summary of the material provisions of the
Sale Agreement, which is qualified in its entirety by reference to the complete text of the Sale Agreement, a copy of which is
attached as
Annex A
to this proxy statement.
Because we are holding a stockholder vote on
the Business Combination, our existing charter provides that we may consummate the Business Combination only if it is approved
by the affirmative vote of the holders of a majority of the shares of our common stock that are voted at the special meeting, assuming
that a quorum is present.
The Sale Agreement
This subsection describes certain material provisions
of the Sale Agreement, but does not purport to describe all of the terms of the Sale Agreement. The following summary is qualified
in its entirety by reference to the complete text of the Sale Agreement, a copy of which is attached as
Annex A
hereto,
which is incorporated herein by reference. Stockholders and other interested parties are urged to read the Sale Agreement, carefully
and in its entirety (and, if appropriate, with the advice of financial and legal counsel), because it is the primary legal document
that governs the Business Combination.
Consideration
The Sale Agreement reflects a transaction value
for the Business Combination of £200 million (equivalent to approximately $264 million based on the USD/GBP exchange rate
of $1.32/£1.00 as of the July 13, 2016 date of the Sale Agreement), plus an earn-out of up to 2.5 million Hydra shares, subject
to certain customary anti-dilution adjustments (having a value of up to $25 million at an assumed value of $10.00 per share). The
transaction is expected to represent approximately £96 million of equity value after adjusting for the maintenance of debt
and certain other liabilities (equivalent to approximately $126 million based on the USD/GBP exchange rate of $1.32/£1.00
as of July 13, 2016). Exclusive of the potential earn-out, the consideration to be paid for the equity and shareholder loan notes
of the Target Parent and the Inspired Group will be the aggregate of the Base Consideration (as defined below), less a fixed amount
of Accruing Negative Consideration (£21,500 per day from but excluding July 2, 2016 through and including the closing of
the Business Combination).
The “Base Consideration” to be paid
for the equity and shareholder loan notes pursuant to the Sale Agreement will equal (i) £100,363,394.31, plus (ii) any amount
by which the Company’s transaction expenses (“Purchaser Costs”) referred to in Schedule 6 to the Sale Agreement
exceeds £8,237,909.41, minus (iii) certain expenses of the Selling Group noticed by its representatives, not to exceed £3,000,000,
minus (iv) certain excess interest payments owing on the Inspired Group’s existing financing arrangements.
The Selling Group will be paid the Base Consideration,
adjusted for the Accruing Negative Consideration (the “Completion Payment”), partially in cash (the “Cash Consideration”),
to the extent available after the payment of transaction expenses and working capital adjustments, if any, and partially in newly-issued
shares of Company common stock (“Purchaser Shares”) at a value of $10.00 per share (the “Stock Consideration”),
as follows:
The Cash Consideration represents the cash Hydra
Industries will have available at closing to pay the Completion Payment. The Cash Consideration will equal (i) the Company’s
then current cash in trust (after any redemptions), the $20,004,347 proceeds of a private placement to Macquarie Capital pursuant
to the Contingent Forward Purchase Contract, the form of which was included as Exhibit 10.12 to its registration statement on Form
S-1 (the “Macquarie Forward Purchase”) and any other available funds, minus (ii) an agreed amount of Purchaser Costs
(including expenses incurred in connection with the preparation of the proxy statement and meetings with Hydra stockholders), minus
(iii) an agreed amount of the Selling Group’s transaction expenses, minus (iv) the amount of repayment required under certain
of the Inspired Group’s financing arrangements, minus (v) £5 million for the purposes of retaining cash on the Company’s
balance sheet.
Upon closing of the Business Combination, the
Cash Consideration will be deposited into an account designated by the Selling Group’s attorneys and the Company shall not
be responsible for the application of the funds to individual members of the Selling Group.
The Stock Consideration will be the number of
Purchaser Shares equal to the amount of the Completion Payment minus the Cash Consideration, divided by $10.00 per share, and is
currently estimated to be approximately 7.3 million shares of our common stock, assuming, for illustrative purposes only, no redemption
of shares by our existing public stockholders and closing of the Business Combination as of September 24, 2016. The Stock Consideration
will fluctuate if either of these assumptions should change. For example, should redemption of shares by our existing public stockholders
reach 5.7 million shares, or 71.1% of the common shares sold through our IPO, and assuming that the Business Combination closed
as of September 24, 2016, it is estimated that the Stock Consideration would be approximately 12.6 million shares of our common
stock.
The earn-out payment of up to 2.5 million Hydra
shares, subject to certain customary anti-dilution adjustments (having a value of up to $25 million at an assumed value of $10.00
per share) (the “Earn-out Consideration”) shall be paid to the Selling Group exclusively in Purchaser Shares and will
be determined based on the Inspired Group’s performance in certain jurisdictions through September 30, 2018 pursuant to a
formula set forth in Schedule 5 to the Sale Agreement.
The Cash Consideration is anticipated to be
funded through a combination of (i) cash held in our trust account after redemptions (as described herein), (ii) the proceeds of
the Macquarie Forward Purchase and (iii) additional funds, if any, otherwise available at closing. If the Company’s available
cash at closing is insufficient to pay all liabilities and obligations of the Company and Target due and required to be paid at
closing or by reason of closing, the Selling Group may elect to not consummate the Business Combination. At June 30, 2016, the
balance in our trust account was approximately $80 million. For additional information regarding sources and uses for funding the
Total Consideration, see “The Business Combination Proposal — Sources and Uses for the Business Combination.”
For more information on the Company’s shares, see the section entitled “The Business Combination Proposal — Total
Shares of Hydra Common Stock to be Issued in the Business Combination.”
Representations and Warranties
The Sale Agreement contains representations,
warranties and covenants that the respective parties made to each other as of the date of the Sale Agreement or other specific
dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among
the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with
negotiating the Sale Agreement. The representations and warranties of certain managers of the Target are contained in the Warranty
Deed pertaining to the transaction, which has been filed with the SEC. The representations, warranties and covenants in the Sale
Agreement are also modified in important part by the disclosure schedules and annexes attached thereto which are not filed
publicly and which may be subject to contractual standards of materiality or material adverse effect applicable to the contracting
parties that differ from what may be viewed as material to investors. The representations and warranties in the Sale Agreement
and Warranty Deed and the items listed in the disclosure schedules were used for the purpose of allocating risk among the parties
rather than establishing matters as facts. We do not believe that the disclosure schedules contain information that is material
to an investment decision. Investors are not third-party beneficiaries under the Sale Agreement and should not rely on the representations,
warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties
thereto or any of their respective subsidiaries or affiliates.
Undertakings and Conditions
Prior
to the closing of the Business Combination, Target Parent and the members of the Selling Group will engage in an internal restructuring
of the shareholder loan notes pursuant to Schedule 7 of the Sale Agreement enabling Hydra Industries to purchase all of the shareholder
loan notes free from encumbrances. Inspired has agreed to continue to operate in the ordinary course of its business. The consummation
of the Sale Agreement is subject, among other things, to the approval of the Hydra Industries stockholders, required gaming industry
regulatory approvals, Hydra Industries’ having at least $5,000,001 of net tangible assets remaining after redemptions and,
unless waived, the approval of the Charter Proposals and the Director Election Proposal. Subsequent to the receipt of its stockholders’
approval, Hydra Industries shall draw down on the Macquarie Forward Purchase in connection with the closing. Hydra Industries shall
not be obligated to complete the Business Combination if a breach (or breaches, in the aggregate) or event constituting a Material
Adverse Effect (as such term is defined in the Sale Agreement) occurs prior to the closing date.
Voting and Support Letter Agreements
For information about the Voting and Support
Letter Agreements, see “Special Meeting in Lieu of 2016 Annual Meeting of Hydra Industries Stockholders — Vote of Hydra
Industries Founders and Chairman and CEO.”
Existing Target Indebtedness
As of April 9, 2016, the Target had £96.5
million in total credit facilities consisting of a £17.5 million revolver provided by Lloyds Bank plc and a £79 million
term loan held by Ares Management Limited. £8 million was drawn on the revolver and the interest rate on the revolver
was LIBOR + 5.0%. The interest on the term loan consists of cash and PIK interest, with a cash rate of LIBOR plus 7.0% subject
to a LIBOR floor of 3.0% and a PIK interest component currently at 4.5%. The PIK interest component increases every three
months up to 7.0% at June 1, 2017 and thereafter. Both the revolver and term loan maturities were extended in connection
with the Business Combination, with the revolver maturing on June 30, 2019 and the term loan maturing on September 30, 2019.
Background of the Business Combination
Hydra Industries is a blank check company formed
in Delaware on May 30, 2014, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization, recapitalization or other similar business combination with one or more businesses. The proposed Business Combination
is the result of an extensive search for a potential transaction drawing upon the network, investing experience and operating background
of our management team and Board of Directors. The terms of the proposed Business Combination are the result of thorough negotiations
between the representatives of Hydra Industries (including Macquarie Capital (USA) Inc.), representatives of the sellers and representatives
of Inspired Gaming Group. The following is a brief description of these negotiations and the background of the Business Combination:
From the date of our IPO through the execution
of the Share Sale Agreement on July 13, 2016, Hydra Industries considered a number of potential target companies with the objective
of consummating an appropriate acquisition. Representatives of Hydra Industries contacted, and were contacted by, a number of individuals
and entities who offered to present ideas for acquisition opportunities, including financial advisors and companies within the
diversified industrial, manufacturing, transportation, distribution, gaming and services sectors in the United States and abroad.
Hydra Industries compiled a pipeline of high priority potential targets and updated and supplemented such pipeline from time to
time. This pipeline and related developments were discussed periodically with the Board of Directors of Hydra Industries.
During this period, Hydra Industries and its
representatives:
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Identified and preliminarily evaluated more than 140 potential acquisition targets;
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Conducted initial business and financial due diligence or had meaningful discussions with representatives of 12 potential acquisition
targets (other than Inspired);
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Provided an initial non-binding indication of interest to five potential acquisition targets (other than Inspired); and
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Submitted a letter of intent and commenced further due diligence with respect to two potential acquisition targets (other than
Inspired).
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Hydra Industries reviewed these opportunities and potential acquisition
targets based on the same general criteria discussed below and used in evaluating the Business Combination. These criteria included
established middle-market businesses with proven track records, experienced management teams and strong competitive positions with,
or with the potential for, revenue and earnings growth and attractive free cash flow generation. Hydra Industries focused on sectors
exhibiting secular growth or the potential for near-term secular uptick, and within those sectors, focused only on businesses that
the management of Hydra Industries believed were likely to benefit from being part of a publicly traded company.
Prior to the completion of our IPO in October
2014, representatives of Hydra Industries had engaged in extensive discussions with a number of different financial advisors with
experience in, among other things, diversified industrial, manufacturing, transportation, distribution, gaming and services sectors
which might assist Hydra Industries with respect to potential acquisition opportunities. After several meetings with Macquarie
Capital (USA) Inc. (“Macquarie”), Hydra Industries decided to engage Macquarie as a financial advisor for that purpose.
On October 24, 2014, Hydra Industries entered into an engagement letter with Macquarie. On that date, MIHI LLC, an affiliate of
Macquarie, agreed to a Contingent Forward Purchase Commitment with Hydra Industries pursuant to which it would, upon the satisfaction
of certain conditions, purchase 2,000,000 Units of Hydra Industries for a purchase price of $20,004,347. On October 24, 2014, Hydra
Industries also entered into an underwriting agreement with UBS Securities LLC pursuant to which it would be sole bookrunning manager
of the IPO and pursuant to which EarlyBird Capital, Inc. was engaged as a co-manager of the offering. Both of the underwriters
have significant established relationships with fundamental investors (both institutional investors and high net worth individuals)
and Hydra Industries sought to use them as additional potential sources of acquisition opportunities.
The potential opportunity to acquire a portion
of the business of a company perceived to meet many of the board’s criteria (“Company A”) was presented to us
in a meeting in January 2015 between A. Lorne Weil, our Chairman and CEO, another of our directors and a major shareholder of Company
A. That initial meeting was followed by detailed discussions and due diligence with representatives of Company A following execution
of a non-disclosure agreement with Company A on February 3, 2015. On June 13, 2015, Hydra Industries submitted a non-binding indication
of interest to Company A, which was accepted by Company A. At that point, due diligence continued and contract preparations and
negotiations began with representatives of Company A. On October 25, 2015, Company A advised Hydra Industries that it was terminating
discussions and selling the business in question to another entity.
In February 2015, a representative of Hydra
Industries met with the CEO of Company B at an industry trade show. Company B was interested in exploring the possibility of a
business combination with Hydra Industries, and on February 6, 2015, sent a non-confidential presentation to Hydra Industries describing
Company B. The delivery of the presentation generated a number of telephonic discussions among the CEO of Company B, Mr. Weil and
other representatives of Hydra Industries.
In March 2015, a representative of the owner
of Company B began discussions with Hydra Industries and representatives of Macquarie. On April 17, 2015, Company B and Hydra Industries
entered into a non-disclosure agreement. Further discussions were held among representatives of Hydra Industries, Macquarie and
the owner of Company B between April and June of 2015.
In September and October 2015, the owner of
Company B sent revised presentations regarding Company B to Hydra Industries.
In November 2015, the owner and the CEO of Company
B met with representatives of Hydra Industries to provide a management presentation about Company B and to further discuss the
possibility of a business combination.
In December 2015, the owner of Company B met
and had further discussions with Macquarie and other representatives of Hydra Industries.
Hydra Industries sent a non-binding offer letter
to the owner of Company B on January 22, 2016, proposing an acquisition of Company B by Hydra Industries. The offer letter was
not accepted by the owner of Company B and discussions to combine Hydra Industries with Company B were terminated.
In October 2015, at a meeting in the New York
offices of Hydra Industries with Luke Alvarez, a representative of Morgan Stanley and representatives of Hydra Industries, Hydra
Industries was advised that a formal sale process for Inspired and another company (“Company C”) was about to commence,
pursuant to which interested parties might submit bids for Inspired and Company C.
On November 10, 2015, Hydra Industries executed
non-disclosure agreements with each of Inspired and Company C in order to obtain information regarding Inspired and Company C.
On December 2, 2015, representatives of Hydra
Industries including Lorne Weil and Macquarie attended a management presentation regarding Inspired and Company C, by their respective
management teams, including Mr. Alvarez.
On December 17, 2015, Hydra Industries submitted
a non-binding indication of interest to purchase both Inspired and Company C.
In December 2015, Hydra Industries was approached
by representatives of another company (“Company D”) seeking a possible business combination. On February 1, 2016, a
non-binding indication of interest was submitted by Hydra Industries to Company D, which was subsequently accepted by Company D.
Due diligence and the drafting of relevant documentation was commenced. On May 21, 2016, after further evaluation and consideration,
Hydra Industries advised Company D that it was terminating discussions with respect to a possible business combination.
In late December 2015 or early January 2016,
a representative of Morgan Stanley called Hydra Industries and advised it that Company C had been sold to a higher bidder, and
that a new auction process would begin for Inspired. At that time, Mr. Weil discussed Hydra Industries’ interest in making
an offer for Inspired. The representative of Morgan Stanley invited Hydra Industries to submit a written offer regarding Inspired.
On February 23, 2016, Hydra Industries submitted
a revised, written, non-binding offer for Inspired.
Thereafter, on March 8, 2016, Mr. Weil and representatives
of Macquarie met with Vitruvian Partners LLP (“Vitruvian”), the principal equity and shareholder loan note holder of
Inspired, in London to discuss the offer by Hydra Industries, which if pursued would result in a meaningful ownership of the surviving
company by Vitruvian post-closing. Vitruvian indicated its interest in continuing discussions on that basis.
Also in March 2016, Inspired, with input from
Hydra Industries, Macquarie and Vitruvian, began discussing and negotiating with Inspired’s existing lenders a proposed two
year extension of Inspired’s debt maturities.
During the following weeks, the parties and
their respective representatives and advisers were in regular communication regarding the potential transaction, including the
operative transaction agreements and other matters.
On June 3, 2016, the Board of Directors of Hydra
Industries met to discuss developments and a presentation was made by Macquarie outlining, on a preliminary basis, the principal
proposed terms for a potential acquisition of Inspired. After discussion, the Board approved the continuation of negotiations with
Inspired. At that time, the Board also approved Hydra Industries’ entry into a two-week exclusivity period with Inspired.
On June 17, 2016, Hydra Industries and the sellers
of Inspired agreed to extend the period of that mutual exclusivity agreement by an additional week.
During the period between the delivery of Hydra
Industries’ non-binding letter of intent and the completion of the contract negotiations for the purchase of Inspired, numerous
telephone calls and e-mails were exchanged between the parties and their representatives and advisers.
On June 23, 2016, Hydra Industries’ Board
of Directors met to further review the proposed purchase of Inspired. Macquarie answered questions about the proposed terms of
the transaction and the Board again authorized negotiations to continue.
On July 7, 2016, the Board of Directors of Hydra
Industries met to discuss the proposed purchase of Inspired. Macquarie made a presentation regarding the principal terms of the
transaction and also reviewed the main valuation considerations regarding the contemplated purchase price and related matters.
The Board also discussed the possible impact of the recent “Brexit” vote in the United Kingdom and the progress in
obtaining the Warranties and Indemnity insurance sought by the Sellers. The parties anticipated that the insurance policy would
be issued soon.
On July 12, 2016, Hydra Industries’ Board
of Directors met again. After further discussion and, among other things, an update from Kramer Levin regarding the transaction
documentation and negotiation, the Board formally approved the purchase of Inspired, subject to the issuance of the Warranties
and Indemnity insurance policy in acceptable form.
On July 13, 2016, the Warranties and Indemnity
insurance policy was issued and the Share Sale Agreement and certain related documents were executed and delivered by the parties.
Also on July 13, 2016, Inspired’s existing lenders finalized a two-year extension of Inspired’s debt maturities.
On July 14, 2016, prior to the commencement
of trading in the U.S. capital markets, a press release was issued announcing the execution of the Share Sale Agreement. On July
14, 2016, a Form 8-K was filed with the Securities Exchange Commission referencing the transaction and filing the press release.
On July 19, 2016, Messrs. Weil, Alvarez and
Daniel Silvers held an investor conference call to discuss the transaction. Mr. Silvers is the Managing Member of Matthews Lane
Capital Partners LLC, a consultant to Hydra Industries.
On July 19, 2016, a Form 8-K was filed describing
the transaction in further detail and filing a copy of the Share Sale Agreement.
On July 20, 2016, a Form 8-K/A was filed to
include a final executed copy of the Share Sale Agreement.
The parties and their respective representatives
have continued and expect to continue regular discussions regarding the execution of the Business Combination.
Hydra Industries’ Board of Directors’
Reasons for the Approval of the Business Combination
In
considering the Business Combination, the Board determined that Inspired met its criteria for evaluating prospective targets. The
Board believes that Inspired is an established middle-market business with a proven track record, experienced management team and
strong competitive position with the potential for revenue and earnings growth and attractive free cash flow generation. Our Board
also believes that Inspired could benefit from becoming part of a publicly-traded company. The Board anticipates that the operating
and financial capabilities of our own executive team can complement the capabilities of Inspired’s management, and that our
operating expertise can serve as a catalyst to further develop Inspired’s business.
Satisfaction of 80% Test
It is a requirement under Hydra Industries’
existing charter that any business acquired by Hydra Industries have a fair market value equal to at least 80% of the balance of
the funds in the trust account at the time of the execution of a definitive agreement for an initial business combination. The
Hydra Industries board of directors, in consultation with its financial advisors, determined that the fair market value of Target
was equal to at least 80% of the amount of funds held by Hydra Industries in trust for the benefit of its public stockholders (excluding
any deferred underwriters fees and taxes payable on the income earned on the trust account). The Board’s determination was
based on, among other things, an analysis of public companies deemed comparable to the Target which indicated a range of enterprise
values in excess of $311 million.
Certain Benefits of Hydra Industries’
Directors and Officers and Others in the Business Combination
When you consider the recommendation of our
board of directors in favor of approval of the Business Combination, you should keep in mind that our board of directors, officers
and nominees to the board of directors have interests in the Business Combination that are different from, or in addition to, your
interests as a stockholder. These interests include, among other things:
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the fact that our Sponsors and our independent directors paid an aggregate of approximately $3,775,000 for their founder shares
and placement warrants and such securities should have a significantly higher value at the time of the Business Combination;
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the fact that certain directors and officers may enter into employment agreements with the Company after the consummation of
the Business Combination;
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the Macquarie Forward Purchase;
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the fact that A. Lorne Weil, our Chairman and Chief Executive Officer and the managing member of our Hydra Sponsor, has agreed
that he will be liable to us, and our Macquarie Sponsor has agreed to indemnify Mr. Weil for 50% of any such liability, if and
to the extent any claims by a vendor for services rendered or products sold to us, or the Target, reduce the amount of funds in
the Trust Account to below $10.00 per public share or such lesser amount per public share held in the Trust Account as of the date
of the liquidation of the trust account, due to reductions in value of the trust assets other than due to the failure to obtain
such waiver, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third
party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under our indemnity
of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act;
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the continuation of one of our five existing directors as a director of the Company; and
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the continued indemnification of current directors and officers of the Company and the continuation of directors’ and
officers’ liability insurance after the Business Combination.
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These interests may influence our directors
in making their recommendation that you vote in favor of the approval of the Business Combination. These interests were considered
by our Board when our Board approved the Business Combination.
Potential Purchases of Public Shares
In connection with the stockholder vote to approve
the proposed Business Combination, our directors, officers, or advisors or their respective affiliates may privately negotiate
transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed in conjunction
with a proxy solicitation pursuant to the proxy rules for a per-share pro rata portion of the trust account. None of our directors,
officers or advisors or their respective affiliates will make any such purchases when they are in possession of any material non-public
information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Such a purchase
would include a contractual acknowledgement that such stockholder, although still the record holder of our shares, is no longer
the beneficial owner thereof and therefore agrees not to exercise its redemption rights, and would include a contractual provision
that directs such stockholder to vote such shares in a manner directed by the purchaser. In the event that our directors, officers
or advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already
elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem
their shares. Any such privately negotiated purchases may be effected at purchase prices that are in excess of the per share pro
rata portion of the trust account.
In addition, at any time prior to the special
meeting, during a period when they are not then aware of any material nonpublic information regarding the Company or its securities,
the initial stockholders or their respective affiliates may purchase shares of Hydra Industries common stock from institutional
and other investors who vote, or indicate an intention to vote, against the Business Combination Proposal, or execute agreements
to purchase such shares from them in the future, or they may enter into transactions with such persons and others to provide them
with incentives to acquire shares of Hydra Industries common stock or vote their shares in favor of the Business Combination Proposal.
The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirements
that the holders of a majority of the shares present and entitled to vote at the special meeting to approve the Business Combination
Proposal vote in its favor, that the cash requirements of the transaction are met and that the Company will have at least $5,000,001
in net tangible assets upon closing of the Business Combination after taking into account holders of public shares that properly
demanded redemption of their public shares for cash, when it appears that such requirements would otherwise not be met.
The purpose of such purchases would be to increase
the likelihood of obtaining stockholder approval of the Business Combination or, where the purchases are made by our directors,
officers or advisors or their respective affiliates, to reduce the dollar amount of redemptions and thereby enhance Hydra Industries’
ability to satisfy a closing condition under the Sale Agreement.
Total Shares of Hydra Industries Common Stock
to be Issued in the Business Combination
It is anticipated that, following completion
of the Business Combination and if there are no redemptions, Hydra Industries’ public stockholders will retain an ownership
interest of approximately 42% in Hydra Industries and our initial stockholders and affiliates will retain an ownership interest
of approximately 23% in Hydra Industries, assuming none of Hydra Industries’ stockholders exercise their redemption rights.
If Hydra Industries’ stockholders exercise their redemption rights, the ownership interest in Hydra Industries of Hydra Industries’
public stockholders will decrease and the ownership interest in Hydra Industries of the Selling Group will increase. To the extent
that there are redemptions of Hydra Industries common stock with respect to 4 million shares, which we believe would leave approximately
$40 million in our trust account, Hydra Industries’ public stockholders will retain an ownership interest of approximately
21.6% and our initial stockholders and affiliates will retain an ownership interest of approximately 7.6%.
The illustrative ownership percentages with
respect to Hydra Industries following the Business Combination do not take into account (i) the issuance of any shares upon completion
of the Business Combination under the Company’s proposed 2016 Long-Term Incentive Plan or (ii) any of the 17,500,000 warrants
to purchase up to a total of 8,750,000 shares of Hydra Industries common stock that will remain outstanding following the Business
Combination. If the actual facts are different than these assumptions (which they are likely to be), the percentage ownership retained
by Hydra Industries’ existing stockholders in Hydra Industries will be different. See “Summary of the Proxy Statement
— Impact of the Business Combination on Hydra Industries’ Public Float” for further information.
Sources and Uses of Funding for the Business
Combination
The following table summarizes our estimated
sources and uses for funding the Business Combination assuming no redemptions and $80 million of cash in our trust account:
(dollars
(1)
in millions)
|
|
|
|
|
|
|
|
|
Sources
(2)
|
|
|
|
|
|
Uses
(2)
|
|
|
|
|
Cash from Hydra Industries
|
|
$
|
80.0
|
|
|
Cash Consideration
(3)
|
|
$
|
64.2
|
|
Macquarie Forward Purchase
|
|
|
20.0
|
|
|
Transaction Expenses
|
|
|
14.8
|
|
Target Debt under Extension
|
|
|
108.4
|
|
|
Accrued PIK Interest Payment
|
|
|
11.5
|
|
Seller Rollover Shares
|
|
|
73.3
|
|
|
Accrued Cash Interest
|
|
|
2.8
|
|
|
|
|
|
|
|
Target Debt under Extension
|
|
|
108.4
|
|
|
|
|
|
|
|
Seller Rollover Shares
|
|
|
73.3
|
|
|
|
|
|
|
|
Cash to Balance Sheet
|
|
|
6.6
|
|
Total Sources
(4)
|
|
$
|
281.7
|
|
|
Total Uses
(4)
|
|
$
|
281.7
|
|
|
(1)
|
Assumes $1.32/£1.00 exchange rate as of July 13, 2016
|
|
(2)
|
Expected balances at closing
|
|
(3)
|
Gross of transaction bonuses and seller transaction costs
|
|
(4)
|
Totals may differ due to rounding
|
The following table summarizes our estimated
sources and uses for funding the Business Combination assuming redemption of 71.1% of the outstanding shares (the maximum redemption
amount before no cash consideration would be paid to the Selling Group if the Business Combination were consummated as of June
30, 2016):
(dollars
(1)
in millions)
|
|
|
|
|
|
|
|
|
Sources
(2)
|
|
|
|
|
|
Uses
(2)
|
|
|
|
|
Cash from Hydra Industries
|
|
$
|
23.1
|
|
|
Cash Consideration
(3)
|
|
$
|
11.3
|
|
Macquarie Forward Purchase
|
|
|
20.0
|
|
|
Transaction Expenses
|
|
|
14.8
|
|
Target Debt under Extension
|
|
|
108.4
|
|
|
Accrued PIK Interest Payment
|
|
|
11.5
|
|
Existing Revolver Drawn at Close
|
|
|
4.0
|
|
|
Accrued Cash Interest
|
|
|
2.8
|
|
Seller Rollover Shares
|
|
|
126.2
|
|
|
Target Debt under Extension
|
|
|
108.4
|
|
|
|
|
|
|
|
Seller Rollover Shares
|
|
|
126.2
|
|
|
|
|
|
|
|
Cash to Balance Sheet
|
|
|
6.6
|
|
Total Sources
(4)
|
|
$
|
281.7
|
|
|
Total Uses
(4)
|
|
$
|
281.7
|
|
|
(1)
|
Assumes $1.32/£1.00 exchange rate as of July 13, 2016
|
|
(2)
|
Expected balances at closing
|
|
(3)
|
Gross of transaction bonuses and seller transaction costs
|
|
(4)
|
Totals may differ due to rounding
|
Board of Directors of Hydra Industries Following
the Business Combination
Upon the closing of the Business Combination,
and the effectiveness of Proposal 3 of the Charter Proposals, we anticipate increasing the size of our board of directors from
five to seven directors. Four incumbent directors of Hydra Industries, Messrs. Dannhauser, Miller, Shea and Stevens, have submitted
prospective resignations from our board of directors effective immediately upon closing of the Business Combination. Concurrently,
we are nominating Luke Alvarez, [___], [___], [___], [___] and [___] to our Board. If all director nominees are elected and the
Business Combination is consummated, our board of directors will consist of one existing Hydra Industries director, A. Lorne Weil,
and six newly elected directors, including Luke Alvarez, who shall also continue as the CEO of Inspired Entertainment and become
CEO of Hydra Industries, as well as [___],[___],[___],[___] and [___]. See the sections entitled “Director Election Proposal”
and “Management After the Business Combination.”
Certificate of Incorporation
Upon the closing of the Business Combination,
and the effectiveness of the Charter Proposals, our existing charter will be amended promptly to:
|
·
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increase the Company’s authorized common stock;
|
|
·
|
provide for the declassification of our board of directors and make certain related changes;
|
|
·
|
provide for additional changes, including changing the Company’s name from “Hydra Industries Acquisition Corp.”
to “Inspired Entertainment, Inc.” and making the Company’s corporate existence perpetual, which our board of
directors believes are necessary or appropriate to address the circumstances and needs of the Company following the Business Combination;
and
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|
·
|
provide the Company with the ability to restrict securities ownership by persons who fail to comply with informational or other
regulatory requirements under applicable gaming laws, who are found unsuitable to hold the Company’s securities by gaming
authorities or who could by holding its securities cause the Company or any affiliate to fail to obtain, maintain, renew or qualify
for a license, contract, franchise or other regulatory approval from a gaming authority.
|
Name; Headquarters
The name of the Company after the Business Combination
will be Inspired Entertainment, Inc. and our headquarters will be located at 250 W. 57
th
Street, New York, NY 10107.
Redemption Rights
Pursuant to our existing charter, holders of
public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance
with our existing charter. As of June 30, 2016, this would have amounted to approximately $10.00 per share. If a holder exercises
its redemption rights, then such holder will be exchanging its shares of our common stock for cash and will no longer own shares
of Hydra Industries. Such a holder will be entitled to receive cash for its public shares only if it (i) affirmatively votes for
or against the Business Combination Proposal and (ii) properly requests redemption and delivers its shares (either physically or
electronically) to our transfer agent at least two business days prior to the special meeting in accordance with the procedures
described herein. The requirement that a holder affirmatively vote for or against the Business Combination in order to redeem its
shares does not have any state law precedent. Each redemption of public shares by our public stockholders will decrease the amount
in our trust account, which holds approximately $80 million as of June 30, 2016. See the section entitled “Special Meeting
in Lieu of 2016 Annual Meeting of Hydra Industries Stockholders — Redemption Rights” for the procedures to be followed
if you wish to redeem your shares for cash.
Holders of outstanding units must separate the
underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares.
If you hold units registered in your own name,
you must deliver the certificate for such units to Continental Stock Transfer & Trust Company with written instructions to
separate such units into public shares and public warrants. This must be completed far enough in advance to permit the mailing
of the public share certificates back to you so that you may then exercise your redemption rights with respect to the public shares
upon the separation of the public shares from the units.
If a broker, dealer, commercial bank, trust
company or other nominee holds your units, you must instruct such nominee to separate your units. Your nominee must send written
instructions by facsimile to Continental Stock Transfer & Trust Company. Such written instructions must include the number
of units to be split and the nominee holding such units. Your nominee must also initiate electronically, using DTC’s deposit
withdrawal at custodian (DWAC) system, a withdrawal of the relevant units and a deposit of an equal number of public shares and
public warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights with respect
to the public shares upon the separation of the public shares from the units. While this is typically done electronically the same
business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your public shares
to be separated in a timely manner, you will likely not be able to exercise your redemption rights.
Appraisal Rights
There are no appraisal rights available to our
stockholders in connection with the Business Combination.
Anticipated Accounting Treatment
The
Business Combination will be accounted for as a “reverse merger” in accordance with U.S. generally accepted accounting
principles.
Under this method of accounting Hydra will be treated as the “acquired” company for financial reporting
purposes. This determination was primarily based on Target comprising the ongoing operations of the combined entity, designees
of the Selling Group, together with the present CEO of Target, comprising a majority of the governing body of the combined company,
and Target’s senior management comprising a majority of the senior management of the combined company. Accordingly, for accounting
purposes, the Business Combination will be treated as the equivalent of Target issuing stock for the net assets of Hydra, accompanied
by a recapitalization.
The net assets of Hydra will be stated at
historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those
of Target.
Material U.S. Federal Income Tax Considerations
for Stockholders Exercising Redemption Rights
The following is a discussion of the material
U.S. federal income tax considerations for holders of Hydra Industries common stock that elect to have their Hydra Industries common
stock redeemed for cash if the Business Combination is completed. This summary is based upon the Internal Revenue Code of 1986,
as amended (the “Code”), the regulations promulgated by the U.S. Treasury Department, current administrative interpretations
and practices of the Internal Revenue Services (the “IRS”) and judicial decisions, all as currently in effect and all
of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that
the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax considerations described below.
No advance ruling has been or will be sought from the IRS regarding any matter discussed in this summary. This summary does not
discuss the impact that U.S. state and local taxes and taxes imposed by non-U.S. jurisdictions could have on the matters discussed
in this summary. This summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to
a particular stockholder in light of its investment or tax circumstances or to stockholders subject to special tax rules, such
as:
|
·
|
certain U.S. expatriates;
|
|
·
|
traders in securities that elect mark-to-market treatment;
|
|
·
|
U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar;
|
|
·
|
financial institutions;
|
|
·
|
qualified plans, such as 401(k) plans, individual retirement accounts, etc.;
|
|
·
|
regulated investment companies (or RICs);
|
|
·
|
real estate investment trusts (or REITs);
|
|
·
|
persons holding Hydra Industries common stock as part of a “straddle,” “hedge,” “conversion transaction,”
“synthetic security” or other integrated investment;
|
|
·
|
persons subject to the alternative minimum tax provisions of the Code;
|
|
·
|
tax-exempt organizations;
|
|
·
|
persons that actually or constructively own 5 percent or more of Hydra Industries common stock; and
|
|
·
|
non-U.S. stockholders (as defined below, and except as otherwise discussed below).
|
If any partnership (including for this purpose
any entity treated as a partnership for U.S. federal income tax purposes) holds Hydra Industries common stock, the tax treatment
of a partner generally will depend on the status of the partner and the activities of the partner and the partnership. If you are
a partner of a partnership holding Hydra Industries common stock, you should consult your tax advisor. This summary assumes that
stockholders hold Hydra Industries common stock as capital assets within the meaning of Section 1221 of the Code, which generally
means as property held for investment and not as a dealer or for sale to customers in the ordinary course of the stockholder’s
trade or business.
WE URGE HOLDERS OF HYDRA INDUSTRIES COMMON STOCK
CONTEMPLATING EXERCISE OF THEIR REDEMPTION RIGHTS TO CONSULT THEIR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN
INCOME AND OTHER TAX CONSEQUENCES THEREOF.
U.S. Federal Income Tax Considerations to
U.S. Hydra Industries Stockholders
This section is addressed to U.S. holders of
Hydra Industries common stock that elect to have their Hydra Industries common stock redeemed for cash as described in the section
entitled “Special Meeting in Lieu of 2016 Annual Meeting of Hydra Industries Stockholders — Redemption Rights.”
For purposes of this discussion, a “Redeeming U.S. Holder” is a beneficial owner that so redeems its Hydra Industries
common stock and is:
|
·
|
a citizen or resident of the United States;
|
|
·
|
a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or
under the laws of the United States or any political subdivision thereof;
|
|
·
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
|
|
·
|
any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more
U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be
treated as a U.S. person.
|
A Redeeming U.S. Holder will generally recognize capital gain or
loss equal to the difference between the amount realized on the redemption and such stockholder’s adjusted basis in the Hydra
Industries common stock exchanged therefor if the Redeeming U.S. Holder’s ownership of stock in Hydra Industries is completely
terminated or if the redemption meets certain other tests described below. Special constructive ownership rules apply in determining
whether a Redeeming U.S. Holder’s ownership of stock in Hydra Industries is treated as completely terminated. Pursuant to
these constructive ownership rules, a Redeeming U.S. Holder will be deemed to own stock that is actually or constructively owned
by certain members of his or her family (spouse, children, grandchildren and parents) and other related parties including, for
example, certain entities in which such Redeeming U.S. Holder has a direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such Redeeming U.S. Holder (or a related person) has the right to acquire
upon exercise of an option or conversion right. In addition, if a shareholder lives in a community property state, the community
property laws of that state may have an effect on the constructive ownership rules. Certain exceptions to the family attribution
rules for the purpose of determining a complete termination. If a Redeeming U.S. Holder intends to rely upon these exceptions,
the Redeeming U.S. Holder must file a “waiver of family attribution” statement with the shareholder’s tax return
and must comply with certain other requirements set forth in the Code and the income tax regulations promulgated thereunder. If
gain or loss treatment applies, such gain or loss will be long-term capital gain or loss if the holding period of such stock is
more than one year at the time of the exchange. Stockholders who hold different blocks of Hydra Industries common stock (generally,
shares of Hydra Industries common stock purchased or acquired on different dates or at different prices) should consult their tax
advisors to determine how the above rules apply to them.
Cash received upon redemption that does not
completely terminate the Redeemed U.S. Holder’s interest will still give rise to capital gain or loss, if the redemption
is either (i) “substantially disproportionate” or (ii) “not essentially equivalent to a dividend.” In determining
whether the redemption is substantially disproportionate or not essentially equivalent to a dividend with respect to a Redeeming
U.S. Holder, that Redeeming U.S. Holder is deemed to own not just stock he, she or it actually owned but also, in some cases, stock
owned by certain family members, certain estates and trusts of which the Redeeming U.S. Holder is a beneficiary, and certain other
affiliated entities.
Generally, the redemption will be “substantially
disproportionate” with respect to the Redeeming U.S. Holder if (i) the Redeeming U.S. Holder’s percentage ownership
of the outstanding voting stock (including all classes which carry voting rights) of Hydra Industries is reduced immediately after
the redemption to less than 80% of the Redeeming U.S. Holder’s percentage interest in such stock immediately before the redemption;
(ii) the Redeeming U.S. Holder’s percentage ownership of the outstanding common stock (both voting and nonvoting) immediately
after the redemption is reduced to less than 80% of such percentage ownership immediately before the redemption; and (iii)
the Redeeming U.S. Holder owns, immediately after the redemption, less than 50% of the total combined voting power of all classes
of stock of Hydra Industries entitled to vote. Whether the redemption will be considered “not essentially equivalent to a
dividend” with respect to a Redeeming U.S. Holder will depend upon the particular circumstances of that U.S. holder. At a
minimum, however, the redemption must result in a meaningful reduction in the Redeeming U.S. Holder’s actual or constructive
percentage ownership of Hydra Industries. The IRS has ruled that any reduction in a stockholder’s proportionate interest
generally is a “meaningful reduction” if the stockholder’s relative interest in the corporation is minimal and
the stockholder does not have meaningful control over the corporation.
If none of the redemption tests described above
give rise to capital gain or loss, the consideration paid to the Redeeming U.S. Holder will be treated as dividend income for U.S.
federal income tax purposes to the extent of our current or accumulated earnings and profits. However, for the purposes of the
dividends-received deduction and of “qualified dividend” treatment, due to the redemption right, a Redeeming U.S. Holder
may be unable to include the time period prior to the redemption in the stockholder’s “holding period” as part
of the Redeeming U.S. Holder’s determination as to whether such gain or loss would be treated as short term or long term
for U.S. federal income tax purposes. Any distribution in excess of our earnings and profits will reduce the Redeeming U.S. Holder’s
basis in the Hydra Industries common stock (but not below zero), and any remaining excess will be treated as gain realized on the
sale or other disposition of the Hydra Industries common stock.
These rules are complex and U.S. holders of
Hydra Industries common stock considering exercising their redemption rights should consult their own tax advisors as to whether
the redemption will be treated as a sale or as a distribution under the Code.
Certain Redeeming U.S. Holders who are individuals,
estates or trusts pay a 3.8% tax on all or a portion of their “net investment income” or “undistributed net investment
income” (as applicable), which may include all or a portion of their capital gain or dividend income from their redemption
of Hydra Industries common stock. Redeeming U.S. Holders should consult their tax advisors regarding the effect, if any, of the
net investment income tax.
U.S. Federal Income Tax Considerations to
Non-U.S. Hydra Industries Stockholders
This section is addressed to non-U.S. holders
of Hydra Industries common stock that elect to have their Hydra Industries common stock redeemed for cash as described in the section
entitled “Special Meeting in Lieu of 2016 Annual Meeting of Hydra Industries Stockholders — Redemption Rights.”
For purposes of this discussion, a “Redeeming Non-U.S. Holder” is a beneficial owner (other than a partnership) that
so redeems its Hydra Industries common stock and is not a Redeeming U.S. Holder.
Except as discussed in the following paragraph,
a Redeeming Non-U.S. Holder who elects to have its Hydra Industries common stock redeemed will generally be treated in the same
manner as a U.S. Holder for U.S. federal income tax purposes. See the discussion above under “U.S. Federal Income Tax Considerations
to U.S. Hydra Industries Stockholders.”
Any Redeeming Non-U.S. Holder will generally
not be subject to U.S. federal income tax on any capital gain recognized as a result of the exchange unless:
|
·
|
such stockholder is an individual who is present in the United States for 183 days or more during the taxable year in which
the redemption takes place and certain other conditions are met, in which case the Redeeming Non-U.S. Holder will be subject to
a 30% tax on the individual’s net capital gain for the year; or
|
|
·
|
such stockholder is engaged in a trade or business within the United States and any gain recognized in the exchange is treated
as effectively connected with such trade or business (and, if an income tax treaty applies, the gain is attributable to a permanent
establishment maintained by such holder in the United States), in which case the Redeeming Non-U.S. Holder will generally be subject
to the same treatment as a Redeeming U.S. Holder with respect to the exchange, and a corporate Redeeming Non-U.S. Holder may be
subject to the branch profits tax at a 30% rate (or lower rate as may be specified by an applicable income tax treaty).
|
With respect to any redemption treated as a
distribution rather than a sale, any amount treated as dividend income to a Redeeming Non-U.S. Holder will generally be subject
to U.S. withholding tax at a rate of 30%, unless the Redeeming Non-U.S. Holder is entitled to a reduced rate of withholding under
an applicable income tax treaty. Dividends received by a Redeeming Non-U.S. Holder that are effectively connected with such holder’s
conduct of a U.S. trade or business (and, if an income tax treaty applies, such dividends are attributable to a permanent establishment
maintained by the Redeeming Non-U.S. Holder in the United States), are includible in the Redeeming Non-U.S. Holder’s gross
income in the taxable year received. Although generally not subject to withholding tax, such dividends are taxed at the same graduated
rates applicable to Redeeming U.S. Holders, net of certain deductions and credits, subject to an applicable income tax treaty providing
otherwise. In addition, dividends received by a corporate Redeeming Non-U.S. Holder that are effectively connected with the holder’s
conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified
by an applicable income tax treaty.
Non-U.S. holders of Hydra Industries common
stock considering exercising their redemption rights should consult their own tax advisors as to whether the redemption of their
Hydra Industries common stock will be treated as a sale or as a distribution under the Code.
Under the Foreign Account Tax Compliance Act
(“FATCA”) and U.S. Treasury regulations and administrative guidance thereunder, a 30% United States federal withholding
tax may apply to any dividends paid to (i) a “foreign financial institution” (as specifically defined in FATCA), whether
such foreign financial institution is the beneficial owner or an intermediary, unless such foreign financial institution agrees
to verify, report and disclose its United States “account” holders (as specifically defined in FATCA) and meets certain
other specified requirements or (ii) a non-financial foreign entity, whether such non-financial foreign entity is the beneficial
owner or an intermediary, unless such entity provides a certification that the beneficial owner of the payment does not have any
substantial United States owners or provides the name, address and taxpayer identification number of each such substantial United
States owner and certain other specified requirements are met. In certain cases, the relevant foreign financial institution or
non-financial foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. Redeeming Non-U.S.
Holders should consult their own tax advisors regarding this legislation and whether it may be relevant to their disposition of
Hydra Industries common stock.
Backup Withholding
In general, proceeds received from the exercise
of redemption rights will be subject to backup withholding for a non-corporate U.S. stockholder that:
|
·
|
fails to provide an accurate taxpayer identification number;
|
|
·
|
is notified by the IRS regarding a failure to report all interest or dividends required to be shown on his or her federal income
tax returns; or
|
|
·
|
in certain circumstances, fails to comply with applicable certification requirements.
|
A non-U.S. stockholder generally may eliminate
the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties
of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Any amount withheld under these rules will be
creditable against the U.S. stockholder’s or non- U.S. stockholder’s U.S. federal income tax liability or refundable
to the extent that it exceeds this liability, provided that the required information is timely furnished to the IRS and other applicable
requirements are met.
Vote Required for Approval
Along with approval of the Director Election
Proposal and Charter Proposals (unless waived), approval of the Business Combination Proposal is a condition to the completion
of the Business Combination. If the Business Combination Proposal is not approved, the Business Combination will not take place.
Approval of the Business Combination Proposal is also a condition to the Charter Proposals, the Director Election Proposal and
the Incentive Plan Proposal. If the Director Election Proposal and Charter Proposals are not approved, unless waived, the Business
Combination Proposal will have no effect (even if approved by the requisite vote of our stockholders at the special meeting or
any adjournment or postponement thereof) and the Business Combination will not occur.
This Business Combination Proposal (and consequently,
the Sale Agreement and the transactions contemplated thereby, including the Business Combination) will be approved and adopted
only if at least a majority of the votes cast in person or by proxy at the special meeting vote “FOR” the Business
Combination Proposal.
Our initial stockholders have agreed to vote any shares of Hydra Industries common stock owned by them
in favor of the Business Combination. As of the record date, such stockholders beneficially owned 2,000,000 shares of common stock,
excluding shares issuable upon the exercise of warrants.
As of the date hereof, our initial stockholders
have not purchased any public shares.
Recommendation of the Board
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT OUR STOCKHOLDERS VOTE “FOR” THE BUSINESS COMBINATION PROPOSAL.
THE CHARTER PROPOSALS
The following table sets forth a summary of
the principal changes proposed to be made between our existing charter and the proposed charter. This summary is qualified by reference
to the complete text of the proposed charter, a copy of which is attached to this proxy statement as
Annex C
. All stockholders
are encouraged to read the proposed charter in its entirety for a more complete description of its terms.
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increase the Company’s authorized common stock;
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provide for the declassification of our board of directors and make certain related changes;
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provide for additional changes, including changing the Company’s name from “Hydra Industries Acquisition Corp.”
to “Inspired Entertainment, Inc.” and making the Company’s corporate existence perpetual, which our board of
directors believes are necessary or appropriate to address the circumstances and needs of the Company following the Business Combination;
and
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provide the Company with the ability to restrict securities ownership by persons who fail to comply with informational or other
regulatory requirements under applicable gaming laws, who are found unsuitable to hold the Company’s securities by gaming
authorities or who could by holding its securities cause the Company or any affiliate to fail to obtain, maintain, renew or qualify
for a license, contract, franchise or other regulatory approval from a gaming authority.
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Reasons for the Proposed Charter Amendments