Business Context and Reporting Period
Company: Harmony Merger Corp. (a Special Purpose Acquisition Company or SPAC)
Date of Report: January 7, 2017
Event: Entry into a Material Definitive Agreement (Agreement and Plan of Reorganization) to amalgamate with Customer Acquisition Network (Canada) Inc. ("Customer Acquisition").
Transaction Structure: Harmony will redomesticate to Ontario, Canada, and amalgamate with Customer Acquisition to form a new entity named Mundo Media Ltd. ("Mundo"). The transaction is expected to close in Q1 2017, subject to shareholder approval and other conditions.
Key Financial Metrics and Consideration
Consideration to Customer Acquisition Shareholders:
- Equity: 10,931,373 shares of Mundo common stock.
- Cash: $25,000,000.
- Options: Options to purchase 856,081 shares of Mundo.
- Contingent Shares: Up to 2,794,118 additional shares based on 2017 and 2018 net income and share price targets.
Harmony Shareholder Conversion: Each outstanding Harmony share converts to one Mundo share. Existing warrants convert to Mundo warrants with a $11.50 exercise price.
Financial Targets for Contingent Shares:
| Year | Net Income Target | Share Price Target | Potential Shares |
|---|---|---|---|
| 2017 | $15,250,000 | $12.00 | 1,397,059 |
| 2018 | $21,500,000 | $15.00 | 1,397,059 |
Liquidity Requirement: Harmony must have at least $5,000,001 in net tangible assets following the exercise of conversion rights by public shareholders. Customer Acquisition has the right to terminate if Harmony does not have $57,000,000 cash on hand (excluding a $5M fee) prior to closing.
Historical Financials: The filing does not provide specific revenue, profit, or cash flow figures for Harmony or Customer Acquisition in this text. Customer Acquisition's financial data is noted as unaudited and prepared under Canadian GAAP, requiring adjustment for future proxy statements.
Material Changes and Transaction Mechanics
- Redomestication: Harmony is converting from a Delaware corporation to an Ontario corporation.
- Escrow: 7.5% of the Mundo shares issued to Signing Holders will be held in escrow as the sole remedy for indemnification claims (threshold of $1,000,000).
- Lock-Up Agreements: Signing Holders are restricted from transferring 50% of their shares until the earlier of 12 months post-closing or the stock price exceeding $12.50 for 20 of 30 trading days. The remaining 50% is locked for 12 months.
- Board Composition: The post-transaction board will have 7 members: 5 appointed by Customer Acquisition and 2 by Harmony.
Guidance, Risks, and Contingencies
Forward-Looking Statements: The filing contains projections regarding future performance and transaction completion. Management cautions that actual results may differ due to business conditions, regulatory changes, and the possibility of the transaction failing to close.
Key Risks and Conditions:
- Shareholder Approval: The transaction is contingent on Harmony stockholders approving the deal.
- Redemption Risk: If too many Harmony shareholders redeem their shares, the company may fail to meet the $5,000,001 net tangible asset requirement, allowing termination of the deal.
- Regulatory Consents: Closing requires consents from Royal Bank of Canada (RBC) and listing approvals from the Toronto Stock Exchange and NASDAQ.
- Termination Rights: Either party may terminate if the deal is not consummated by March 27, 2017, or if a governmental entity permanently prohibits the transaction.
Investor Verification Checklist
- Trust Account Balance: Verify if Harmony has sufficient cash ($57M target) to satisfy the closing condition and fund the $25M cash consideration.
- Redemption Rates: Monitor the percentage of Harmony shareholders expected to redeem shares to ensure the $5,000,001 net tangible asset threshold is met.
- Customer Acquisition Financials: Review the upcoming Preliminary Proxy Statement for audited or adjusted financial data, as current data is unaudited and under Canadian GAAP.
- Regulatory Approvals: Confirm receipt of RBC consents and dual listing approvals (TSX and NASDAQ).
- Contingent Share Viability: Assess the feasibility of Customer Acquisition meeting the $15.25M (2017) and $21.5M (2018) net income targets to avoid dilution from contingent shares.