Business Context and Reporting Period
This Form 8-K was filed by TKK Symphony Acquisition Corporation on September 12, 2019, reporting events occurring primarily on September 6, 2019. The filing concerns TKK Symphony’s proposed business combination with Glory Star New Media Group Limited, which conducts operations through a PRC wholly foreign-owned enterprise and variable interest entities. The provided filing does not identify Cheer Holding, Inc. as the registrant.
Transaction and Key Terms
- TKK Symphony entered into a Share Exchange Agreement to acquire all outstanding equity interests of Glory Star.
- Consideration consists of TKK Symphony ordinary shares valued at $425 million, with the per-share value based on the redemption price applicable to TKK Symphony’s public shareholders.
- Five percent of the Exchange Shares will be placed in escrow and may be forfeited to satisfy indemnification claims.
- Sellers may receive up to 10 million additional ordinary shares based on adjusted net income thresholds of RMB180 million for 2019 and RMB315 million for 2020. If combined adjusted net income reaches RMB495 million, otherwise-unearned earnout shares may become payable.
- Following closing, TKK Symphony intends to change its name to Glory Star New Media Group Holdings Limited.
- The post-closing board is expected to have five directors: one designated by TKK Symphony and four designated by Glory Star.
Financial Metrics, Liquidity, Debt and Unusual Items
The filing does not provide revenue, profit, cash flow, margins, assets, liabilities, cash balances or comparable-period financial results.
- TKK Symphony issued its sponsor an unsecured, non-interest-bearing promissory note of up to $1.1 million for working capital.
- The note is repayable upon the earlier of completion of the initial business combination or TKK Symphony’s winding up.
- Up to $1 million of the note may be converted into warrants at $0.50 per warrant, with each warrant exercisable for one-half of one ordinary share.
- A closing condition requires TKK Symphony and the Glory Star Group to have at least $5,000,001 of net tangible assets after redemptions and any private placement financing.
Material Changes Versus the Prior Comparable Period
No operating-period comparison is presented. The material change reported is TKK Symphony’s execution of the definitive agreement to acquire Glory Star and the related financing, escrow, registration, lock-up and non-competition arrangements.
Outlook, Conditions, Risks and Contingencies
- Closing is subject to required shareholder approvals, regulatory and third-party consents, the absence of prohibitive laws or litigation, Nasdaq listing requirements, minimum net tangible assets and other customary conditions.
- Glory Star was required to provide draft PCAOB-audited financial statements and implement specified PRC VIE contracts by September 16, 2019.
- The agreement could be terminated if closing does not occur by December 31, 2019, if conditions fail, if the VIE contracts or audited financial statements are not delivered as required, or under other specified circumstances.
- TKK Symphony expected to solicit redemptions through a tender offer rather than hold a shareholder meeting to approve the business combination, although a meeting could be held for amendments and other matters.
- If TKK Symphony terminates for a breach by a Glory Star party or seller, the Glory Star parties generally must pay $639,000 plus TKK Symphony’s transaction expenses.
- Seller shares are subject to lock-up restrictions, generally ending for half of the restricted securities upon the earlier of six months, specified trading-price performance or a subsequent transaction, and for the remaining half upon the earlier of one year or a subsequent transaction.
- Certain Glory Star shareholders and affiliates agreed to three-year non-competition and non-solicitation restrictions relating to online media and entertainment businesses.
- Risks include failure to obtain approvals, failure to satisfy closing conditions, termination of the transaction, regulatory and PRC VIE risks, Nasdaq delisting, litigation, changing regulations, economic and geopolitical conditions, and difficulties managing growth.
Most Important Facts to Verify
- Whether the proposed business combination closed and whether TKK Symphony changed its name and ticker.
- The final number and value of Exchange Shares issued, public-share redemptions and any private placement financing.
- Glory Star’s PCAOB-audited financial statements and the actual adjusted net income used for earnout calculations.
- Whether the PRC VIE contracts were executed, registered and legally enforceable.
- The amount outstanding and any warrant conversion under the $1.1 million sponsor promissory note.
- Whether Nasdaq listing, minimum net tangible asset and shareholder-count requirements were satisfied.