The accompanying
notes are an integral part of the condensed financial statements.
The accompanying
notes are an integral part of the condensed financial statements.
The accompanying
notes are an integral part of the condensed financial statements.
Hydra Industries
Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on May 30, 2014. The Company was
formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization,
recapitalization or other similar business transaction, one or more operating businesses or assets (“Business Combination”).
At December 31, 2015,
the Company had not yet commenced operations. All activity through December 31, 2015 related to the Company’s formation,
its Initial Public Offering, which is described below, identifying a target company and engaging in due diligence for a Business
Combination.
The registration
statement for the Company’s initial public offering (the “Initial Public Offering”) was declared effective on
October 24, 2014. The Company consummated the Initial Public Offering of 8,000,000 units (“Units”) at $10.00 per unit
on October 29, 2014, generating gross proceeds of $80,000,000, which is described in Note 4.
Simultaneously with
the closing of the Initial Public Offering, the Company consummated the private placement of 7,500,000 warrants (“Private
Placement Warrants”) at a price of $0.50 per warrant to certain of the Company’s stockholders, generating gross proceeds
of $3,750,000, which is described in Note 5.
Transaction costs
amounted to $5,223,296, inclusive of $2,000,000 of underwriting fees, $2,800,000 of deferred underwriting fees (which are held
in the Trust Account (defined below)) and $423,296 of Initial Public Offering costs. In addition, at October 29, 2014, cash of
$1,326,704 was placed in an account outside of the Trust Account to fund operations. As of December 31, 2015, cash held outside
of the Trust Account amounted to $256,239.
Following the closing
of the Initial Public Offering on October 29, 2014, an amount of $80,000,000 ($10.00 per Unit) from the net proceeds of the sale
of the Units in the Initial Public Offering and the Private Placement Warrants was placed in a trust account (“Trust Account”)
and subsequently invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company
Act of 1940, as amended (the “1940 Act”), with a maturity of 180 days or less or in any open-ended investment company
that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (c)(2), (c)(3) and (c)(4)
of Rule 2a-7 of the 1940 Act, and will remain invested in U.S. government securities until the earlier of: (i) the consummation
of a Business Combination or (ii) the distribution of the Trust Account as described below.
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and
Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. The Company’s securities are listed on the Nasdaq Capital Market (“NASDAQ”). Pursuant
to the NASDAQ listing rules, the Company’s Business Combination must be with a target business or businesses whose collective
fair market value is equal to at least 80% of the balance in the Trust Account at the time of the execution of a definitive agreement
for such Business Combination. There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company, after
signing a definitive agreement for the acquisition of one or more target businesses or assets, may either (i) seek stockholder
approval of a Business Combination at a meeting called for such purpose at which stockholders may seek to redeem their shares,
regardless of whether they vote for or against a Business Combination or (ii) provide its stockholders with the opportunity to
sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote). Stockholder approval
will be sought by the Company if required by law or applicable stock exchange rule or for business or other legal reasons. In
the event of a proposed merger of the Company with a target company, stockholder approval is required by Delaware law. Further,
under the NASDAQ listing rules, stockholder approval is required, if, for example, (a) the Company will issue common stock that
will be equal to or in excess of 20% of the number of shares of its common stock outstanding, (b) any of the Company’s directors,
officers or substantial stockholders (as defined by NASDAQ rules) has a 5% or greater interest (or such persons collectively have
a 10% or greater interest), directly, or indirectly, in the target business or assets to be acquired or otherwise and the present
or potential issuance of common stock could result in an increase in outstanding common shares or voting power of 5% or more,
or (c) the issuance or potential issuance of common stock will result in a change of control of the Company. The Business Combination
must be approved by the board of directors. In addition, the Company’s Business Combination must be approved by MIHI LLC
(the “Macquarie Sponsor”) as a condition to the Contingent Forward Purchase Contract (as described in Note 7). In
the event that the Company seeks stockholder approval in connection with a Business Combination, the Company will proceed with
a Business Combination only if a majority of the outstanding shares that are voted are voted in favor of the Business Combination.
In connection with such vote, the Company will provide its stockholders with the opportunity to redeem their shares of the Company’s
common stock upon the consummation of a Business Combination for a pro-rata portion of the amount then in the Trust Account (initially
$10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to pay
taxes). However, in no event will the Company redeem its public shares in an amount that would cause its net tangible assets to
be less than $5,000,001. Hydra Industries Sponsor LLC (the “Hydra sponsor”) and the Macquarie Sponsor (together with
the Hydra sponsor, the “Sponsors”) and the other initial stockholders of the Company have agreed, in the event the
Company is required to seek stockholder approval of its Business Combination, to vote their founders shares (as defined in Note
6) and any public shares purchased, in favor of approving a Business Combination. Notwithstanding the foregoing redemption rights,
if the Company seeks stockholder approval of the Business Combination and it does not conduct redemptions in connection with the
Business Combination pursuant to the tender offer rules, the Company’s amended and restated certificate of incorporation
provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder
is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), will be restricted from redeeming its shares with respect to an aggregate of 25% or more of
the shares sold in the Initial Public Offering.
If the Company is
unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering (the “Combination
Period”), the Company will (i) cease all operations except for the purposes of winding up its affairs; (ii) distribute the
aggregate amount then on deposit in the Trust Account, including a portion of the interest earned thereon (net of any taxes payable,
and less up to $50,000 of interest to pay dissolution expenses), pro rata to the Company’s public stockholders by way of
redemption of the Company’s public shares (which redemption would completely extinguish such holders’ rights as stockholders,
including the right to receive further liquidation distributions, if any); and (iii) as promptly as possible following such redemption,
dissolve and liquidate the balance of the Company’s net assets to its remaining stockholders, as part of the Company’s
plan of dissolution and liquidation.
The initial stockholders
have agreed to waive their redemption rights with respect to the founder shares (i) in connection with the consummation of a Business
Combination, (ii) if the Company fails to consummate a Business Combination within the Combination Period, and (iii) upon the
Company’s liquidation upon the expiration of the Combination Period. However, if the Company’s initial stockholders
should acquire public shares in or after the Initial Public Offering, they will be entitled to redemption rights with respect
to such public shares if the Company fails to consummate a Business Combination within the Combination Period. The underwriters
have agreed to waive their rights to their deferred underwriting commissions held in the Trust Account in the event the Company
does not consummate a Business Combination within the Combination Period and, in such event, such amounts will be included with
the funds held in the Trust Account that will be available to fund the redemption of the Company’s public shares. In the
event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution
(including Trust Account assets) will be less than the Initial Public Offering price per Unit in the Initial Public Offering ($10.00
per share). A. Lorne Weil, the Company’s Chairman and Chief Executive Officer and the managing member of the Hydra sponsor,
has agreed that he will be liable to the Company, and the 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 the Company, or by a prospective
target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the
Trust Account to below $10.00 per share or such lesser amount per share of Common Stock 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 the Company’s
indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the “Securities Act”).
The Company will
seek to reduce the possibility that Mr. Weil will have to indemnify the Trust Account due to claims of creditors by endeavoring
to have all vendors, service providers (other than the Company’s independent auditors), prospective target businesses or
other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or
claim of any kind in or to monies held in the Trust Account.
As of December 31, 2015, the Company had
$256,239 in its operating bank accounts, $80,009,479 in cash and securities held in the Trust Account to be used for a Business
Combination or to repurchase or convert its common stock in connection therewith and a working capital deficit of $2,327,010.
As of December 31, 2015, $14,520 of the amount on deposit in the Trust Account represented interest income, which is available
to be withdrawn to pay the Company’s tax obligations. Since inception, the Company has not withdrawn any interest income
from the Trust Account.
Until the consummation of a Business Combination,
the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates,
performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire,
structuring, negotiating and consummating the Business Combination and paying for public company expenses.
For the year ended December 31, 2015,
the Company used cash of $866,930 in operating activities. As of December 31, 2015, the Company had current liabilities of $2,645,838,
primarily representing amounts owed to lawyers, accountants and consultants who have advised the Company on matters related to
a potential Business Combination. There can be no assurances that the Company will be able to make payment in full of the amounts
due to said advisors. Funds in the Trust Account are not available for this purpose absent an initial Business Combination. If
a Business Combination is not consummated, the Company would lack the resources to pay all of the liabilities that have been incurred
by the Company to date or after and the Company may lack the resources needed to consummate another Business Combination. The
Company entered into fee arrangements with certain service providers and advisors in connection with a potential Business Combination
pursuant to which certain fees were deferred and payable only if the Company consummated such potential Business Combination (see
Note 8). Effective October 26, 2015, all efforts related to such potential Business Combination were terminated and, accordingly,
all deferred contingent fees that had been previously incurred are no longer due or payable. There can be no assurances that the
Company will complete a Business Combination.
The Company may need
to raise additional capital through loans or additional investments from its Sponsors, stockholders, officers, directors, or third
parties. The Company’s Sponsors have each committed $250,000, for an aggregate of $500,000, to be provided to the Company
in the event that funds held outside of the Trust Account are insufficient to fund its expenses after the Initial Public Offering
and prior to a Business Combination (see Note 8). In addition, the Company’s officers, directors and Sponsors may, but are
not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole
discretion, to meet the Company’s working capital needs.
Other than as described above, none of
the Sponsors, stockholders, officers or directors, or third parties, is under any obligation to advance funds to, or to invest
in, the Company. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional
capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited
to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot
provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include
any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
The accompanying
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules of the Securities and Exchange Commission (“SEC”).
The preparation of
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Making estimates
requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a
condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate, could change in the near term due to one or more future events. Accordingly, the actual results could
differ significantly from those estimates.
The Company considers
all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company
did not have any cash equivalents as of December 31, 2015.
At December 31, 2015,
the assets held in the Trust Account were held in cash and U.S. Treasury Bills.
The Company accounts
for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified
as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events
not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside
of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at December 31, 2015 and December
31, 2014, common stock subject to possible redemption in the amount of $69,883,968 (or 6,987,568 shares) and $73,410,170 (or 7,341,017
shares), respectively, is presented as temporary equity, outside of the stockholders’ equity section of the Company’s
balance sheet.
Offering costs consist
principally of legal, accounting and underwriting costs incurred through the balance sheet date that are directly related to the
Initial Public Offering. Offering costs amounting to $5,223,296 (including $4,800,000 in underwriters’ fees, of which $2,800,000
is deferred) were charged to stockholder’s equity upon completion of the Initial Public Offering.
The Company complies
with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” Net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Shares of common
stock subject to possible redemption at December 31, 2015 and 2014 have been excluded from the calculation of basic loss per share
since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. At December 31, 2015 and
2014, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted
into common stock and then share in the earnings of the Company. The Company has not considered the effect of warrants to purchase
shares of common stock and rights that convert into shares of common stock in the calculation of diluted loss per share, since
the exercise of the warrants and the conversion of the rights into shares of common stock is contingent upon the occurrence of
future events. As a result, diluted loss per share is the same as basic loss per share for the periods presented.
The Company complies
with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December 31, 2015. The Company
is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from
its position.
The Company is subject
to income tax examinations by various taxing authorities since its inception. These potential examinations may include questioning
the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state
tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change
over the next twelve months.
The Company’s
policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense.
There were no amounts accrued for penalties or interest as of December 31, 2015 and 2014. Management is currently unaware of any
issues under review that could result in significant payments, accruals or material deviations from its position.
Financial instruments
that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which,
at times may exceed the Federal depository insurance coverage of $250,000. At December 31, 2015, the Company had not experienced
losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
The fair value of
the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements
and Disclosures” (“ASC 820”), approximates the carrying amounts represented in the accompanying balance sheets,
primarily due to their short-term nature.
In August 2014, the
FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”
(“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is
substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each
reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt
about a company’s ability to continue as a going concern within one year from the date the financial statements are issued.
The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016, and for annual and interim
periods thereafter. Early adoption is permitted. The Company will adopt the methodologies prescribed by ASU 2014-15 by the date
required, and does not anticipate that the adoption of ASU 2014-15 will have a material effect on its financial position or results
of operations.
On October 29, 2014,
the Company sold 8,000,000 Units at a purchase price of $10.00 per Unit in its Initial Public Offering. Each Unit consists of
one share of the Company’s common stock, $0.0001 par value (“Common Stock”), one right (“Public Right”)
and one redeemable common stock purchase warrant (“Public Warrant”). Each Public Right will convert into one-tenth
(1/10) of one share of Common Stock upon the consummation of a Business Combination. The Company did not register the shares of
Common Stock issuable upon exercise of the Public Warrants. However, the Company has agreed to use its best efforts to file within
15 business days of the closing of a Business Combination and have an effective registration statement within 60 business days
of the closing of a Business Combination covering the shares of Common Stock issuable upon exercise of the Public Warrants, to
maintain a current prospectus relating to those shares of Common Stock until the earlier of the date the Public Warrants expire
or are redeemed and, the date on which all of the Public Warrants have been exercised and to qualify the resale of such shares
under state blue sky laws, to the extent an exemption is not available. Each Public Warrant entitles the holder to purchase one-half
share of Common Stock at an exercise price of $5.75 ($11.50 per whole share). The Public Warrants may be exercised only for a
whole number of shares of Common Stock. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants
will become exercisable on the later of (a) 30 days after the consummation of a Business Combination, or (b) 12 months from the
closing of the Initial Public Offering. The Public Warrants will expire five years after the consummation of a Business Combination
or earlier upon redemption or liquidation. The Public Warrants will be redeemable by the Company at a price of $0.01 per warrant
upon 30 days’ prior written notice after the Public Warrants become exercisable, only in the event that the last sale price
of the Common Stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third
trading day prior to the date on which notice of redemption is given. The Company will not redeem the Public Warrants unless an
effective registration statement under the Securities Act covering the shares of Common Stock issuable upon exercise of the Public
Warrants is effective and a current prospectus relating to those shares of Common Stock is available throughout the 30-day redemption
period except if the Public Warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration
under the Securities Act. If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption
right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls
the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants
to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the Public
Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of
shares of Common Stock underlying the Public Warrants, multiplied by the difference between the exercise price of the Public Warrants
and the “fair market value” by (y) the fair market value. The “fair market value” shall mean the average
reported last sale price of the Common Stock for the 10 trading days ending on the third trading day prior to the date on which
the notice of redemption is sent to the holders of Public Warrants.
Simultaneously with
the Initial Public Offering, Mr. Weil, the Macquarie Sponsor and Martin E. Schloss, the Company’s Executive Vice President,
General Counsel and Secretary, purchased an aggregate of 7,500,000 Private Placement Warrants at a price of $0.50 per warrant
($3,750,000 in the aggregate) in a private placement. Each Private Placement Warrant is exercisable to purchase one-half share
of Common Stock at $5.75 per half share. The Private Placement Warrants may be exercised only for a whole number of shares of
Common Stock. No fractional shares will be issued upon exercise of the Private Placement Warrants. The purchase price of the Private
Placement Warrants was added to the net proceeds from the Initial Public Offering held in the Trust Account. If the Company does
not complete a Business Combination within the Combination Period, the proceeds of the sale of the Private Placement Warrants
will be used, in part, to fund the redemption of the Company’s public shares (subject to the requirements of applicable
law). There will be no redemption rights or liquidating distributions with respect to the Private Placement Warrants.
The Sponsors have
agreed that the Private Placement Warrants and the Common Stock issuable upon exercise of the Private Placement Warrants will
not be transferable, assignable or salable until 30 days following consummation of a Business Combination, subject to certain
limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable so long as they are held by the initial
purchasers or such purchasers’ permitted transferees. If the Private Placement Warrants are held by someone other than the
initial purchasers or such purchasers’ permitted transferees, the Private Placement Warrants will be redeemable by the Company
and exercisable by such holders on the same basis as the Public Warrants. If the Company does not complete a Business Combination,
then the proceeds will be part of the liquidating distribution to the public stockholders and the Private Placement Warrants will
expire worthless.
On July 11, 2014,
the Company issued 2,875,000 shares of Common Stock to the Sponsors, of which an aggregate of 575,000 shares were returned to
the Company and subsequently cancelled (the “founder shares”) on October 24, 2014, for an aggregate purchase price
of $25,000 (see Note 8). As a result of the underwriters’ determination not to exercise their over-allotment option, an
additional 300,000 founder shares were forfeited (see Note 8). The founder shares are identical to the shares of Common Stock
included in the Units sold in the Initial Public Offering, except that (1) the founder shares are subject to certain transfer
restrictions, as described in more detail below, and (2) the Company’s initial stockholders have agreed: (i) to waive their
redemption rights with respect to their founder shares in connection with the consummation of a Business Combination and (ii)
to waive their redemption rights with respect to their founder shares if the Company fails to complete a Business Combination
within the Combination Period. However, the Company’s initial stockholders will be entitled to redemption rights with respect
to any public shares they hold by way of public market purchase if the Company fails to consummate a Business Combination within
such time period. If the Company submits a Business Combination to its public stockholders for a vote, the initial stockholders
have agreed to vote their founder shares and any public shares purchased in favor of a Business Combination.
The Company’s
initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (1)
one year after a Business Combination or (2) the date on which the Company completes a liquidation, merger, stock exchange or
other similar transaction after a Business Combination that results in all of the Company’s stockholders having the right
to exchange their shares of Common Stock for cash, securities or other property (the “Lock Up Period”). Notwithstanding
the foregoing, if the last sale price of the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing
at least 150 days after a Business Combination, the founder shares will be released from the lock-up.
During the period
from May 30, 2014 (inception) through October 29, 2014, Lorne Weil, Inc., a company owned by Mr. Weil and an affiliate of the
Hydra sponsor, advanced an aggregate of $47,874 directly to the Company’s vendors for Initial Public Offering costs and
other operational costs, of which the Company repaid $47,809 of such advances as of December 31, 2014. At December 31, 2015 and
2014, $0 and $65, respectively, were owed under the related party advances. The advances were non-interest bearing, unsecured
and due on demand.
On July 25, 2014,
the Company entered into a promissory note with each of the Sponsors, whereby the Sponsors agreed to loan the Company up to an
aggregate of $125,000 each (“Promissory Notes”) to be used in part for expenses incurred in connection with the Initial
Public Offering. The Promissory Notes were non-interest bearing, unsecured and due at the earlier of March 31, 2015 or the closing
of the Initial Public Offering. An aggregate of $169,499 of Promissory Notes were repaid to the Sponsors upon the consummation
of the Initial Public Offering on October 29, 2014. As of December 31, 2015 and 2014, no amounts were outstanding under the Promissory
Notes.
The Company entered
into fee arrangements with certain service providers and advisors pursuant to which certain fees incurred by the Company in connection
with a potential Business Combination would be deferred and become payable only if the Company consummated such potential Business
Combination. If the potential Business Combination did not occur, the Company would not be required to pay these contingent fees.
Effective October 26, 2015, all efforts related to such potential Business Combination were terminated and, accordingly, all contingent
fees that had been previously incurred are no longer due or payable.
The Company entered
into an Administrative Services Agreement commencing on October 24, 2014 pursuant to which the Company pays an affiliate of the
Hydra Sponsor a total of $10,000 per month for office space, utilities and secretarial support. Upon the completion of a Business
Combination or the Company’s liquidation, the Company will cease paying these monthly fees. The Company paid $120,000 and
$22,258 in fees during the year ended December 31, 2015 and for the period from May 30, 2014 (inception) through December 31,
2014, respectively.
In order to finance
transaction costs in connection with a Business Combination, the Company’s Sponsors have each committed $250,000, for an
aggregate of $500,000, in accordance with unsecured promissory notes the Company will issue to the Sponsors pursuant to an expense
advance agreement between the Company and the Sponsors, to be provided to the Company in the event that funds held outside of
the Trust Account are insufficient to fund its expenses after the Initial Public Offering and prior to a Business Combination
(including investigating and selecting a target business and other working capital requirements) and the Sponsors may, but are
not obligated to, loan the Company additional funds as may be required. If the Company consummates a Business Combination, the
Company expects to repay such non-interest bearing loaned amounts. In the event that the Business Combination does not close,
the Company may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds
from the Trust Account would be used for such repayment. Up to $1,000,000 of all loans made to the Company are convertible at
the option of the lender into warrants of the post Business Combination entity at a price of $0.50 per warrant. The warrants would
be identical to the Private Placement Warrants.
On October 24, 2014,
the Macquarie Sponsor entered into a contingent forward purchase contract with the Company (the “Contingent Forward Purchase
Contract”) to purchase, in a private placement for gross proceeds of approximately $20,000,000 to occur concurrently with
the consummation of the Business Combination, 2,000,000 Units on the same terms as the sale of the Units in the Initial Public
Offering at $10.00 per Unit (which includes 2,000,000 rights which will be exchanged for 200,000 shares of Common Stock) (“Private
Placement Units”), and 500,000 shares of the Company’s Common Stock on the same terms as the sale of the founder shares
to the Sponsors prior to the Initial Public Offering (“Private Placement Shares”). The funds from the sale of the
Private Placement Units and the Private Placement Shares will be used as part of the consideration to the sellers in the Business
Combination; any excess funds from the Private Placement Units will be used for working capital in the post-transaction company.
This commitment is independent of the percentage of stockholders electing to redeem their public shares.
As a closing condition
to the Contingent Forward Purchase Contract, the Company has agreed not to consummate a Business Combination without the Macquarie
Sponsor’s consent; provided, however, that if the Company fails to consummate a Business Combination within the Combination
Period, and the Company’s board of directors (other than the Macquarie Sponsor designee) unanimously votes in favor of a
proposed Business Combination and the Macquarie Sponsor decides to withhold its vote on the Business Combination, the Macquarie
Sponsor will be, subject to customary conditions, obligated to pay a $740,000 fee to the Hydra sponsor. In such event, the Private
Placement Warrants purchased by the Macquarie Sponsor and the Hydra sponsor will expire worthless. Notwithstanding the foregoing,
in the event the Macquarie Sponsor withholds consent to consummate a Business Combination because of regulatory reasons or the
Business Combination involves a competitor to the Macquarie Sponsor, its affiliates, or an entity in which the Macquarie Sponsor
or an affiliate has an equity interest, then the Macquarie Sponsor is not obligated to pay the $740,000 fee, the Company may proceed
with such Business Combination, the Macquarie Sponsor will be permitted to sell its Private Placement Warrants and founder shares
(provided that the transferee agrees to be bound by the transfer restrictions, lock-up provisions, registration rights, voting
obligations and other such restrictions and rights of the transferred Private Placement Warrants and founder shares), the Hydra
sponsor will use its best efforts to facilitate a sale of the Macquarie Sponsor’s Private Placement Warrants and founder
shares, and the term of the Macquarie Sponsor’s nominee for the Board of Directors will automatically terminate and such
board seat will remain vacant until filled by a successor duly appointed by the Hydra sponsor.
Pursuant to an agreement
dated October 24, 2014, the Company has granted Macquarie Capital (USA) Inc. (“Macquarie Capital”), an affiliate of
the Macquarie Sponsor, a right of first refusal for a period of 36 months from the closing of the Initial Public Offering to provide
certain financial advisory, underwriting, capital raising, and other services for which they may receive fees. The amount of fees
the Company pays to Macquarie Capital will be based upon the prevailing market for similar services rendered by global full-service
investment banks for such transactions, and will be subject to the review of the Company’s Audit Committee pursuant to the
Audit Committee’s policies and procedures relating to transactions that may present conflicts of interest.
Pursuant to a registration
rights agreement entered into on October 24, 2014 with the Company’s initial stockholders and purchasers of the Private
Placement Warrants and the Contingent Forward Purchase Contract, the Company is required to register certain securities for sale
under the Securities Act. Each of the sponsors will be entitled to make up to three demands, excluding short form registration
demands, that the Company register such securities for sale under the Securities Act and to have the securities covered thereby
registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders will have “piggy-back”
registration rights to include their securities in other registration statements filed by the Company. However, the registration
rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become
effective until termination of the applicable Lock Up Period. The Company will bear the expenses incurred in connection with the
filing of any such registration statements.
The underwriters
were entitled to an underwriting discount of up to 6.0%, of which two and one-half percent (2.5%), or $2,000,000, was paid in
cash at the closing of the Initial Public Offering on October 29, 2014, and up to three and one-half percent (3.5%), or $2,800,000,
has been deferred. The deferred fee will be payable in cash upon the closing of a Business Combination. The deferred fee will
become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a
Business Combination, subject to the terms of the underwriting agreement.
As of December 31,
2015, the Company had U.S. federal and state net operating loss carryovers (“NOLs”) of $3,657,005 available to offset
future taxable income. These NOLs expire beginning in 2034. In accordance with Section 382 of the Internal Revenue Code, deductibility
of the Company’s NOLs may be subject to an annual limitation in the event of a change in control as defined under the regulations.
In assessing the
realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment. After consideration of all of the information available, management believes that significant uncertainty
exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance.
For the year ended December 31, 2015, the change in the valuation allowance was $1,604,217.
A reconciliation
of the federal income tax rate to the Company’s effective tax rate is as follows:
The Company follows
the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting
period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of
the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have
received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction
between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities,
the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the
use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following
fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in
order to value the assets and liabilities:
The following table
presents information about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2015
and 2014, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
The following table
presents summarized unaudited quarterly financial data for each of the four quarters in the year ended December 31, 2015 and for
the period from May 30, 2014 (inception) through December 31, 2014. The data has been derived from our unaudited financial statements
that, in management's opinion, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation
of such information when read in conjunction with the Financial Statements and Notes thereto. The results of operations for any
quarter are not necessarily indicative of the results of operations for any future period.
The Company evaluates
subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued
for potential recognition or disclosure. Based upon this review, the Company did not identify any subsequent events that would
have required adjustment or disclosure in the financial statements.
DMWSL 633 Limited (the
"Company", the “Group”, "we", "our", and "us") is a global gaming technology
company, supplying Virtual Sports, Mobile and Server Based Gaming (“SBG”) systems to regulated lottery, betting and
gaming operators worldwide. Our strategic focus is the development and sale of SBG software systems and SBG digital terminals.
The accompanying unaudited
interim condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting
principles in the United States of America (“US GAAP”) and applicable rules and regulations of the Securities and
Exchange Commission (the “SEC”) regarding unaudited interim financial information. All monetary values set forth in
these consolidated financial statements are in US Dollars ("USD" or "$") unless otherwise stated herein.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated
balance sheets, statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the interim periods
presented. Operating results for the interim periods presented are not necessarily indicative of the results of operations to
be expected for the full year due to seasonal and other factors. Certain information and footnote disclosures normally included
in the consolidated financial statements in accordance with US GAAP have been omitted in accordance with the rules and regulations
of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction
with the audited consolidated financial statements and accompanying notes thereto for the period ended September 26, 2015 included
in this Preliminary Proxy Statement on Schedule 14A.
Basic earnings per share
(“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number
of common shares outstanding during the period. The two class method is used in the calculation of basic and diluted EPS. Under
the two class method, earnings per common share are allocated to the common shareholders based on the criteria in Note 14.
The preparation of financial
statements in conformity with US GAAP requires management to make estimates and judgments that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates these estimates,
including those related to the revenue recognition for contracts involving software and non-software elements, allowance for doubtful
accounts, inventory reserves, goodwill and intangible assets, useful lives of long-lived assets, stock-based compensation, valuation
allowances on deferred taxes, commitments and contingencies and litigation, among others. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. We regularly evaluate
these significant factors and make adjustments when facts and circumstances dictate. Actual results may differ from these estimates.
We derive revenue principally
from the sale and rental of our Server Based Gaming (“SBG”) terminals and related services, including content provision
and servicing, to regulated retail betting outlets, casinos and other gaming operators, and licensing of our Virtual Sports gaming
software and related services to regulated virtual sports retail, mobile and online operators. We evaluate the recognition of
revenue based on the criteria set forth in ASC 605, Revenue Recognition ("ASC 605") and ASC 985-605, Software-Revenue
Recognition. Revenue is recognized when all of the following criteria are met:
For our multiple-deliverable
arrangements which include hardware containing software that functions together with the hardware to deliver its essential functionality
and undelivered non-software services, deliverables are separated into more than one unit of accounting when: (i) the delivered
element(s) have value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially
in the control of the Company. When the final undelivered element(s) are non-software services and non-hardware, those deliverables
are recognized on a ratable basis over the remaining term of the arrangement.
We determine the relative
selling price for deliverables in the scope of ASC 605 based on the following selling price hierarchy:
Our multiple-deliverable
arrangements may also contain one or more software deliverables in the scope of ASC 985-605. The revenue for these multiple-deliverable
arrangements is allocated to the software deliverables and the non-software deliverables based on the relative selling prices
of all of the deliverables in the arrangement using the fair value hierarchy outlined above. In circumstances where the Company
cannot determine VSOE or TPE of the selling price for any of the deliverables in the arrangement, BESP is used for the purpose
of allocating the arrangement consideration between software and non-software deliverable.
Revenue is allocated
to the software deliverables based on the relative fair value of each element, and fair value is determined using VSOE. Where
VSOE does not exist for the undelivered software element, revenue is deferred until either the undelivered element is delivered
or VSOE is established, whichever occurs first. When the final undelivered software element is services, the related revenue is
recognized on a ratable basis over the remaining service period. When VSOE of a delivered element has not been established, but
VSOE exists for the undelivered elements, the Company uses the residual method to recognize revenue when the fair value of all
undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement consideration is allocated to the delivered elements and is recognized as revenue.
In addition to the general
policies discussed above, the following are the specific revenue recognition policies for our revenue streams.
Revenue from SBG terminals,
access to our content and SBG platform, including electronic table gaming products is recognized in accordance with the criteria
set forth in ASC 605 and is usually based upon a contracted percentage of the operator’s net winnings from the terminals’
daily use. Where this is not the case, revenue is based upon a fixed daily or weekly rental fee. We recognize revenue from these
arrangements on a daily basis over the term of the arrangement, or when not specified over the expected customer relationship
period. Performance obligations under these arrangements may include the delivery and installation of our SBG terminals for use
over a term, as well as service obligations related to hardware repairs and server based content and maintenance.
We sometimes bill for
SBG arrangements up front in order to help fund our working capital and development requirements, or at the request of a customer.
Upfront fees on SBG arrangements are deferred and recognized on a straight-line basis over the term of the arrangement, or when
not specified over the expected customer relationship period. Hardware sales take the form of a transfer of ownership of our developed
gaming terminals, and are recognized upon delivery as they have value to our customers on a stand-alone basis.
Revenue from licensing
of our gaming software is recognized in accordance with the criteria set forth in ASC 985-605. Virtual sports retail revenue,
which includes the provision of virtual sports content and services to retail betting outlets, and virtual sports online and mobile
revenue, which includes the provision of virtual sports content and services to mobile and online operators, is based upon a contracted
percentage of the operator’s net winnings or a fixed rental fee. We recognize revenue for these fees on a daily or weekly
basis over the term of the arrangement, these arrangements typically include a perpetual license billed up front, granted to the
customer for access to our gaming platform and content. As we do not have VSOE for the undelivered elements in virtual sports
arrangements, revenue from the licensing of perpetual licenses is recognized on a straight-line basis over the term of the arrangement,
or when not specified, over the expected customer relationship period.
Revenue from the development
of bespoke games licensed on a perpetual basis to mobile and online operators is recognized on delivery and acceptance by the
customer. We have no ongoing service obligations subsequent to customer acceptance of our bespoke games.
Revenues from one
customer represent approximately 29.96%, and 29.09% of our total revenues in the periods ended July 2, 2016 and July 4, 2015 respectively.
Revenues from a second customer represent approximately 11.37%, and 10.20% of our total revenues in the periods ended July 2,
2016 and July 4, 2015 respectively. There were no revenues greater than 10% derived from any other customer in any of the periods
presented in these financial statements. We have no purchases from vendors greater than 10% of total purchases.
Deferred revenue arises
from the timing differences between invoicing on shipment or installation of gaming terminals and systems products and the satisfaction
of all revenue recognition criteria consistent with our revenue recognition policy, as well as prepayment of contracts which are
recognized ratably over a service period, such as maintenance or licensing fees. Deferred cost of sales, excluding depreciation
and amortization consists of the direct costs associated with the manufacture of gaming equipment and systems products for which
revenue has been deferred. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date
are classified as deferred revenue in current liabilities. Amounts not expected to be recognized as revenue within the 12 months
following the balance sheet date are classified as deferred revenue, less current portion.
We classify software
development costs as either internal use software or external use software. We account for costs incurred to develop internal
use software in accordance with ASC 350-40, Internal Use Software. Consequently, any costs incurred during preliminary project
stages are expensed; direct costs incurred during the application development stages are capitalized; and costs incurred during
the post-implementation/operation stages are expensed. Once the software is placed in operation, we amortize the capitalized internal
use software cost over its estimated economic useful life, which range from two to five years.
We purchase, license
and incur costs to develop external use software to be used in the products we sell or provide to customers. Such costs are capitalized
under ASC 985-20, Costs of Software to Be Sold Leased or Marketed. Costs incurred in creating software are expensed when incurred
as Selling, General and Administrative Expenses until technological feasibility has been established, after which costs are capitalized
up to the date the software is available for general release to customers. We capitalize the payments made for software that we
purchase or license for use in our products that has previously met the technological feasibility criteria prior to our purchase
or license. Annual amortization of capitalized external use software development costs is recorded over the estimated economic
life, which range from two to five years.
Research and development
costs are expensed as incurred. Research and development related primarily to software product development costs is expensed until
technological feasibility has been established. Research and development costs amounting to $2,540,000 and $2,896,000 were expensed
during the periods to July 2, 2016, and July 4, 2015, respectively. Employee related costs associated with related product development
are included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations and Comprehensive Loss.
Cash and cash equivalents
include cash and short-term highly liquid investments with remaining maturities of three months or less when purchased. Cash and
cash equivalents are stated at cost which approximates fair value. We deposit cash and cash equivalents with financial institutions
that management believes are of high credit quality.
Accounts receivable
are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the
amount of probable credit losses in our existing accounts receivable. Changes in circumstances relating to the collectability
of accounts receivable may result in the need to increase or decrease our allowance for doubtful accounts in the future. We determine
the allowance based on historical experience, current market trends, and our customers' financial condition. We continually review
our allowance for doubtful accounts. Past due balances and other higher risk amounts are reviewed individually for collectability.
Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery
is considered remote.
Under certain of
our contracts, the timing of our invoices does not coincide with revenue recognized under the contract. We have unbilled accounts
receivable which represent revenue recorded in excess of amounts invoiced under the contract and generally become billable at
contractually specified dates. These amounts consist primarily of labor hours and materials provided under the terms of executed
contracts but not yet billed. We had $10,798,000 and $12,634,000 of unbilled accounts receivable as of July 2, 2016, and September
26, 2015, respectively.
Our standard credit
terms are net 30 to 60 days. From time to time, we allow for certain digital customers to pay on an enhanced revenue share
basis for the software license whereby the customer pays an incremental revenue share percentage over a specific period of time.
We consider these types of arrangements to be extended payment terms as the full consideration for the arrangement may not be
received until several years after the date of the sale depending on the net winnings from the game or application. We evaluate
the payment terms of the arrangement at the outset in order to determine if collectability is reasonably assured and defer revenue
on enhanced revenue shares in cases where this is not met. For additional information on notes receivables, see Note 3 (Accounts
Receivable, Notes Receivable, Allowance for Doubtful Accounts and Bad Debt).
Inventories consist
primarily of component parts and related parts used in gaming terminals. Inventories are stated at the lower of cost or net realizable
value, using the weighted average cost method. We determine the lower of cost or market value of our inventory based on estimates
of potentially excess and obsolete inventories after considering historical and forecasted demand and average selling prices.
Cost includes all direct costs and an appropriate proportion of fixed and variable overheads.
We have established
a reserve for excess and obsolete inventory. Demand for gaming terminals and parts inventory is also subject to technological
obsolescence.
Investee companies
that are not consolidated, but over which we exercise significant influence, are accounted for under the equity method of accounting.
Whether or not we exercise significant influence with respect to an investee depends on an evaluation of several factors including,
representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest
in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts
are not reflected within our Consolidated Balance Sheets and Statements of Operations and Comprehensive Loss; however, our share
of the earnings or losses of the investee company is reflected in other income (loss) in the Consolidated Statements of Operations
and Comprehensive Loss.
On December 23, 2014,
the Group purchased the remaining 50% shares in Merkur Inspired Limited, see note 17 for further information.
When our carrying value
in an equity method investee company is reduced to zero, no further losses are recorded in our consolidated financial statements
unless we have guaranteed obligations of the investee company or we have committed additional funding. In this instance, when
the investee company subsequently reports income, we will not record its share of such income until it equals the amount of its
share of losses not previously recognized.
Property and
Equipment
Property and equipment
are recorded at cost, and when placed into service, depreciated to their residual values using the straight-line method over the
estimated useful lives of the related assets as follows:
|
Short-term leasehold property
|
life of the lease
|
|
Server based gaming terminals
|
4 – 6 years
|
|
Motor Vehicles
|
3 – 5 years
|
|
Plant and machinery and fixtures and fittings
|
4 – 8 years
|
|
Computer equipment
|
3 – 5 years
|
Our policy is to periodically
review the estimated useful lives of our fixed assets. We also assess the recoverability of long-lived assets (or asset groups)
whenever events or changes in circumstances indicate that the carrying amount of such an asset (or asset groups) may not be recoverable.
DMWSL 633 LIMITED
NOTES TO THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended
July 2, 2016, and July 4, 2015
|
|
1.
|
Nature of Operations, Going Concern and Summary of Significant
Accounting Policies
(
continued
)
|
Property and Equipment
(
continued
)
Repairs and maintenance
costs are expensed as incurred. Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation
are written off and any resulting gain or loss is credited or charged to income.
Goodwill
and Other Acquired Intangible Assets
Our primary acquired
intangible assets relate to goodwill, trademarks and customer relationships. Goodwill represents the excess purchase price over
the fair value of the identifiable net assets acquired in a business combination. Trademarks and customer relationships were originally
recorded at their fair values in connection with business combinations.
Goodwill and other intangible
assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Intangible assets
with finite lives are amortized on a straight line basis over three to ten years to their estimated residual values, and reviewed
for impairment. Factors considered when assigning useful lives include legal, regulatory and contractual provisions, product obsolescence,
demand, competition and other economic factors.
Impairment of Goodwill and Long
Lived Assets
We test for goodwill
impairment at least annually on the last day of our fiscal period and whenever other facts and circumstances indicate that the
carrying value may not be recoverable. For goodwill impairment evaluations, we first make a qualitative assessment to determine
if goodwill is likely to be impaired. If it is more-likely-than-not that a reporting unit's fair value is less than its carrying
value, we then compare the fair value of the reporting unit to its respective carrying amount. Goodwill is carried, and therefore
tested, at the reporting unit level. We have two segments, Server Based Gaming, Virtual Sports and Leisure, as detailed in note
3. If the fair value of the reporting unit is less than its carrying amount, the amount of the impairment loss, if any, will be
measured by comparing the implied fair value of goodwill to its carrying amount and would be charged to operations as an impairment
loss. For additional information, see Note 6 (Intangibles, net and goodwill).
We assess the recoverability
of long-lived assets and intangible assets with finite useful lives whenever events arise or circumstances change that indicate
the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets (or asset groups) to be held and used
is measured by a comparison of the carrying amount of the asset (or asset group) to the expected net future undiscounted cash
flows to be generated by that asset (or asset group) or, for identifiable intangibles with finite useful lives, by determining
whether the amortization of the intangible asset balance over its remaining life can be recovered through expected net future
undiscounted cash flows. The amount of impairment of other long-lived assets and intangible assets with finite lives is measured
by the amount by which the carrying amount of the asset exceeds the fair market value of the asset.
Derivative
Financial Instruments
From time to time we
enter into foreign currency forward contracts to mitigate the risk associated with cash payments required to be made in non-functional
currencies or to mitigate the risk associated with cash to be received in non-functional currencies from our equity method investees.
We record the derivative financial instruments on the balance sheets at their respective fair market values. Changes in fair value
in the associated derivative are recorded in the consolidated statements of operations and comprehensive loss. See Note 13 (Fair
Value Measurements) for additional information.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Periods Ended July
2, 2016, and July 4, 2015
|
|
1.
|
Nature of Operations, Going Concern and Summary of Significant
Accounting Policies
(
continued
)
|
Shipping and
Handling Costs
Shipping and handling
costs for products sales and hardware related to subscription services are included in cost of sales, excluding depreciation and
amortization for all periods presented.
Income Taxes
Income taxes are
accounted for under the asset and liability method. Our provision for income taxes is primarily based on current period income
(loss), changes in deferred tax assets and liabilities and changes in estimates with regard to uncertain tax positions. We estimate
current tax expense and assess temporary differences resulting from differing treatments of items for tax and accounting purposes
using enacted tax rates in effect for each taxing jurisdiction in which we operate for the period in which those temporary differences
are expected to be recovered or settled. These differences result in deferred tax assets and liabilities. Our total deferred tax
assets are principally comprised of depreciation and net operating loss carry forwards.
Significant management
judgment is required to assess the likelihood that deferred tax assets will be recovered from future taxable income. In assessing
the realizability of these deferred tax assets, management considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. Management makes this assessment on a jurisdiction by jurisdiction basis considering
the historical trend of taxable losses, projected future taxable income and the reversal of deferred tax liabilities. As of July
2, 2016 and September 26, 2015, we had a valuation allowance of $33,267,000 and $43,475,000 respectively, against net deferred
tax assets due to uncertainty of realization of these deferred tax assets.
We evaluate income tax
uncertainties, assess the probability of the ultimate settlement with the applicable taxing authority and records an amount based
on that assessment. Interest and penalties, if any, associated with uncertain tax positions are included in income tax expense.
Foreign Currency
Translation
For most of our operations
GBP is our functional currency. We also have significant operations where the local currency is the functional currency, including
our operations in Europe and South America. Assets and liabilities of foreign operations are translated at period-end rates of
exchange and results of operations are translated at the average rates of exchange for the period. Gains or losses resulting from
translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive
loss in stockholders' deficit. Gains or losses resulting from foreign currency transactions are included in other (expense), net
in the consolidated statements of operations and comprehensive loss.
Leases
We lease our office
facilities under operating leases. We account for certain operating leases that contain rent escalation provisions, rent abatements
and /or lease incentives by recognizing rent expense on a straight-line basis over the lease term. The difference between the
rent paid and the straight-line rent is recorded as a deferred liability.
Assets acquired under
capital leases are amortized over a lease term which coincides with the estimated useful life of the leased assets. For the purpose
of recognizing the above mentioned lease incentives on a straight-line basis over the term of the lease, we use the date of initial
possession to begin amortization. Lease renewal periods are considered in the determination of the lease term.
Comprehensive
Loss
We include and separately
classify in comprehensive loss unrealized gains and losses from our foreign currency translation adjustments, gains or losses
associated with pension or other post-retirement benefits, prior service costs or credits associated with pension or other post-retirement
benefits and transition assets or obligations associated with pension or other post- retirement benefits. See Note 18 (Accumulated
Other Comprehensive (Loss) Income).
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Periods Ended July
2, 2016, and July 4, 2015
|
|
1.
|
Nature of Operations, Going Concern and Summary of Significant
Accounting Policies
(
continued
)
|
Business Combinations
We apply the provisions
of ASC 805, Business Combinations ("ASC 805"), in the accounting for acquisitions, which requires us to recognize separately
from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition
date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired
and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed
at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject
to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated
with each acquired asset. As a result, during the measurement period, which may be up to one year from the acquisition date, we
may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion
of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes
first, any subsequent adjustments are recorded to the consolidated statements of operations and comprehensive loss.
Recently Issued
Accounting Standards
In May 2014, the FASB
issued ASU 2014-09 “Revenue from Contracts with Customers” which introduces a new revenue recognition model in which
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP. This ASU also requires disclosures sufficient to enable users to understand
the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative
and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized
from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after January 1, 2018,
with early adoption permitted. The new accounting standard is expected to have an impact on our consolidated financial statements.
The Company is currently evaluating the impact of its adoption on the consolidated financial statements and related disclosures.
In June 2014, the FASB
issued ASU 2014-12,
Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of
an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
("ASU 2014-12"),
requiring a performance target which affects vesting and could be achieved after the requisite service period be treated as a
performance condition in accordance with ASC 718, Compensation - Stock Compensation. ASU 2014-12 was effective prospectively for
annual periods beginning after December 15, 2015 with early adoption permitted. The Company is currently evaluating the impact
of its adoption on the consolidated financial statements and related disclosures.
On April 7, 2015, the
FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented
in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation
of a debt discount. For public business entities, the standard is effective for financial statements issued for fiscal years beginning
after December 15, 2015, and interim periods within those fiscal years. For all other entities, the standard is effective for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning
after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company
has adopted this guidance and has presented debt issuance costs net against the associated debt liabilities in the consolidated
balance sheets presented.
In April 2015, the FASB
issued ASU 2015-05,
Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting
for Fees Paid in a Cloud Computing Arrangement
("ASU 2015-05"), which provides guidance to customers about how to
account for cloud computing arrangements when such arrangements include software licenses. ASU 2015-11 is effective for reporting
periods beginning after December 15, 2015, with early adoption permitted. The standard may be applied retrospectively or prospectively.
The Company is currently evaluating the impact of its adoption on the consolidated financial statements and related disclosures.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Periods Ended July
2, 2016, and July 4, 2015
|
|
1.
|
Nature of Operations, Going Concern and Summary of Significant
Accounting Policies
(
continued
)
|
Recently Issued Accounting Standards
(continued)
In
July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330) - Simplifying the Measurement of Inventory
("ASU
2015-11"),
which
will
require us to measure inventory at the lower of cost or net realizable value, rather than the lower of cost or market.
ASU
2015-11 is effective prospectively for reporting periods beginning after December 15, 2016. As this is the first time we have
prepared consolidated financial statements under US GAAP, we have early adopted the guidance from the inception of the Company.
In November 2015, the
FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
. The guidance eliminates
the current requirement for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified
balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. As this
is the first time we have prepared consolidated financial statements under US GAAP, the Company has early adopted the guidance
from the inception of the Company.
In February 2016, the
FASB issued ASU 2016-02,
Leases (Topic 842),
to increase transparency and comparability among organizations by reporting
lease assets and lease liabilities, both finance (capital) and operating leases, on the balance sheet and disclosing key information
about leasing arrangements. For public companies, the updated guidance is effective for the financial statements issued for fiscal
years beginning after December 15, 2018 (including interim periods within those fiscal years). Early adoption is permitted. The
Company is currently evaluating the impact of its adoption on the consolidated financial statements and related disclosures.
In March 2016, the
FASB issued Accounting Standards Update (ASU) 201609,
Compensation – Stock Compensation (Topic 718),
to simplify
several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification
of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective
for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We
are currently evaluating the impact of its adoption on the consolidated financial statements and related disclosures.
In August 2014, FASB
issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This standard is intended to define
management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue
as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption
that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting
under this presumption is commonly referred to as the going concern basis of accounting.
The going concern basis
of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets
and liabilities. Currently, US GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial
doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU
provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity
in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.
ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning
after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements
have not previously been issued. The adoption of this standard is not expected to have a material impact on the Company’s
financial position and results of operations.
In April 2016, the FASB
issued Accounting Standards Update ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606), “Identifying Performance
Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying
performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU
2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017,
with early application permitted. The Company is currently evaluating the impact the adoption of this new standard will have on
its consolidated financial statements.
In April 2015, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-04,
Compensation—Retirement
Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan
Assets
(“ASU 2015-04”). ASU 2015-04 provides an entity with a fiscal year-end that does not coincide with a month-end
a practical expedient that allows the entity to measure defined benefit plan assets and obligations using the month-end that is
closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. If an entity
has a significant event in an interim period that requires the remeasurement of defined benefit plan assets and obligations such
as a partial settlement, ASU 2015-04 also provides a practical expedient that permits the entity to remeasure defined benefit
plan assets and obligations using the month-end that is closest to the date of the significant event and adjust for any effects
of the significant event not captured in the month-end measurement. If an entity applies the practical expedient and a contribution
is made between the month-end date used for measurement and the entity’s fiscal year-end, the entity should disclose the
amount of the contribution to allow reconciliation of the fair value of plan assets in the fair value hierarchy to the ending
balance of the fair value of plan assets. ASU 2015-04 is effective for annual periods beginning after December 15, 2015 with early
adoption permitted. This standard will not have a material impact on the Company’s consolidated results of operations or
financial position.
DMWSL 633 LIMITED
NOTES TO THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended
July 2, 2016, and July 4, 2015
Operating segments are
identified as components of an enterprise for which separate and discrete financial information is available and is used by the
chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance.
The Company’s chief decision-maker is the Chief Executive Officer.
The Company’s
chief decision-makers review financial information presented on a consolidated basis, accompanied by disaggregated information
about revenue and operating profit by operating unit. This information is used for purposes of allocating resources and evaluating
financial performance.
The Company operates
its business along two operating segments, which are segregated based on the basis of revenue stream: Service Based Gaming and
Virtual Sports. The Company believes this method of segment reporting reflects both the way its business segments are managed
and the way the performance of each segment is evaluated.
The accounting policies
of the segments are the same as those described in the “Summary of Significant Accounting Policies.”
The following tables
present revenue, cost of sales, excluding depreciation and amortization, selling, general and administrative expenses, depreciation
and amortization, operating profit/(loss), total assets and total capital expenditures for the periods ended July 2, 2016, and
July 4, 2015, respectively, by business segment. Certain unallocated corporate function costs have not been allocated to the Company’s
reportable operating segments because these costs are not allocable and to do so would not be practical. Corporate function costs
consist primarily of selling, general and administrative expenses, depreciation and amortization, capital expenditures, cash,
prepaid expenses and property and equipment and software development costs relating to corporate/shared functions.
DMWSL 633 LIMITED
NOTES TO THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended
July 2, 2016, and July 4, 2015
|
|
2.
|
Segmental Reporting
(continued)
|
Segmental Information
Period ended July 2, 2016
|
|
|
Server Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
61,440
|
|
|
|
26,211
|
|
|
|
-
|
|
|
|
87,651
|
|
|
Hardware
|
|
|
2,829
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,829
|
|
|
Total revenue
|
|
|
64,269
|
|
|
|
26,211
|
|
|
|
-
|
|
|
|
90,480
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(9,330
|
)
|
|
|
(3,475
|
)
|
|
|
-
|
|
|
|
(12,805
|
)
|
|
Cost of hardware
|
|
|
(1,195
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,195
|
)
|
|
Selling, general and administrative expenses
|
|
|
(15,478
|
)
|
|
|
(4,830
|
)
|
|
|
(26,339
|
)
|
|
|
(46,647
|
)
|
|
Depreciation and amortization
|
|
|
(19,668
|
)
|
|
|
(6,339
|
)
|
|
|
(1,407
|
)
|
|
|
(27,414
|
)
|
|
Segment
operating income (loss) from continuing operations
|
|
|
18,598
|
|
|
|
11,567
|
|
|
|
(27,746
|
)
|
|
|
2,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at July 2,
2016
|
|
|
109,762
|
|
|
|
78,705
|
|
|
|
7,078
|
|
|
|
195,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at July
2, 2016
|
|
|
-
|
|
|
|
46,646
|
|
|
|
-
|
|
|
|
46,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
for the period ended July 2, 2016
|
|
|
8,963
|
|
|
|
4,885
|
|
|
|
3,047
|
|
|
|
16,895
|
|
DMWSL 633 LIMITED
NOTES TO THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended
July 2, 2016, and July 4, 2015
|
|
2.
|
Segmental Reporting
(continued)
|
Period ended July 4, 2015
|
|
|
Server Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
68,740
|
|
|
|
20,668
|
|
|
|
-
|
|
|
|
89,408
|
|
|
Hardware
|
|
|
10,061
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,061
|
|
|
Total revenue
|
|
|
78,801
|
|
|
|
20,668
|
|
|
|
-
|
|
|
|
99,469
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(9,161
|
)
|
|
|
(3,036
|
)
|
|
|
-
|
|
|
|
(12,197
|
)
|
|
Cost of hardware
|
|
|
(6,703
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,703
|
)
|
|
Selling, general and administrative expenses
|
|
|
(16,211
|
)
|
|
|
(4,807
|
)
|
|
|
(28,444
|
)
|
|
|
(49,462
|
)
|
|
Depreciation and amortization
|
|
|
(27,964
|
)
|
|
|
(2,833
|
)
|
|
|
(1,515
|
)
|
|
|
(32,312
|
)
|
|
Segment
operating income (loss) from continuing operations
|
|
|
18,762
|
|
|
|
9,992
|
|
|
|
(29,959
|
)
|
|
|
(1,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at September
26, 2015
|
|
|
135,841
|
|
|
|
94,017
|
|
|
|
10,082
|
|
|
|
239,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at September
26, 2015
|
|
|
-
|
|
|
|
53,442
|
|
|
|
-
|
|
|
|
53,442
|
|
|
Total capital expenditures
for the period ended July 4, 2015
|
|
|
43,721
|
|
|
|
2,129
|
|
|
|
1,479
|
|
|
|
47,329
|
|
Geographic Information
Geographic information
for revenue is set forth below:
|
|
|
July 2, 2016
|
|
|
July 4, 2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Total revenue
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
66,423
|
|
|
|
74,027
|
|
|
Italy
|
|
|
15,619
|
|
|
|
16,478
|
|
|
Rest of world
|
|
|
8,438
|
|
|
|
8,964
|
|
|
Total
|
|
|
90,480
|
|
|
|
99,469
|
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
2.
|
Segmental Reporting
(continued)
|
Geographic information
of our non-current assets excluding goodwill is set forth below:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Total non-current assets excluding goodwill
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
72,560
|
|
|
|
90,661
|
|
|
Italy
|
|
|
10,858
|
|
|
|
15,915
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of world
|
|
|
17,364
|
|
|
|
17,792
|
|
|
Total
|
|
|
100,782
|
|
|
|
124,368
|
|
Software development costs are included as
attributable to the market in which they are utilized.
Accounts receivable consist of
the following:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
18,900
|
|
|
|
26,541
|
|
|
Other receivables
|
|
|
191
|
|
|
|
157
|
|
|
Allowance for doubtful accounts
|
|
|
(347
|
)
|
|
|
(958
|
)
|
|
Total accounts receivable, net
|
|
|
18,744
|
|
|
|
25,740
|
|
Changes in the allowance for doubtful
accounts are as follows:
|
|
|
$ '000
|
|
|
|
|
|
|
|
Beginning balance at September 27, 2015
|
|
|
(958
|
)
|
|
Charge-offs
|
|
|
538
|
|
|
Recoveries
|
|
|
-
|
|
|
Provisions
|
|
|
-
|
|
|
Foreign currency translation adjustments
|
|
|
73
|
|
|
Ending balance at July 2, 2016
|
|
|
(347
|
)
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Component parts
|
|
|
6,869
|
|
|
|
6,584
|
|
|
Finished goods
|
|
|
1,590
|
|
|
|
1,714
|
|
|
Total inventories
|
|
|
8,459
|
|
|
|
8,298
|
|
Component parts include parts
for gaming terminals. Our finished goods inventory primarily consists of gaming terminals for ready for sale.
|
|
5.
|
Property and Equipment
|
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Short-term leasehold property
|
|
|
367
|
|
|
|
618
|
|
|
Video lottery terminals
|
|
|
109,077
|
|
|
|
123,694
|
|
|
Computer equipment
|
|
|
8,007
|
|
|
|
8,302
|
|
|
Plant & machinery
|
|
|
969
|
|
|
|
1,866
|
|
|
|
|
|
118,420
|
|
|
|
134,480
|
|
|
Less: accumulated depreciation
|
|
|
(64,401
|
)
|
|
|
(58,694
|
)
|
|
|
|
|
54,019
|
|
|
|
75,786
|
|
Depreciation expense for the
periods ended July 2, 2016, and July 4, 2015 was $17,470,000 and $22,786,000 respectively. Cost of equipment associated with specific
contracts and internal use software projects are recorded as assets in the course of construction (a subsection of video lottery
terminals) and not depreciated until placed in service. When the equipment is placed into service, the related costs are transferred
from assets in the course of construction to video lottery terminals, and we commence depreciation. Depreciation expense is separately
included within depreciation and amortization expense on the Consolidated Statements of Operations and Comprehensive Loss.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
6.
|
Intangible Assets, net and goodwill
|
The following tables present
certain information regarding our intangible assets as of July 2, 2016 and September 26, 2015. Amortizable intangible assets are
being amortized on a straight-line basis over their estimated useful lives of ten years with no estimated residual values, which
materially approximates the expected pattern of use.
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
17,954
|
|
|
|
20,570
|
|
|
Customer relationships
|
|
|
15,344
|
|
|
|
17,579
|
|
|
|
|
|
33,298
|
|
|
|
38,149
|
|
|
Less: accumulated amortization
|
|
|
(20,044
|
)
|
|
|
(20,030
|
)
|
|
|
|
|
13,254
|
|
|
|
18,119
|
|
The aggregate intangible asset
amortization expense for the periods ended July 2, 2016, and July 4, 2015 was $2,812,000, and $2,992,000, respectively.
Goodwill
The table below reconciles
the change in the carrying amount of goodwill, for the period from September 26, 2015 to July 2, 2016.
|
|
|
$ '000
|
|
|
|
|
|
|
|
Beginning balance at September 26, 2015
|
|
|
53,442
|
|
|
Additions
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
Foreign currency translation adjustments
|
|
|
(6,796
|
)
|
|
Ending balance at July 2, 2016
|
|
|
46,646
|
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
7.
|
Software Development Costs, net
|
Software development costs, net
consisted of the following:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Software development costs
|
|
|
62,661
|
|
|
|
56,847
|
|
|
Less: accumulated amortization
|
|
|
(29,152
|
)
|
|
|
(26,384
|
)
|
|
|
|
|
33,509
|
|
|
|
30,463
|
|
In the periods July
2, 2016 and July 4, 2015, we capitalized $16,157,000 and $12,855,000, respectively, of software development costs. Net amounts
above in the table include $2.2 million and $1.4 million of internal use software at July 2, 2016 and September 26, 2015, respectively.
The total amount
of software costs amortized was $5,963,000 and $5,549,000 for the periods ended July 2, 2016, and July 4, 2015, respectively.
The total amount of software written down to net realizable value was $1,169,000 and $67,000 for the periods ended July 2, 2016,
and July 4, 2015, respectively. The weighted average amortization period was 3.2 years and 3.4 years for the periods ended July
2, 2016, and July 4, 2015, respectively. The estimated software amortization expense for the period July 3, 2016 to September
24, 2016 and the subsequent four fiscal periods is $1.5 million, $11.5 million, $8.5 million, $7.2 million and $4.8 million per
annum, respectively.
|
|
8.
|
Prepaid Expenses and Other Assets
|
Prepaid expenses and other assets consist
of the following:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
9,474
|
|
|
|
11,398
|
|
|
Unbilled accounts receivable
|
|
|
10,798
|
|
|
|
12,634
|
|
|
Total prepaid expenses and other assets
|
|
|
20,272
|
|
|
|
24,032
|
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
Accrued expenses consist of
the following:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Interest payable - cash
|
|
|
181
|
|
|
|
2,945
|
|
|
Interest payable – payment in kind
|
|
|
465
|
|
|
|
377
|
|
|
Asset retirement obligations
|
|
|
-
|
|
|
|
616
|
|
|
Direct costs of sales
|
|
|
7,694
|
|
|
|
11,579
|
|
|
Accrued corporate cost expenses
|
|
|
1,681
|
|
|
|
1,434
|
|
|
Other creditors
|
|
|
2,709
|
|
|
|
4,517
|
|
|
Total accrued expenses
|
|
|
12,730
|
|
|
|
21,468
|
|
Other liabilities consist of
the following:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Customer prepayments & deposits
|
|
|
3,480
|
|
|
|
3,831
|
|
|
Total other liabilities, current
|
|
|
3,480
|
|
|
|
3,831
|
|
|
Foreign exchange contract liabilities
|
|
|
21
|
|
|
|
321
|
|
|
Provisions for other liabilities & charges
|
|
|
941
|
|
|
|
994
|
|
|
Pension liability
|
|
|
7,265
|
|
|
|
4,877
|
|
|
Total other liabilities, long-term
|
|
|
8,227
|
|
|
|
6,192
|
|
|
|
|
|
11,707
|
|
|
|
10,023
|
|
Foreign exchange contract liabilities related
to foreign currency forward agreements where the net balance was in a credit position. Refer to Note 13 for additional information.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
At July 2, 2016, we were obligated
under operating leases covering office and warehouse space and transportation equipment expiring at various dates. Future minimum
lease payments required under our operating leases at July 2, 2016 were approximately as follows:
|
|
|
$ '000
|
|
|
|
|
|
|
|
2016
|
|
|
1,187
|
|
|
2017
|
|
|
1,146
|
|
|
2018
|
|
|
1,012
|
|
|
2019
|
|
|
684
|
|
|
2020
|
|
|
186
|
|
|
Thereafter
|
|
|
85
|
|
|
Total
|
|
|
4,300
|
|
Rent expense under all operating
leases was $1,572,000 and $1,047,000 for the periods ended July 2, 2016, and July 4, 2015, respectively.
Some of our operating leases contain
provisions for future rent increases, rent-free periods or periods in which rent payments are reduced. The total amount of rental
payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The
difference between rent expense recorded and the amount paid is credited or charged to deferred rent obligation, which is included
in accrued liabilities and other long-term liabilities in the accompanying Consolidated Balance Sheets.
|
|
12.
|
Long Term and Other Debt
|
Outstanding Debt and Capital Leases
The following reflects
outstanding debt as of the dates indicated below:
|
|
|
Principal
|
|
|
Unamortized
deferred
financing
charge
|
|
|
Book value,
July 2, 2016
|
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt
|
|
|
118,744
|
|
|
|
(1,525
|
)
|
|
|
117,219
|
|
|
PIK loan notes
|
|
|
296,066
|
|
|
|
-
|
|
|
|
296,066
|
|
|
Capital leases and hire purchase contract
|
|
|
185
|
|
|
|
-
|
|
|
|
185
|
|
|
Total long-term debt outstanding
|
|
|
414,995
|
|
|
|
(1,525
|
)
|
|
|
413,470
|
|
|
Less: current portion of long-term debt
|
|
|
(12,733
|
)
|
|
|
-
|
|
|
|
(12,733
|
)
|
|
Long-term debt, excluding current portion
|
|
|
402,262
|
|
|
|
(1,525
|
)
|
|
|
400,737
|
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
12.
|
Long Term and Other Debt (
continued
)
|
The Company is in compliance with all relevant
covenants and the long term debt portion is correctly classified as such in line with the underlying agreements.
|
|
|
Principal
|
|
|
Unamortized
deferred
financing charge
|
|
|
Book value,
September 26,
2015
|
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt
|
|
|
117,573
|
|
|
|
(2,822
|
)
|
|
|
114,751
|
|
|
PIK loan notes
|
|
|
307,444
|
|
|
|
-
|
|
|
|
307,444
|
|
|
Capital leases and hire purchase contract
|
|
|
321
|
|
|
|
-
|
|
|
|
321
|
|
|
Total long-term debt outstanding
|
|
|
425,338
|
|
|
|
(2,822
|
)
|
|
|
422,516
|
|
|
Less: current portion of long-term debt
|
|
|
(131
|
)
|
|
|
-
|
|
|
|
(131
|
)
|
|
Long-term debt, excluding current portion
|
|
|
425,207
|
|
|
|
(2,822
|
)
|
|
|
422,385
|
|
Debt consists of senior
bank debt and loan notes payable to the owners of Ordinary A shares (referred to as Payment in Kind (“PIK”) Loan Notes).
Security over the debt consists of a fixed and floating charge over all assets of the Company and certain of its subsidiaries.
During 2014, the Company re-financed its
existing senior bank facility of $86.7 million with a new senior bank facility of $121.2 million. During 2014, unamortized senior
bank debt issuances fees of $2.0 million, were written off to interest expense. The new senior bank facility has a cash interest
rate on outstanding borrowings for this line of credit being the Bank of England’s bank’s base rate plus the base
rate margin or LIBOR rate plus the bank’s LIBOR rate margin. The loan agreement includes a PIK interest rate on the outstanding
borrowings that can be paid for or added to the outstanding debt. Capitalized debt issuance fees of $5.4 million were realized
in 2014 with the issuance of new debt. Note, due to foreign currency translation, these figures are then revised at each Balance
Sheet date. The new senior bank debt is scheduled to mature on September 30, 2017.
The senior bank debt
also included a revolving facility commitment for $28.5 million. The revolver facility has an interest rate on utilized amounts
of 5% plus LIBOR and on unutilized borrowings of 2%. The line of credit is scheduled to mature on September 30, 2017, although
agreement has been reached to extend this by two years on successful acquisition as discussed in Note 1 under the caption Going
Concern. On July 2, 2016 a revolver totaling $12.6 million had been drawn (As of September 26, 2015, there were no amounts outstanding
on the revolver facility). In addition, $0.4 million of the facility had been utilized for the Duty Deferment guarantee and the
company credit card scheme at both July 2, 2016 and September 26, 2015. The line of credit is scheduled to mature on September
30, 2017.
The Company also
has PIK loan notes payable to a syndicate of investors including parent entities to the Group. PIK loan notes have a final repayment
date of July 6, 2018 and receive interest at a rate of 13.5%. This interest is accrued and compounded annually onto the
loan notes on September 30 each year. Loan notes may be transferred between parties but cannot be converted into other options
or redeemed before the final repayment date. At the repayment date, all PIK loan note liabilities are settled by sterling
cheque payment. PIK loan notes are repayable in full upon either a sale or a listing of the Group
.
PIK loan notes are held in proportion to the holders of Ordinary A shares. PIK loan balance to parent company at July 2,
2016 and September 26, 2015 amounted to $251.8 million and $261.5 million respectively.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
12.
|
Long Term and Other Debt
(continued)
|
Long term debt matures as follows:
|
Fiscal period
|
|
Senior bank
debt
|
|
|
PIK loan notes
|
|
|
Capital leases
and hire
purchase
contract
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016 to September 24, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
2017
|
|
|
106,130
|
|
|
|
-
|
|
|
|
21
|
|
|
|
106,151
|
|
|
2018
|
|
|
-
|
|
|
|
296,066
|
|
|
|
35
|
|
|
|
296,101
|
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
2020
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
106,130
|
|
|
|
296,066
|
|
|
|
66
|
|
|
|
402,262
|
|
|
|
13.
|
Fair Value Measurements
|
Fair value is defined
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset and liability in an orderly transaction between market participants at the measurement
date. We estimate the fair value of its assets and liabilities utilizing an established three-level hierarchy. The hierarchy is
based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:
Level 1: Quoted prices
in active markets for identical assets or liabilities.
Level 2:
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets
with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full
term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with
observable market data, as well as quoted prices that were adjusted for security-specific restrictions.
Level 3: Unobservable
inputs that are supported by little or no market activity that are significant to the fair value of the asset or liability. Level
3 inputs also include non-binding market consensus prices or non-binding broker quotes that are unable to be corroborated with
observable market data.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
13.
|
Fair Value Measurements
(continued)
|
The fair value of our
financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe
the fair value of our financial instruments, which are principally cash and cash equivalents, accounts receivable, prepaid expenses
and other current assets, accounts payable and accrued liabilities, approximates their recorded values.
For each period, derivative
financial instrument assets and liabilities measured at fair value on a recurring basis are included in the financial statements
as per the table below. All amounts are categorized as Level 2
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
16
|
|
|
|
99
|
|
Foreign currency forward contracts
Throughout the period
we enter into contracts to buy and sell foreign currency. These contracts are recorded on the balance sheets at each period end
at fair value. These contracts are typically short term in nature with maturities of six months to a year. We entered into forward
contracts to sell Euros and to purchase USD and the change in fair value of the derivative is recorded within interest income
or expense in the Consolidated Statements of Operations and Comprehensive Loss. For the periods ended July 2, 2016 and July 4,
2015, we realized interest income of $284,000 and interest expense of $313,000 respectively from changes in the fair value of
the derivative instrument.
|
|
14.
|
Stockholder's Deficit
|
Common stock
Common stock consists of six classes of
common shares. There are no shares reserved for future issuance. Common stock balances of shares authorized, issued and outstanding
as of July 2, 2016 were as follows:
|
|
|
Shares
|
|
|
Common Stock
|
|
|
|
|
each
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Class A Voting Shares, par value of £0.01
|
|
|
8,750,000
|
|
|
|
132
|
|
|
Class B Non-voting Shares, par value of £0.01
|
|
|
264,639
|
|
|
|
4
|
|
|
Class B1 Non-voting Shares, par value of £0.001
|
|
|
314,361
|
|
|
|
-
|
|
|
Class B2 Non-voting Shares, par value of £0.75
|
|
|
11,150
|
|
|
|
13
|
|
|
Class B3 Voting Shares, par value of £0.01
|
|
|
154,500
|
|
|
|
2
|
|
|
Deferred Non-voting Shares, par value of £0.01
|
|
|
985,361
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,480,011
|
|
|
|
165
|
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
14.
|
Stockholder's Deficit
(continued)
|
Common stock balances of shares authorized, issued and outstanding
as of September 26, 2015 were as follows:
|
|
|
Shares
|
|
|
Common Stock
|
|
|
|
|
each
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Class A Voting Shares, par value of £0.01
|
|
|
8,750,000
|
|
|
|
132
|
|
|
Class B Non-voting Shares, par value of £0.01
|
|
|
1,250,000
|
|
|
|
18
|
|
|
Class B2 Non-voting Shares, par value of £0.75
|
|
|
11,150
|
|
|
|
13
|
|
|
Class B3 Voting Shares, par value of £0.01
|
|
|
154,500
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,165,650
|
|
|
|
165
|
|
Class A Voting Shares
The holders of Class
A common stock are entitled to receive dividends, when and as declared by the Board of Directors, and to vote on all matters entitled
to be voted on by the stockholders of the Company.
Class B Non-voting Shares
The holders of Class
B shares have dividend rights identical to those of the Class A holders, and also have the same rights on a winding up as the
Class A shareholders. The Class B holders receive dividends pro-rata with Class A holders in relation to the paid up amount on
each share. The Class B shares have no rights to vote.
Class B1 Non-voting Shares
The holders of Class
B1 common stock have the same rights on a winding up as the Class B shareholders. The holders of Class B1 shares also have the
same rights to receive dividends as Class B shareholders. The Class B1 shares have no right to vote.
Class B2 Non-voting Shares
The Class B2 shares
are entitled to dividends of 0.1% of the dividend payable on any A share subject to an annual cap of 10% of the paid up amount
on each such share. Upon winding up, the Class B2 shares will only participate up to the paid up amount plus a 10% per annum return
of such paid up amount and less any amounts already paid as dividends on the Class B2 shares. The Class B2 shares have no right
to vote.
Class B3 Voting Shares
The Class B3 shares
are entitled to dividends of 0.1% of the dividend payable on any A share subject to an annual cap of 10% of the paid up amount
on each such share. Upon winding up, the Class B3 shares will only participate up to the paid up amount plus a 10% per annum return
of such paid up amount and less any amounts already paid as dividends on the Class B3 shares. B3 shares carry 10 votes each on
a poll and on a show of hands they carry one vote.
Deferred Non-voting Shares
The holders of deferred
shares shall only be entitled to the repayment of the amounts paid up on their shares (including premium) after repayment of the
capital of the ordinary shares plus the payment of £5 million on each of the ordinary shares on a winding up. Deferred shares
carry no right to income.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
14.
|
Stockholder's Deficit (
continued
)
|
Additional paid in capital
Additional paid in
capital represents the excess of amounts paid for common shares over their stated par value. There have been no changes in additional
paid in capital during the periods ended July 2, 2016 and September 26, 2015.
In December 2015, a restructuring
of the management shareholding structure was undertaken. This resulted in management being issued new shares in the Company and
certain growth shares in Inspired Gaming Group Limited. The reorganization consisted of the steps set out below.
Company
985,361 B Non-voting
Shares, B2 Non-voting Shares, and B3 Voting Shares in the Company held by various members of management were gifted back to the
Company and re-designated as deferred shares. The fair value of each class of shares of the gift was not material.
The Company created
a new class of B1 Non-voting shares with broadly the same income and capital rights as the A Voting Shares (but which additionally
have the benefit of a ratchet dependent on the returns to the investors) and issued 314,361 B1 Non-voting Shares to members of
management. In addition options for 393,222 B1 Non-voting Shares were granted to members of management. These options are only
exercisable conditional on any exit of the shareholders from the Company and lapse if they are not exercised by the completion
of any such exit. Both B1 Non-voting Shares and the options for the B1 Non-voting Shares vested upon grant to management, and
the fair value and resulting share based payment expense were not material.
Inspired Gaming Group Limited
Two new classes of shares
were created in Inspired Gaming Group Limited, a subsidiary of the Company, comprising B ordinary shares and C ordinary shares
with par values of £0.00001 each. These shares have voting rights and identical economic rights to each other, except B
ordinary shares also gave each holder the right to put all of the B ordinary shares onto Gaming Acquisitions Limited, another
subsidiary of the Company, for an assumed price of £2,250. The put options were required to be exercised by the relevant
holder within 60 days of the issue of B ordinary shares and all expired unexercised. The fair value of the put options were not
material at the date of the grant of the B ordinary shares to management.
The B ordinary shares
were issued to the relevant management shareholders under the employee shareholder scheme provisions such that each relevant manager
gave up certain employment rights and did not pay any consideration for the issue of these shares. There were 2,800,000 B ordinary
shares issued and 500 of C ordinary shares issued to members of management. All shares vested upon grant.
The C ordinary shares
have a right to any dividends or distributions declared in respect of the C ordinary shares at the discretion of the directors.
Their economic entitlement on an exit is calculated by a formula referenced to the returns on the PIK loan notes in Note 12 once
a specified exit hurdle amount has been exceeded. Once this hurdle is exceeded the C ordinary shares have a minimum value of £0.40
per C ordinary share which can increase as the returns on the PIK loan notes increase to a maximum amount (assuming for this purpose
a transaction date of 12 March 2016) of approximately £0.75 per C ordinary share.
A similar valuation
mechanism applies for the C ordinary shares if an exit happens at certain other subsidiaries of DMWSL 633 Limited.
The fair value and resulting
share based payment expense of the B and C ordinary shares were not material upon issuance to management.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
We operate
a combined scheme which comprises of a defined benefit section and a defined contribution section. The defined benefit section
has been closed to future accruals for services rendered to the Company for the entire financial statement periods presented in
these consolidated financial statements. Retirement benefits are generally based on a portion of an employee's pensionable earnings
during years prior to 2010. Our policy is to make contributions according to schedules agreed with the trustee every 3 years after
completion of the triennial valuation undertaken by the scheme’s actuaries. We estimate that $3.5 million will be contributed
to the pension plan in the period ending September 24, 2016. The latest actuarial valuation of the scheme as at March 31, 2015
revealed a funding shortfall and a recovery plan consisting of additional contributions payable to the scheme has been put into
place.
The plan investment
policy is to maximize long-term financial return commensurate with security and minimizing risk. This is achieved by holding a
portfolio of marketable investments that avoids over-concentration of investment and spreads assets both over industries and geographies.
In setting investment strategy, the trustees considered the lowest risk strategy that they could adopt in relation to the plan's
liabilities and designed an asset allocation to achieve a higher return while maintaining a cautious approach to meeting the plan's
liabilities. The trustees undertook a review of investment strategy and took advice from their investment advisors. They considered
a full range of asset classes, the risks and rewards of a range of alternative asset allocation strategies, the suitability of
each asset class and the need for appropriate diversification. The current strategy is to hold approximately 30% in a global return
fund, approximately 25% in U.K. equities, approximately 20% in real estate, approximately 16% in non-U.K. equities and approximately
9% in corporate bonds.
Our pension benefit
costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, inflation,
expected returns on plan assets, mortality rates and other factors. The assumptions utilized in recording the obligations under
our plans represent our best estimates, and we believe that they are reasonable, based on information as to historical experience
and performance as well as other factors that might cause future expectations to differ from past trends. Differences in actual
experience or changes in assumptions may affect our pension obligations and future expense. The primary factors contributing to
actuarial gains and losses each year are (1) changes in the discount rate used to value pension benefit obligations as of the
measurement date and (2) differences between the expected and the actual return on plan assets.
Our valuation
methodologies used for pension assets measured at fair value are as follows. There have been no changes in the methodologies used
at September 26, 2015.
The diversified
fund is valued at fair value by using the net asset value (“NAV”) of shares held by the plan at the year end. The
NAV of the diversified fund is not publicly quoted. The majority of the underlying securities have observable Level 1 or 2 pricing
inputs, including quoted prices for similar assets in active or non-active markets. ASC 820, Fair Value Measurements and Disclosures,
allows NAV per share to serve as a practical expedient to estimate the fair value of the diversified fund. ASC 820 also states
that where NAV is allowed to be used as an estimate of fair value, if the reporting entity has the ability to redeem its investment
at NAV as of the measurement date, that investment shall be categorized as a Level II fair value measurement. If the investment
cannot be redeemed at the measurement date, but may be redeemable in the future, but at an uncertain date, the investment shall
be categorized as a Level 3 fair value measurement.
As of July
2, 2016 and September 26, 2015, the diversified fund was redeemable at NAV as of the measurement dates and, therefore, classified
as Level 2.
With respect
to the buy-in contract, it was agreed during the year ended September 27, 2014, that 281 pensioners of the plan would be insured
by means of a pensioner buy-in. The liabilities and assets in respect of insured pensioners are assumed to match for the purposes
of ASC 715, Pensions - Retirement Benefits, disclosures (i.e. the full benefits have been insured). The approach adopted has therefore
been to include within the total value of assets, an amount equal to the calculated total liability value of the insured pensioners
on the actuarial assumptions adopted for ASC 715 purposes. The buy-in contract is, therefore, classified as Level 3
Full disclosure
of our Defined Benefit scheme is contained within our full consolidated financial statements. The total amount of employers contributions
paid in the period to July 2, 2016 amounted to $2.7 million. We expect to pay $0.8 million during the remaining part of the fiscal
period.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
On December 23, 2014, the Group
purchased the remaining 50% shares in Merkur Inspired Limited for a total consideration of £1. As part of the transaction,
the selling party agreed to waive payables amounting to $2,430,589. The purchase has been accounted for under the acquisition
method, On January 2, 2015, Merkur Inspired Limited changed its name to Inspired Gaming (Italy) Limited.
Assets and liabilities acquired
in the acquisition were as follows:
|
|
|
Fair value
|
|
|
|
|
$ '000
|
|
|
Assets and liabilities acquired
|
|
|
|
|
|
Property and equipment
|
|
|
39
|
|
|
Inventory
|
|
|
2
|
|
|
Accounts receivable
|
|
|
615
|
|
|
Prepaid expenses and other current assets
|
|
|
(258
|
)
|
|
Cash and cash equivalents
|
|
|
506
|
|
|
Accounts payable
|
|
|
(712
|
)
|
|
Accrued expenses
|
|
|
(954
|
)
|
|
Corporate tax and other current taxes payable
|
|
|
(53
|
)
|
|
Other current liabilities
|
|
|
(228
|
)
|
|
Net assets acquired
|
|
|
(1,043
|
)
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,043
|
|
|
Total
|
|
|
-
|
|
The goodwill arising upon acquisition
is not deductible for tax purposes.
|
|
18.
|
Accumulated Other Comprehensive (Loss) Income
|
The accumulated balances for each
classification of comprehensive (loss) income are presented below:
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrecognized
pension benefit
costs, net of taxes
|
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 27, 2014
|
|
|
2,456
|
|
|
|
16,194
|
|
|
|
18,650
|
|
|
Change during the period
|
|
|
(6,721
|
)
|
|
|
3,079
|
|
|
|
(3,553
|
)
|
|
Balance at July 4, 2015
|
|
|
(4,265
|
)
|
|
|
19,273
|
|
|
|
15,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 26, 2015
|
|
|
(12,603
|
)
|
|
|
20,144
|
|
|
|
7,541
|
|
|
Change during the period
|
|
|
(39,770
|
)
|
|
|
5,279
|
|
|
|
(34,491
|
)
|
|
Balance at July 2, 2016
|
|
|
(52,373
|
)
|
|
|
25,423
|
|
|
|
(26,950
|
)
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
The following is income
(loss) before income taxes:
|
|
|
July 2, 2016
|
|
|
July 4, 2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
UK
|
|
|
(41,990
|
)
|
|
|
(43,677
|
)
|
|
Mainland Europe
|
|
|
(54
|
)
|
|
|
(934
|
)
|
|
South America
|
|
|
(476
|
)
|
|
|
(1,045
|
)
|
|
Total loss before income taxes
|
|
|
(42,520
|
)
|
|
|
(45,656
|
)
|
The income tax expense
consisted of the following for the periods ended July 2, 2016 and July 4, 2015:
|
|
|
July 2, 2016
|
|
|
July 4, 2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
-
|
|
|
|
-
|
|
|
Mainland Europe
|
|
|
304
|
|
|
|
270
|
|
|
South America
|
|
|
39
|
|
|
|
42
|
|
|
Total current taxes
|
|
|
343
|
|
|
|
312
|
|
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
19
|
Income Taxes
(continued)
|
The net deferred
tax assets and liabilities arising from temporary differences at July 2, 2016 and September 26, 2015 are as follows:
|
|
|
July 2, 2016
|
|
|
September 26,
2015
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
22,262
|
|
|
|
30,103
|
|
|
Other temporary differences
|
|
|
404
|
|
|
|
503
|
|
|
Net operating losses
|
|
|
13,012
|
|
|
|
16,493
|
|
|
Total deferred tax assets
|
|
|
35,678
|
|
|
|
47,099
|
|
|
Valuation allowance balance
|
|
|
(33,267
|
)
|
|
|
(43,475
|
)
|
|
Net deferred tax assets
|
|
|
2,411
|
|
|
|
3,624
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(2,411
|
)
|
|
|
(3,624
|
)
|
|
Net deferred tax liabilities
|
|
|
-
|
|
|
|
-
|
|
The valuation allowance
on deferred tax assets has been determined by considering all available evidence, both positive and negative, in order to ascertain
whether it is more likely than not that carried forward deferred tax assets will be realised. Inspired Gaming (UK) Limited has
a total potential deferred tax asset carried forward of $25,633,000 at July 2, 2016 (forming the majority of the total potential
Group deferred tax asset carried forward of $35,678,000). In addition, Gaming Acquisition Limited (a Group subsidiary) has a deferred
tax asset of $5,178,000 which relates to non-trade losses carried forward. Information provided by management indicates that current
level of profitability across the Group will not be sufficient to utilize these losses in the current period (as has been done
in previous periods). Losses can be carried forward indefinitely.
On consideration of
the cumulative net losses in Inspired Gaming (UK) Limited and Gaming Acquisitions Limited (a Group subsidiary) over the three
periods ending July 2, 2016, the Group has recorded a full valuation allowance of $33,267,000.
As of July 2, 2016,
there are no liabilities relating to tax penalties and interest and the periods ending 27 September 2014 and 26 September 2015
remain open to examination by taxing authorities.
The Group is not subject
to taxation in the US. However, foreign tax is applicable in foreign jurisdictions (primarily in Europe), where the total of non-UK
taxes payable for the period ended July 2, 2016 is $343,000 and for the period ended July 4, 2015 is $312,000. All deferred tax
items are attributable to UK operations.
A provision of $46,000
has been included within current taxes as at July 2, 2016 and September 26, 2015 respectively to reflect an uncertain tax position
relating to interest deductions. There are no similar tax provisions included as at September 27, 2014 or September 28, 2013.
Reductions in the UK
corporation tax rate from 20% to 19% (effective April 1, 2017), and to 18% (effective April 1, 2020) were substantively enacted
on October 26, 2015. This will reduce the Group’s future tax charge accordingly.
The Group has not recognized
deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
We entered into several
transactions with companies under common control. We entered into several agreements with various service companies in which certain
of our current Board members have direct or indirect ownership interests, and, in some cases, are also directors of these companies.
|
|
|
|
|
July 2, 2016
|
|
|
July 4, 2015
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Openbet Retail Limited
|
|
Total revenue
|
|
|
-
|
|
|
|
1,689
|
|
|
Loxley Strategic Consulting Limited
|
|
Selling, general and administrative expenses
|
|
|
(224
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
2, 2016
|
|
|
|
September
26,
2015
|
|
|
|
|
|
|
|
$
'000
|
|
|
|
$
'000
|
|
|
Balances
|
|
|
|
|
|
|
|
|
|
|
|
Openbet Retail Limited
|
|
Accounts receivable
|
|
|
-
|
|
|
|
189
|
|
Transactions and balances with Openbet
Retail Limited are disclosed for the period when the company was under common control.
|
|
21.
|
Litigation, Claims and Assessments
|
A claim from the Performing
Rights Society is ongoing and relates to the alleged infringement of copyrighted material of the Performing Rights Society's members
in certain games on Fixed Odds Betting Terminals in UK Licensed Betting Offices. The Company and the other defendants (who have
formed a litigation club) filed a defense to the claim raised by the Performing Rights Society on December 22, 2015. The parties
have mutually agreed to begin a process of mediation in September 2016. The Company has made a provision in the period ending
July 2, 2016 of $0.4 million, which management believes to be adequate to cover the total net exposure to the Company, including
professional fees.
The Company evaluates
subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available
to be issued in order to determine whether the subsequent events are to be recorded and/or disclosed in the Company’s financial
statements and footnotes. We have evaluated subsequent events through the date these financial statements were issued.
On July 14, 2016 it
was announced that Hydra Industries Acquisition Corp. (“Hydra”), a special purpose acquisition company listed on the
NASDAQ stock exchange, had entered into a definitive agreement to acquire DMWSL 633 Limited and associated subsidiaries. The proposed
transaction has been unanimously approved by the Boards of Directors of both Hydra and Inspired, and is expected to close in December
2016, subject to approval by Hydra's shareholders, required regulatory approvals and other customary closing conditions. Immediately
after the closing, Hydra intends to change its name to Inspired Entertainment, Inc.
DMWSL 633 LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended July 2, 2016, and July
4, 2015
|
|
22.
|
Subsequent Events
(
continued
)
|
On completion of the
transaction, the Company will receive a cash injection of approximately $6.6million in addition to funds to settle transaction
costs for the combined Group of approximately $20.4million, $5.4million of management bonuses, the settlement of $11.4million
of PIK interest on senior debt and the settlement of $2.8million of cash accrued interest. The management bonuses,
settlement of PIK interest and certain other transaction costs are contingent on the completion of the transaction.
The merger will be accounted
for as a reverse merger in accordance with accounting principles generally accepted in the United States of America.
There were no other subsequent
events or transactions that required recognition or disclosure in the consolidated financial statements.
DMWSL 633 LIMITED
Consolidated Financial Statements
September 26, 2015, September 27, 2014
and September 28, 2013
DMWSL 633 LIMITED
Index
September 26, 2015, September 27, 2014,
and September 28, 2013
Report of Independent Registered Public
Accounting Firm
To the Board of Directors
of DMWSL 633 Limited
We have audited the accompanying consolidated
balance sheets of DMWSL 633 Limited and its Subsidiaries (the “Company”) as of September 26, 2015, September 27, 2014
and September 28, 2013, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit
and cash flows for the periods then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of DMWSL 633 Limited and
its Subsidiaries, as of September 26, 2015, September 27, 2014 and September 28, 2013,
and the consolidated
results
of their operations and their cash flows for the periods then ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 1, the Company’s
senior bank debt principal and revolving credit facility and any unpaid interest will mature on September 30, 2017. The
Company has entered into a contingent extension agreement with the lender to extend the maturity of the senior bank debt principal
and revolving credit facility until September 30, 2019, which will take effect upon completion of the proposed transaction (Note
22). In the event the Company cannot complete the proposed transaction the Company would seek to extend the terms of the
senior bank debt principal and revolving credit facility. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Marcum LLP
Marcum
llp
Melville, NY
October 31, 2016
DMWSL 633 LIMITED
CONSOLIDATED BALANCE SHEETS
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$
'000
(As
restated)
|
|
|
$
'000
(As
restated)
|
|
|
$
'000
(As
restated)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
4,060
|
|
|
|
19,252
|
|
|
|
17,200
|
|
|
Accounts receivable, net
|
|
|
25,740
|
|
|
|
32,861
|
|
|
|
39,592
|
|
|
Inventory
|
|
|
8,298
|
|
|
|
6,868
|
|
|
|
14,849
|
|
|
Prepaid expenses and other current assets
|
|
|
24,032
|
|
|
|
17,327
|
|
|
|
15,878
|
|
|
Total current assets
|
|
|
62,130
|
|
|
|
76,308
|
|
|
|
87,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
75,786
|
|
|
|
73,006
|
|
|
|
73,725
|
|
|
Software development costs, net
|
|
|
30,463
|
|
|
|
21,771
|
|
|
|
20,473
|
|
|
Other acquired intangible assets subject to amortization, net
|
|
|
18,119
|
|
|
|
23,493
|
|
|
|
27,244
|
|
|
Goodwill
|
|
|
53,442
|
|
|
|
57,240
|
|
|
|
56,544
|
|
|
Total assets
|
|
|
239,940
|
|
|
|
251,818
|
|
|
|
265,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
21,931
|
|
|
|
9,526
|
|
|
|
23,063
|
|
|
Accrued expenses
|
|
|
21,468
|
|
|
|
12,541
|
|
|
|
10,099
|
|
|
Corporate tax and other current taxes payable
|
|
|
6,353
|
|
|
|
7,491
|
|
|
|
6,980
|
|
|
Deferred revenue, current
|
|
|
10,424
|
|
|
|
12,180
|
|
|
|
16,414
|
|
|
Other current liabilities
|
|
|
3,831
|
|
|
|
5,862
|
|
|
|
7,419
|
|
|
Current portion of capital lease obligations
|
|
|
131
|
|
|
|
127
|
|
|
|
188
|
|
|
Total current liabilities
|
|
|
64,138
|
|
|
|
47,727
|
|
|
|
64,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
422,195
|
|
|
|
405,538
|
|
|
|
329,414
|
|
|
Capital lease obligations, net of current portion
|
|
|
190
|
|
|
|
315
|
|
|
|
437
|
|
|
Accounts payable, net of current portion
|
|
|
4,892
|
|
|
|
-
|
|
|
|
|
|
|
Deferred revenue, net of current portion
|
|
|
19,173
|
|
|
|
20,044
|
|
|
|
20,229
|
|
|
Other long-term liabilities
|
|
|
6,192
|
|
|
|
6,296
|
|
|
|
1,765
|
|
|
Total liabilities
|
|
|
516,780
|
|
|
|
479,920
|
|
|
|
416,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
165
|
|
|
|
165
|
|
|
|
165
|
|
|
Additional paid in capital
|
|
|
450
|
|
|
|
450
|
|
|
|
450
|
|
|
Accumulated other comprehensive loss
|
|
|
(7,541
|
)
|
|
|
(18,650
|
)
|
|
|
(8,862
|
)
|
|
Accumulated deficit
|
|
|
(269,914
|
)
|
|
|
(210,067
|
)
|
|
|
(142,256
|
)
|
|
Total stockholders' deficit
|
|
|
(276,840
|
)
|
|
|
(228,102
|
)
|
|
|
(150,503
|
)
|
|
Total liabilities and stockholders'
deficit
|
|
|
239,940
|
|
|
|
251,818
|
|
|
|
265,505
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
DMWSL 633 LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
|
|
|
For the period ended
|
|
|
|
|
September 26,
|
|
|
September 27,
|
|
|
September 28,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
$ '000
(As restated)
|
|
|
$ '000
(As restated)
|
|
|
$ '000
(As restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
115,325
|
|
|
|
120,868
|
|
|
|
104,159
|
|
|
Hardware
|
|
|
12,248
|
|
|
|
25,930
|
|
|
|
10,322
|
|
|
Total revenue
|
|
|
127,573
|
|
|
|
146,798
|
|
|
|
114,481
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(16,481
|
)
|
|
|
(16,642
|
)
|
|
|
(15,669
|
)
|
|
Cost of hardware
|
|
|
(7,746
|
)
|
|
|
(33,496
|
)
|
|
|
(6,281
|
)
|
|
Selling, general and administrative expenses
|
|
|
(65,229
|
)
|
|
|
(66,940
|
)
|
|
|
(59,303
|
)
|
|
Depreciation and amortization
|
|
|
(39,386
|
)
|
|
|
(42,468
|
)
|
|
|
(34,784
|
)
|
|
Net operating loss
|
|
|
(1,269
|
)
|
|
|
(12,748
|
)
|
|
|
(1,556
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
646
|
|
|
|
474
|
|
|
|
21
|
|
|
Interest expense
|
|
|
(58,100
|
)
|
|
|
(56,106
|
)
|
|
|
(45,785
|
)
|
|
Other finance income (costs)
|
|
|
(153
|
)
|
|
|
271
|
|
|
|
13
|
|
|
Income (loss) from equity method investee
|
|
|
(340
|
)
|
|
|
606
|
|
|
|
(1,054
|
)
|
|
Total other expense, net
|
|
|
(57,947
|
)
|
|
|
(54,755
|
)
|
|
|
(46,805
|
)
|
|
Net loss from continuing operations before income taxes
|
|
|
(59,216
|
)
|
|
|
(67,503
|
)
|
|
|
(48,361
|
)
|
|
Income
tax expense
|
|
|
(631
|
)
|
|
|
(308
|
)
|
|
|
(367
|
)
|
|
Net loss from continuing operations
|
|
|
(59,847
|
)
|
|
|
(67,811
|
)
|
|
|
(48,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,572
|
)
|
|
Loss on sale of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,292
|
)
|
|
Net loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(59,847
|
)
|
|
|
(67,811
|
)
|
|
|
(62,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain/(loss)
|
|
|
15,059
|
|
|
|
(1,049
|
)
|
|
|
(1,458
|
)
|
|
Actuarial losses on pension plan
|
|
|
(3,950
|
)
|
|
|
(8,739
|
)
|
|
|
(2,637
|
)
|
|
Other comprehensive loss
|
|
|
11,109
|
|
|
|
(9,788
|
)
|
|
|
(4,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(48,738
|
)
|
|
|
(77,599
|
)
|
|
|
(66,687
|
)
|
The accompanying notes are an integral part
of these consolidated financial statements.
DMWSL 633 LIMITED
CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS
(continued)
|
|
|
For the period ended
|
|
|
|
|
September 26,
|
|
|
September 27,
|
|
|
September 28,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Basic and diluted loss per share and weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Voting Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(5.98
|
)
|
|
|
(6.78
|
)
|
|
|
(4.87
|
)
|
|
Discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.39
|
)
|
|
Net loss
|
|
|
(5.98
|
)
|
|
|
(6.78
|
)
|
|
|
(5.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
8,750,000
|
|
|
|
8,750,000
|
|
|
|
8,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Non-voting Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(5.98
|
)
|
|
|
(6.78
|
)
|
|
|
(4.87
|
)
|
|
Discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.39
|
)
|
|
Net loss
|
|
|
(5.98
|
)
|
|
|
(6.78
|
)
|
|
|
(5.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
1,250,000
|
|
|
|
1,250,000
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B2 Non-voting Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
Discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
11,150
|
|
|
|
11,150
|
|
|
|
11,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B3 Voting Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
Discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
154,500
|
|
|
|
154,500
|
|
|
|
154,500
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
DMWSL 633 LIMITED
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ DEFICIT
|
|
|
Common
stock
|
|
|
Additional
paid in
capital
|
|
|
Accumulated
other
comprehensive
loss
|
|
|
Accumulated
deficit
|
|
|
Total
stockholders'
deficit
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance as of September 29, 2012
(As restated)
|
|
|
165
|
|
|
|
450
|
|
|
|
(4,767
|
)
|
|
|
(79,664
|
)
|
|
|
(83,816
|
)
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,458
|
)
|
|
|
-
|
|
|
|
(1,458
|
)
|
|
Actuarial losses on pension plan
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,637
|
)
|
|
|
-
|
|
|
|
(2,637
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(62,592
|
)
|
|
|
(62,592
|
)
|
Ending Balance as of September 28, 2013
(As restated)
|
|
|
165
|
|
|
|
450
|
|
|
|
(8,862
|
)
|
|
|
(142,256
|
)
|
|
|
(150,503
|
)
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,049
|
)
|
|
|
-
|
|
|
|
(1,049
|
)
|
|
Actuarial losses on pension plan
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,739
|
)
|
|
|
-
|
|
|
|
(8,739
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(67,811
|
)
|
|
|
(67,811
|
)
|
Ending Balance as of September 27, 2014
(As restated)
|
|
|
165
|
|
|
|
450
|
|
|
|
(18,650
|
)
|
|
|
(210,067
|
)
|
|
|
(228,102
|
)
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
15,059
|
|
|
|
-
|
|
|
|
15,059
|
|
|
Actuarial losses on pension plan
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,950
|
)
|
|
|
-
|
|
|
|
(3,950
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(59,847
|
)
|
|
|
(59,847
|
)
|
Ending Balance as of September 26, 2015
(As restated)
|
|
|
165
|
|
|
|
450
|
|
|
|
(7,541
|
)
|
|
|
(269,914
|
)
|
|
|
(276,840
|
)
|
The accompanying notes are an integral part
of these consolidated financial statements.
DMWSL 633 LIMITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
|
For the period ended
|
|
|
|
|
September 26,
|
|
|
September 27,
|
|
|
September 28,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
$ '000
(As restated)
|
|
|
$ '000
(As restated)
|
|
|
$ '000
(As restated)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(59,847
|
)
|
|
|
(67,811
|
)
|
|
|
(62,592
|
)
|
|
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of Leisure Division
|
|
|
-
|
|
|
|
-
|
|
|
|
11,292
|
|
|
Depreciation and amortization
|
|
|
39,386
|
|
|
|
42,468
|
|
|
|
37,983
|
|
|
Non-cash interest expense relating to PIK loan notes
|
|
|
41,911
|
|
|
|
34,977
|
|
|
|
31,829
|
|
|
Deferred income tax expense
|
|
|
(101
|
)
|
|
|
(172
|
)
|
|
|
(2,849
|
)
|
|
Bad debt expense
|
|
|
174
|
|
|
|
240
|
|
|
|
(199
|
)
|
|
Inventory reserve
|
|
|
(104
|
)
|
|
|
(137
|
)
|
|
|
234
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,452
|
|
|
|
6,981
|
|
|
|
(12,873
|
)
|
|
Inventory
|
|
|
(1,834
|
)
|
|
|
8,430
|
|
|
|
(5,943
|
)
|
|
Prepaid expenses and other assets
|
|
|
(7,540
|
)
|
|
|
(1,116
|
)
|
|
|
887
|
|
|
Income taxes payable
|
|
|
(1,566
|
)
|
|
|
592
|
|
|
|
(6,077
|
)
|
|
Accounts payable
|
|
|
(3,066
|
)
|
|
|
1,294
|
|
|
|
(4,914
|
)
|
|
Other current liabilities
|
|
|
487
|
|
|
|
(364
|
)
|
|
|
213
|
|
|
Deferred revenues and customer prepayment
|
|
|
112
|
|
|
|
(6,021
|
)
|
|
|
23,133
|
|
|
Accrued expenses
|
|
|
14,757
|
|
|
|
5,853
|
|
|
|
(15,242
|
)
|
|
Other long-term liabilities
|
|
|
1,030
|
|
|
|
(3,962
|
)
|
|
|
219
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
25,251
|
|
|
|
21,252
|
|
|
|
(4,899
|
)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(22,410
|
)
|
|
|
(44,923
|
)
|
|
|
(26,050
|
)
|
|
Purchases of capital software
|
|
|
(18,092
|
)
|
|
|
(11,939
|
)
|
|
|
(9,517
|
)
|
|
Disposals of property and equipment
|
|
|
327
|
|
|
|
3,556
|
|
|
|
2,124
|
|
|
Proceeds received upon disposition of Leisure Division, net of cash transferred with disposition
and disposal costs
|
|
|
-
|
|
|
|
-
|
|
|
|
25,829
|
|
|
Cash from joint venture
|
|
|
972
|
|
|
|
-
|
|
|
|
(82
|
)
|
|
Net cash used in investing activities
|
|
|
(39,203
|
)
|
|
|
(53,306
|
)
|
|
|
(7,696
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
-
|
|
|
|
121,177
|
|
|
|
-
|
|
|
Repayments of long-term debt
|
|
|
(123
|
)
|
|
|
(86,924
|
)
|
|
|
(5,373
|
)
|
|
Net cash (used in)/provided by financing activities
|
|
|
(123
|
)
|
|
|
34,253
|
|
|
|
(5,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,117
|
)
|
|
|
(147
|
)
|
|
|
(1,070
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(15,192
|
)
|
|
|
2,052
|
|
|
|
(19,038
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
19,252
|
|
|
|
17,200
|
|
|
|
36,238
|
|
|
Cash and cash equivalents, end of period
|
|
|
4,060
|
|
|
|
19,252
|
|
|
|
17,200
|
|
DMWSL 633 LIMITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(continued)
|
|
|
For the period ended
|
|
|
|
|
September 26,
|
|
|
September 27,
|
|
|
September 28,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
(As restated)
|
|
|
|
|
$ '000
|
|
|
$
'000
|
|
|
$ '000
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
|
11,515
|
|
|
|
11,500
|
|
|
|
11,334
|
|
|
Cash paid during the period for income taxes
|
|
|
135
|
|
|
|
222
|
|
|
|
376
|
|
|
Non cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment financed through accounts payable
|
|
|
6,361
|
|
|
|
-
|
|
|
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
|
|
1.
|
Nature
of Operations, Going Concern and Summary of Significant Accounting Policies
|
Nature of Operations
DMWSL 633 Limited (the "Company",
the “Group”, "we", "our", and "us") is a global gaming technology company, supplying
Virtual Sports, Mobile and Server Based Gaming (“SBG”) systems to regulated lottery, betting and gaming operators
worldwide. Our strategic focus is the development and sale of SBG software systems and SBG digital terminals.
Basis of Consolidation
The accompanying consolidated financial statements
of the Company have been prepared in accordance with Accounting Principles generally accepted in the United States ("US GAAP").
All monetary values set forth in these consolidated financial statements are in US Dollars ("USD" or "$")
unless otherwise stated herein. The accompanying consolidated financial statements include the results of the Company and its
wholly owned subsidiaries, as well as those subsidiaries in which we have a controlling financial interest. Investments in other
entities in which we do not have a controlling financial interest but exert significant influence are accounted for in our consolidated
financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in
consolidation.
The financial statement periods presented
represent a 52 week period, which approximates a calendar year end period. The balance sheet date of each fiscal period represents
the Saturday closest to the 30
th
of September. Each 52 week fiscal period presented within these consolidated financial
statements and footnotes are herein referred to as a "period".
On February 8, 2013 we completed the sale
of our former leisure division as discussed in Note 2 (Discontinued Operations). The results of the discontinued leisure division
for the period ended September 28, 2013 are presented herein in accordance with ASC 205-20 Presentation of Financial Statements
– Discontinued Operations. There were no results of operations for the leisure division for the periods ended September
26, 2015 and September 27, 2014.
Amendment of Financial Statements
In connection with the inclusion of these
financial statements in the Preliminary Proxy Statement on Schedule 14A to be filed by Hydra Industries Acquisition Corp with
the Securities Exchange Commission, the following amendments to disclosures in the consolidated financial statements have been
made for the purposes of complying with the disclosure requirements of Regulation S-X: i) On the Consolidated Statement of Operations
and Comprehensive Loss we have now presented earnings per share; ii) We have provided details of segmental information in Note
3.
Amendment of Financial Statements (continued)
Restatement
This note to the consolidated financial statements
discloses the nature of the restatements and adjustments and shows the impact of the restatements on revenues, expenses, income,
assets, liabilities, equity, and cash flows from operating activities, investing activities, and financing activities, and the
cumulative effects of these adjustments on the consolidated statement of operations, balance sheet, and cash flows for 2015, 2014
and 2013.
Description of Restatement Matters and
Restatement Adjustment
In auditing the Company’s financials
for the fiscal years ended September 26, 2015, September 27, 2014 and September 28, 2013, the Company identified errors in the
classification of customer prepayments, classification of accounts payable between current and long term. Additionally, as noted
above the Company has provided segment disclosures which required the Company to allocate goodwill and intangibles to each segment
and was required to test for impairment in each operating segment. The Company prepared the impairment tests for each segment
and noted an impairment in the Server Based Gaming segment. This impairment was recorded as an impairment loss in the year ended
September 29, 2012. Additionally, the Company allocated goodwill and intangibles to the Leisure segment which was disposed of
on February 8, 2013 and recorded as part of the loss on sale of assets. A description of the restatement adjustments is provided
below:
The following tables present the effects of
such revisions on the Company’s previously reported financial statements as of and for the periods ended September 26, 2015,
September 27, 2014 and September 28, 2013:
Amendment of Financial
Statements Accumulated Deficit as of the Period Ended September 29, 2012:
As noted above the Company
has provided segment disclosures which required the Company to allocate goodwill and intangibles to each segment and was required
to test for impairment in each operating segment. The Company prepared the impairment tests for each segment and noted an impairment
in the Server Based Gaming segment. This impairment was recorded as an impairment loss in the year ended September 29, 2012.
Consolidated Statements
of Stockholders’ Deficit:
|
|
|
As reported
|
|
|
As amended
|
|
|
Accumulated deficit
|
|
|
(46,826
|
)
|
|
|
(79,664
|
)
|
|
Total stockholders’ deficit
|
|
|
(50,978
|
)
|
|
|
(83,816
|
)
|
Amendment of Financial
Statements for the Period Ended September 28, 2013:
As noted above the Company has provided segment
disclosures which required the Company to allocate goodwill and intangibles to each segment and was required to test for impairment
in each operating segment. The Company prepared the impairment tests for each segment and noted an impairment in the Server Based
Gaming segment. This impairment resulted in a decrease in goodwill. Additionally, the Company allocated goodwill and intangibles
to the Leisure segment which was disposed of on February 8, 2013 and recorded as part of the loss on sale of assets. The disposal
of intangibles reduced ongoing amortization expense. The Company reclassified customer prepayments from accounts receivable, net
to other current liabilities. The adjustments below did not have an effect on the statements of cash flows
.
Consolidated
Balance Sheets
|
|
|
As reported
|
|
|
As amended
|
|
|
Goodwill
|
|
|
104,905
|
|
|
|
56,544
|
|
|
Other acquired intangible assets subject to amortization, net
|
|
|
32,090
|
|
|
|
27,244
|
|
|
Accounts receivable, net
|
|
|
40,833
|
|
|
|
39,592
|
|
|
Other current liabilities
|
|
|
(8,660
|
)
|
|
|
(7,419
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(9,432
|
)
|
|
|
(8,862
|
)
|
|
Accumulated deficit
|
|
|
(88,479
|
)
|
|
|
(142,256
|
)
|
Amendment of Financial Statements (continued)
Consolidated
Statements of Operations and Comprehensive Loss
|
|
|
As reported
|
|
|
As amended
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
35,483
|
|
|
|
34,784
|
|
|
Net operating loss
|
|
|
2,255
|
|
|
|
1,556
|
|
|
Loss on discontinued operations
|
|
|
2,307
|
|
|
|
2,572
|
|
|
(Profit) loss on sale of assets
|
|
|
(10,081
|
)
|
|
|
11,292
|
|
|
Net loss
|
|
|
41,653
|
|
|
|
62,592
|
|
|
Foreign currency translation (gain) loss
|
|
|
2,028
|
|
|
|
1,458
|
|
Amendment of Financial
Statements for the Period Ended September 27, 2014:
As noted above the Company
previously adjusted goodwill and intangibles due to the allocation of goodwill and intangibles to segments and to the loss on
the disposal of the Leisure segment. These entries resulted in an adjustment to goodwill, intangibles and amortization expense.
The Company reclassified customer prepayments from accounts receivable, net to other current liabilities. The adjustments below
did not have an effect on the statements of cash flows.
Consolidated
Balance Sheets
|
|
|
As reported
|
|
|
As amended
|
|
|
Goodwill
|
|
|
106,196
|
|
|
|
57,240
|
|
|
Other acquired intangible assets subject to amortization, net
|
|
|
27,672
|
|
|
|
23,493
|
|
|
Accounts receivable, net
|
|
|
39,957
|
|
|
|
32,861
|
|
|
Other current liabilities
|
|
|
(12,958
|
)
|
|
|
(5,862
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(18,554
|
)
|
|
|
(18,650
|
)
|
|
Accumulated deficit
|
|
|
(157,029
|
)
|
|
|
(210,067
|
)
|
Consolidated Statements of Operations and Comprehensive
Loss
|
|
|
As reported
|
|
|
As amended
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
43,207
|
|
|
|
42,468
|
|
|
Net operating loss
|
|
|
13,487
|
|
|
|
12,748
|
|
|
Net loss
|
|
|
68,550
|
|
|
|
67,811
|
|
|
Foreign currency translation (gain) loss
|
|
|
383
|
|
|
|
1,049
|
|
Amendment of Financial Statements
(continued)
Amendment of Financial
Statements for the Period Ended September 26, 2015:
As noted above the Company
previously adjusted goodwill and intangibles due to the allocation of goodwill and intangibles to segments and to the loss on
the disposal of the Leisure segment. These entries resulted in an adjustment to goodwill, intangibles and amortization expense.
The Company reclassified customer prepayments from accounts receivable, net to other current liabilities. Additionally, the Company
reclassified accounts payable from current to long term due to the terms of the payable. The adjustments below did not have an
effect on the statements of cash flows.
Consolidated Balance Sheets
|
|
|
As reported
|
|
|
As amended
|
|
|
Goodwill
|
|
|
99,150
|
|
|
|
53,442
|
|
|
Other acquired intangible assets subject to amortization, net
|
|
|
21,343
|
|
|
|
18,119
|
|
|
Accounts receivable, net
|
|
|
42,828
|
|
|
|
25,740
|
|
|
Prepaid expenses and other current assets
|
|
|
11,398
|
|
|
|
24,032
|
|
|
Accounts payable - current
|
|
|
(26,823
|
)
|
|
|
(21,931
|
)
|
|
Other current liabilities
|
|
|
(6,611
|
)
|
|
|
(3,831
|
)
|
|
Accounts payable, net of current portion
|
|
|
-
|
|
|
|
(4,892
|
)
|
|
Deferred revenue, net of current portion
|
|
|
(20,847
|
)
|
|
|
(19,173
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(10,957
|
)
|
|
|
(7,541
|
)
|
|
Accumulated deficit
|
|
|
(217,567
|
)
|
|
|
(269,914
|
)
|
Consolidated Statements of Operations and Comprehensive
Loss
|
|
|
As reported
|
|
|
As amended
|
|
|
Depreciation and amortization
|
|
|
40,077
|
|
|
|
39,386
|
|
|
Net operating loss
|
|
|
1,960
|
|
|
|
1,269
|
|
|
Net loss
|
|
|
60,538
|
|
|
|
59,847
|
|
|
Foreign currency translation (gain) loss
|
|
|
(11,547
|
)
|
|
|
(15,059
|
)
|
Going Concern
The Company has
a
working capital deficiency of $(2,008) as of September 26, 2015. As indicated in the accompanying consolidated financial
statements, the Company’s senior bank debt principal and revolving credit facility and any unpaid interest will mature on
September 30, 2017. The Company has entered into a contingent extension agreement with the lender to extend the maturity
of the senior bank debt principal and revolving credit facility until September 30, 2019, which will take effect upon completion
of the proposed transaction (Note 22). In the event of non-completion the Company would seek to negotiate a similar extension
of terms with the lender for the bank debt principal and revolving credit facility. There can be no assurances that
the Company will be able to extend the terms or refinance the debt and the Company cannot provide any assurance that other new
financings will be available on commercially acceptable terms, if at all. These matters raise substantial doubt about the Company’s
ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that
may be necessary should the Company be unable to continue as a going concern.
Earnings Per Share
Basic earnings per share (“EPS”)
is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding
during the period. The two class method is used in the calculation of basic and diluted EPS. Under the two class method, earnings
per common share are allocated to the common shareholders based on the criteria in Note 15.
Use of Estimates
The preparation of financial statements in
conformity with US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related to
the revenue recognition for contracts involving software and non-software elements, allowance for doubtful accounts, inventory
reserve for net realizable value, goodwill and intangible assets, useful lives of long-lived assets, stock-based compensation,
valuation allowances on deferred taxes, commitments and contingencies and litigation, among others. Management bases its estimates
on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. We regularly
evaluate these significant factors and make adjustments when facts and circumstances dictate. Actual results may differ from these
estimates.
Revenue Recognition
We derive revenue principally from the sale
and rental of our Server Based Gaming (“SBG”) terminals and related services, including content provision and servicing,
to regulated retail betting outlets, casinos and other gaming operators, and licensing of our Virtual Sports gaming software and
related services to regulated virtual sports retail, mobile and online operators. We evaluate the recognition of revenue based
on the criteria set forth in ASC 605, Revenue Recognition ("ASC 605") and ASC 985-605, Software-Revenue Recognition.
Revenue is recognized when all of the following criteria are met:
|
|
1.
|
Persuasive evidence
of an arrangement exists
|
|
|
2.
|
The price to
the customer is fixed or determinable
|
|
|
3.
|
Delivery has occurred,
title has been transferred, and any acceptance terms have been fulfilled; and
|
|
|
4.
|
Collectability
is probable
|
For our multiple-deliverable arrangements
which include hardware containing software that functions together with the hardware to deliver its essential functionality and
undelivered non-software services, deliverables are separated into more than one unit of accounting when: (i) the delivered element(s)
have value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially
in the control of the Company. When the final undelivered element(s) are non-software services and non-hardware, those deliverables
are recognized on a ratable basis over the remaining term of the arrangement.
We determine the relative selling price for deliverables in the
scope of ASC 605 based on the following selling price hierarchy:
|
|
1.
|
Vendor specific
objective evidence ("VSOE"), (i.e., the price we charge when the product or
service is sold separately) if available,
|
|
|
2.
|
Third-party evidence
(“TPE”) of fair value (i.e., the price charged by others for similar products
and services) if VSOE is not available,
|
|
|
3.
|
or our best estimate
of selling price (“BESP”) if neither VSOE nor TPE is available.
|
Our multiple-deliverable arrangements may
also contain one or more software deliverables in the scope of ASC 985-605. The revenue for these multiple-deliverable arrangements
is allocated to the software deliverables and the non-software deliverables based on the relative selling prices of all of the
deliverables in the arrangement using the fair value hierarchy outlined above. In circumstances where the Company cannot determine
VSOE or TPE of the selling price for any of the deliverables in the arrangement, BESP is used for the purpose of allocating the
arrangement consideration between software and non-software deliverable.
Revenue Recognition (continued)
Revenue is allocated to the software deliverables
based on the relative fair value of each element, and fair value is determined using VSOE. Where VSOE does not exist for the undelivered
software element, revenue is deferred until either the undelivered element is delivered or VSOE is established, whichever occurs
first. When the final undelivered software element is services, the related revenue is recognized on a ratable basis over the
remaining service period. When VSOE of a delivered element has not been established, but VSOE exists for the undelivered elements,
the Company uses the residual method to recognize revenue when the fair value of all undelivered elements is determinable. Under
the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement consideration
is allocated to the delivered elements and is recognized as revenue.
In addition to the general policies, the following
are the specific revenue recognition policies for our revenue streams.
Server Based Gaming
Revenue from SBG terminals, access to our
content and SBG platform, including electronic table gaming products is recognized in accordance with the criteria set forth in
ASC 605 and is usually based upon a contracted percentage of the operator’s net winnings from the terminals’ daily
use. Where this is not the case, revenue is based upon a fixed daily or weekly rental fee. We recognize revenue from these arrangements
on a daily basis over the term of the arrangement, or when not specified over the expected customer relationship period. Performance
obligations under these arrangements may include the delivery and installation of our SBG terminals for use over a term, as well
as service obligations related to hardware repairs and server based content and maintenance.
We sometimes bill for SBG arrangements up
front in order to help fund our working capital and development requirements, or at the request of a customer. Upfront fees on
SBG arrangements are deferred and recognized on a straight-line basis over the term of the arrangement or when not specified over
the expected customer relationship period. Hardware sales take the form of a transfer of ownership of our developed gaming terminals,
and are recognized upon delivery as they have value to our customers on a stand-alone basis.
Virtual Sports
Revenue from licensing of our gaming software
is recognized in accordance with the criteria set forth in ASC 985-605. Virtual sports retail revenue, which includes the provision
of virtual sports content and services to retail betting outlets, and virtual sports online and mobile revenue, which includes
the provision of virtual sports content and services to mobile and online operators, is based upon a contracted percentage of
the operator’s net winnings or a fixed rental fee. We recognize revenue for these fees on a daily or weekly basis over the
term of the arrangement, these arrangements typically include a perpetual license billed up front, granted to the customer for
access to our gaming platform and content. As we do not have VSOE for the undelivered elements in virtual sports arrangements,
revenue from the licensing of perpetual licenses is recognized on a straight-line basis over the term of the arrangement, or when
not specified, over the expected customer relationship period.
Revenue from the development of bespoke games
licensed on a perpetual basis to mobile and online operators is recognized on delivery and acceptance by the customer. We have
no ongoing service obligations subsequent to customer acceptance of our bespoke games.
Customer Concentration
Revenues from one customer represent approximately
28.15%, 30.97%, and 34.31% of our total revenues in the periods ended September 26, 2015, September 27, 2014 and September 28,
2013, respectively. Revenues from a second customer represent approximately 10.11%, 21.60%, and 10.97% of our total revenues in
the periods ended September 26, 2015, September 27, 2014 and September 28, 2013, respectively. There were no revenues greater
than 10% derived from any other customer in any of the periods presented in these financial statements. We have no purchases from
vendors greater than 10% of total purchases.
Deferred Revenue and Deferred Cost of
Sales, excluding depreciation and amortization
Deferred revenue arises from the timing differences
between the shipment or installation of gaming terminals and systems products and the satisfaction of all revenue recognition
criteria consistent with our revenue recognition policy, as well as prepayment of contracts which are recognized ratably over
a service period, such as maintenance or licensing fees. Deferred cost of sales, excluding depreciation and amortization consists
of the direct costs associated with the manufacture of gaming equipment and systems products for which revenue has been deferred..
Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred
revenue in current liabilities. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet
date are classified as deferred revenue, less current portion.
Software Development Costs
We classify software development costs as
either internal use software or external use software. We account for costs incurred to develop internal use software in accordance
with ASC 350-40, Internal Use Software. Consequently, any costs incurred during preliminary project stages are expensed; direct
costs incurred during the application development stages are capitalized; and costs incurred during the post-implementation/operation
stages are expensed. Once the software is placed in operation, we amortize the capitalized internal use software cost over its
estimated economic useful life, which range from two to five years.
We purchase, license and incur costs to develop
external use software to be used in the products we sell or provide to customers. Such costs are capitalized under ASC 985-20,
Costs of Software to Be Sold Leased or Marketed. Costs incurred in creating software are expensed when incurred as Selling, General
and Administrative Expenses until technological feasibility has been established, after which costs are capitalized up to the
date the software is available for general release to customers. We capitalize the payments made for software that we purchase
or license for use in our products that has previously met the technological feasibility criteria prior to our purchase or license.
Annual amortization of capitalized external use software development costs is recorded over the estimated economic life, which
is two to five years.
Research and development costs are expensed
as incurred. Research and development related primarily to software product development costs is expensed until technological
feasibility has been established. Research and development costs amounting to $3,849,000, $2,797,000 and $1,203,000 were expensed
during the periods to September 26, 2015, September 27, 2014 and September 28, 2013, respectively. Employee related costs associated
with related product development are included in Selling, General and Administrative Expenses in the Consolidated Statements of
Operations and Comprehensive Loss.
Cash and Cash Equivalents
Cash and cash equivalents include cash and
short-term highly liquid investments with remaining maturities of three months or less when purchased. Cash and cash equivalents
are stated at cost which approximates fair value. We deposit cash and cash equivalents with financial institutions that management
believes are of high credit quality.
Accounts Receivable
Accounts receivable are recorded at the invoiced
amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses
in our existing accounts receivable. Changes in circumstances relating to the collectability of accounts receivable may result
in the need to increase or decrease our allowance for doubtful accounts in the future. We determine the allowance based on historical
experience, current market trends, and our customers' financial condition. We continually review our allowance for doubtful accounts.
Past due balances and other higher risk amounts are reviewed individually for collectability. Account balances are charged against
the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
Under certain contracts, the timing of our
invoices does not coincide with revenue recognized under the contract. We have unbilled accounts receivable which represent revenue
recorded in excess of amounts invoiced under the contract and generally become billable at contractually specified dates. These
amounts consist primarily of revenue from our share of net winnings earned on a daily basis where the billing period does not
fall on the last day of the period. We had $6,523,000, $7,499,000 and $12,634,000, of unbilled accounts receivable as of September
28, 2013, September 27, 2014, and September 26, 2015, respectively.
Our standard credit terms are net 30 to 60 days.
From time to time, we allow for certain digital customers to pay on an enhanced revenue share basis for the software license whereby
the customer pays an incremental revenue share percentage over a specific period of time. We consider these types of arrangements
to be extended payment terms as the full consideration for the arrangement may not be received until several years after the date
of the sale depending on the net winnings from the game or application. We evaluate the payment terms of the arrangement at the
outset in order to determine if collectability is reasonably assured and defer revenue on enhanced revenue shares in cases where
this is not met. For additional information on notes receivables, see Note 4 (Accounts Receivable, Notes Receivable, Allowance
for Doubtful Accounts and Bad Debt).
Inventories
Inventories consist primarily
of component parts and related parts used in gaming terminals. Inventories are stated at the lower of cost or net realizable value,
using the weighted average cost method. We determine the lower of cost or market value of our inventory based on estimates of
potentially excess and obsolete inventories after considering historical and forecasted demand and average selling prices. Cost
includes all direct costs and an appropriate proportion of fixed and variable overheads.
We have established a reserve for excess and
obsolete inventory. Demand for gaming terminals and parts inventory is also subject to technological obsolescence.
Equity Method Investments
Investee companies that are not consolidated,
but over which we exercise significant influence, are accounted for under the equity method of accounting. Whether or not we exercise
significant influence with respect to an investee depends on an evaluation of several factors including, representation on the
investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities
of the investee company. Under the equity method of accounting, an investee company’s accounts are not reflected within
our Consolidated Balance Sheets and Statements of Operations and Comprehensive Loss; however, our share of the earnings or losses
of the investee company is reflected in other income (loss) in the Consolidated Statements of Operations and Comprehensive Loss.
Our carrying value in an equity method investee company is reflected in Other Current Liabilities (Note 11) in our Consolidated
Balance Sheets.
When our carrying value in an equity method
investee company is reduced to zero, no further losses are recorded in our consolidated financial statements unless we have guaranteed
obligations of the investee company or we have committed additional funding. In this instance, when the investee company subsequently
reports income, we will not record its share of such income until it equals the amount of its share of losses not previously recognized.
Property and Equipment
Property and equipment are recorded at cost,
and when placed into service, depreciated to their residual values using the straight-line method over the estimated useful lives
of the related assets as follows:
|
Short-term leasehold property
|
|
life of the lease
|
|
Server based gaming terminals
|
|
4 – 6 years
|
|
Motor Vehicles
|
|
3 – 5 years
|
|
Plant and machinery and fixtures and fittings
|
|
4
– 8 years
|
|
Computer equipment
|
|
3
– 5 years
|
Our policy is to periodically review the estimated
useful lives of our fixed assets. We also assess the recoverability of long-lived assets (or asset groups) whenever events or
changes in circumstances indicate that the carrying amount of such an asset (or asset groups) may not be recoverable.
Repairs and maintenance costs are expensed
as incurred. Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are written off and
any resulting gain or loss is credited or charged to income.
Goodwill and Other Acquired Intangible
Assets
Our primary acquired intangible assets relate
to goodwill, trademarks and customer relationships. Goodwill represents the excess purchase price over the fair value of the identifiable
net assets acquired in a business combination. Trademarks and customer relationships were originally recorded at their fair values
in connection with business combinations.
Goodwill and other intangible assets with
indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Intangible assets with finite
lives are amortized on a straight line basis over three to ten years to their estimated residual values, and reviewed for impairment.
Factors considered when assigning useful lives include legal, regulatory and contractual provisions, product obsolescence, demand,
competition and other economic factors.
Impairment of Goodwill and Long Lives
Assets
We test for goodwill impairment at least annually
on the last day of our fiscal period as of September 26, 2015, September 27, 2014, and September 28, 2013 and whenever other facts
and circumstances indicate that the carrying value may not be recoverable. For goodwill impairment evaluations, we first make
a qualitative assessment to determine if goodwill is likely to be impaired. If it is more-likely-than-not that a reporting unit's
fair value is less than its carrying value, we then compare the fair value of the reporting unit to its respective carrying amount.
Goodwill is carried, and therefore tested, at the reporting unit level. We have three segments, Server Based Gaming, Virtual Sports
and Leisure, as detailed in note 3. The Leisure segment was disposed of on February 8, 2013 and is reflected as Discontinued Operations
in the accompanying financial statements (see Note 2). If the fair value of the reporting unit is less than its carrying amount,
the amount of the impairment loss, if any, will be measured by comparing the implied fair value of goodwill to its carrying amount
and would be charged to operations as an impairment loss. For additional information, see Note 7 (Intangibles, net and goodwill).
We assess the recoverability of long-lived
assets and intangible assets with finite useful lives whenever events arise or circumstances change that indicate the carrying
amount of an asset may not be recoverable. Recoverability of long-lived assets (or asset groups) to be held and used is measured
by a comparison of the carrying amount of the asset (or asset group) to the expected net future undiscounted cash flows to be
generated by that asset (or asset group) or, for identifiable intangibles with finite useful lives, by determining whether the
amortization of the intangible asset balance over its remaining life can be recovered through expected net future undiscounted
cash flows. The amount of impairment of other long-lived assets and intangible assets with finite lives is measured by the amount
by which the carrying amount of the asset exceeds the fair market value of the asset.
Derivative Financial Instruments
From time to time we enter into foreign currency
forward contracts to mitigate the risk associated with cash payments required to be made in non-functional currencies or to mitigate
the risk associated with cash to be received in non-functional currencies. We record the derivative financial instruments on the
balance sheets at their respective fair market values. We do not apply hedge accounting and make related effectiveness assessments.
As a result, changes in fair value in the associated derivative are recorded in the consolidated statements of operations and
comprehensive loss. See Note 14 (Fair Value Measurements) for additional information.
Shipping and Handling Costs
Shipping and handling costs for products sales
and hardware related to subscription services are included in cost of sales, excluding depreciation and amortization for all periods
presented.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Our provision for income taxes is primarily based on current period income (loss), changes in deferred tax
assets and liabilities and changes in estimates with regard to uncertain tax positions. We estimate current tax expense and assess
temporary differences resulting from differing treatments of items for tax and accounting purposes using enacted tax rates in
effect for each taxing jurisdiction in which we operate for the period in which those temporary differences are expected to be
recovered or settled. These differences result in deferred tax assets and liabilities. Our total deferred tax assets are principally
comprised of depreciation and net operating loss carry forwards.
Significant management judgment is required
to assess the likelihood that deferred tax assets will be recovered from future taxable income. In assessing the realizability
of these deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. Management makes this assessment on a jurisdiction by jurisdiction basis considering the historical
trend of taxable losses, projected future taxable income and the reversal of deferred tax liabilities. As of September 26, 2015,
September 27, 2014, and September 28, 2013, we had a valuation allowance of $43,475,000, $42,031,000 and $37,679,000 respectively,
against net deferred tax assets due to uncertainty of realization of these deferred tax assets.
We evaluate income tax uncertainties, assess
the probability of the ultimate settlement with the applicable taxing authority and records an amount based on that assessment.
Interest and penalties, if any, associated with uncertain tax positions are included in income tax expense.
Foreign Currency Translation
For most of our operations GBP is our functional
currency. We also have significant operations where the local currency is the functional currency, including our operations in
mainland Europe and South America. Assets and liabilities of foreign operations are translated at period-end rates of exchange
and results of operations are translated at the average rates of exchange for the period. Gains or losses resulting from translating
the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive loss in stockholders'
deficit. Gains or losses resulting from foreign currency transactions are included in other (expense), net in the consolidated
statements of operations and comprehensive loss.
Leases
We lease our office facilities under operating
leases. We account for certain operating leases that contain rent escalation provisions, rent abatements and /or lease incentives
by recognizing rent expense on a straight-line basis over the lease term. The difference between the rent paid and the straight-line
rent is recorded as a deferred liability.
Assets acquired under capital leases are amortized
over a lease term which coincides with the estimated useful life of the leased assets. For the purpose of recognizing the above
mentioned lease incentives on a straight-line basis over the term of the lease, we use the date of initial possession to begin
amortization. Lease renewal periods are considered in the determination of the lease term.
Comprehensive Loss
We include and separately classify in comprehensive
loss unrealized gains and losses from our foreign currency translation adjustments, gains or losses associated with pension or
other post-retirement benefits, prior service costs or credits associated with pension or other post-retirement benefits and transition
assets or obligations associated with pension or other post- retirement benefits. See Note 19 (Accumulated Other Comprehensive
(Loss) Income).
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09
Revenue
from Contracts with Customers
which introduces a new revenue recognition model in which an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
U.S. GAAP. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts
with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
ASU 2014-09 is effective for reporting periods beginning after January 1, 2018, with early adoption permitted. The new accounting
standard is expected to have an impact on our consolidated financial statements. The Company is currently evaluating the impact
of its adoption on the consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
(continued)
In June 2014, the FASB issued ASU 2014-12,
Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That
a Performance Target Could Be Achieved after the Requisite Service Period
("ASU 2014-12"), requiring a performance
target which affects vesting and could be achieved after the requisite service period be treated as a performance condition in
accordance with ASC 718, Compensation - Stock Compensation. ASU 2014-12 was effective prospectively for annual periods beginning
after December 15, 2015 with early adoption permitted. The Company is currently evaluating the impact of its adoption on the consolidated
financial statements and related disclosures.
On April 7, 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
, which requires debt issuance costs to be presented in the balance
sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt
discount. For public business entities, the standard is effective for financial statements issued for fiscal years beginning after
December 15, 2015, and interim periods within those fiscal years. For all other entities, the standard is effective for financial
statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after
December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company has
adopted this guidance and has presented debt issuance costs net against the associated debt liabilities in the consolidated balance
sheets presented.
In April 2015,
the FASB issued ASU 2015-05,
Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Fees Paid in a Cloud Computing Arrangement
("ASU 2015-05"),
which
provides guidance to customers about how to account for cloud computing arrangements when such arrangements include software licenses.
ASU 2015-11 is effective for reporting periods beginning after December 15, 2015, with early adoption permitted.
The standard may be applied retrospectively or prospectively.
The Company is currently evaluating the impact of its adoption
on the consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11,
Inventory
(Topic 330) - Simplifying the Measurement of Inventory
("ASU 2015-11"),
which
will require us to measure inventory at the lower of cost or net realizable value, rather than the lower of cost or market.
ASU 2015-11 is effective prospectively for reporting periods beginning after December 15, 2016. As this is the first time we have
prepared consolidated financial statements under US GAAP, we have early adopted the guidance from the inception of the Company.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
. The guidance eliminates the current requirement
for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. Instead,
organizations will be required to classify all deferred tax assets and liabilities as noncurrent. As this is the first time we
have prepared consolidated financial statements under US GAAP, we have early adopted the guidance from the inception of the Company.
Recently Issued Accounting Standards
(continued)
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
to increase transparency and comparability among organizations by reporting lease assets and lease
liabilities, both finance (capital) and operating leases, on the balance sheet and disclosing key information about leasing arrangements.
For public companies, the updated guidance is effective for the financial statements issued for fiscal years beginning after December
15, 2018 (including interim periods within those fiscal years). Early adoption is permitted. The Company is currently evaluating
the impact of its adoption on the consolidated financial statements and related disclosures.
In March 2016,
the FASB issued Accounting Standards Update (ASU) 2016-09,
Compensation – Stock Compensation (Topic 718),
to simplify
several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification
of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective
for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
The
Company is currently evaluating the impact of its adoption on the consolidated financial statements and related disclosures.
In August 2014, FASB issued ASU No. 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern (“ASU 2014-15”). This standard is intended to define management’s responsibility
to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization
will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly
referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting
because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, US GAAP lacks guidance
about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability
to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s
management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that
are commonly provided by organizations today in the financial statement footnotes. ASU 2014-15 is effective for annual periods
ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application
is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption
of this standard is not expected to have a material impact on the Company’s financial position and results of operations.
In April 2016, the FASB issued Accounting
Standards Update ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606), “Identifying Performance Obligations
and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance
obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is
effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early
application permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its consolidated
financial statements.
Recently Issued Accounting Standards
(continued)
In April 2015, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-04,
Compensation—Retirement Benefits
(Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets
(“ASU
2015-04”). ASU 2015-04 provides an entity with a fiscal year-end that does not coincide with a month-end a practical expedient
that allows the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s
fiscal year-end and apply that practical expedient consistently from year to year. If an entity has a significant event in an
interim period that requires the remeasurement of defined benefit plan assets and obligations such as a partial settlement, ASU
2015-04 also provides a practical expedient that permits the entity to remeasure defined benefit plan assets and obligations using
the month-end that is closest to the date of the significant event and adjust for any effects of the significant event not captured
in the month-end measurement. If an entity applies the practical expedient and a contribution is made between the month-end date
used for measurement and the entity’s fiscal year-end, the entity should disclose the amount of the contribution to allow
reconciliation of the fair value of plan assets in the fair value hierarchy to the ending balance of the fair value of plan assets.
ASU 2015-04 is effective for annual periods beginning after December 15, 2015 with early adoption permitted. This standard will
not have a material impact on the Company’s consolidated results of operations or financial position.
|
|
2.
|
Discontinued
Operations
|
On February 8, 2013 we completed the sale
of the trade and assets of our leisure division to Playnation Limited for cash proceeds of $30.8 million resulting in a loss of
approximately $11.3 million, which is reflected as a loss on discontinued operations in our Consolidated Statements of Operations
and Comprehensive Loss for the period ended September 28, 2013. The Company had no continuing involvement after the sale of our
leisure business.
Expenses included as discontinued
include only those directly attributable to the specific operations. No apportionment of shared costs has been made.
The revenue and expenses of the discontinued
operations were as follows:
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
|
|
|
|
|
Total revenue
|
|
|
10,074
|
|
|
Cost of sales, excluding depreciation and amortization
|
|
|
(3,378
|
)
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
(6,069
|
)
|
|
Depreciation and amortization
|
|
|
(3,199
|
)
|
|
Loss from discontinued operations
|
|
|
(2,572
|
)
|
For the 2014 and 2015 financial periods, there were no revenues
or expenses classified as discontinued operations.
Goodwill allocated to this segment amounting to $16,015,000 was
written off as part of the disposal.
Operating segments are identified as components
of an enterprise for which separate and discrete financial information is available and is used by the chief operating decision
maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s
chief decision-maker is the Chief Executive Officer.
The Company’s chief decision-maker reviews
financial information presented on a consolidated basis, accompanied by disaggregated information about revenue and operating
profit by operating unit. This information is used for purposes of allocating resources and evaluating financial performance.
The Company operates its business along three
operating segments, which are segregated based on the basis of revenue stream: Service Based Gaming, Virtual Sports and Leisure.
The Leisure segment was disposed of on February 8, 2013 and is reflected as Discontinued Operations in the accompanying financial
statements (see Note 2) The Company believes this method of segment reporting reflects both the way its business segments are
managed and the way the performance of each segment is evaluated.
The accounting policies of the segments are
the same as those described in the “Summary of Significant Accounting Policies.”
The following tables present revenue, cost
of sales, excluding depreciation and amortization, selling, general and administrative expenses, depreciation and amortization,
operating profit/(loss) from continuing operations, total assets and total capital expenditures for the periods ended September
26, 2015, September 27, 2014, and September 28, 2013, respectively, by business segment. Certain unallocated corporate function
costs have not been allocated to the Company’s reportable operating segments because these costs are not allocable and to
do so would not be practical. Corporate function costs consist primarily of selling, general and administrative expenses, depreciation
and amortization, capital expenditures, cash, prepaid expenses and property and equipment and software development costs relating
to corporate/shared functions.
Segmental Information
Period ended September 26, 2015
|
|
|
Server Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
88,139
|
|
|
|
27,186
|
|
|
|
-
|
|
|
|
115,325
|
|
|
Hardware
|
|
|
12,248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,248
|
|
|
Total revenue
|
|
|
100,387
|
|
|
|
27,186
|
|
|
|
-
|
|
|
|
127,573
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(11,895
|
)
|
|
|
(4,586
|
)
|
|
|
-
|
|
|
|
(16,481
|
)
|
|
Cost of hardware
|
|
|
(7,746
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,746
|
)
|
|
Selling, general and administrative expenses
|
|
|
(22,017
|
)
|
|
|
(6,691
|
)
|
|
|
(36,521
|
)
|
|
|
(65,229
|
)
|
|
Depreciation and amortization
|
|
|
(33,415
|
)
|
|
|
(3,952
|
)
|
|
|
(2,019
|
)
|
|
|
(39,386
|
)
|
|
Segment
operating income (loss) from continuing operations
|
|
|
25,314
|
|
|
|
11,957
|
|
|
|
(38,540
|
)
|
|
|
(1,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
at September 26, 2015
|
|
|
135,841
|
|
|
|
94,017
|
|
|
|
10,082
|
|
|
|
239,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
at September 26, 2015
|
|
|
-
|
|
|
|
53,442
|
|
|
|
-
|
|
|
|
53.442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
expenditures for the period ended September 26, 2015
|
|
|
44,731
|
|
|
|
5,923
|
|
|
|
1,751
|
|
|
|
52,405
|
|
|
3.
|
Segmental Reporting
(continued)
|
Period ended September 27, 2014
|
|
|
Server Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
95,325
|
|
|
|
25,543
|
|
|
|
-
|
|
|
|
120,868
|
|
|
Hardware
|
|
|
25,930
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,930
|
|
|
Total revenue
|
|
|
121,255
|
|
|
|
25,543
|
|
|
|
-
|
|
|
|
146,798
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(12,665
|
)
|
|
|
(3,977
|
)
|
|
|
-
|
|
|
|
(16,642
|
)
|
|
Cost of hardware
|
|
|
(33,496
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(33,496
|
)
|
|
Selling, general and administrative expenses
|
|
|
(24,001
|
)
|
|
|
(4,620
|
)
|
|
|
(38,319
|
)
|
|
|
(66,940
|
)
|
|
Depreciation and amortization
|
|
|
(34,584
|
)
|
|
|
(2,844
|
)
|
|
|
(5,040
|
)
|
|
|
(42,468
|
)
|
|
Segment
operating income (loss) from continuing operations
|
|
|
16,509
|
|
|
|
14,102
|
|
|
|
(43,359
|
)
|
|
|
(12,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at September
27, 2014
|
|
|
132,365
|
|
|
|
92,012
|
|
|
|
27,441
|
|
|
|
251,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill at September
27, 2014
|
|
|
-
|
|
|
|
57,240
|
|
|
|
-
|
|
|
|
57,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
for the period ended September 27, 2014
|
|
|
36,883
|
|
|
|
1,839
|
|
|
|
3,960
|
|
|
|
42,682
|
|
|
3.
|
Segmental Reporting
(continued)
|
Period ended September 28, 2013
|
|
|
Server Based
Gaming
|
|
|
Virtual
Sports
|
|
|
Corporate
Functions
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
91,706
|
|
|
|
12,453
|
|
|
|
-
|
|
|
|
104,159
|
|
|
Hardware
|
|
|
10,322
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,322
|
|
|
Total revenue
|
|
|
102,028
|
|
|
|
12,453
|
|
|
|
-
|
|
|
|
114,481
|
|
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(14,732
|
)
|
|
|
(937
|
)
|
|
|
-
|
|
|
|
(15,669
|
)
|
|
Cost of hardware
|
|
|
(6,281
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,281
|
)
|
|
Selling, general and administrative expenses
|
|
|
(22,158
|
)
|
|
|
(4,363
|
)
|
|
|
(32,782
|
)
|
|
|
(59,303
|
)
|
|
Depreciation and amortization
|
|
|
(29,944
|
)
|
|
|
(2,969
|
)
|
|
|
(1,871
|
)
|
|
|
(34,784
|
)
|
|
Segment operating
income (loss) from continuing operations
|
|
|
28,913
|
|
|
|
4,184
|
|
|
|
(34,653
|
)
|
|
|
(1,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at September
28, 2013
|
|
|
147,551
|
|
|
|
94,357
|
|
|
|
23,597
|
|
|
|
265,505
|
|
|
Total goodwill at September
28, 2013
|
|
|
-
|
|
|
|
56,544
|
|
|
|
-
|
|
|
|
56,544
|
|
|
Total capital expenditures
for the period ended September 28, 2013
|
|
|
26,792
|
|
|
|
922
|
|
|
|
1,558
|
|
|
|
29,272
|
|
Geographic Information
Geographic information
for revenue is set forth below:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$
'000
|
|
|
$
'000
|
|
|
$
'000
|
|
|
Total revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
95,760
|
|
|
|
118,757
|
|
|
|
92,227
|
|
|
Italy
|
|
|
20,674
|
|
|
|
20,270
|
|
|
|
15,675
|
|
|
Rest of world
|
|
|
11,139
|
|
|
|
7,771
|
|
|
|
6,579
|
|
|
Total
|
|
|
127,573
|
|
|
|
146,798
|
|
|
|
114,481
|
|
|
|
3.
|
Segmental
Reporting
(continued)
|
Geographic information
of our non-current assets excluding goodwill is set forth below:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Total non-current assets excluding goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
90,661
|
|
|
|
93,820
|
|
|
|
87,206
|
|
|
Italy
|
|
|
15,915
|
|
|
|
16,144
|
|
|
|
23,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of world
|
|
|
17,792
|
|
|
|
8,306
|
|
|
|
10,240
|
|
|
Total
|
|
|
124,368
|
|
|
|
118,270
|
|
|
|
121,442
|
|
Software development costs are included
as attributable to the market in which they are utilized.
Accounts receivable consist of
the following:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
26,541
|
|
|
|
33,109
|
|
|
|
39,864
|
|
|
Other receivables
|
|
|
157
|
|
|
|
596
|
|
|
|
328
|
|
|
Allowance for doubtful accounts
|
|
|
(958
|
)
|
|
|
(844
|
)
|
|
|
(600
|
)
|
|
Total accounts receivable, net
|
|
|
25,740
|
|
|
|
32,861
|
|
|
|
39,592
|
|
Changes in the allowance for doubtful
accounts are as follows:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
(844
|
)
|
|
|
(600
|
)
|
|
|
(799
|
)
|
|
Recognition of bad debt expense
|
|
|
(590
|
)
|
|
|
(1,188
|
)
|
|
|
(214
|
)
|
|
Recoveries
|
|
|
47
|
|
|
|
547
|
|
|
|
136
|
|
|
Write offs
|
|
|
373
|
|
|
|
404
|
|
|
|
277
|
|
|
Foreign currency translation adjustments
|
|
|
56
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
Ending balance
|
|
|
(958
|
)
|
|
|
(844
|
)
|
|
|
(600
|
)
|
Inventory consists of the following:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component parts
|
|
|
6,584
|
|
|
|
6,264
|
|
|
|
14,143
|
|
|
Finished goods
|
|
|
1,714
|
|
|
|
604
|
|
|
|
706
|
|
|
Total inventories
|
|
|
8,298
|
|
|
|
6,868
|
|
|
|
14,849
|
|
Component parts include parts for gaming
terminals, net of allowance for excess and obsolete parts. Our finished goods inventory primarily consists of gaming terminals
which are ready for sale.
|
|
6.
|
Property
and Equipment
|
|
|
|
September 26, 2015
|
|
|
September 27, 2014
|
|
|
September 28, 2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term leasehold property
|
|
|
618
|
|
|
|
661
|
|
|
|
653
|
|
|
Video lottery terminals
|
|
|
123,694
|
|
|
|
121,616
|
|
|
|
99,314
|
|
|
Computer equipment
|
|
|
8,302
|
|
|
|
8,964
|
|
|
|
30,580
|
|
|
Motor vehicles
|
|
|
-
|
|
|
|
14
|
|
|
|
15
|
|
|
Plant and machinery
|
|
|
1,866
|
|
|
|
2,384
|
|
|
|
2,274
|
|
|
|
|
|
134,480
|
|
|
|
133,639
|
|
|
|
132,836
|
|
|
Less: accumulated depreciation
|
|
|
(58,694
|
)
|
|
|
(60,633
|
)
|
|
|
(59,111
|
)
|
|
|
|
|
75,786
|
|
|
|
73,006
|
|
|
|
73,725
|
|
Depreciation expense for the periods ended
September 26, 2015, September 27, 2014 and September 28, 2013 was $27.3 million, $30.3 million and $25.0 million, respectively.
Cost of equipment associated with specific contracts and internal use software projects are recorded as assets in the course of
construction (a subsection of video lottery terminals) and not depreciated until placed in service. When the equipment is placed
into service, the related costs are transferred from assets in the course of construction to video lottery terminals, and we commence
depreciation. Depreciation expense is separately included within depreciation and amortization expense on the Consolidated Statements
of Operations and Comprehensive Loss.
|
|
7.
|
Intangible
Assets and Goodwill
|
The following tables present certain information
regarding our intangible assets. Amortizable intangible assets are being amortized on a straight-line basis over their estimated
useful lives of ten years with no estimated residual values, which materially approximates the expected pattern of use.
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$
'000
|
|
|
$
'000
|
|
|
$
'000
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
20,570
|
|
|
|
22,032
|
|
|
|
21,764
|
|
|
Customer relationships
|
|
|
17,579
|
|
|
|
18,829
|
|
|
|
19,000
|
|
|
|
|
|
38,149
|
|
|
|
40,861
|
|
|
|
40,764
|
|
|
Less: accumulated amortization
|
|
|
(20,030
|
)
|
|
|
(17,368
|
)
|
|
|
(13,520
|
)
|
|
|
|
|
18,119
|
|
|
|
23,493
|
|
|
|
27,244
|
|
The aggregate intangible asset amortization
expense for the periods ended September 26, 2015, September 27, 2014 and September 28, 2013 was $3,889,000, $4,152,000 and $3,932,000
respectively. The estimated intangible asset amortization expense for the period ending September 24, 2016 and each of the subsequent
four periods is $4,493,000 per annum.
Goodwill
The table below reconciles the change
in the carrying amount of goodwill, for the period from September 29, 2012 to September 26, 2015.
|
|
|
$ '000
|
|
|
Beginning balance at September 29, 2012
|
|
|
73,091
|
|
|
Disposals
|
|
|
(16,015
|
)
|
|
Foreign currency translation adjustments
|
|
|
(532
|
)
|
|
Ending balance at September 28, 2013
|
|
|
56,544
|
|
|
Foreign currency translation adjustments
|
|
|
696
|
|
|
Ending balance at September 27, 2014
|
|
|
57,240
|
|
|
Additions
|
|
|
1,043
|
|
|
Impairment
|
|
|
(1,043
|
)
|
|
Foreign currency translation adjustments
|
|
|
(3,798
|
)
|
|
Ending balance at September 26, 2015
|
|
|
53,442
|
|
Disposals of goodwill in the period to
September 28, 2013, arise on the disposal of discontinued operations (see note 2).
Additions to goodwill in the period to
September 26, 2015, arises on the purchase of Inspired Gaming (Italy) Limited. This goodwill is impaired in the same period due
to uncertainty of future cashflows of the purchased company (see note 18).
|
|
8.
|
Software
Development Costs, net
|
Software development costs, net consisted
of the following:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development costs
|
|
|
56,847
|
|
|
|
42,402
|
|
|
|
34,303
|
|
|
Less: accumulated amortization
|
|
|
(26,384
|
)
|
|
|
(20,631
|
)
|
|
|
(13,830
|
)
|
|
|
|
|
30,463
|
|
|
|
21,771
|
|
|
|
20,473
|
|
In the periods ended September 26, 2015,
September 27, 2014 and September 28, 2013, we capitalized $17.8 million, $11.6 million and $9.8 million, respectively, of software
development costs. Amounts above in the table include $1.4 million, $1.0 million and $0.6 million of internal use software at
September 26, 2015, September 27, 2014 and September 28, 2013, respectively.
The total amount of software costs amortized
was $7.2 million, $6.9 million and $5.7 million for the periods ended September 26, 2015, September 27, 2014 and September 28,
2013, respectively. The total amount of software costs written down to net realizable value was $0.1 million, $1.1 million and
$0.6 million for the periods ended September 26, 2015, September 27, 2014 and September 28, 2013, respectively. The weighted average
amortization period was 3.4 years, 3.4 years and 3.5 years for the periods ended September 26, 2015, September 27, 2014 and September
28, 2013 respectively. The estimated software amortization expense for the period ending September 24, 2016 and the subsequent
four periods is $8.6 million, $8.7 million, $5.4 million, $4.0 million and $1.5 million per annum, respectively.
|
|
9.
|
Prepaid
Expenses and Other Assets
|
Prepaid expenses and other assets consist
of the following:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
11,398
|
|
|
|
9,100
|
|
|
|
8,801
|
|
|
Unbilled accounts receivable
|
|
|
12,634
|
|
|
|
7,499
|
|
|
|
6,523
|
|
|
Joint venture loan
|
|
|
-
|
|
|
|
560
|
|
|
|
554
|
|
|
Foreign exchange contract assets
|
|
|
-
|
|
|
|
168
|
|
|
|
-
|
|
|
Total prepaid expenses and other assets
|
|
|
24,032
|
|
|
|
17,327
|
|
|
|
15,878
|
|
The Joint Venture loan is a receivable
that was provided to Merkur Inspired Limited. In December 2014, the Company purchased the remaining 50% of shares in the joint
venture and the outstanding balance became an intercompany receivable which is eliminated on consolidation.
Foreign exchange contracts relate to foreign
currency forward agreements where the net balance at period end was in a debit position. Refer to Note 14 for additional information.
Accrued expenses consist of the following:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payable - cash
|
|
|
2,945
|
|
|
|
3,027
|
|
|
|
1,822
|
|
|
Interest payable – payment in kind
|
|
|
377
|
|
|
|
401
|
|
|
|
538
|
|
|
Asset retirement obligations
|
|
|
616
|
|
|
|
169
|
|
|
|
66
|
|
|
Accrued corporate cost expenses
|
|
|
1,434
|
|
|
|
2,021
|
|
|
|
1,764
|
|
|
Direct costs of sales
|
|
|
11,579
|
|
|
|
5,692
|
|
|
|
3,219
|
|
|
Other creditors
|
|
|
4,517
|
|
|
|
1,231
|
|
|
|
2,690
|
|
|
|
|
|
21,468
|
|
|
|
12,541
|
|
|
|
10,099
|
|
Other liabilities consist of the following:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer prepayments & deposits
|
|
|
3,831
|
|
|
|
3,464
|
|
|
|
4,461
|
|
|
Share of net liabilities in joint venture
|
|
|
-
|
|
|
|
2,398
|
|
|
|
2,958
|
|
|
Total other liabilities, current
|
|
|
3,831
|
|
|
|
5,862
|
|
|
|
7,419
|
|
|
Foreign exchange contract liabilities
|
|
|
321
|
|
|
|
-
|
|
|
|
189
|
|
|
Provisions for other liabilities & charges
|
|
|
994
|
|
|
|
1,441
|
|
|
|
1,576
|
|
|
Pension liability
|
|
|
4,877
|
|
|
|
4,855
|
|
|
|
-
|
|
|
Total other liabilities, long-term
|
|
|
6,192
|
|
|
|
6,296
|
|
|
|
1,765
|
|
|
|
|
|
10,023
|
|
|
|
12,158
|
|
|
|
9,184
|
|
Foreign exchange contract liabilities
related to foreign currency forward agreements where the net balance at period end was in a credit position. Refer to Note 14
for additional information.
The Company had a 50% share of the equity
of Merkur Inspired Limited. At September 27, 2014 and September 28, 2013, Merkur Inspired Limited was in a net liabilities position.
The joint venture arrangement required us to guarantee the obligations of this company and therefore we recorded our share of
the losses and liabilities. In December 2014, the Company purchased the remaining 50% of shares in the joint venture, see note
18 for further information. Goodwill arising is disclosed in note 18. In the period to September 26, 2015 this generated additional
revenue for the Group of $1.7 million, with extra selling and general administrative expenses costs of $1.7 million for the 9
months. This acquisition gave us the ability to take control of the existing customer contracts, control all future customer negotiations
and implement cost reductions.
At September 26, 2015, we were obligated
under operating leases covering office and warehouse space and transportation equipment expiring at various dates. Future minimum
lease payments required under our operating leases at September 26, 2015 were approximately as follows:
|
|
|
$ '000
|
|
|
|
|
|
|
|
2016
|
|
|
1,707
|
|
|
2017
|
|
|
1,353
|
|
|
2018
|
|
|
1,326
|
|
|
2019
|
|
|
1,088
|
|
|
2020
|
|
|
658
|
|
|
Thereafter
|
|
|
230
|
|
|
Total
|
|
|
6,362
|
|
Rent expense under all operating leases
was $1.4 million, $1.3 million and $1.4 million for the periods ended September 26, 2015, September 27, 2014 and September 28,
2013, respectively.
Some of our operating leases contain provisions
for future rent increases, rent-free periods or periods in which rent payments are reduced. The total amount of rental payments
due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The difference
between rent expense recorded and the amount paid is credited or charged to deferred rent obligation, which is included in accrued
expenses and other long-term liabilities in the Consolidated Balance Sheets.
|
|
13.
|
Long Term
and Other Debt
|
Outstanding Debt and Capital Leases
The following reflects outstanding debt
as of the dates indicated below:
|
|
|
Principal
|
|
|
Unamortized
deferred
financing
charge
|
|
|
Book value,
September 26,
2015
|
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt
|
|
|
117,573
|
|
|
|
(2,822
|
)
|
|
|
114,751
|
|
|
PIK loan notes
|
|
|
307,444
|
|
|
|
-
|
|
|
|
307,444
|
|
|
Capital leases and hire purchase contract
|
|
|
321
|
|
|
|
-
|
|
|
|
321
|
|
|
Total long-term debt outstanding
|
|
|
425,338
|
|
|
|
(2,822
|
)
|
|
|
422,516
|
|
|
Less: current portion of long-term debt
|
|
|
(131
|
)
|
|
|
-
|
|
|
|
(131
|
)
|
|
Long-term debt, excluding current portion
|
|
|
425,207
|
|
|
|
(2,822
|
)
|
|
|
422,385
|
|
The Company is in compliance with all relevant covenants and
the long term debt portion is correctly classified as such in line with the underlying agreements.
|
|
13.
|
Long Term
and Other Debt
(continued)
|
|
|
|
Principal
|
|
|
Unamortized
deferred
financing
charge
|
|
|
Book value,
September 27,
2014
|
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt
|
|
|
120,417
|
|
|
|
(4,518
|
)
|
|
|
115,899
|
|
|
PIK loan notes
|
|
|
290,773
|
|
|
|
(1,134
|
)
|
|
|
289,639
|
|
|
Capital leases and hire purchase contract
|
|
|
442
|
|
|
|
-
|
|
|
|
442
|
|
|
Total long-term debt outstanding
|
|
|
411,632
|
|
|
|
(5,652
|
)
|
|
|
405,980
|
|
|
Less: current portion of long-term debt
|
|
|
(127
|
)
|
|
|
-
|
|
|
|
(127
|
)
|
|
Long-term debt, excluding current portion
|
|
|
411,505
|
|
|
|
(5,652
|
)
|
|
|
405,853
|
|
|
|
|
Principal
|
|
|
Unamortized
deferred
financing
charge
|
|
|
Book value,
September 28,
2013
|
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt
|
|
|
81,766
|
|
|
|
(2,768
|
)
|
|
|
78,998
|
|
|
PIK loan notes
|
|
|
252,656
|
|
|
|
(2,240
|
)
|
|
|
250,416
|
|
|
Capital Leases and hire purchase contract
|
|
|
625
|
|
|
|
-
|
|
|
|
625
|
|
|
Total long-term debt outstanding
|
|
|
335,047
|
|
|
|
(5,008
|
)
|
|
|
330,039
|
|
|
Less: current portion of long-term debt
|
|
|
(188
|
)
|
|
|
-
|
|
|
|
(188
|
)
|
|
Long-term debt, excluding current portion
|
|
|
334,859
|
|
|
|
(5,008
|
)
|
|
|
329,851
|
|
Debt consists of senior bank debt and
loan notes payable to the owners of Ordinary A shares (referred to as Payment in Kind (“PIK”) Loan Notes). Security
over the debt consists of a fixed and floating charge over all assets of the Company and certain of its subsidiaries.
During 2014, the Company re-financed its
existing senior bank facility of $86.7 million with a new senior bank facility of $121.2 million. During 2014, unamortized senior
bank debt issuances fees of $2.0 million, were written off to interest expense. The new senior bank facility has a cash interest
rate on outstanding borrowings for this line of credit being the Bank of England’s bank’s base rate plus the base
rate margin or LIBOR rate plus the bank’s LIBOR rate margin. The loan agreement includes a PIK interest rate on the outstanding
borrowings that can be paid for or added to the outstanding debt. Capitalized debt issuance fees of $5.4 million were realized
in 2014 with the issuance of new debt. Note, due to foreign currency translation, these figures are then revised at each Balance
Sheet date. The new senior bank debt is scheduled to mature on September 30, 2017.
The senior bank debt also included a revolving
facility commitment for $28.5 million. The revolver facility has an interest rate on utilized amounts of 5% plus LIBOR and on
unutilized borrowings of 2%. The line of credit is scheduled to mature on September 30, 2017, although agreement has been reached
to extend this by two years on successful acquisition as discussed in Note 1 under the caption Going Concern. No revolver had
been drawn on any of the period ends, but an amount of the facility had been utilized in each year for the Duty Deferment guarantee
and the company credit card scheme. The amounts utilized at September 26, 2015, September 27, 2014 and September 28, 2013 amounted
to $0.5million, $0.7 million, and $1.6 million, respectively.
|
|
13.
|
Long Term
and Other Debt
(continued)
|
The Company also has 13.5% PIK loan notes
payable to a syndicate of investors including parent entities to the Group. PIK loan notes have a final repayment date of July
6, 2018 and receive interest at a rate of 13.5%. This interest is accrued and compounded annually onto the loan notes on
September 30 each year. Loan notes may be transferred between parties but cannot be converted into other options or redeemed
before the final repayment date. At the repayment date, all PIK loan note liabilities are settled by GBP cheque payment.
PIK loan notes are repayable in full upon either a sale or a listing of the Group
.
PIK loan notes are held in proportion to the holders of Ordinary A shares. PIK loan balance to parent company at September
26, 2015, September 27, 2014 and September 28, 2013 amounted to $261.5 million, $246.9 million, and $214.9 million, respectively.
Long term debt at September 26, 2015 matures
as follows:
|
Fiscal period
|
|
Senior bank
debt
|
|
|
PIK loan notes
|
|
|
Capital leases
and hire
purchase
contract
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
2017
|
|
|
117,573
|
|
|
|
-
|
|
|
|
140
|
|
|
|
117,713
|
|
|
2018
|
|
|
-
|
|
|
|
307,444
|
|
|
|
40
|
|
|
|
307,484
|
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
2020
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
Total
|
|
|
117,573
|
|
|
|
307,444
|
|
|
|
190
|
|
|
|
425,207
|
|
|
|
14.
|
Fair Value
Measurements
|
Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset and liability in an orderly transaction between market participants at the measurement date. We estimate
the fair value of its assets and liabilities utilizing an established three-level hierarchy. The hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the measurement date as follows:
|
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2:
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in
markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all
significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially
the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated
with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.
|
|
|
Level 3:
|
Unobservable inputs that are supported by little or no market activity that are significant to the fair value of the asset
or liability. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that are unable
to be corroborated with observable market data.
|
The fair value of our financial assets
and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value
of our financial instruments, which are principally cash and cash equivalents, accounts receivable, prepaid expenses and other
current assets, accounts payable and accrued liabilities, approximates their recorded values.
For each period, derivative financial
instrument assets and liabilities measured at fair value on a recurring basis are included in the financial statements as per
the table below. All amounts are categorized as Level 2.
|
|
14.
|
Fair Value
Measurements
(continued)
|
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
168
|
|
|
|
-
|
|
|
Other long-term liabilities
|
|
|
(321
|
)
|
|
|
-
|
|
|
|
(189
|
)
|
Foreign currency forward contracts
Throughout the period we enter into contracts
to buy and sell foreign currency. These contracts are recorded on the balance sheets at each period end at fair value. These contracts
are typically short term in nature with maturities of six months to a year. We entered into forward contracts to sell Euros and
to purchase USD and the change in fair value of the derivative is recorded within interest income or expense in the Consolidated
Statements of Operations and Comprehensive Loss. For the period ended September 26, 2015, September 27, 2014 and September 28,
2013, we realized interest income or expense of $(488,000), $364,000, and $(212,000) respectively from changes in the fair value
of the derivative instrument.
|
15.
|
Stockholder's Deficit
|
Common stock
Common stock consists of four classes of
common shares. There are no shares reserved for future issuance. Common stock balances of shares authorized, issued and outstanding
as of September 26, 2015, September 27, 2014 and September 28, 2013 were as follows:
|
|
|
Shares
|
|
|
Common Stock
|
|
|
|
|
each
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
Class A Voting Shares, par value of £0.01
|
|
|
8,750,000
|
|
|
|
132
|
|
|
Class B Non-voting Shares, par value of £0.01
|
|
|
1,250,000
|
|
|
|
18
|
|
|
Class B2 Non-voting Shares, par value of £0.75
|
|
|
11,150
|
|
|
|
13
|
|
|
Class B3 Voting Shares, par value of £0.01
|
|
|
154,500
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,165,650
|
|
|
|
165
|
|
Class A Voting Shares
The holders of Class A shares are entitled
to receive dividends, when and as declared by the Board of Directors, and to vote on all matters entitled to be voted on by the
stockholders of the Company.
Class B Non-voting Shares
The holders of Class B shares have dividend
rights identical to those of the Class A holders, and also have the same rights on a winding up as the Class A shareholders. The
Class B holders receive dividends pro-rata with Class A holders in relation to the paid up amount on each share. The Class B shares
have no rights to vote.
|
|
15.
|
Stockholder's
Deficit
(continued)
|
Class B2 Non-voting Shares
The Class B2 shares are entitled to dividends
of 0.1% of the dividend payable on any A share subject to an annual cap of 10% of the paid up amount on each such share. Upon
winding up, the Class B2 shares will only participate up to the paid up amount plus a 10% per annum return of such paid up amount
and less any amounts already paid as dividends on the Class B2 shares. The Class B2 shares have no right to vote.
Class B3 Voting Shares
The Class B3 shares are entitled to dividends
of 0.1% of the dividend payable on any A share subject to an annual cap of 10% of the paid up amount on each such share. Upon
winding up, the Class B3 shares will only participate up to the paid up amount plus a 10% per annum return of such paid up amount
and less any amounts already paid as dividends on the Class B3 shares. B3 shares carry 10 votes each on a poll and on a show of
hands they carry one vote.
Additional paid in capital
Additional paid in capital represents
the excess of amounts paid for common shares over their stated par value. There have been no changes in additional paid in capital
during the periods ended September 26, 2015, September 27, 2014 and September 28, 2013.
Prior to September 29, 2012 we granted
performance-conditioned Class B shares with a grant date fair value of nil and a three-year vesting schedule to certain members
of our management. The shares have an exit date enterprise value target. The shares vest over three years from the date of acquisition
by the majority shareholders of the Company, Vitruvian Partners Ltd. All shares were fully vested at the opening balance sheet
date, September 29, 2012. If the enterprise value is not met on winding up or exit by Vitruvian Partners Ltd, the shares will
be worthless. Since an exit on winding up is generally not probable until it occurs, no compensation cost has been recognized
in the financial statements. The fair value of the shares is nil as of September 26, 2015, September 27, 2014, and September 28,
2013, respectively.
We operate a combined scheme which comprises
of a defined benefit section and a defined contribution section.
The defined contribution scheme assets
are held separately from those of the Group in an independently administered fund. The pension cost charge represents contributions
payable by the Group and amounted to $1,549,000, $1,685,000 and $1,154,000 for the periods ending September 26, 2015, September
27, 2014, and September 28, 2013, respectively. Contributions totaling $240,000, $259,000 and $200,000 were payable to the fund
as at September 26, 2015, September 27 2014, and September 28 2013, respectively.
The defined benefit section has been closed
to future accruals for services rendered to the Company for the entire financial statement periods presented in these consolidated
financial statements. Retirement benefits are generally based on a portion of an employee's pensionable earnings during years
prior to 2010. Our policy is to make contributions according to schedules agreed with the trustee every 3 years after completion
of the triennial valuation undertaken by the scheme’s actuaries. We estimate that $4.1 million will be contributed to the
pension plan in the period ending September 24, 2016. The latest actuarial valuation of the scheme as at March 31, 2015 revealed
a funding shortfall and a recovery plan consisting of additional contributions payable to the scheme has been put into place.
|
|
17.
|
Pension
Plan
(continued)
|
The trustee has made an allowance for
the pension scheme liability profile when deciding the investment strategy of the pension scheme. Since the pension scheme is
closed to new entrants and ceased future accrual with effect from March 31, 2010 it has continued to mature gradually. Therefore,
the trustee reviews the investment strategy regularly to check whether any changes are needed. When considering the investment
strategy, the trustee has taken into account the effect of any possible increases in the deficit reduction contributions on the
financial position of the Company, and the extent to which the Company will be able to bear these changes.
The plan investment policy is to maximize
long-term financial return commensurate with security and minimizing risk. This is achieved by holding a portfolio of marketable
investments that avoids over-concentration of investment and spreads assets both over industries and geographies. In setting investment
strategy, the trustees considered the lowest risk strategy that they could adopt in relation to the plan's liabilities and designed
an asset allocation to achieve a higher return while maintaining a cautious approach to meeting the plan's liabilities. The trustees
undertook a review of investment strategy and took advice from their investment advisors. They considered a full range of asset
classes, the risks and rewards of a range of alternative asset allocation strategies, the suitability of each asset class and
the need for appropriate diversification. The current strategy is to hold approximately 30% in a global return fund, approximately
25% in U.K. equities, approximately 20% in real estate, approximately 16% in non-U.K. equities and approximately 9% in corporate
bonds.
Our pension benefit costs are calculated
using various actuarial assumptions and methodologies. These assumptions include discount rates, inflation, expected returns on
plan assets, mortality rates and other factors. The assumptions utilized in recording the obligations under our plans represent
our best estimates, and we believe that they are reasonable, based on information as to historical experience and performance
as well as other factors that might cause future expectations to differ from past trends. Differences in actual experience or
changes in assumptions may affect our pension obligations and future expense. The primary factors contributing to actuarial gains
and losses each year are (1) changes in the discount rate used to value pension benefit obligations as of the measurement date
and (2) differences between the expected and the actual return on plan assets.
Our valuation methodologies used for pension
assets measured at fair value are as follows. There have been no changes in the methodologies used at September 26, 2015, September
27, 2014 and September 28, 2013.
The diversified fund is valued at fair
value by using the net asset value (“NAV”) of shares held by the plan at the year end. The NAV of the diversified
fund is not publicly quoted. The majority of the underlying securities have observable Level 1 or 2 pricing inputs, including
quoted prices for similar assets in active or non-active markets. ASC 820, Fair Value Measurements and Disclosures, allows NAV
per share to serve as a practical expedient to estimate the fair value of the diversified fund. ASC 820 also states that where
NAV is allowed to be used as an estimate of fair value, if the reporting entity has the ability to redeem its investment at NAV
as of the measurement date, that investment shall be categorized as a Level II fair value measurement. If the investment cannot
be redeemed at the measurement date, but may be redeemable in the future, but at an uncertain date, the investment shall be categorized
as a Level 3 fair value measurement.
As of September 26, 2015 and September
27, 2014, the diversified fund was redeemable at NAV as of the measurement dates and, therefore, classified as Level 2.
With respect to the buy-in contract, it
was agreed during the year ended September 27, 2014, that 281 pensioners of the plan would be insured by means of a pensioner
buy-in. The liabilities and assets in respect of insured pensioners are assumed to match for the purposes of ASC 715, Pensions
- Retirement Benefits, disclosures (i.e. the full benefits have been insured). The approach adopted has therefore been to include
within the total value of assets, an amount equal to the calculated total liability value of the insured pensioners on the actuarial
assumptions adopted for ASC 715 purposes. The buy-in contract is, therefore, classified as Level 3
|
|
17.
|
Pension
Plan
(continued)
|
The following table sets forth the combined
funded status of the pension plans and their reconciliation to the related amounts recognized in our consolidated financial statements
at our September 26, 2015, September 27, 2014, and September 28, 2013 measurement dates:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
|
100,315
|
|
|
|
101,701
|
|
|
|
83,196
|
|
|
Interest cost
|
|
|
3,879
|
|
|
|
4,666
|
|
|
|
3,816
|
|
|
Actuarial (gain) loss
|
|
|
3,585
|
|
|
|
(4,192
|
)
|
|
|
17,924
|
|
|
Benefits paid
|
|
|
(2,641
|
)
|
|
|
(3,112
|
)
|
|
|
(2,432
|
)
|
|
Foreign currency translation adjustments
|
|
|
(6,656
|
)
|
|
|
1,252
|
|
|
|
(803
|
)
|
|
Benefit obligation at end of period
|
|
|
98,482
|
|
|
|
100,315
|
|
|
|
101,701
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
|
95,460
|
|
|
|
101,869
|
|
|
|
90,937
|
|
|
Actual gain/(loss) on plan assets
|
|
|
3,245
|
|
|
|
(7,859
|
)
|
|
|
10,294
|
|
|
Employer contributions
|
|
|
3,876
|
|
|
|
3,309
|
|
|
|
3,948
|
|
|
Benefits paid
|
|
|
(2,641
|
)
|
|
|
(3,112
|
)
|
|
|
(2,432
|
)
|
|
Foreign currency translation adjustments
|
|
|
(6,335
|
)
|
|
|
1,253
|
|
|
|
(878
|
)
|
|
Fair value of assets at end of period
|
|
|
93,605
|
|
|
|
95,460
|
|
|
|
101,869
|
|
|
Amount recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status (current)
|
|
|
-
|
|
|
|
-
|
|
|
|
168
|
|
|
Unfunded status (non-current)
|
|
|
(4,877
|
)
|
|
|
(4,855
|
)
|
|
|
-
|
|
|
Unrecognized surplus
|
|
|
-
|
|
|
|
-
|
|
|
|
(168
|
)
|
|
Net amount recognized
|
|
|
(4,877
|
)
|
|
|
(4,855
|
)
|
|
|
-
|
|
The following table presents the components
of our net periodic pension benefit cost:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Components of net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
3,879
|
|
|
|
4,666
|
|
|
|
3,816
|
|
|
Expected return on plan assets
|
|
|
(3,728
|
)
|
|
|
(4,933
|
)
|
|
|
(3,829
|
)
|
|
Net periodic cost
|
|
|
151
|
|
|
|
(267
|
)
|
|
|
(13
|
)
|
The accumulated benefit obligation for
all defined benefit pension plans was $98.5 million, $100.3 million and $101.7 million as of September 26, 2015, September 27,
2014, and September 28, 2013, respectively. The underfunded status of our defined benefit pension plans recorded as a liability
in our Consolidated Balance Sheets as of September 26, 2015 and September 27, 2014, was $4.9 million and $4.9 million, respectively.
As of September 28, 2013 the plan was not underfunded.
|
|
17.
|
Pension
Plan
(continued)
|
The fair value of the plan assets at September
26, 2015 by asset category is presented below:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified fund
|
|
|
-
|
|
|
|
51,273
|
|
|
|
-
|
|
|
|
51,273
|
|
|
Buy-in contract
|
|
|
-
|
|
|
|
-
|
|
|
|
41,570
|
|
|
|
41,570
|
|
|
Cash
|
|
|
762
|
|
|
|
-
|
|
|
|
-
|
|
|
|
762
|
|
|
Total
|
|
|
762
|
|
|
|
51,273
|
|
|
|
41,570
|
|
|
|
93,605
|
|
The change in fair value of the pension
assets during 2015 valued using significant unobservable inputs (Level 3) is presented below:
|
|
|
$ '000
|
|
|
|
|
|
|
|
Beginning balance at September 27, 2014
|
|
|
43,594
|
|
|
Purchases
|
|
|
-
|
|
|
Unrealized loss on asset still held at September 26, 2015
|
|
|
(2,024
|
)
|
|
Ending balance at September 26, 2015
|
|
|
41,570
|
|
The fair value of the plan assets at September
27, 2014 by asset category is presented below:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified fund
|
|
|
-
|
|
|
|
50,919
|
|
|
|
-
|
|
|
|
50,919
|
|
|
Buy-in contract
|
|
|
-
|
|
|
|
-
|
|
|
|
43,594
|
|
|
|
43,594
|
|
|
Cash
|
|
|
947
|
|
|
|
-
|
|
|
|
-
|
|
|
|
947
|
|
|
Total
|
|
|
947
|
|
|
|
50,919
|
|
|
|
43,594
|
|
|
|
95,460
|
|
The change in fair value of the pension
assets during 2014 valued using significant unobservable inputs (Level 3) is presented below:
|
|
|
$ '000
|
|
|
|
|
|
|
|
Beginning balance at September 28, 2013
|
|
|
9,120
|
|
|
Purchases
|
|
|
43,594
|
|
|
Sales
|
|
|
(10,066
|
)
|
|
Unrealized gain on asset still held at September 27, 2014
|
|
|
946
|
|
|
Ending balance at September 27, 2014
|
|
|
43,594
|
|
|
|
17.
|
Pension
Plan
(continued)
|
The fair value of the plan assets at September
28, 2013 by asset category is presented below:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
49,964
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,964
|
|
|
Property funds
|
|
|
-
|
|
|
|
-
|
|
|
|
9,120
|
|
|
|
9,120
|
|
|
UK Government Bonds
|
|
|
-
|
|
|
|
41,766
|
|
|
|
-
|
|
|
|
41,766
|
|
|
Cash
|
|
|
1,019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,019
|
|
|
Total
|
|
|
50,983
|
|
|
|
41,766
|
|
|
|
9,120
|
|
|
|
101,869
|
|
The table below presents the weighted-average
actuarial assumptions used to determine the benefit obligation and net periodic benefit cost for the Plan.
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.10
|
%
|
|
|
4.20
|
%
|
|
|
4.60
|
%
|
|
Expected return on assets
|
|
|
3.95
|
%
|
|
|
4.15
|
%
|
|
|
4.80
|
%
|
|
RPI inflation
|
|
|
3.30
|
%
|
|
|
3.20
|
%
|
|
|
3.50
|
%
|
|
CPI inflation
|
|
|
2.30
|
%
|
|
|
2.20
|
%
|
|
|
2.70
|
%
|
|
Pension increases – pre-2006 service
|
|
|
3.20
|
%
|
|
|
3.10
|
%
|
|
|
3.40
|
%
|
|
Pension increases – post-2006 service
|
|
|
2.20
|
%
|
|
|
2.20
|
%
|
|
|
2.30
|
%
|
The following benefit payments are expected
to be paid:
|
|
|
$ '000
|
|
|
2016
|
|
|
2,700
|
|
|
2017
|
|
|
2,790
|
|
|
2018
|
|
|
2,881
|
|
|
2019
|
|
|
2,977
|
|
|
2020
|
|
|
3,074
|
|
|
Thereafter (5 years from September 2020)
|
|
|
16,965
|
|
On December 23, 2014, the Group purchased
the remaining 50% shares in Merkur Inspired Limited for a total consideration of £1. As part of the transaction, the selling
party agreed to waive payables amounting to $2,430,589. The purchase has been accounted for under the acquisition method, On January
2, 2015, Merkur Inspired Limited changed its name to Inspired Gaming (Italy) Limited.
Assets and liabilities acquired in the
acquisition were as follows:
|
|
|
Fair value
|
|
|
|
|
$ '000
|
|
|
Assets and liabilities acquired
|
|
|
|
|
|
Property and equipment
|
|
|
39
|
|
|
Inventory
|
|
|
2
|
|
|
Accounts receivable, prepaid expenses and other current assets
|
|
|
357
|
|
|
Cash and cash equivalents
|
|
|
506
|
|
|
Accounts payable
|
|
|
(712
|
)
|
|
Accrued expenses
|
|
|
(954
|
)
|
|
Corporate tax and other current taxes payable
|
|
|
(53
|
)
|
|
Other current liabilities
|
|
|
(228
|
)
|
|
Total identifiable net assets assumed
|
|
|
(1,043
|
)
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,043
|
|
|
Total
|
|
|
-
|
|
The goodwill arising upon acquisition
is not deductible for tax purposes.
|
|
19.
|
Accumulated
Other Comprehensive (Loss) Income
|
The accumulated balances for each classification
of comprehensive (loss) income are presented below:
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrecognized
pension
benefit costs
|
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2012
|
|
|
(51
|
)
|
|
|
4,818
|
|
|
|
4,767
|
|
|
Change during the period
|
|
|
1,458
|
|
|
|
2,637
|
|
|
|
4,095
|
|
|
Balance at September 28, 2013
|
|
|
1,407
|
|
|
|
7,455
|
|
|
|
8,862
|
|
|
Change during the period
|
|
|
1,049
|
|
|
|
8,739
|
|
|
|
9,788
|
|
|
Balance at September 27, 2014
|
|
|
2,456
|
|
|
|
16,194
|
|
|
|
18,650
|
|
|
Change during the period
|
|
|
(15,059
|
)
|
|
|
3,950
|
|
|
|
(11,109
|
)
|
|
Balance at September 26, 2015
|
|
|
(12,603
|
)
|
|
|
20,144
|
|
|
|
7,541
|
|
The following is income (loss) before
income taxes:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
UK
|
|
|
(56,895
|
)
|
|
|
(68,358
|
)
|
|
|
(61,840
|
)
|
|
Mainland Europe
|
|
|
(1,610
|
)
|
|
|
1,371
|
|
|
|
179
|
|
|
South America
|
|
|
(711
|
)
|
|
|
(516
|
)
|
|
|
(564
|
)
|
|
Total loss before income taxes
|
|
|
(59,216
|
)
|
|
|
(67,503
|
)
|
|
|
(62,225
|
)
|
The income tax expense consisted of the
following for the periods ended September 26, 2015, September 27, 2014, and September 28, 2013:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
163
|
|
|
|
86
|
|
|
|
-
|
|
|
Mainland Europe
|
|
|
395
|
|
|
|
222
|
|
|
|
367
|
|
|
South America
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
Total current taxes
|
|
|
631
|
|
|
|
308
|
|
|
|
367
|
|
The net deferred tax assets and liabilities
arising from temporary differences at September 26, 2015, September 27, 2014, and September 28, 2013 are as follows:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
30,103
|
|
|
|
37,818
|
|
|
|
34,962
|
|
|
Net operating losses
|
|
|
16,493
|
|
|
|
8,382
|
|
|
|
5,021
|
|
|
Other temporary differences
|
|
|
503
|
|
|
|
529
|
|
|
|
3,145
|
|
|
Total deferred tax assets
|
|
|
47,099
|
|
|
|
46,729
|
|
|
|
43,128
|
|
|
Valuation allowance balance
|
|
|
(43,475
|
)
|
|
|
(42,031
|
)
|
|
|
(37,679
|
)
|
|
Net deferred tax assets
|
|
|
3,624
|
|
|
|
4,698
|
|
|
|
5,449
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(3,624
|
)
|
|
|
(4,698
|
)
|
|
|
(5,449
|
)
|
|
Net deferred tax liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20.
|
Income
Taxes
(continued)
|
The differences between the UK statutory
tax rate and our effective rate for the periods ended September 26, 2015, September 27, 2014, and September 28, 2013 are reflected
in the following table:
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK statutory income tax
|
|
|
20.5
|
%
|
|
|
22.0
|
%
|
|
|
23.5
|
%
|
|
Tax effect of permanent differences
|
|
|
-2.2
|
%
|
|
|
-4.5
|
%
|
|
|
-9.9
|
%
|
|
Income not taxable
|
|
|
-
|
|
|
|
-
|
|
|
|
6.3
|
%
|
|
ATCA interest disallowed
|
|
|
-14.7
|
%
|
|
|
-11.1
|
%
|
|
|
-15.9
|
%
|
|
Movement in provisions
|
|
|
0.1
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Effect of foreign taxes
|
|
|
-0.9
|
%
|
|
|
-0.4
|
%
|
|
|
-
|
|
|
Tax losses utilized
|
|
|
-
|
|
|
|
1.4
|
%
|
|
|
-
|
|
|
Valuation allowance
|
|
|
-3.8
|
%
|
|
|
-7.9
|
%
|
|
|
-4.8
|
%
|
|
Effective income tax rate
|
|
|
-1.0
|
%
|
|
|
-0.5
|
%
|
|
|
-0.8
|
%
|
The valuation allowance on deferred tax
assets has been determined by considering all available evidence, both positive and negative, in order to ascertain whether it
is more likely than not that carried forward deferred tax assets will be realized. Inspired Gaming (UK) Limited has a total potential
deferred tax asset carried forward of $37,393,000 at September 26, 2015 (forming the majority of the total potential Group deferred
tax asset carried forward of $47,099,000). In addition, Gaming Acquisition Limited (a Group subsidiary) has a deferred tax asset
of $6,589,000 which relates to non-trade losses carried forward. Information provided by management indicates that current level
of profitability across the Group will not be sufficient to utilize these losses in the current period (as has been done in previous
periods). Losses can be carried forward indefinitely.
On consideration of the cumulative net
losses in Inspired Gaming UK Limited and Gaming Acquisitions Limited over the three periods ending September 26, 2015, the Group
has recorded a full valuation allowance of $43,475,000.
As of September 26, 2015 there are no
liabilities relating to tax penalties and interest and the periods ending September 27, 2014 and September 26, 2015 remain open
to examination by taxing authorities.
The Group is not subject to taxation in
the US. However, foreign tax is applicable in foreign jurisdictions (primarily in Europe), where the total of non-UK taxes payable
for the period ended September 26, 2015 is $467,000. All deferred tax items are attributable to UK operations.
A provision of $46,000 has been included
within current taxes as at September 26, 2015 to reflect an uncertain tax position relating to interest deductions. There are
no similar tax provisions included as at September 27, 2014 or September 28, 2013.
Reductions in the UK corporation tax rate
from 20% to 19% (effective April 1, 2017), and to 18% (effective April 1, 2020) were substantively enacted on October 26, 2015.
This will reduce the Group’s future tax charge accordingly.
The Group has not recognized deferred
tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries.
We entered into several agreements with
various service companies in which certain of our current Board members have direct or indirect ownership interests, and, in some
cases, are also directors of these companies.
|
|
|
|
|
September 26,
2015
|
|
|
September 27,
2014
|
|
|
September 28,
2013
|
|
|
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Openbet Retail Limited
|
|
Total revenue
|
|
|
2,436
|
|
|
|
2,685
|
|
|
|
2,631
|
|
|
Loxley Strategic Consulting Limited
|
|
Selling, general and administrative expenses
|
|
|
(223
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Openbet Retail Limited
|
|
Accounts receivable
|
|
|
189
|
|
|
|
459
|
|
|
|
209
|
|
|
Openbet Limited
|
|
Accounts receivable
|
|
|
17
|
|
|
|
49
|
|
|
|
60
|
|
The Company evaluates subsequent events
occurring between the most recent balance sheet date and the date that the financial statements are available to be issued in
order to determine whether the subsequent events are to be recorded and/or disclosed in the Company’s financial statements
and footnotes. We have evaluated subsequent events through the date these financial statements were issued.
In December 2015, a restructuring of the
management shareholding structure was undertaken. This resulted in management being issued new shares in the Company and certain
growth shares in Inspired Gaming Group Limited. The reorganization consisted of the steps set out below.
Company
985,361 B Non-voting Shares, B2 Non-voting
Shares, and B3 Voting Shares in the Company held by various members of management were gifted back to the Company and re-designated
as deferred shares. The fair value of each class of shares of the gift was not material.
The Company created a new class of B1
Non-voting shares with broadly the same income and capital rights as the A Voting Shares (but which additionally have the benefit
of a ratchet dependent on the returns to the investors) and issued 314,361 B1 Non-voting Shares to members of management. In addition
options for 393,222 B1 Non-voting Shares were granted to members of management. These options are only exercisable conditional
on any exit of the shareholders from the Company and lapse if they are not exercised by the completion of any such exit. Both
B1 Non-voting Shares and the options for the B1 Non-voting Shares vested upon grant to management, and the fair value and resulting
share based payment expense were not material.
|
|
22.
|
Subsequent
Events
(continued)
|
Inspired Gaming Group Limited
Two new classes of shares were created
in Inspired Gaming Group Limited, a subsidiary of the Company, comprising B ordinary shares and C ordinary shares with par values
of £0.00001 each. These shares have voting rights and identical economic rights to each other, except B ordinary shares
also gave each holder the right to put all of the B ordinary shares onto Gaming Acquisitions Limited, another subsidiary of the
Company, for a price of £2,250. The put options were required to be exercised by the relevant holder within 60 days of the
issue of B ordinary shares and all expired unexercised. The fair value of the put options were not material at the date of the
grant of the B ordinary shares to management.
The B ordinary shares were issued to the
relevant management shareholders under the employee shareholder scheme provisions such that each relevant manager gave up certain
employment rights and did not pay any consideration for the issue of these shares. There were 2,800,000 B ordinary shares issued
and 500 of C ordinary shares issued to members of management. All shares vested upon grant.
The C ordinary shares have a right to
any dividends or distributions declared in respect of the C ordinary shares at the discretion of the directors. Their economic
entitlement on an exit is calculated by a formula referenced to the returns on the PIK loan notes in Note 12 once a specified
exit hurdle amount has been exceeded. Once this hurdle is exceeded the C ordinary shares have a minimum value of £0.40 per
C ordinary share which can increase as the returns on the PIK loan notes increase to a maximum amount (assuming for this purpose
a transaction date of 12 March 2016) of approximately £0.75 per C ordinary share.
A similar valuation mechanism applies
for the C ordinary shares if an exit happens at certain other subsidiaries of DMWSL 633 Limited.
The fair value and resulting share based
payment expense of the B and C ordinary shares were not material upon issuance to management.
A claim from the Performing Rights Society
is ongoing and relates to the alleged infringement of copyrighted material of the Performing Rights Society's members in certain
games on Fixed Odds Betting Terminals in UK Licensed Betting Offices. The Company and the other defendants (who have formed a
litigation club) filed a defense to the claim raised by the Performing Rights Society on December 22, 2015. The parties have mutually
agreed to begin a process of mediation in September 2016. The Company has made a provision in the subsequent period ending April,
9 2016, of $0.4 million, which management believes to be adequate to cover the total net exposure to the Company, including professional
fees.
On July 14, 2016 it was announced that
Hydra Industries Acquisition Corp. (“Hydra”), a special purpose acquisition company listed on the NASDAQ stock exchange,
had entered into a definitive agreement to acquire DMWSL 633 Limited and associated subsidiaries. The proposed transaction has
been unanimously approved by the Boards of Directors of both Hydra and Inspired, and is expected to close in October 2016, subject
to approval by Hydra's shareholders, required regulatory approvals and other customary closing conditions. Immediately after the
closing, Hydra intends to change its name to Inspired Entertainment, Inc.
On completion of the transaction, the
Company will receive a cash injection of approximately $6.6 million in addition to funds to settle transaction costs for the combined
Group of approximately $20.4 million, $5.4 million of management bonuses, the settlement of $11.4 million of PIK interest on senior
debt and the settlement of $2.8 million of cash accrued interest. The management bonuses, settlement of PIK interest
and certain other transaction costs are contingent on the completion of the transaction
The merger will be accounted for as a
reverse merger in accordance with accounting principles generally accepted in the United States of America.
There were no other subsequent events
or transactions that required recognition or disclosure in the consolidated financial statements.
Annexes to Proxy
Statement
Annex A
EXECUTION VERSION
DATED 13 July 2016
SHARE SALE AGREEMENT
made among
THOSE PERSONS IDENTIFIED IN SCHEDULE
1
as Vendors
and
HYDRA INDUSTRIES ACQUISITION CORP.
as Purchaser
relating to the sale and purchase
of
shares in DMWSL 633 Limited
CONTENTS
THIS AGREEMENT
is made on the
13th day of July 2016
AMONG
:
|
|
(1)
|
THE SEVERAL PERSONS IDENTIFIED
IN SCHEDULE 1
(the "
Vendors
");
|
|
|
(2)
|
Hydra Industries Acquisition
Corp.
, a company incorporated in the State of Delaware, USA, having its executive
offices at 250 West 57th Street, New York NY 10107 (the "
Purchaser
");
|
|
|
(3)
|
DMWSL 633 Limited,
a company
incorporated in England and Wales with registered number 07176544 and having its registered
office at 3 The Maltings, Wetmore Road, Burton-on-Trent, Staffordshire DE14 1SE (the
"
Company
");
|
|
|
(4)
|
DMWSL 632 Limited,
a company
incorporated in England and Wales with registered number 07176582 and having its registered
office at 3 The Maltings, Wetmore Road, Burton-on-Trent, Staffordshire DE14 1SE ("
DMWSL
632
"); and
|
|
|
(5)
|
Gaming Acquisitions Limited,
a company incorporated in England and Wales with registered number 07120910 and having
its registered office at 3 The Maltings, Wetmore Road, Burton-on-Trent, Staffordshire
DE14 1SE (the "
Management Incentive Parent
").
|
BACKGROUND
|
|
(A)
|
The Vendors are the legal and beneficial
owners of (or are otherwise entitled to transfer the legal and beneficial ownership of)
(i) that number of Sale Shares as are set out directly opposite their respective names
in column (3) of the tables in Schedule 1, and (ii) that number of Shareholder Loan Notes
as are set out directly opposite their respective names in column (4) of the tables in
Schedule 1.
|
|
|
(B)
|
Each of the Vendors has agreed
to sell the Sale Shares and the Shareholder Loan Notes held by it, and the Purchaser
has agreed to purchase such Sale Shares and Shareholder Loan Notes, in each case on the
terms and subject to the conditions set out in this Agreement.
|
|
|
(C)
|
The sale of the Sale Shares on
the terms and subject to the conditions set out in this Agreement is intended to comprise
a "Relevant Sale" for the purposes of the Articles. Therefore, upon this Agreement
becoming unconditional, the Purchaser is entitled to require the Company as agent for
the Purchaser to serve notices on the Minority Shareholders requiring them to sell the
Minority Shares to the Purchaser upon the terms set out in the Articles.
|
|
|
(D)
|
Prior to Completion pursuant to
the terms of this Agreement the Shareholder Loan Notes are to be restructured, with the
new loan notes issued as part of this restructuring containing a drag right. As above,
upon this Agreement becoming unconditional, the Purchaser will therefore be entitled
to require the Company as agent for the Purchaser to serve notices on the Minority Shareholders
requiring them to sell their Shareholder Loan Notes to the Purchaser upon the terms set
out in the relevant instrument.
|
|
|
(E)
|
The sale of the Sale Shares on
the terms and subject to the conditions set out in this Agreement is also intended to
comprise a Parent Exit Event for the purposes of the articles of association of Inspired
Gaming Group Limited. Following signing, the Management Incentive Parent will serve a
Call Exercise Notice on the Growth Shareholders requiring them to sell the shares they
hold in Inspired Gaming Group Limited.
|
|
|
(F)
|
Hydra Industries Sponsor LLC and
MIHI LLC (together, the "
Sponsors
") have delivered to the Company a
side letter to the Voting and Support Agreement (the "
Sponsor Voting Agreement
"),
dated as of the date hereof, pursuant to which, among other things, the Persons indicated
in that document have agreed to vote their Purchaser Stock in favour of certain matters
(including the Transaction (as defined below) and certain other proposals of the Purchaser
set forth in its Proxy Statement), all on the terms and subject to the conditions set
forth therein).
|
IT IS AGREED
as follows.
|
|
1.
|
Definitions
and Interpretation/Basis of Obligations
|
|
|
1.1.
|
In this Agreement and the Schedules
unless the context shall otherwise require, words and expressions shall be interpreted
in accordance with and have the meaning ascribed to them in Schedule 8.
|
|
|
1.2.
|
For the avoidance of doubt the
obligations of each of the Vendors under this Agreement are entered into on a several
basis and so no claim may be made against any Vendor in respect of a breach of this Agreement
by any other Vendor.
|
|
|
2.
|
Sale
and Purchase of Sale Shares
|
|
|
2.1.
|
Each of the Vendors agrees to sell
those Sale Shares as are set out directly opposite their name in column (3) of the table
in Part A of Schedule 1 or column (3) of the table in Part B of Schedule 1, and to sell
the Exchange Shares held by them as at Completion, on the terms and subject to the Conditions
Precedent set out in this Agreement. The Purchaser agrees to buy the Sale Shares on those
terms and subject to the Conditions Precedent.
|
|
|
2.2.
|
The Sale Shares are sold free from
Encumbrances and purchased together with all rights attached to them (including the right
to receive any dividends) at Completion or accruing after Completion.
|
|
|
2.3.
|
Each of the Vendors waives any
restrictions on transfer (including pre-emption rights) enforceable by it in relation
to the transfer of the Sale Shares under this Agreement and consents to such transfer
for all relevant purposes, including for the purposes of the Articles.
|
|
|
3.
|
Sale
and Purchase of Minority Shares and Minority Shareholder Loan Notes
|
|
|
3.1.
|
Each of the Vendors hereby acknowledges
and agrees that the sale of the Sale Shares pursuant to this Agreement is intended to
constitute a "Relevant Sale" for the purposes of Article 43.1 (
Institutional
Drag Along
) of the Articles (the "
Drag Provision
"). Each of the
Loan Noteholders further acknowledges and agrees that the sale of the Shareholder Loan
Notes is also be intended to constitute a "Relevant Sale" for the purposes
of the Drag Right to be contained in the 633 Loan Note Instrument.
|
|
|
3.2.
|
Each of the Vendors, for so long
as they hold shares in the Company
,
hereby undertakes to the Purchaser to exercise
their rights as a shareholder in the Company (including by voting in favour of any required
shareholder resolutions) as reasonably required by the Purchaser in order to facilitate
the operation of the Drag Provision.
|
|
|
3.3.
|
Each of the 633 Loan Note Vendors
hereby undertakes to the Purchaser that they will exercise their rights as a holder of
633 Loan Notes (including by voting in favour of any loan note holder resolutions) as
reasonably required by the Purchaser in order to facilitate the operation of the drag
provision to be contained in the 633 Loan Note Instrument (the "
633 Drag Provision
")
created as part of the Pre-Completion Restructuring.
|
|
|
3.4.
|
The Company hereby undertakes to
the Purchaser that it will, promptly upon receipt of a written notice from the Purchaser
to the Company (on or no later than 2 Business Days after the date on which it is notified
that the Conditions Precedent are satisfied), serve notices on the Minority Shareholders
as required under the Drag Provision and the 633 Drag Provision with the expectation
that completion of the procedure under the Drag Provision and the 633 Drag Provision
shall occur not later than 10 Business Days after Completion.
|
|
|
4.
|
Pre-Completion
Restructuring and Sale and Purchase of Shareholder Loan Notes
|
|
|
4.1.
|
Following receipt of the CP Satisfaction
Notice, each of the Vendors who are also holders of Shareholder Loan Notes, the Company
and DMWSL 632 shall comply with the provisions of Schedule 7 (to the extent applicable
to them) in accordance with the timescales set out therein, to restructure the Shareholder
Loan Notes prior to Completion.
|
|
|
4.2.
|
Each of the 633 Loan Note Vendors
agrees to sell such number of Shareholder Loan Notes as are held by them following the
Pre-Completion Restructuring on the terms set out in this Agreement. The Purchaser agrees
to buy the Shareholder Loan Notes on those terms and subject to the Conditions Precedent.
|
|
|
4.3.
|
The Shareholder Loan Notes are
sold free from Encumbrances and purchased together with all rights attached to them (including
the right to receive any interest) at Completion or accruing after Completion.
|
|
|
4.4.
|
Each of the Vendors waives any
restrictions on transfer (including pre-emption rights) enforceable by it in relation
to the restructuring or transfer of the Shareholder Loan Notes under this Agreement and
consents to such restructuring and transfer for all relevant purposes.
|
|
|
4.5.
|
The Vendors, in their capacity
as holders of Shareholder Loan Notes, agree that the Company shall not repay the outstanding
amounts of principal (or interest accrued thereon) on any Shareholder Loan Notes as a
result of Completion. This Agreement is intended to be an agreement by the Majority Noteholders
for the purposes of Clause 5.2 of the Shareholder Loan Note Instrument (and any equivalent
provision in the 633 Loan Note Instrument).
|
|
|
5.
|
Transfer
of Growth Shares
|
|
|
5.1.
|
The Management Incentive Parent
hereby acknowledges that the sale of the Sale Shares pursuant to this Agreement is intended
to constitute a Parent Exit Event for the purposes of paragraph 8 of the schedule of
the Articles of Association of Inspired Gaming Group Limited (the "
Opco Articles
").
|
|
|
5.2.
|
The Management Incentive
Parent hereby undertakes to the Purchaser that promptly following the signing of this
Agreement and prior to Completion, it shall serve on the Growth Shareholders a notice
specifying that it intends to issue a Call Exercise Notice on the Growth Shareholders
requiring them to transfer their Growth Shares to it on Completion, such transfer being
conditional only upon the Completion of this Agreement. The Management Incentive Parent
further undertakes that at least two Business Days prior to Completion of this Agreement
it will serve such a Call Exercise Notice on the Growth Shareholders to acquire the Growth
Shares on Completion.
|
|
|
5.3.
|
The Management Incentive
Parent, for so long as it holds shares in Inspired Gaming Group Limited, hereby undertakes
to the Purchaser to exercise its rights as a shareholder in Inspired Gaming Group Limited
(including by voting in favour of any required shareholder resolutions) as reasonably
required by the Purchaser in order to facilitate the transfer of the Growth Shares, subject
to the terms of this Agreement.
|
|
|
6.
|
Conditions
Precedent/Termination Rights
|
Conditions Precedent
|
|
6.1.
|
The obligation of the parties
to proceed to Completion is conditional upon:
|
|
|
(a)
|
the Purchaser Stockholder
Approval having been duly obtained and the Charter Amendment having been duly approved
and adopted by the stockholders of the Purchaser by the requisite vote under the laws
of the State of Delaware and the Purchaser's certificate of incorporation;
|
|
|
(b)
|
receipt of written confirmation
from the Gambling Commission that all Operating Licences held by Inspired Gaming (UK)
Limited shall continue to have effect following Completion of the transaction envisaged
by this Agreement without the imposition of any new and unduly onerous conditions, remedies
or requirements which are not accepted by the Purchaser, having regard to the requirements
of Clause 6.2 (the "
Gambling Commission Condition
");
|
|
|
(c)
|
the licensing authority
of Gibraltar (the "
Gibraltar Licensing Authority
") having given their
written approval to Completion of the proposed transaction under paragraph 4 of Schedule
1 of the Gambling Act 2005 (the "
Gibraltar Gambling Act
") without the
imposition of any new and unduly onerous conditions, remedies or requirements which are
not accepted by the Purchaser, having regard to the requirements of Clause 6.2 (the "
Gibraltar
Condition
");
|
|
|
(d)
|
receipt of written confirmation
from the Alderney Gambling Control Commission ("
AGCC
") confirming that
the Core Services Provider Associate Certificate (as defined in the Alderney & Gambling
Regulations 2009) held by Inspired Gaming (UK) Limited shall continue to have effect
following Completion without the imposition of any new and unduly onerous conditions,
remedies or requirements which are not accepted by the Purchaser, having regard to the
requirements of Clause 6.2 (the "
AGCC Condition
");
|
|
|
(e)
|
DMWSL 631 Limited delivering
a certificate (signed by an authorised signatory) confirming that no Event of Default
(as defined in the Group's Existing Financing Arrangements) has occurred under the terms
of the Group's Existing Financing Arrangements;
|
|
|
(f)
|
the Consideration Shares shall
have been approved for listing on the NASDAQ Capital Market, subject to official notice
of issuance;
|
|
|
(g)
|
the Offer shall have been completed
in accordance with the Proxy Statement/Information Statement; and
|
|
|
(h)
|
Purchaser shall have at least
$5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1)
of the Exchange Act) remaining after the closing of the Offer.
|
|
|
6.2.
|
The Purchaser shall accept all
conditions, undertakings, remedies or assurances required or imposed in relation to the
Gambling Commission Condition, the Gibraltar Condition and/or the AGCC Condition, provided
always that the Purchaser shall be entitled to refuse to accept any new or unduly onerous
condition, undertaking, remedy or assurance required or imposed in relation to the Gambling
Condition Approval, the Gibraltar Condition and/or the AGCC Condition that would materially
reduce the value of the Business taken as a whole and/or those separate parts of the
Business which are known as "VLT and ETG" or "Digital", in each case,
such separate part taken as a whole.
|
|
|
6.3.
|
The obligation of the Institutional
Vendors to proceed to Completion is conditional upon
|
|
|
(a)
|
the designees selected by the
Institutional Vendors' Representative (provided that such designees have been duly designated
at least 10 Business Days prior to the Completion Date) shall have been approved and
duly elected or appointed to the board of directors of Purchaser, effective as of the
Completion, and Purchaser shall have offered each of such designees the same opportunity
as the existing directors of the Purchaser to enter into an agreement for indemnification
(in addition to the indemnification provided for in Purchaser's organizational documents),
substantially in the agreed form ;
|
|
|
(b)
|
the Purchaser having available
upon Completion cash in an aggregate amount sufficient to pay all liabilities and obligations
of (i) the Purchaser due and required to be paid at Completion or by reason of Completion;
and (ii) the Group which are due and required to be paid at Completion or by reason of
Completion, in each case as identified in writing by the Institutional Vendors' Representative
and the Purchaser prior to the date hereof or as otherwise agreed in writing between
the Institutional Vendors' Representative and the Purchaser not less than 2 Business
Days prior to the Completion Date and provided further that this condition shall not
be satisfied if there is a reasonable requirement for any Vendor to provide funds for
such purposes (the "
Roll-over Condition
");
|
|
|
(c)
|
the Purchaser having
drawn down the sum of US$20,004,347.83 under the Purchaser's Macquarie Agreement; and
|
|
|
(d)
|
the Purchaser having confirmed
in writing that there is no deduction required by law to be made from any of the sums
payable (including in relation to the issuance of the Consideration Shares) to the Vendors
under this Agreement,
|
(Clauses 6.1 and 6.3 collectively,
the "
Conditions Precedent
").
Responsibility for Satisfaction
– Purchaser's Obligations
|
|
6.4.
|
The Purchaser hereby undertakes
at its own expense to use all reasonable endeavours (and the Vendors acknowledge that
these are limited unless it receives the cooperation of the Company in accordance with
Clause 6.5) to ensure the satisfaction of the Conditions Precedent as soon as practicable
and in any event prior to the Long Stop Date. In particular (but without limitation)
the Purchaser hereby undertakes to prepare (and with the co-operation of the Company)
submit fully any and all necessary filings or clearance requests as soon as reasonably
possible following the date of this Agreement (and in any event within 25 Business Days),
to subsequently comply with and satisfy all further requests for filings, submissions
or information from the Gambling Authorities and to give (or procure the giving) by any
or all members of the Purchaser's Group and any entity that the Purchaser or such member
of the Purchaser's Group has the ability to control or materially influence the policies
of, all reasonable undertakings, behavioural remedies or assurances required or requested
by the Gambling Authorities in order to obtain the clearances referred to in Clause 6.1
(but subject always to the proviso in Clause 6.2), including, without limitation:
|
|
|
(a)
|
in the preparation of a submission
to the Gambling Commission of an application under Sections 102(2)(b) and 103(3) of the
Gambling Act 2005 detailing the proposed transaction and the resulting changes of corporate
control (within the meaning of those sections) as soon as reasonably practicable after
the date of this Agreement (such application to be prepared by the Purchaser but submitted
by the Company pursuant to the provisions of Clause 6.9);
|
|
|
(b)
|
in the preparation of a submission
to the AGCC seeking confirmation that the Core Services Provider Associate Certificate
(as defined in the Alderney & Gambling Regulations 2009) held by Inspired Gaming
(UK) Limited shall continue to have effect following Completion as soon as reasonably
practicable after the date of this Agreement (such application to be prepared by the
Purchaser but submitted by the Company pursuant to the provisions of Clause 6.9);
|
|
|
(c)
|
to cooperate and comply with
any reasonable request of the Company, and provide the Company with any information or
documentation reasonably required, in relation to (i) the Company submitting a proposal
to the Gibraltar Licensing Authority under paragraph 4(1) of Schedule 1 of the Gibraltar
Gambling Act notifying the Gibraltar Licensing Authority of the proposed transaction
and the resulting Material Change, and (ii) any further or subsequent representations
the Company believes are necessary to make to the Gibraltar Licensing Authority in connection
with the proposal; and
|
|
|
(d)
|
at its own expense to deliver
to the Gibraltar Licensing Authority, to the extent required by the Gibraltar Licensing
Authority, a duly completed application for the grant of a licence in such form and manner,
and containing such information and documents, as may be prescribed by the Gibraltar
Licensing Authority in accordance with paragraph 1 of Schedule 1 of the Gibraltar Gambling
Act, including (without limitation) procuring that any or all members of the Purchaser's
Group and its and their directors, officers, and employees, and where possible any other
individuals reasonably required by the Gibraltar Licensing Authority, deliver any information,
undertakings or documentation required in connection therewith.
|
|
|
6.5.
|
Subject always to Clause 6.9 below,
the Purchaser undertakes to keep the Vendors' Representatives reasonably and promptly
informed as to the progress towards satisfaction of the Conditions Precedent and undertakes
to:
|
|
|
(a)
|
as soon as reasonably practicable,
notify the Vendors' Representatives and provide to them (or their nominated advisers)
copies (or in the case of non-written communications, reasonable details) of any communications
from the Gambling Authorities or any other person in relation to the subject matter of
the Conditions Precedent which are of significance to the Conditions Precedent; and
|
|
|
(b)
|
provide the Company and the
Vendors' Representatives (or their nominated advisers) with draft copies of all submissions
and material communications to the Gambling Authorities, in relation to the subject matter
of the Conditions Precedent with sufficient time so as to allow the Company and their
representatives a reasonable opportunity to provide comments on such submissions and
communications before they are submitted or sent (and also to take into account all reasonable
comments of the Company in the preparation of such drafts prior to their submission)
and as soon as reasonably possible (and in any event within two Business Days of being
submitted or sent) to provide the Company and the Vendors' Representatives (or their
nominated advisers) with copies of all such submissions and material communications in
the form submitted or sent; provided that if any information to be provided includes
the Purchaser's commercially sensitive information or any individual's personal data,
then the Purchaser need only provide copies which have had such commercially sensitive
information and/or personal data redacted.
|
|
|
6.6.
|
Subject only to the obtaining of
the Purchaser Stockholder Approval, the Purchaser warrants to the Vendors that there
exists no reason in relation to the Purchaser's Group (including any entity that has
the ability to control or materially influence the policies of the Purchaser or the Purchaser's
Group and any entity that a member of the Purchaser's Group has the ability to control
or materially influence the policies of) and/or any of its or their officers or managers
or, to the best of its knowledge, otherwise which would prevent the Purchaser from satisfying
the Conditions Precedent before the Long Stop Date.
|
|
|
6.7.
|
The Purchaser shall bear all filing,
licence and registration fees incurred in relation to any filing required to be made
in any jurisdiction in connection with the acquisition of the Sale Shares, the Shareholder
Loan Notes, and the Minority Shares by the Purchaser, and the Growth Shares by the Management
Incentive Parent.
|
Responsibility for Satisfaction
– Joint Obligations
|
|
6.8.
|
Each of the Purchaser and Landgame
S.à.r.l. severally undertake that between the date of this Agreement and the Completion
Date they will not (and they will procure that (i) any entity that has the ability to
control or materially influence the policies of any member of their group will not, and
(ii) no member of their group, or any entity that a member of their group has the ability
to control or materially influence the policies of will not) do or instruct any act the
effect of which is reasonably likely to prejudice the satisfaction of the Conditions
Precedent in good time or at all (and without limitation shall not acquire or agree to
acquire any business or assets which are competitive with the business of the Group).
|
|
|
6.9.
|
The Company and each of the Vendors
undertakes to cooperate fully and in good faith with the Purchaser in respect of any
information, assistance or otherwise which is within the control of the Company and or
the relevant Vendor and which is reasonably required by a Regulatory Authority in order
to allow the Purchaser in order to satisfy the Conditions Precedent.
|
|
|
6.10.
|
The Company and the Purchaser
shall, where permitted by the Gambling Authorities, use reasonable efforts to ensure
that both the Purchaser and the Company be allowed to attend all meetings with the Gambling
Authorities and, where appropriate, to make oral submissions at such meetings. Further,
the Company and the Purchaser shall, where permitted by the Gambling Authorities, and
where requested by the Institutional Vendors' Representative, allow a person nominated
by the Vendors to attend all meetings with the Gambling Authorities and, where appropriate,
to make oral submissions at such meetings.
|
Responsibility for Satisfaction
– Company's Obligations
|
|
6.11.
|
The Company shall ensure that
each Group Company:
|
|
|
(a)
|
provides, as soon as is reasonably
practicable, on written request, such information about the operations of the Group and
submits all documents and other information as is available to them and is reasonably
required to enable the Purchaser to fulfil the Conditions Precedent;
|
|
|
(b)
|
provides such assistance as
the Purchaser may reasonably require in order to fulfil the Conditions Precedent; and
|
|
|
(c)
|
signs and makes all submissions
to the Gambling Authorities which are reasonably required by the Purchaser to satisfy
the Conditions Precedent, provided that the Purchaser has first provided a draft of these
submissions to the Company and the Company has approved them, such approval not to be
unreasonably withheld or delayed.
|
|
|
6.12.
|
Without prejudice to the foregoing
and except as otherwise regulated by Clause 6.5 above, the Vendors and the Purchaser
shall notify each other of all requests and enquiries from any government, governmental,
supranational or trade agency, court or regulatory body relevant to the transaction evidenced
by this Agreement and those requests and enquiries shall be dealt with by the Vendors
and the Purchaser in consultation with each other and the Vendors and the Purchaser shall
co-operate with and provide all necessary information available to them and assistance
reasonably required by such government, agency, court or body upon being requested to
do so by the other.
|
Notices of Satisfaction
|
|
6.13.
|
The Purchaser shall give notice
to the Vendors' Representatives of the satisfaction of the Conditions Precedent promptly
and in any event within one Business Day of becoming aware of the same (the "
CP
Satisfaction Notice
"). Each of the Purchaser and the Vendors shall promptly
notify the other of (and furnish to it any information it may reasonably request with
respect to) any event or condition or the existence to the Purchaser's or the Vendors'
awareness, as applicable, of any fact that would be likely to cause the Conditions Precedent
not to be fulfilled.
|
|
|
6.14.
|
The Purchaser acknowledges that
the applications to the Gambling Authorities do not reflect the statutory approval regimes
of the Gambling Authorities (in particular because they are to be made in anticipation
of Completion) and that the Gambling Authorities may not be able to issue a statement
in the form envisaged by Clause 6.1 or provide any formal confirmation. The Purchaser
hereby accepts and acknowledges that in such case a substantially equivalent statement
or other written acknowledgement to the effect that the relevant Gambling Authority will
not object to the transaction contemplated by this Agreement or consents to it subject
to the transaction taking place as described in the submission shall be sufficient to
satisfy the relevant Condition Precedent in the absence of a form of statement as provided
for in Clause 6.1.
|
Long Stop Date
|
|
6.15.
|
If the Conditions Precedent are
not satisfied or waived on or before the Long Stop Date, either the Purchaser or the
Vendors (acting through the Vendors' Representatives) may by notice in writing to the
other terminate this Agreement in which case this Agreement shall lapse and no party
shall have any claim against any other party under or in relation to it, save that such
termination will be without prejudice to (a) any right which the Vendors may have to
take action against the Purchaser, or that the Purchaser may have to take action against
the Vendors, for a breach of the terms of this Clause 6, (b) any provision of this Agreement
which is specifically stated to survive termination; and (c) Clause 25 of this Agreement.
|
|
|
7.1.
|
The
consideration for the sale and purchase of the Sale Shares and the Shareholder Loan Notes
shall be the aggregate of:
|
|
|
(a)
|
the Base Consideration; LESS
|
|
|
(b)
|
the Accruing Negative Consideration;
and PLUS
|
|
|
(c)
|
the Earn-Out Consideration,
|
(the "
Purchase
Price
").
|
|
7.2.
|
The aggregate of the Base Consideration
and the Accruing Negative Consideration (the "
Completion Payment
") shall
be satisfied by (i) the Cash Element and (ii) the Stock Element, in each case as calculated
in accordance with Schedule 6.
|
|
|
7.3.
|
The Earn-Out Consideration will
be determined and will be satisfied in favour of the holders of the Shareholder Loan
Notes pro rata to their holdings of the Shareholder Loan Notes in accordance with Schedule
5.
|
|
|
7.4.
|
The
Purchase Price shall be attributed as follows:
|
|
|
(a)
|
£1 for the Sale Shares;
and
|
|
|
(b)
|
the remainder for the Shareholder
Loan Notes (the "
Loan Note Payment
").
|
|
|
7.5.
|
For
the avoidance of doubt, the Earn-Out Consideration shall be applied in its entirety to
the satisfaction of the Loan Note Payment.
|
|
|
7.6.
|
The
parties agree, to the extent reasonably possible, to treat the Loan Note Payment as being
paid firstly in respect of the principal amounts owing under the Shareholder Loan Notes
and any balance shall be treated as being in relation to the remaining accrued interest.
For these purposes, the parties shall treat any Shareholder Loan Notes that have been
issued and received as payment in kind notes for accrued interest as if they were accrued
interest and not principal.
|
Transaction Calculation and Allocation
|
|
7.7.
|
Not later than one Business
Day before Completion the Company shall provide to the Institutional Vendors' Representative
and the Purchaser details of the outstanding amount of PIK interest and cash interest
accrued under the Groups' Existing Financing Arrangements in each case as at the expected
Completion Date. Following receipt of this information the Institutional Vendors' Representative
and the Purchaser shall agree (each acting reasonably and in good faith) the final calculation
of the Base Consideration, the Accruing Negative Consideration, the Completion Payment
and the Cash Element.
|
|
|
7.8.
|
Not later than two Business
Days before Completion, the Vendors' Representatives shall provide to the Purchaser a
transaction allocation setting out the allocation of the Purchase Price and the Loan
Note Payment as between the Vendors and as between the different classes of Sale Shares
and Shareholder Loan Notes (but always in accordance with the terms of Clause 7.4) (the
"
Transaction Allocation
"). The parties agree to adopt this allocation
for all purposes under this Agreement.
|
|
|
7.9.
|
The
Purchaser shall discharge its obligation to pay the consideration by paying or satisfying
the Completion Payment in accordance with the provisions of paragraph 4.1 of Schedule
4.
|
Payments
|
|
7.10.
|
All cash payments under
this Clause 7 shall (unless the parties agree otherwise or the recipient notifies with
at least five Business Days' prior notice a suitable alternative bank account) be paid
by electronic transfer of cleared funds for same day value to the Vendors' Solicitors'
Bank Account (which shall constitute a full discharge of the Purchaser's liability to
make such a payment and the Purchaser shall not be further concerned with or responsible
for the application of such monies).
|
|
|
8.
|
Pre-Completion
Matters
|
Pre-Completion Undertakings
|
|
8.1.
|
Subject to Clause 8.2 and
unless otherwise approved in writing by the Purchaser (such approval not to be withheld
or delayed unreasonably):
|
|
|
(a)
|
the Management Vendors
each undertake to exercise all of their rights and powers as shareholders, directors
and/or employees of the Group (subject to any fiduciary duty to which they are subject)
so as to ensure that between the date of this Agreement and the Completion Date:
|
|
|
(i)
|
the business of the
Group (taken as a whole) shall be conducted in the ordinary course; and
|
|
|
(ii)
|
each Group Company
shall comply with Part B of Schedule 3;
|
|
|
(b)
|
the Institutional Vendors
each undertake to exercise all of their rights and powers as shareholders in the Company
and to instruct any directors appointed to the board of a Group Company by any of them,
not to approve or vote in favour of any action that would mean that:
|
|
|
(i)
|
the business of the Group (taken
as a whole) is not conducted in the ordinary course; and
|
|
|
(ii)
|
any Group Company fails to
comply with Part B of Schedule 3;
|
|
|
(c)
|
the Company undertakes that
between the date of this Agreement and the Completion Date it shall procure that:
|
|
|
(i)
|
the business of the Group (taken
as a whole) shall be conducted in the ordinary course; and
|
|
|
(ii)
|
it and each Group Company shall
comply with Parts A and B of Schedule 3.
|
|
|
8.2.
|
Clauses 8.1(a), 8.1(b), 8.1(c)
and Schedule 3 shall not operate so as to restrict or prevent or require:
|
|
|
(a)
|
any matter undertaken in good
faith in an emergency or disaster situation with the intention of minimising any adverse
effect thereof where it is not reasonably possible to first obtain the Purchaser's prior
consent provided that the Purchaser will be notified and their consent sought for any
further steps as soon as reasonably practicable thereafter;
|
|
|
(b)
|
the completion or performance
of any obligations undertaken pursuant to any contract or arrangement entered into by
any member of the Group prior to the date of this Agreement which has been made available
to the Purchaser in the Data Room;
|
|
|
(c)
|
any increase in normal payments
made to employees of any member of the Group where such increase is (i) required by law
or (ii) contractually required or (iii) made in accordance with the normal practice of
the relevant employer(s) so long as it does not exceed an aggregate annual cost of £500,000
provided that where an amount falls under both this clause and paragraphs 15 and 16 of
Schedule 3, the amount shall count towards both of the relevant baskets and shall reduce
the remaining permitted amount available in both clauses;
|
|
|
(d)
|
any matter the undertaking of
which is specifically contemplated in this Agreement or any other Transaction Document
or which is in the agreed form including the termination of the Existing Investment Agreement;
|
|
|
(e)
|
the completion or performance
of any obligations undertaken in relation to the Pre-Completion Restructuring (including
the incurrence of non-material costs and expenses in relation to documenting the Pre-Completion
Restructuring but no other expenditure);
|
|
|
(f)
|
the incurrence and/or payment
of any fee in relation to the transaction envisaged by this Agreement or any of the Transaction
Documents, provided that the Purchaser has given its prior written consent (including
by e-mail); or
|
|
|
(g)
|
any matter undertaken at the
written request of the Purchaser (although neither the Vendors nor any member of the
Group shall be obliged to comply with any such request) except to the extent that they
are otherwise required to pursuant to this Agreement.
|
|
|
8.3.
|
Any material breach of the undertakings
given by the Company in Part A of Schedule 3 to this Agreement shall not give rise to
any right of damages other than in instances where the outcome resulting from the breach
is directly within the control of the Vendors or the Company.
|
|
|
8.4.
|
Unless otherwise approved in writing
by the Institutional Vendors' Representative (such approval not to be unreasonably withheld
or delayed), the Purchaser shall not take any of the following actions:
|
|
|
(a)
|
make any amendment or modification
to any of its organizational documents or take any action in violation or contravention
thereof, applicable law or any applicable rules and regulations of the SEC and NASDAQ;
|
|
|
(b)
|
issue, sell or deliver any of
its equity securities or issue or sell any securities convertible into or exercisable
or exchangeable for, or options with respect to, or warrants to purchase or rights to
subscribe for, any of its equity securities;
|
|
|
(c)
|
make any redemption or purchase
of its equity interests, except pursuant to the Offer;
|
|
|
(d)
|
effect any recapitalization,
reclassification, equity split or similar change in its capitalization;
|
|
|
(e)
|
make any amendment or modification
to the Investment Management Trust Agreement, dated as of 29 October 2014 (the "
Trust
Agreement"
), by and between Purchaser and Continental Stock Transfer & Trust
Company;
|
|
|
(f)
|
make or allow to be made any
reduction in the Purchaser Trust Amount, other than as expressly permitted by Purchaser’s
organisational documents;
|
|
|
(g)
|
subject to the Communications
Plan, contact (or permit any of its employees, agents, representatives or Affiliates
to contact) any customer, supplier, distributor, joint-venture partner, lessor or other
material business relation of any Group Company regarding any Group Company, its businesses
or the Transaction;
|
|
|
(h)
|
amend, waive or terminate, in
whole or in part, the Sponsor Voting Agreement;
|
|
|
(i)
|
establish any subsidiary or
acquire any interest in any asset or enter into any binding agreement, tender or offer
for another business combination; or
|
|
|
(j)
|
enter into any agreement or
commitment to do any of the foregoing, or any action or omission that would result in
any of the foregoing.
|
Standstill
|
|
8.5.
|
Neither Landgame S.à.r.l
nor any investment fund advised or managed by Vitruvian Partners LLP (but specifically
excluding any investors in those funds and any investee entities of those funds) shall,
directly or indirectly engage in any transactions involving the securities of the Purchaser
prior to the time of the making of a public announcement of the transactions contemplated
by this Agreement.
|
Proxy Statement/Information Statement
|
|
8.6.
|
As soon as is reasonably practicable
after receipt by the Purchaser from the Company and the Vendors of all financial and
other information relating to the Company and the Vendors as the Purchaser may reasonably
require for its preparation, the Purchaser shall prepare in accordance with Clause 8.7
and file with the SEC under the United States Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "
Exchange Act
"),
and with all other applicable regulatory bodies, materials in the form of a proxy statement/information
statement to be used for the purpose of soliciting proxies from holders of Purchaser
Stock for the matters to be acted upon at the Special Meeting (as defined below) (the
"
Proxy Statement/Information Statement"
) and offering such holders (other
than the Sponsors) the opportunity to redeem up to 100% of their shares of Purchaser
Stock (the "
Offer
"). The Proxy Statement/Information Statement shall
include proxy materials for the purpose of soliciting proxies from holders of Purchaser
Stock to vote, at a meeting of holders of Purchaser Stock to be called and held for such
purpose (the "
Special Meeting
"), in favour of (a) the adoption
of this agreement and the approval of the Transaction ("
Purchaser Stockholder
Approval"
), (b) amending and restating the Purchaser's certificate of incorporation,
effective upon Completion, to be substantially in the agreed form, providing for, among
other things, (i) the change of the name of the Purchaser to "Inspired Entertainment
Inc."; (ii) the existence of the Purchaser to be perpetual; and (iii) the
removal of Article IX and Section 5.2(b) (the "
Charter Amendment
");
(c) the election
of the members of the board of
directors of Purchaser (including the designees of the Vendors);
and (d) an
adjournment proposal, if necessary, to adjourn the Special Meeting if, based on the tabulated
vote count, the Purchaser is not authorised to proceed with the Transaction. The Purchaser
shall provide the Company with copies of any written comments, and shall inform them
of any material oral comments, that Purchaser or any of its Representatives receive from
the SEC or its staff with respect to the Proxy Statement/Information Statement promptly
after the receipt of such comments and shall give the Company a reasonable opportunity
to review and comment on any proposed written or material oral responses to such comments.
The Purchaser shall use commercially reasonable endeavours to "clear" comments
from the SEC and its staff with respect to the Proxy Statement/Information Statement
and to, to the extent reasonably possible, permit the Company to participate with Purchaser
or its Representatives in any material discussions or meetings with the SEC and its staff
regarding the Proxy Statement/Information Statement.
|
Proxy Statement/Information Statement
– Obligations of the Purchaser
|
|
8.7.
|
The Purchaser shall be responsible
for drafting, filing and making any subsequent amendments to the Proxy Statement/Information
Statement.
|
|
|
8.8.
|
The Purchaser shall cause the Proxy
Statement/Information Statement to comply in all material respects with the applicable
requirements of the Federal Securities Laws (as defined below). If at any time prior
to Completion, any material information relating to the Purchaser, the Group Companies
or any of their respective subsidiaries, affiliates, officers or directors, should be
discovered by the Purchaser, that should be set forth in an amendment or supplement to
the Proxy Statement/Information Statement (or any of the documents included or referred
to therein, together with any supplements, amendments and/or exhibits thereto), so that
such documents would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, an appropriate amendment or supplement describing
such information shall be promptly filed by the Purchaser with the SEC and, to the extent
required by law, disseminated to the stockholders of the Purchaser.
|
|
|
8.9.
|
As soon as reasonably practicable
following approval by the SEC, and in any event within 3 Business Days, the Purchaser
shall distribute the Proxy Statement/Information Statement to the holders of Purchaser
Stock and, pursuant thereto, shall call the Special Meeting in accordance with the General
Corporation Law of the State of Delaware (the "
DGCL
") for a date no
later than thirty (30) days following the approval of the Proxy Statement/Information
Statement by the SEC and, subject to the other provisions of this Agreement, solicit
proxies from the holders of Purchaser Stock to vote in favour of the adoption of this
Agreement and the approval of the Transaction and the other matters presented to the
stockholders of the Purchaser for approval or adoption at the Special Meeting.
|
|
|
8.10.
|
The Purchaser, acting through
its board of directors, shall include in the Proxy Statement/Information Statement the
recommendation of its board of directors that the holders of Purchaser Stock vote in
favour of the adoption of this Agreement and the approval of the Transaction, and shall
otherwise use all reasonable endeavours to obtain the Purchaser Stockholder Approval.
|
|
|
8.11.
|
The Purchaser shall cause the
Proxy Statement/Information Statement, as so amended or supplemented (as applicable),
to be filed with the SEC and to be disseminated to its stockholders, in each case, as
and to the extent required by applicable Federal Securities Laws.
|
Proxy Statement/Information Statement
– Obligations of the Company
|
|
8.12.
|
The Company shall promptly provide
to the Purchaser such information concerning the Company, the Group Companies and their
respective officers and directors as is either required by the United States federal
securities laws and the rules and regulations of the SEC promulgated thereunder (the
"
Federal Securities Laws
") or otherwise reasonably requested by the
Purchaser for inclusion in the Proxy Statement/Information Statement. The Company shall,
and shall cause each of the Group Companies to, make their respective directors, officers
and employees, upon reasonable advance notice, reasonably available to Purchaser and
its Representatives in connection with the drafting by the Purchaser of the public filings
with respect to the Transaction (including the Proxy Statement/Information Statement)
and to enable the Purchaser to respond in a timely manner to comments from the SEC or
its staff.
|
|
|
8.13.
|
If at any time prior to Completion,
any material information relating to the Company, the Group Companies or any of their
respective subsidiaries, affiliates, officers or directors, should be discovered by the
Company, that should be set forth in an amendment or supplement to the Proxy Statement/Information
Statement (or any of the documents included or referred to therein, together with any
supplements, amendments and/or exhibits thereto), so that such documents would not include
any misstatement of a material fact or omit to state any material fact necessary to make
the statements therein, in light of the circumstances under which they were made, not
misleading, the Company shall notify the Purchaser as soon as reasonably practicable
upon discovering such and an appropriate amendment or supplement describing such information
shall be promptly filed by the Purchaser with the SEC and, to the extent required by
law, disseminated to the stockholders of the Purchaser.
|
|
|
8.14.
|
The Company shall cause the senior
management of its Group to participate in meetings, management presentations, roadshows
and other activities as is reasonably required and related to the seeking and obtaining
of the Purchaser Stockholder Approval and the approval of the Proxy Statement/Information
Statement by the SEC.
|
Proxy Statement/Information Statement
– Obligations of the Vendors
|
|
8.15.
|
The Institutional Vendors' Representative
shall promptly provide to the Purchaser such information concerning the Vendors as is
reasonably available to it and is either required by the applicable requirements of the
Federal Securities Laws or otherwise reasonably requested by the Purchaser for inclusion
in the Proxy Statement/Information Statement. The Vendors shall use reasonable endeavours
to cause the Company to, and shall cause each of the Group Companies to, make their respective
directors, officers and employees, upon reasonable advance notice, reasonably available
to Purchaser and its Representatives in connection with the drafting by the Purchaser
of the public filings with respect to the Transaction (including the Proxy Statement/Information
Statement) to enable the Purchaser to respond in a timely manner to comments from the
SEC or its staff.
|
Stockholder Vote - Recommendation
of the Board of the Purchaser
|
|
8.16.
|
The board of directors of Purchaser
shall recommend that the Purchaser's stockholders vote in favour of this Agreement and
consummating the Transaction, and the Purchaser shall include such recommendation in
the Proxy Statement/Information Statement. Prior to the termination of this Agreement,
neither the board of directors of the Purchaser nor any committee or agent or representative
thereof shall (i) withdraw (or modify in any manner adverse to the Company or the Vendors),
or propose to withdraw (or modify in any manner adverse to the Company or the Vendors),
the Purchaser's Board's recommendation in favour of this Agreement and the Transaction,
(ii) approve, recommend or declare advisable, or propose publicly to approve, recommend
or declare advisable, any Purchaser Acquisition Transaction (as defined below), (iii)
approve, recommend or declare advisable, or propose to approve, recommend or declare
advisable, or allow the Purchaser to execute or enter into, any agreement related to
a Purchaser Acquisition Transaction, (iv) enter into any agreement, letter of intent,
or agreement in principle requiring the Purchaser to abandon, terminate or fail to consummate
the transactions contemplated hereby or breach its obligations hereunder, (v) fail to
recommend against any Purchaser Acquisition Transaction, (vi) fail to re-affirm the aforementioned
Purchaser's board's recommendation at the written request of the Vendors within five
(5) Business Days or (vii) resolve or agree to do any of the foregoing.
|
Listing
|
|
8.17.
|
From the date of this Agreement
through to Completion, the Purchaser shall use all reasonable endeavours to remain listed
as a public company on, and for shares of Purchaser Stock to be tradable over, the NASDAQ
Capital Market. The Purchaser shall use all reasonable endeavours to obtain the listing
of the Consideration Shares for trading on the NASDAQ Capital Market prior to Completion.
|
Exclusive Dealing
|
|
8.18.
|
During the period from the date
hereof through to Completion or the earlier termination of this Agreement, the Purchaser
will not, directly or indirectly, initiate, solicit or engage in discussions or negotiations
with, or knowingly provide any information to, any person (other than the Company and
the Company's Representatives) concerning any alternative business combination transaction
involving Purchaser, including any purchase or sale of equity or assets of the Purchaser
or any other Person or a merger, combination or recapitalisation of the Purchaser or
any subsidiary thereof (each such transaction, a "
Purchaser Acquisition Transaction"
);
provided that this Clause 8.18 will not apply to Purchaser in connection with communications
to its stockholders related to the transactions contemplated by this Agreement. The Purchaser
will, and will cause its subsidiaries and Representatives to, cease and cause to be terminated
any existing discussions, communications or negotiations with any Person (other than
the Company and the Company’s Representatives) conducted heretofore with respect
to any Purchaser Acquisition Transaction.
|
Sponsor Voting Agreement
|
|
8.19.
|
The Purchaser hereby acknowledges
and agrees that the Vendors have the right to cause the Purchaser to enforce the Purchaser's
rights and perform Purchaser's obligations under the Sponsor Voting Agreement, and Purchaser
further acknowledges that money damages would not be an adequate remedy at law if any
Stockholder (as defined therein) fails to timely perform in any material respect any
of such Stockholder's obligations under the Sponsor Voting Agreement and accordingly,
upon the written request of the Institutional Vendors' Representative, the Purchaser
shall, in addition to any other remedy at law or in equity, seek an injunction or similar
equitable relief restraining such Stockholder from committing or continuing any such
breach or threatened breach or to seek to compel specific performance of the obligations
of any other party under the Sponsor Voting Agreement, without the posting of any bond,
in accordance with the terms and conditions of the Sponsor Voting Agreement in any court
of having jurisdiction, and if any action should be brought in equity to enforce any
of the provisions of the Sponsor Voting Agreement, the Purchaser shall not raise the
defence that there is an adequate remedy at law.
|
Access Pending Completion
|
|
8.20.
|
In order to facilitate an orderly
transition of ownership, pending Completion the Vendors shall instruct the Group to allow
the Purchaser and its representatives reasonable access during normal working hours to
the premises, senior management, and books and records of the Group (and the Purchaser
hereby agrees to be bound by and treat such information and access as being Confidential
Information in terms of the Confidentiality Agreement as if it were a party thereto)
and provided that the relevant Group Company may refuse such access if it would be contrary
to any applicable laws or regulations or legal privilege or would cause undue disruption
to the relevant business or its management.
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|
|
8.21.
|
In order to facilitate the refinancing
and/or extension of the Group's Existing Financing Arrangements pending completion the
Vendors shall instruct the Group to provide reasonable assistance to the Purchaser in
relation to such refinancing and/or extension so long as in doing so (a) no liability
or obligation shall be placed on a Group Company, (b) the Vendor and each Group Company
shall not have an obligation to accept, pay or incur any liability (contingent or otherwise)
in complying with this Clause 8.21, in each case other than as set out in the A&R
Agreement.
|
|
|
8.22.
|
In connection with the Proxy Statement/Information
Statement, the Vendors shall and shall use reasonable endeavours to ensure the Company
shall furnish to Purchaser in writing the information relating to it which is strictly
required by the applicable United States Federal Securities Laws and the rules and regulations
promulgated thereunder to be set forth in the Proxy Statement/Information Statement,
including, without limitation, all required audited and unaudited consolidated financial
statements of the Company and any Group Company.
|
|
|
8.23.
|
The Vendors will, as soon as reasonably
practicable upon becoming aware, notify the Purchaser of any incorrect information provided
by it or them for use in the Proxy Statement/Information Statement, if and to the extent
that it shall have become false or misleading in any material respect prior to the Special
Meeting.
|
|
|
8.24.
|
The Company will, as soon as reasonably
practicable upon becoming aware, notify the Purchaser of any incorrect information provided
by it or them for use in the Proxy Statement/Information Statement, if and to the extent
that it shall have become false or misleading in any material respect prior to the Special
Meeting.
|
|
|
9.1.
|
The sale and purchase of the Sale
Shares and the Shareholder Loan Notes shall be completed at the offices of the Vendors'
Solicitors on the Completion Date (or at such other place or time as may be agreed in
writing between the Purchaser and the Vendors' Representatives), when the parties shall
each comply with their respective obligations set out in Schedule 4.
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|
|
9.2.
|
None of the Vendors nor the Purchaser
shall be obliged to complete the sale or purchase of any of the Sale Shares or the Shareholder
Loan Notes unless all of the Sale Shares and Shareholder Loan Notes held by the Vendors
(as such exist following the Pre-Completion Restructuring) are sold and purchased simultaneously.
|
|
|
9.3.
|
The Purchaser shall not be obliged
to complete the purchase of any of the Sale Shares or the Shareholder Loan Notes where:
|
|
|
(a)
|
a breach of the Warranties given
by the Vendors in Clause 12 of this Agreement as at the date of this Agreement has occurred;
|
|
|
(b)
|
a breach of the Warranties given
by the Vendors in Clause 12 of this Agreement immediately prior to Completion has occurred;
or
|
|
|
(c)
|
a breach of the warranties given
by certain managers under the Warranty Deed (as such warranties are qualified by any
disclosures provided pursuant to Clause 8 of the Warranty Deed) has occurred where such
breach (or such breaches in the aggregate) would constitute a Material Adverse Effect.
|
|
|
9.4.
|
Subject to the provisions of Clauses
9.5 to 9.9, the Purchaser shall not be obliged to complete the purchase of any of the
Sale Shares or the Shareholder Loan Notes where a Material Adverse Effect has occurred
between the date of this Agreement and Completion.
|
|
|
9.5.
|
If the Purchaser becomes aware
of a fact, event or circumstances which it believes entitles it to terminate this Agreement
in accordance with Clauses 9.3 or 9.4 (including following any notification made under
Clause 9.6) it shall as soon as reasonably possible (and in any event within one Business
Day) give written notice of this to the Institutional Vendors' Representative (the "
Possible
Termination Event Notice
").
|
|
|
9.6.
|
If any of the Management Vendors
or the Company become aware of a fact, event or circumstance which relates to the Group
and which it believes would entitle the Purchaser to terminate in accordance with Clauses
9.3 or 9.4 , such person shall as soon as reasonably possible (and in any event within
one Business Day) give written notice of this to each of the Purchaser and the Institutional
Vendors' Representative.
|
|
|
9.7.
|
If the Purchaser serves a Possible
Termination Event Notice in accordance with Clause 9.5, the Purchaser and the Institutional
Vendors' Representative shall meet as soon as reasonably possible (and in any event within
two Business Days) to discuss and negotiate in good faith as to whether the fact, event
or circumstance(s) notified by the Purchaser in fact entitles the Purchaser to terminate
this Agreement .
|
|
|
9.8.
|
If following that meeting the Purchaser,
acting reasonably and in good faith, still considers that the relevant fact, event or
circumstances entitles the Purchaser to terminate this Agreement then it shall be entitled
to serve a notice of termination on the Institutional Vendors' Representative following
which this Agreement shall be terminated and the Purchaser shall not be obliged to proceed
to Completion.
|
|
|
9.9.
|
If the Purchaser serves a Possible
Termination Event Notice and the process of discussion and negotiation set out in Clause
9.7 above has not been resolved on or before the date falling five (5) Business Days
before the date on which Completion would otherwise be due to occur under this Agreement,
then the date on which Completion shall occur shall be the date falling five (5) Business
Days after the date when the process referred to in Clauses 9.7 and 9.8 has been completed.
|
|
|
10.1.
|
Each Vendor severally and for
its or his own account only undertakes to the Purchaser that, from the Locked Box Date
up to and including the date of Completion, no Leakage has occurred or will occur and
which any such Vendor or its Connected Persons has received or benefitted from. The Purchaser's
only remedy in respect of any breach or alleged breach of this undertaking is as set
out in Clause 10.3.
|
|
|
10.2.
|
If the Purchaser considers that
any Leakage has occurred in breach of the undertaking in Clause 10.1, it may at any time
and from time to time, prior to the date 12 months from the Completion Date, give notice
of that fact to the relevant Vendor(s) setting out in reasonable detail the nature, timing
and amount of such Leakage.
|
|
|
10.3.
|
If, in relation to any Vendor
or its Connected Persons, any Leakage as it set out in Clause 10.1 has occurred, the
relevant Vendor(s) severally will pay to the Purchaser the amount of any such Leakage
to the extent received or benefited from by each such Vendor or any of their Connected
Persons.
|
|
|
10.4.
|
If any Vendor(s) are required
to make a payment in relation to Leakage in accordance with Clause 10.3 then they shall
also pay an additional amount equal to the amount of Tax (if any) incurred by the Group
to the extent directly attributable to such of the relevant Leakage received or benefitted
from by such Vendor or its Connected Persons.
|
|
|
10.5.
|
For the purposes of this Clause
10, where a Vendor has received or benefited from any Leakage the amount payable by such
Vendor shall be the amount that they can be shown to have individually received or benefited
from such Leakage or, in circumstances where all (or any smaller group) of the Vendors
or their respective Connected Persons have benefited from but not actually received any
such Leakage, each individual Vendor's portion of the Leakage shall be calculated as
the proportion of such Leakage that its holding of Shareholder Loan Notes bears to the
total number of Shareholder Loan Notes (or in the case of a smaller group of Vendors,
to the total number of Shareholder Loan Notes held by such group of Vendors).
|
|
|
11.1.
|
Notwithstanding anything else
in this agreement, the Company and the Vendors acknowledge that each has read the sections
captioned "The Offering – Proceeds to be held in trust account" (page
17) and "Release of funds in trust account on closing of our initial business combination"
(pages 24-25)of the Purchaser's final prospectus dated October 24, 2014 (the "
Prospectus
")
and understands that the Purchaser has established a trust account administered by Continental
Stock Transfer & Trust Company (the "
Trust Fund
") for the benefit
of the Purchaser's public stockholders and that the Purchaser may disburse monies from
the Trust Fund only (a) to the Purchaser's public stockholders in the event they elect
to convert their Purchaser Stock into cash in accordance with the Purchaser's certificate
of incorporation and/or the liquidation of the Purchaser, (b) to the Purchaser after,
or concurrently with, the consummation of a business combination, and (c) to the Purchaser
in limited amounts for its working capital requirements and tax obligations.
|
|
|
11.2.
|
The Company and the Vendors further
acknowledge that, if the transactions contemplated by this Agreement, or, upon termination
of this agreement, another business combination, are not consummated by the date required
by the Purchaser's certificate of incorporation, the Purchaser will be obligated to return
to its stockholders the amounts being held in the Trust Fund. Accordingly, the Company,
for itself and its subsidiaries, affiliated entities, directors, officers, employees,
stockholders, representatives, advisors and all other associates and Affiliates, and
each Vendor, for itself, hereby waive all rights, title, interest or claim of any kind
against the Purchaser to collect from the Trust Fund any monies that may be owed to them
by the Purchaser for any reason whatsoever, including but not limited to a breach of
this Agreement by the Purchaser or any negotiations, agreements or understandings with
the Purchaser (whether in the past, present or future), and will not, seek recourse against
the Trust Fund at any time for any reason whatsoever. This Clause 11.2 shall not limit
or prohibit (i) the Company's or any Vendor's right to pursue a claim against the Purchaser
for legal relief against monies or other assets held outside the Trust Fund or (ii) any
claims that the Company or the Vendors may have in the future against Purchaser's assets
or funds that are not held in the Trust Fund (including any funds that have been released
from the Trust Fund to the Purchaser and any assets that have been purchased or acquired
with any such funds).
This Clause 11.2 shall not
limit the Company's or any Vendor's right to seek specific performance against Purchaser
pursuant to Clause 16.4, including the right to seek specific performance against
Purchaser to require Purchaser to take such actions contemplated by this Agreement subject
to the satisfaction of Purchaser's conditions precedent to the Completion, and to comply
with the terms of the
Trust Agreement
, including
distribution of funds from the Trust Fund upon the Completion in accordance with the
terms of this Agreement.
This Clause 11.2 will survive the termination of this
Agreement for any reason.
|
|
|
11.3.
|
The Purchaser shall cause the
Trust Fund to be disbursed to the Purchaser and as otherwise contemplated by this Agreement
immediately upon Completion. All liabilities and obligations of the Purchaser due and
owing or incurred at or prior to Completion shall be paid as and when due, including
all amounts payable (i) to stockholders of the Purchaser who elect to have their shares
converted to cash in accordance with the provisions of the Purchaser's certificate of
incorporation, (ii) all amounts payable in connection with any of the arrangements or
transactions involving the repurchase or redemption of Purchaser Stock for the purpose
of enhancing the likelihood of and securing approval of the transactions contemplated
by this Agreement by the holders of Purchaser Stock, (iii) for income tax or other tax
obligations of the Purchaser prior to Completion, (iv) as repayment of loans and reimbursement
of expenses to directors, officers and founding stockholders of the Purchaser, and (v)
to third parties (e.g. professionals, printers, etc.) who have rendered services to the
Purchaser in connection with its operations and efforts to effect a business combination,
including the transaction contemplated by this Agreement.
|
Vendors' Warranties
|
|
12.1.
|
Each of the Vendors warrants to
the Purchaser that as at the date of this Agreement and in the case of the Management
Vendors only, also as at the Completion Date:
|
|
|
(a)
|
it is the sole legal and beneficial
owner (or is otherwise entitled to transfer the legal and beneficial ownership of) and
is entitled to sell and transfer the full legal and beneficial ownership of those Sale
Shares set out directly opposite its name in column (3) of the table in Part A of Schedule
1 or column (3) of the table in Part B of Schedule 1 to the Purchaser free from Encumbrances
and otherwise on the terms set out in this Agreement; and
|
|
|
(b)
|
it is the sole legal and beneficial
owner (or is otherwise entitled to transfer the legal and beneficial ownership of) and
is entitled to sell and transfer the full legal and beneficial ownership of those Shareholder
Loan Notes set out directly opposite its name in column (4) of the table in Part A of
Schedule 1 or column (4) of the table in Part B of Schedule 1 to the Purchaser free from
Encumbrances and otherwise on the terms set out in this Agreement.
|
|
|
12.2.
|
Each of the Institutional Vendors
warrants to the Purchaser that as at the Completion Date:
|
|
|
(a)
|
it is the sole legal and beneficial
owner (or is otherwise entitled to transfer the legal and beneficial ownership of) and
is entitled to sell and transfer the full legal and beneficial ownership of those (i)
Sale Shares set out directly opposite its name in column (3) of the table in Part A of
Schedule 1 or column (3) of the table in Part B of Schedule 1, and (ii) Exchange Shares
as notified to the Purchaser pursuant to the terms of Schedule 7, to the Purchaser free
from Encumbrances and otherwise on the terms set out in this Agreement; and
|
|
|
(b)
|
it is the sole legal and beneficial
owner (or is otherwise entitled to transfer the legal and beneficial ownership of) and
is entitled to sell and transfer the full legal and beneficial ownership of those 633
Loan Notes as set out in the notice provided to the Purchaser in accordance with Schedule
7 of this Agreement, to the Purchaser free from Encumbrances and otherwise on the terms
set out in this Agreement.
|
|
|
12.3.
|
Each of the Vendors further warrants
to the Purchaser that as at the date of this Agreement;
|
|
|
(a)
|
it has the requisite power and
authority to enter into and perform this Agreement;
|
|
|
(b)
|
this Agreement and each of the
documents which are to be entered into by it pursuant to or otherwise in connection with
this Agreement will constitute binding obligations on it in accordance with their respective
terms;
|
|
|
(c)
|
to the extent it is a body corporate,
it is not insolvent or unable to pay its debts as they fall due within the meaning of
any relevant insolvency legislation and it has not stopped paying its debts as they fall
due;
|
|
|
(d)
|
to the extent that he or she
is an individual, he is not bankrupt and no order or petition has been presented for
his bankruptcy and no trustee in bankruptcy has been appointed in respect of him or his
assets and he has not received any notification from any third party that it intends
to initiate such a presentation or appointment; and
|
|
|
(e)
|
entry into and, subject to the
satisfaction of the Conditions Precedent, compliance with the terms of this Agreement
and each of the documents which are to be entered into by it pursuant to or otherwise
in connection with this Agreement do not constitute a default or a breach under any provision
of any law, order, judgment, decree, regulation, or agreement by which the relevant Vendors(s)
are bound that could be reasonably be expected to prevent the relevant Vendor(s) from
proceeding to Completion.
|
|
|
12.4.
|
For the avoidance of doubt, the
warranties in Clauses 12.1, 12.2 and 12.3 are given by each Vendor severally and only
in relation to its/his (as the case may be) own authority, power, title and capacity.
The maximum aggregate liability of each Vendor under or in respect of any and all breaches
by it/him of the warranties in Clauses 12.1, 12.2 and 12.3 and/or any other claim under
or in relation to this Agreement and the transaction evidenced by it shall not exceed
the amount of the Purchase Price actually received by it/him.
|
Purchaser's Warranties
|
|
12.5.
|
The Purchaser warrants to each
Vendor that as at the date of this Agreement:
|
|
|
(a)
|
subject only to obtaining the
Purchaser Stockholder Approval, it has the requisite power and authority to enter into
and to perform this Agreement;
|
|
|
(b)
|
this Agreement and each of the
documents which are to be entered into by the Purchaser pursuant to or otherwise in connection
with this Agreement will constitute binding obligations of the Purchaser in accordance
with their respective terms;
|
|
|
(c)
|
subject only to the release
of funds from the Purchaser's Trust Fund, it is not insolvent or unable to pay its debts
as they fall due within the meaning of any relevant insolvency legislation and it has
not stopped paying its debts as they fall due; and
|
|
|
(d)
|
entry into and, subject to the
satisfaction of the Conditions Precedent, compliance with the terms of this Agreement
and each of the agreements which are to be entered into by it do not constitute a default
or a breach under any provision of any law, order, judgment, decree, regulation or agreement
by which the Purchaser is bound that could be reasonably be expected to prevent the Purchaser
from proceeding to Completion.
|
|
|
12.6.
|
The Purchaser further warrants
to each Vendor that, as at the date of this Agreement and as at the Completion Date;
|
|
|
(a)
|
subject only
to each of the Purchaser Stockholder Approval being obtained and the Roll-over Condition
being satisfied, the Purchaser has financial resources required, including committed,
unconditional funds pursuant to the Purchaser's Macquarie Agreement, in an aggregate
amount sufficient to pay all liabilities and obligations of (i) the Purchaser due and
required to be paid at Completion or by reason of Completion; and (ii) the Group which
are due and payable at Completion or by reason at Completion, as identified in writing
by the Institutional Vendors' Representative and the Purchaser prior to the date hereof
or as otherwise agreed in writing between the Institutional Vendors' Representative and
the Purchaser not less than 2 Business Days prior to the Completion Date (including without
limitation amounts required by the Company in relation to payments to the Participating
Executives of their Entitlements under the Management Bonus Scheme on the Completion
Date as so identified), and so far as the Purchaser is aware it will be able to (i) satisfy
all conditions of drawdown to such committed facilities at or prior to Completion, and
(ii) satisfy the obligations of the Group described above (acknowledging that in no event
shall any Vendor be required to provide funds for that purpose);
|
|
|
(b)
|
other than as specifically disclosed
to (and accepted in writing by) the Vendors (it being acknowledged that in respect of
the management incentive package to be provided generally to management, only summary
details of such package need be disclosed), or as may otherwise be specifically contemplated
or provided for in any of the Transaction Documents, there are no contracts, agreements,
arrangements or other understandings, (whether reduced to writing or not) between the
Purchaser or any of its Connected Persons and any of the employees of the Group (or any
of their Connected Persons):
|
|
|
(a)
|
involving any payment of money
or other benefits or the giving of any indemnity or other assurances, in connection with
the transactions contemplated by this Agreement;
|
|
|
(b)
|
otherwise concerning the transactions
contemplated by this Agreement; or
|
|
|
(c)
|
which is conditional
upon the transactions contemplated by this Agreement;
|
|
|
(c)
|
no default
or draw stop event under the Purchaser's Macquarie Agreement has occurred and there is
no condition precedent not able to be satisfied nor is the Purchaser aware of any event
or circumstance which could reasonably be expected to constitute such a default or draw
stop event or result in any condition precedent not being satisfied which would enable
the funder to refuse to provide funds under the Purchaser's Macquarie Agreement on the
Completion Date;
|
|
|
(d)
|
the Purchaser is not entering
into this Agreement with the intent to hinder, delay or defraud either present or future
creditors of the Company;
|
|
|
(e)
|
the Purchaser has timely filed
all forms, reports and documents required to be filed by it with the SEC since October
14, 2014, together with any amendments, restatements or supplements thereto. The Purchaser
has provided to the Company, in the form filed with the SEC, except to the extent available
in full without redaction on the SEC’s EDGAR website, (i) its Annual Reports on
Form 10-K for the periods ended December 31, 2014, and December 31, 2015 (ii) its Quarterly
Reports on Form 10-Q for the periods ended September 30, 2014, March 31, 2015, June 30,
2015, September 30, 2015 and March 31, 2016, and (iii) the Prospectus, all registration
statements and other forms, reports and documents (other than Annual Reports on Form
10-K and the Quarterly Reports on Form 10-Q not referred to in clauses (i) and (ii) above)
filed by the Purchaser with the SEC since October 14, 2014 (the forms, reports and other
documents referred to in clauses (i) through (iii) above (including those available on
the SEC’s EDGAR website) being, collectively, the "
Purchaser SEC Reports
").
The Purchaser SEC Reports were prepared in all material respects in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, and the
rules and regulations thereunder. The Purchaser SEC Reports did not at the time they
were filed with the SEC (except to the extent that information contained in any Purchaser
SEC Report has been superseded by a later timely filed Purchaser SEC Report) contain
any untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading;
|
|
|
(f)
|
each of the financial statements
(including, in each case, any notes thereto) contained in the Purchaser SEC Reports was
prepared in accordance with U.S. GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and each fairly presents, in all material
respects, the financial position, results of operations and cash flows of the Purchaser
as at the respective dates thereof and for the respective periods indicated therein;
|
|
|
(g)
|
except as and to the extent
set forth on the balance sheet of the Purchaser at March 31, 2016 (the "
Purchaser
Balance Sheet
"), the Purchaser has no liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except for (i) liabilities and
obligations incurred since the date of the Purchaser Balance Sheet in the ordinary course
of business which are not, individually or in the aggregate, material to the Purchaser;
(ii) liabilities and obligations incurred in connection with the transactions contemplated
by this Agreement; and (iii) liabilities and obligations which are not, individually
or in the aggregate, material to the Purchaser;
|
|
|
(h)
|
the Purchaser has heretofore
furnished to the Company complete and correct copies of all amendments and modifications
that have not been filed by the Purchaser with the SEC to all material agreements, documents
and other instruments that previously had been filed by the Purchaser with the SEC and
are currently in effect;
|
|
|
(i)
|
all comment letters received
by the Purchaser from the SEC or the staff thereof since its inception and all responses
to such comment letters filed by or on behalf of the Purchaser are publicly available
on the SEC's EDGAR website;
|
|
|
(j)
|
to the Purchaser's Knowledge,
since October 14, 2014, each director and executive officer of the Purchaser has filed
with the SEC on a timely basis all statements required by Section 16(a) of the Exchange
Act and the rules and regulations thereunder;
|
|
|
(k)
|
since October 14, 2014, the
Purchaser has timely filed and made available to the Company all certifications and statements
required by (x) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (y) 18 U.S.C. Section 1350
(Section 906 of the Sarbanes-Oxley Act of 2002) with respect to any Purchaser SEC
Report (the "
Purchaser Certifications
"). Each of the Purchaser Certifications
is true and correct. The Purchaser maintains disclosure controls and procedures required
by Rule 13a-15 or Rule 15d-15 under the Exchange Act; such controls and procedures are
reasonably designed to ensure that all material information concerning the Purchaser
is made known on a timely basis to the individuals responsible for the preparation of
the Purchaser's SEC filings and other public disclosure documents. As used in this Clause
12.5(k) the term "file" shall be broadly construed to include any manner in
which a document or information is furnished, supplied or otherwise made available to
the SEC;
|
|
|
(l)
|
the Purchaser maintains and
will continue to maintain a standard system of accounting established and administered
in accordance with U.S. GAAP. The Purchaser has designed and maintains a system of internal
controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act, sufficient to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements for external purposes
in accordance with U.S. GAAP. The Purchaser maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorisations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in conformity
with U.S. GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences;
|
|
|
(m)
|
all non-audit services were
approved by the audit committee of the Board of Directors and committees of the Purchaser.
The Purchaser has no off-balance sheet arrangements;
|
|
|
(n)
|
neither the Purchaser nor, to
the Knowledge of Purchaser, any manager, director, officer, employee, auditor, accountant
or representative of the Purchaser has received or otherwise had or obtained knowledge
of any complaint, allegation, assertion or claim, whether written or oral, regarding
the accounting or auditing practices, procedures, methodologies or methods of the Purchaser
or their respective internal accounting controls, including any complaint, allegation,
assertion or claim that the Purchaser has engaged in questionable accounting or auditing
practices. No attorney representing the Purchaser, whether or not employed by the Purchaser,
has reported evidence of a material violation of securities laws, breach of fiduciary
duty or similar violation by the Purchaser or any of its officers, directors, employees
or agents to the Board of Directors of the Purchaser (or any committee thereof) or to
any director or officer of the Purchaser. Since the Purchaser's inception, there have
been no internal investigations regarding accounting or revenue recognition discussed
with, reviewed by or initiated at the direction of the chief executive officer, chief
financial officer, general counsel, the Board of Directors of the Purchaser or any committee
thereof;
|
|
|
(o)
|
none of the information supplied
or to be supplied by the Purchaser or any of its Affiliates expressly for inclusion in
the Purchaser SEC Reports, mailings to the Purchaser's stockholders with respect to the
Offer and/or the Transaction, any supplements thereto and/or in any other document filed
with any Governmental Entity in connection herewith (including the Proxy Statement/Information
Statement), will, at the date of filing and/or mailing, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact necessary in order
to make the statements therein, in light of the circumstances under which they are made,
not misleading (subject to the qualifications and limitations set forth in the materials
provided by the Purchaser or that is included in the applicable filings). No representation
or warranty is made by the Purchaser with respect to statements made or incorporated
by reference therein based on information supplied or to be supplied by, the Company,
the Vendors or any of their respective affiliates;
|
|
|
(p)
|
as of 30 June 2016, the Trust
Fund has a rounded-off balance of US$80,031,318.87 (the "
Purchaser Trust Amount
"),
such monies invested in United States Government securities or money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act and held
in trust by Continental Stock Transfer & Trust Company pursuant to the Trust Agreement.
The Trust Agreement is valid and in full force and effect and enforceable in accordance
with its terms and has not been amended or modified. There are no separate agreements,
side letters or other agreements or understandings (whether written or unwritten, express
or implied) that would cause the description of the Trust Agreement in the Purchaser
SEC Reports to be inaccurate in any material respect and/or that would entitle any person
(other than the underwriters of the Purchaser's initial public offering for deferred
underwriting commissions as described in the Purchaser SEC Reports and stockholders of
the Purchaser holding shares of Purchaser Stock sold in the Purchaser's initial public
offering who shall have elected to redeem their shares of Purchaser Stock pursuant to
the Purchaser's certificate of incorporation, as amended) to any portion of the proceeds
in the Trust Fund. Prior to the Completion, none of the funds held in the Purchaser's
Trust may be released except (a) to pay income and franchise taxes or for working capital
purposes from any interest income earned in the Trust Fund and (b) to redeem shares of
Purchaser Stock in accordance with the provisions of the Purchaser's certificate of incorporation,
as amended, as described in the Purchaser SEC Reports; and
|
|
|
(q)
|
Purchaser Stock is registered
pursuant to Section 12(b) of the Exchange Act and is listed for trading on the NASDAQ
Capital Market as of the date hereof. There is no proceeding pending or, to the Knowledge
of the Purchaser, threatened in writing against the Purchaser by the SEC with respect
to any intention by the SEC to deregister the Purchaser Stock. There is no proceeding
pending or, to the Knowledge of the Purchaser, threatened in writing against the Purchaser
by NASDAQ with respect to any intention by NASDAQ to prohibit or terminate the listing
of Purchaser Stock on the NASDAQ Capital Market. The Purchaser has not taken any action
that is designed to terminate the registration of Purchaser Stock under the Exchange
Act.
|
Purchaser's Undertakings
|
|
13.1.
|
The Purchaser undertakes to the
Company and each Vendor:
|
|
|
(a)
|
that it will take all steps
necessary to preserve and enforce its rights and remedies (or the rights and remedies
of any other member of the Purchaser's Group) in relation to the Trust Fund in order
to make payment on the Completion Date of each of the amounts payable by it to the Vendors
pursuant to Clause 7 and Schedule 4;
|
|
|
(b)
|
to satisfy or procure the satisfaction
of all documentary conditions required to be satisfied under the Purchaser's Macquarie
Agreement; and
|
|
|
(c)
|
promptly to notify the Vendors'
Representatives upon becoming aware of the occurrence of any default or draw stop event
under the Purchaser's Macquarie Agreement or of any event which prevents any of the conditions
precedent under the Purchaser's Macquarie Agreement being satisfied of which it becomes
aware between the date of this Agreement and Completion which may prevent it from complying
with its obligations to make payment at Completion under Clause 7 and Schedule 4 , setting
out the details of such default or event and any action taken or proposed to be taken
to remedy it and the Purchaser undertakes to use all reasonable endeavours to remedy
any such default or event prior to Completion.
|
Purchaser's and Company's Undertakings
|
|
13.2.
|
The Company and the Purchaser
shall each use all reasonable endeavours to ensure that the conditions precedent to the
Effective Date occurring (as defined in the A&R Agreement) are satisfied on or prior
to Completion of this Agreement.
|
|
|
14.
|
Announcements/Confidentiality
|
|
|
14.1.
|
No public announcements or press
or media releases regarding the existence or contents of this Agreement (other than may
be required by law, or by the rules or regulations of, or any undertakings given to,
any recognised investment exchange (as such term is defined in the Financial Services
and Markets Act 2000)) shall be made by any of the parties unless and until the form
and content of such announcement or release (including any mention of the Purchase Price
or the Loan Note Payment) have been submitted to and agreed by the Vendors' Representatives
and the Purchaser (which consent shall not be unreasonably withheld or delayed). The
parties agree that it shall be reasonable to withhold consent to any announcement or
release which contains any details of the Purchase Price or the Loan Note Payment.
|
|
|
14.2.
|
Where any announcement or disclosure
is made in reliance on the exception in Clause 14.1 the party making the announcement
or disclosure shall, where possible, consult with the other party as to the form, content
and timing of the announcement or disclosure.
|
|
|
14.3.
|
Subject to Clause 14.4, the Purchaser
shall (and shall procure that each member of the Purchaser's Group shall) and each Vendor
shall treat as strictly confidential and not use or disclose any information which relates
to:
|
|
|
(a)
|
the provisions of this Agreement,
including the amount, allocation or calculation of the Purchase Price and the Loan Note
Payment (or any other agreement to be delivered at Completion);
|
|
|
(b)
|
the negotiations relating to
this Agreement (and such other agreements); or
|
|
|
(c)
|
any other party to this Agreement
and the business carried on by each of them.
|
|
|
14.4.
|
The provisions of Clause 14.3
shall not prohibit disclosure or use if and to the extent:
|
|
|
(a)
|
the disclosure contains no information
or commentary other than in respect of details contained in an announcement agreed under
Clause 14.1;
|
|
|
(b)
|
it is required by law or regulation
or for the purpose of any judicial proceedings arising out of this Agreement or any other
agreement entered into under or pursuant to this Agreement;
|
|
|
(c)
|
it is required by the applicable
rules of any stock exchange on which the securities of the parties to this Agreement
(or one of their Associated Companies) are listed or quoted (or on which it is proposed
that such securities be listed or quoted during the process of applying to become so
listed or quoted) or any other competent regulatory authority;
|
|
|
(d)
|
it becomes publicly available
(other than as a result of disclosure by the relevant party to this Agreement or the
Confidentiality Agreement, or any other person, in breach of such agreements);
|
|
|
(e)
|
that the other parties have
given prior written approval to the disclosure; or
|
|
|
(f)
|
the information is subsequently
obtained free of any restrictions on use or obligations of confidentiality from a third
party which is itself free of any restrictions on use or obligations of confidentiality
with respect to that information,
|
provided that except where
prohibited by any applicable law or regulation prior to disclosure of any information pursuant to Clause 14.4(a) or 14.4.(b),
the party concerned shall, where possible, promptly notify the other party of such requirement with a view to providing the other
party with the opportunity to contest such disclosure or otherwise to agree the timing of, conditions to and content of such disclosure.
|
|
14.5.
|
Regardless of any information
that becomes publicly available or is obtained in accordance with Clause 13 above, neither
the Vendors nor the Purchaser shall (and the Purchaser shall procure that each member
of the Purchaser's Group shall not) discuss the amount, allocation or calculation of
the Purchase Price with any party without the prior written approval of the Vendors'
Representatives.
|
|
|
14.6.
|
Notwithstanding any other provisions
of this Clause 14, following the initial announcement by the Purchaser of the execution
of this Agreement (which shall take place no more than 4 Business Days after the date
of this Agreement) an Institutional Vendor shall be permitted to disclose on a confidential
basis to any investor or prospective investor in funds managed by it or one of its affiliated
entities such details regarding the existence and contents of this Agreement as are required
under the fund documentation relating to any such fund.
|
|
|
14.7.
|
Notwithstanding any other provisions
of this Clause 14, the Management Vendors shall be permitted to disclose on a confidential
basis to their professional advisers and any taxation authority such details regarding
the existence and content of this Agreement as are reasonably necessary from time to
time.
|
|
|
15.
|
Termination
of Existing Investment Agreement
|
|
|
15.1.
|
Each Vendor and the Company hereby
acknowledges that the Existing Investment Agreement will be terminated in accordance
with its terms upon Completion. Subject to and conditional upon Completion occurring
each Vendor confirms that it shall have no claims, demands, damages or costs of whatsoever
nature against any Group Company or any other Vendor pursuant to the Existing Investment
Agreement and to the extent that any such claim exists, each Vendor waives such claim.
|
|
|
16.1.
|
No delay or omission on the part
of any party to this Agreement in exercising any right, power or remedy provided under
this Agreement or any other documents referred to in it shall:
|
|
|
(a)
|
impair such right, power or
remedy; or
|
|
|
(b)
|
operate as a waiver thereof.
|
|
|
16.2.
|
The single or partial exercise
of any right, power or remedy provided under this Agreement shall not preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
|
|
|
16.3.
|
No party shall be entitled to
terminate or rescind this Agreement (whether as a result of a repudiatory breach or otherwise)
other than pursuant to the right of termination contained in Clause 6.15. The Purchaser
acknowledges that its only remedy in respect of the transaction evidenced by this Agreement
shall be a claim in contract under the terms of the Transaction Documents (including,
for the avoidance of doubt, any claim for specific performance as contemplated by Clause
16.4) and not any other claim (including any claim in equity or tort or under the Misrepresentation
Act 1967 or otherwise).
|
|
|
16.4.
|
Each of the parties acknowledges
and agrees that any party to this Agreement shall be entitled to seek the remedy of specific
performance if any other party fails to comply with is respective obligations under this
Agreement. This is without prejudice to any other remedies that the parties or any of
them may seek in respect of any breach of this Agreement.
|
|
|
17.1.
|
Subject to Clauses 17.2 and 17.3,
the rights of the Purchaser under this Agreement shall not be assignable without the
prior written consent of the Vendors' Representatives. The rights of the Vendors under
this Agreement shall not be assignable without the prior written consent of the Purchaser.
|
|
|
17.2.
|
Subject to Clause 17.3, the Purchaser
may assign its rights under this Agreement (by way of security only) to its principal
provider of bank finance in relation to the transaction evidenced by this Agreement but
so that, notwithstanding any such assignment in security, the Vendors may unless they
receive written notice of enforcement of the relevant security interest, deal with the
Purchaser in connection with all matters arising under this Agreement.
|
|
|
17.3.
|
In
the case of any assignment of rights under this Clause 17, in each such case:
|
|
|
(a)
|
the assignor shall remain liable
for its obligations under this Agreement;
|
|
|
(b)
|
the assignee's rights under
this Agreement following such assignment shall be no greater than the assignor's rights
would have been had any such assignment not occurred; and
|
|
|
(c)
|
the liability of the parties
under this Agreement shall be no greater than such liabilities would have been had any
such assignment not occurred.
|
|
|
18.
|
Vendors'
Representatives
|
|
|
18.1.
|
Each of the Institutional Vendors
hereby irrevocably appoints the Institutional Vendors' Representative as their sole representative
to act on their behalf for all purposes under this Agreement including for the purposes
of:
|
|
|
(a)
|
delivering instructions to the
Purchaser in connection with the payment of any Purchase Price payable and the corresponding
issue of Consideration Shares to the relevant Institutional Vendor hereunder;
|
|
|
(b)
|
agreeing with the Purchaser
the allocation of the Purchase Price as between the Cash Element and Consideration Shares
in accordance with Schedule 6;
|
|
|
(c)
|
accepting notices on behalf
of the Institutional Vendors in accordance with Clause 26;
|
|
|
(d)
|
taking any and all actions that
may be necessary or desirable, as determined by the Institutional Vendors' Representative
in its sole discretion, in connection with the payment of the costs and expenses incurred
with respect to the transactions contemplated by this Agreement; and
|
|
|
(e)
|
granting any consent or approval
on behalf of the Vendors or any of them under this Agreement including any variation
or waiver which is not material in the context of this Agreement,
|
together 18.1(a)to 18.1(e)
above being the "
Authorisations
".
|
|
18.2.
|
Each of the Management Vendors
hereby irrevocably appoints the Management Vendors' Representative as their sole representative
to act on their behalf for all purposes under the Agreement including for the purposes
of the Authorisations described in Clause 18.1 but with changes made so that any references
to each "Institutional Vendor" are references to each "Management Vendor"
and references to the "Institutional Vendors' Representative" are references
to the "Management Vendors' Representative".
|
|
|
18.3.
|
Each of the
Institutional Vendors hereby irrevocably (by way of security for the performance of their
obligations under this Agreement) appoints the Institutional Vendors' Representative
as its attorney with full authority on its behalf and in the Institutional Vendor's name
or otherwise to do all acts and to execute and deliver such documents or deeds as are
required by law or as may, in the reasonable opinion of the Institutional Vendors' Representative,
be required to give effect to the matters described in Clause 18.1. Each Institutional
Vendor hereby indemnifies the Institutional Vendors' Representative against all losses,
liabilities, costs, claims, actions, demands or expenses which he may incur or which
may be made against him as a result of, or in connection with, anything lawfully done
by virtue of the power of attorney conferred by this Clause 18.3.
|
|
|
18.4.
|
Each Management Vendor hereby
irrevocably (by way of security for the performance of their obligations under this Agreement)
appoints the Management Vendors' Representative as their attorney with full authority
on their behalf and in the Management Vendor's name or otherwise to do all acts and to
execute and deliver such documents or deeds as are required by law or as may, in the
reasonable opinion of the Management Vendors' Representative, be required to give effect
to the matters described in Clause 18.2. Each Management Vendor hereby indemnifies the
Management Vendors' Representative against all losses, liabilities, costs, claims, actions,
demands or expenses which he may incur or which may be made against him as a result of,
or in connection with, anything lawfully done by virtue of the power of attorney conferred
by this Clause 18.4.
|
|
|
18.5.
|
Subject to Clause 18.6, the Purchaser
and each Vendor acknowledges that in exercising the powers and authorities conferred
by this Clause 18 upon the relevant Vendors' Representative, the relevant Vendors' Representative
shall not, save for as expressly provided herein, be acting, or be construed as acting,
as the agent or trustee on behalf of the Vendor who appointed him, and each Vendor and
the Purchaser agrees that the relevant Vendors' Representative shall have no liability
whatsoever to the Purchaser or the Vendor who appointed him in relation to the exercise
of those powers and authorities, save to the Vendor who has appointed him in the case
of fraud or bad faith.
|
|
|
18.6.
|
Notwithstanding Clause 18.5, the
Purchaser shall be entitled to rely on the exercise of the powers and authorities conferred
on the relevant Vendors' Representative as if the relevant Vendor is exercising such
powers and authorities.
|
|
|
18.7.
|
The
provisions of this Clause 18 are intended to be for the express benefit of, and will
be enforceable by, each Vendors' Representative as a third party beneficiary in accordance
with Clause 23.
|
|
|
19.1.
|
For a period of nine months following
Completion, each of the parties shall from time to time, on being reasonably required
to do so by another party now or at any time in the future, do or procure that there
is done (at the expense of the party making the request) all such acts and/or execute
or procure the execution of all such documents as may reasonably be within its power
as necessary for giving full effect to this Agreement.
|
|
|
19.2.
|
The Purchaser and the Vendors
each acknowledge that the Vendors and/or the Purchaser may need access from time to time
after Completion to certain accounting, Tax, insurance and other records and information
(including any CRC Information) held by the members of the Group or each Vendor's Group
(as applicable) to the extent such records and information pertain to events occurring
prior to Completion for the purpose of:
|
|
|
(a)
|
filing its tax returns or dealing
with the relevant Tax Authority in respect of such returns; or
|
|
|
(b)
|
complying with applicable laws
or regulations (including the CRC Order); or
|
|
|
(c)
|
preparing consolidated financial
information in respect of the Group as required for SEC purposes for fiscal years 2013,
2014, 2015 and 2016 (or any subsequent periods),
|
and, accordingly, the Purchaser
and the Vendors each agree that it shall, to the extent reasonably practicable, upon being given reasonable notice by the Vendors
or the Purchaser (as applicable) and subject to the Vendors or the Purchaser (as applicable) giving such undertaking as to confidentiality
as the Purchaser or the Vendors (as applicable) shall reasonably require (provided that such undertaking will not restrict the
provision of information as may be necessary to HMRC, any other Tax Authority, any securities exchange or otherwise as required
by applicable law), and shall cause the Group or each Vendor's Group (as applicable) to properly retain and maintain such records
(including CRC Information) until the earlier of the date that is three years after Completion or such time as the Vendors or
the Purchaser (as applicable) agree in writing that such retention and maintenance is no longer necessary.
|
|
20.1.
|
This Agreement, the Warranty Deed
and the other documents to be delivered at Completion in accordance with Schedule 4 (the
"
Transaction Documents
") contain the entire agreement between the parties
with respect to the transactions contemplated in this Agreement and shall (save where
there has been a fraudulent misrepresentation) supersede all prior proposals, representations,
agreements and negotiations relating thereto, whether written, oral or implied, between
the parties or any of them or their respective advisers or any of them.
|
|
|
20.2.
|
The Purchaser acknowledges that,
as between it and the Vendors, their Connected Persons and their respective advisers,
it has not entered into this Agreement in reliance on any warranties, representations,
undertakings or covenants not expressly set out in the Transaction Documents, and that
no Vendor, their Connected Persons and their respective advisers shall have any liability
to it in such respect. In addition, the Purchaser undertakes that no claim under any
warranty, undertaking or covenant not expressly set out in the Transaction Documents
will be pursued against any Vendor, their Connected Persons and their respective advisers
by it and that it will procure that no such claim be made by any member of the Purchaser's
Group.
|
|
|
20.3.
|
The Purchaser further acknowledges
that no Connected Person of any Vendor or any of their respective advisers is authorised
to make or give any warranty, representation, statement, undertaking or covenant of any
nature on behalf of any Vendor in respect of the transaction contemplated by this Agreement
and that no Vendor, no Connected Person of a Vendor, nor any of their respective advisers
shall have any liability to it in such respect (whether for vicarious acts or otherwise).
|
|
|
21.1.
|
This Agreement may be executed
in the form of one or more counterparts in like form each of which shall be deemed to
be an original when taken together and shall constitute one and the same document.
|
|
|
22.1.
|
If at any time any provision of
this Agreement is or becomes illegal, invalid or unenforceable in any respect under the
law of any jurisdiction, that shall not affect or impair:
|
|
|
(a)
|
the legality, validity or enforceability
in that jurisdiction of any other provision of this Agreement; or
|
|
|
(b)
|
the legality, validity or enforceability
under the law of any other jurisdiction of that or any other provision of this Agreement.
|
|
|
23.
|
Rights
of Third Parties
|
|
|
23.1.
|
Subject to Clause 23.2, no person
who is not a party to this Agreement shall have any right to enforce any term of it.
|
|
|
23.2.
|
Notwithstanding Clause 23.1:
|
|
|
(a)
|
each Vendor's Representative
may enforce the terms of Clause 18 as though they were a party hereto; and
|
|
|
(b)
|
each relevant Connected Person
and the relevant advisers as described in Clause 20.2 and Clause 20.3 may enforce the
terms of Clause 20.2 and Clause 20.3 as though they were a party hereto.
|
|
|
23.3.
|
The parties to this Agreement
may amend the terms of this Agreement without the consent of any other party.
|
No variation of this Agreement
shall be valid unless it is in writing and signed by or on behalf of each of the parties to it (or, in the case of a waiver, by
the party granting such waiver).
|
|
25.
|
Consequences
of Termination
|
|
|
25.1.
|
On termination or expiry of this
Agreement, the following Clauses shall continue in full force and effect: Clause 14 (
Announcements/Confidentiality
),
Clause 17 (
Assignment
) and Clause 20 (
Entire Agreement
).
|
|
|
25.2.
|
Notwithstanding anything to the
contrary in Clause 6.15, termination or expiry of this Agreement shall not affect any
rights, remedies, obligations or liabilities of the parties that have accrued up to the
date of termination or expiry, including the right to claim damages in respect of any
breach of the Agreement which existed at or before the date of termination or expiry.
|
|
|
26.1.
|
Any notice, demand or other communication
given or made under or in connection with the matters contemplated by this agreement
shall be in writing and in English.
|
|
|
26.2.
|
All notices, requests, demands
or other communications to or upon the respective parties may be given by personal delivery
or by being sent by first class recorded mail if posted to an address in the same country
as the country of posting or by air mail if posted to an address in a country different
to the country of posting:
|
|
|
(a)
|
in the case of the Purchaser
to its executive offices from time to time or such other address as it may notify for
the purposes of this Clause;
|
|
|
(b)
|
in the case
of each Vendor, to their address specified in Schedule 1 or such other address as they
may notify for the purposes of this Clause; and
|
|
|
(c)
|
in the case of either of the
Vendor's Representatives, to its address specified in the definition in Schedule 5 of
"Institutional Vendors' Representative" or "Management Vendors' Representative"
(as applicable) or such other address as it may notify for the purposes of this Clause.
|
|
|
26.3.
|
Any such notice, request, demand
or communication shall:
|
|
|
(a)
|
if delivered personally, be
deemed to have been received at the time of such delivery or if delivery is not on a
Business Day on the Business Day following such delivery;
|
|
|
(b)
|
if given by first class recorded
mail posted in the same country as the country of address, be deemed to have been received
on the second Business Day occurring after the date of posting; and
|
|
|
(c)
|
if given by air mail posted
from a country different to the country of address, be deemed to have been received on
the fifth Business Day after posting.
|
|
|
26.4.
|
All such notices, requests, demands,
or communications to the Vendors shall be clearly marked on the exterior and on the first
page "For the urgent attention of DMWSL 633 Limited" and shall be copied to
the Vendors' Solicitors (facsimile number +44 20 7628 0027) clearly marked on the exterior
and on the first page "Urgent: Ref: V027/050/ADN".
|
|
|
26.5.
|
All notices or communications
to the Purchaser shall be clearly marked on the exterior and on the first page "for
the urgent attention of Marty Schloss" and shall be copied to the Purchaser's Solicitors
(facsimile number
+44 20 3761 1899, email andrew.rimmington@mishcon.com;
and facsimile number 001-212-715-8000, email psmith@kramerlevin.com
) clearly marked
on the exterior and on the first page "Urgent: Ref: Project Ciao - Indiana".
|
|
|
26.6.
|
For the avoidance of doubt, notices,
requests, demands or other communications may be given by other means (including by e-mail)
but such other means will not benefit from the presumption of delivery set out in Clause
26.2.
|
Costs And Expenses
|
|
27.1.
|
Save as otherwise expressly provided
to the contrary in any of the Transaction Documents, the parties shall each pay their
own costs in connection with the preparation and negotiation of the acquisition evidenced
by this Agreement and in preparing and negotiating this Agreement and any other documents
referred to in this Agreement or prepared in connection with the underlying transaction.
The Purchaser shall be responsible for any stamp duties or other transaction duties,
payable in connection with this Agreement.
|
Exclusion of Limitations on Fraud
|
|
27.2.
|
Nothing in this Agreement shall
operate to limit the liability of a party (or the remedies available to the other party(ies))
in respect of a fraudulent act or representation by it.
|
Interest
|
|
27.3.
|
Where in terms of or pursuant
to this Agreement payment is expressed to fall to be paid on a particular day or date
or would have been paid on a particular date but for the parties not having agreed the
amount of the payment or not having received the determination of a court or arbitrator
interest shall be paid at the rate of four per cent. per annum over the base rate of
Lloyds Bank (the "
Interest Rate
") by the party due to make the payment
of principal from the date upon which payment would have been made had the payment been
agreed until the date actually paid. Such interest shall accrue both before and after
judgment.
|
Currency
|
|
27.4.
|
Any amount to be converted from
one currency into a second currency for the purposes of the following provisions of this
Agreement shall be converted into an equivalent amount at the Conversion Rate prevailing
at the Relevant Conversion Date. The "
Relevant Conversion Date
" for
the purposes of:
|
|
|
(a)
|
the determination of the Earn-out
EBITDA and the consequent number of Earn-Out Shares to be issued, shall be determined
as set out in Schedule 5; and
|
|
|
(b)
|
the determination of the number
of Consideration Shares to be issued, shall be calculated by reference to the average
of the Conversion Rates for the 15 Business Days prior to the Completion Date.
|
|
|
28.
|
Governing
Law, Jurisdiction and Service of Process
|
|
|
28.1.
|
This Agreement and any non-contractual
obligations arising out of it shall be governed by English law and the parties agree
that all disputes arising under or in connection with it, and any and all disputes arising
from or in connection with its negotiation, its validity or invalidity or its enforceability
or unenforceability, or otherwise howsoever (including any non-contractual disputes),
shall be governed by and determined exclusively in accordance with English law. The parties
further agree that the courts of England are to have exclusive jurisdiction over all
such disputes.
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|
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28.2.
|
The Purchaser hereby irrevocably
appoints Andrew Rimmington/Stuart McMaster Mishcon de Reya LLP of
Africa
House, 70 Kingsway, London WC2B 6AH
as its agent for the service of process in
England.
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|
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28.3.
|
Nothing contained in this Agreement
shall affect the right to serve process in any other manner permitted by law or the right
to bring proceedings in any other jurisdiction for the purposes of the enforcement or
execution of any judgment or other settlement in any other courts.
|
IN WITNESS WHEREOF this Agreement has
been duly executed and delivered by the parties as a deed the day and year first above written.
Schedule
1 – The Vendors
Part A – The Institutional
Vendors
|
(1)
Vendor
|
|
(2)
Address
|
|
(3)
No.
of Shares
|
|
(4)
No.
of Loan Notes
|
|
|
Landgame S.à.r.l.
|
|
1, rue Hildegard von Bingen, L-1282 Luxembourg
|
|
7,441,370 A Ordinary
|
|
|
8,858,068,467
|
|
|
Ares Capital Europe Limited
|
|
First Floor, Pellipar House, 9 Cloak Lane, London EC4R 2RU
|
|
418,780 A Ordinary
|
|
|
498,507,924
|
|
|
Trident Private Equity Fund III L.P.
|
|
Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB
|
|
653,294 A Ordinary
|
|
|
777,668,823
|
|
|
Harwood Capital Nominees Limited (Account A)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
121,756 A Ordinary
|
|
|
144,935,535
|
|
|
Harwood Capital Nominees Limited (Account B)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
1,885 A Ordinary
|
|
|
2,243,275
|
|
|
Harwood Capital Nominees Limited (Account SC)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
50,253 A Ordinary
|
|
|
59,820,679
|
|
|
Harwood Capital Nominees Limited (Account NS)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
12,563 A Ordinary
|
|
|
14,955,170
|
|
|
Harwood Capital Nominees Limited (Account C)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
36,668 A Ordinary
|
|
|
43,649,155
|
|
|
Harwood Capital Nominees Limited (Account D)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
377 A Ordinary
|
|
|
448,655
|
|
|
Harwood Capital Nominees Limited (Account E)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
1,884 A Ordinary
|
|
|
2,243,275
|
|
|
Harwood Capital Nominees Limited (Account H)
|
|
6 Stratton Street, Mayfair, London W1J 8LD
|
|
754 A Ordinary
|
|
|
897,310
|
|
|
|
|
TOTAL
|
|
8,739,584 A Ordinary
|
|
|
10,403,438,268
|
|
Part B – The Management Vendors
|
(1)
Vendor
|
|
(2)
Address
|
|
(3)
No.
of Shares
|
|
(4)
No. of Loan Notes
|
|
|
David Wilson
|
|
Basement, 43 Palace Gardens Terrace,
London W8 45B
|
|
113,473 B1 Ordinary
6,010 B2 Ordinary
51,500
B3 Ordinary
|
|
|
-
|
|
|
Jim O'Halleran
|
|
Churchill Cottage, Bishopton Hill Farm, Stratford-Upon-Avon,
Warwickshire CV37 0RG
|
|
103,203 B Ordinary
4,900 B2 Ordinary
51,500 B3 Ordinary
|
|
|
-
|
|
|
Lee Gregory
|
|
8 Crofters View, Little Wenlock, Shropshire TF6
5AL
|
|
52,797 B1 Ordinary
|
|
|
-
|
|
|
Steven Rogers
|
|
16 Fern Valley Chase, Todmorden, West Yorkshire
OL14 7HB
|
|
52,797 B1 Ordinary
|
|
|
-
|
|
|
Steven Holmes
|
|
19 St Peters Street, Stamford PE9 2PQ
|
|
42,497 B1 Ordinary
|
|
|
-
|
|
|
Alistair Hopkins
|
|
Berthen Gron, Ffordd Marchlyn, Deniolen, Caernarfon,
Gwynedd LL55 3LU
|
|
52,797 B1 Ordinary
|
|
|
-
|
|
|
Ziria Enterprises Ltd (held for on behalf of Harmen
Brenninkmeijer)
|
|
Kyprianou & Agiou Andreou Street 2, G. Pavlides
Court, 5th Floor, 3036 Limassol, Cyprus
|
|
52,797 B Ordinary
|
|
|
-
|
|
|
Tariq Tufail
|
|
33 Ffordd Gewnlian, Llanfairpwllgwyngyll, Anglesey
LL61 5QD
|
|
5,555 B Ordinary
|
|
|
-
|
|
|
Carlton Terry
|
|
15 Redruth Drive, Baswich, Stafford, Staffordshire
ST17 OFJ
|
|
5,555 B Ordinary
|
|
|
-
|
|
|
Steve Collett
|
|
7 Field Lane, Burton on Trent DE13 ONH
|
|
5,555 B Ordinary
|
|
|
-
|
|
|
Lucy Buckley
|
|
83 Lauderdale Tower, Barbican, London EC2Y 8BY
|
|
3,333 B Ordinary
|
|
|
-
|
|
|
Andrew Barber
|
|
18 Grange Farm Close, Sutton in Ashfield, Nottinghamshire
NG17 INJ
|
|
6,666 B Ordinary
|
|
|
-
|
|
|
Alex Macgregor-Devlin
|
|
1 Grosvenor Crescent, Burbage, Leicestershire LE10
2BQ
|
|
3,333 B Ordinary
|
|
|
-
|
|
|
Steven Davies
|
|
Hollinwood, Trawscoed Road, Llysfaen, Colwyn Bay
LL29 8LJ
|
|
4,444 B Ordinary
|
|
|
-
|
|
|
Richard White
|
|
17 Egerton Road, Whitefield, Manchester Lancashire
M45 7FU
|
|
4,444 B Ordinary
|
|
|
-
|
|
|
Matt Ingram
|
|
10 Broadfern Road, Knowle, West Midlands B93 9DD
|
|
69,754 B Ordinary
|
|
|
-
|
|
|
|
|
TOTAL
|
|
264,639 B Ordinary / 314,361 B1 Ordinary
/ 10,910 B2 Ordinary / 103,000 B3 Ordinary
|
|
|
-
|
|
Part C – The Minority Shareholders
|
(1)
Vendor
|
|
(2)
Address
|
|
(3)
No.
of Shares
|
|
(4)
No.
of Loan Notes
|
|
|
Barclayshare Nominees Limited
|
|
1 Churchill Place, London E14 5HP
|
|
591 A Ordinary
|
|
|
703,515
|
|
|
Tom Callanan
|
|
Prague, Castleknock Road Dublin 15
|
|
36 A Ordinary
|
|
|
42,853
|
|
|
JM Finn (Own name) Nominees Limited
|
|
4 Coleman Street, London EC2R 5TA
|
|
6,331 A Ordinary
|
|
|
7,536,304
|
|
|
Michael John Kelly
|
|
22 Haywards Croft, Greenleys, Milton Keynes, Bucks MK12 6AH
|
|
2 A Ordinary
|
|
|
2,380
|
|
|
Mary McCarthy
|
|
32 Merlyn Road, Ballsbridge, Dublin 4, Irish Republic
|
|
8 A Ordinary
|
|
|
9,523
|
|
|
Morstan Nominees Limited
|
|
25 Cabot Square, Canary Wharf, London E14 4QA
|
|
31 A Ordinary
|
|
|
36,901
|
|
|
Pershing Nominees Limited
|
|
Capstan House, One Clove Crescent, East India Dock, London E14 2BH
|
|
301 A Ordinary
|
|
|
358,304
|
|
|
TD Waterhouse Nominees (Europe) Limited
|
|
Exchange Court, Duncombe Street, Leeds LS1 4AX
|
|
149 A Ordinary
|
|
|
177,366
|
|
|
John Stergides
|
|
Co National Bank of Greece, 75 King William Street, 5th Floor, London
EC4N 7BC
|
|
1,675 A Ordinary
|
|
|
1,993,888
|
|
|
Bank of New York Nominees Limited
|
|
One Piccadilly Gardens, Manchester M1 1RN
|
|
1,292 A Ordinary
|
|
|
1,537,972
|
|
|
|
|
TOTAL
|
|
10,416 A
Ordinary
|
|
|
12,388,006
|
|
Schedule
2 - The Company
(For Information Only)
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Name of Company:
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DMWSL 633 Limited
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|
|
|
|
Place and Date of Incorporation:
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England and Wales, incorporated on 3 March 2010
|
|
|
|
|
Registered Number:
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07176544
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|
|
|
|
Registered Office:
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3 The Maltings, Wetmore Road, Burton-on-Trent, Staffordshire DE14 1SE
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|
|
|
|
Directors:
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Luke Alvarez
Jeremy Brade
James O'Halleran
Vitruvian Directors I Limited
Vitruvian Directors II Limited
David Wilson
|
|
|
|
|
Secretary:
|
Steven Holmes
|
|
|
|
|
Issued Share Capital:
|
8,750,000 A Ordinary Shares
264,639 B Ordinary Shares
314,361 B1 Ordinary Shares
11,150 B2 Ordinary Shares
154,500 B3 Ordinary Shares
985,361 Deferred Shares
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|
|
|
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Accounting Ref. Date:
|
30 September
|
Schedule
3 – Pre-Completion Undertakings
Part
A – Positive Undertakings
Pursuant to Clause 8.1(c), each Group
Company shall (subject always to compliance by each Group Company of the Negative Covenants in Part B below):
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1.
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continue its business in the ordinary
and usual course of its trading;
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|
|
2.
|
use all commercially reasonable efforts
to comply with all applicable laws and agreements to which it is a party;
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3.
|
use all commercially reasonable efforts
to properly maintain its statutory registers and books;
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|
|
4.
|
use all commercially reasonably efforts
to maintain its existing Permits in accordance with their terms, renew such Permits in
accordance with their terms and to prevent the Permits becoming void or voidable;
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|
|
5.
|
not incur costs and professional
fees in relation to the transactions contemplated by this Agreement except to the extent
such costs or fees are specifically approved pursuant to (a) Clause 8.2(f) of this Agreement,
(b) included in the Waterfall, (c) which fall under paragraph (ix) of the definition
of Permitted Leakage, or (d) comprise ancillary travel and subsistence or administrative
expenses;
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|
|
6.
|
except to the extent such actions
are otherwise restricted by Part B of this Schedule, use all commercially reasonable
endeavours to comply with the Business Plan; and
|
|
|
7.
|
use all commercially reasonable efforts
to settle any debts occurring in the normal course of trading in accordance with the
ordinary course of its trading.
|
Pursuant to Clause 8.1, the Company
shall:
|
|
8.
|
supply the Purchaser with monthly
management accounts (prepared on a consistent basis with the Management Accounts for
the twelve month period to the date of this Agreement) as soon as reasonably practicable
following the time such accounts are available to the board of the Company;
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|
|
9.
|
make available Luke Alvarez, Steven
Holmes and Charles Woods (as requested) for a monthly conference call or meeting to discuss
all material developments affecting the Group during the preceding month; and
|
|
|
10.
|
allow the Purchaser that access
to the Group as is described in Clause 8.20.
|
Part B Negative Undertakings
Pursuant to Clause 8.1, the matters
which the Group shall not do (or enter into any agreement or arrangement, or make any commitment, to do) are as follows:
Constitution and Shareholders
|
|
1.
|
Amend the memorandum or articles
of association (or equivalent constitutional documents) of any Group Company.
|
|
|
2.
|
Other than as expressly provided
for in this Agreement, create, allot, issue, redeem, reduce, consolidate, reorganise,
repurchase or repay any share or loan capital or create any right to call for the allotment,
issue or transfer of any share, or loan capital or other securities, except the accrual
of interest on any loan notes issued by any Group Company.
|
|
|
3.
|
Other than is expressly provided
for pursuant to Schedule 7, recommend, declare, make or pay any dividend or distribution
(whether in cash or in kind).
|
|
|
4.
|
Take any action with a view to commencing
winding up, administration or receivership proceedings (or any analogous proceedings
in any jurisdiction) against any subsidiary.
|
Financial Matters and Lending
|
|
5.
|
Change any accounting reference date
of any member of the Group or materially alter the principles, practices, policies or
methodologies used in the preparation of its audited accounts except as required by an
amendment to the applicable accounting standard from time to time.
|
|
|
6.
|
Appoint auditors to any member of
the Group or remove auditors from any member of the Group.
|
|
|
7.
|
Create any Encumbrance relating to
any of its assets except liens arising by operation of law in the ordinary course of
business (other than as required pursuant to the Group's Existing Financing Arrangements
or the A&R Agreement).
|
|
|
8.
|
Incur any third party borrowings
in the nature of indebtedness except:
|
|
|
(a)
|
in the ordinary course of trading
(such ordinary course borrowings not to exceed £250,000 or its equivalent in another
currency in the aggregate); or
|
|
|
(b)
|
any borrowing that relates to
a drawdown under the Group's Existing Financing Arrangements so long as the aggregate
amount drawn under the Revolving Facility (as defined in the Group's Existing Financing
Arrangements) does not exceed £9,500,000.
|
|
|
9.
|
Other than as required pursuant to
the Group's Existing Financing Arrangements, give any guarantee or indemnity or security
in respect of the obligations of any person firm or company, not being a member of the
Group, (other than normal trade credit on commercially reasonable terms in the ordinary
course of the Group's business).
|
|
|
10.
|
Other than pursuant to or in connection
with the A&R Agreement, agree any variation to the Group's Existing Financing Arrangements
or redeem any Encumbrance over an asset except in the ordinary course of trading where
there is a disposal of any Machine by the Group which is permitted under the Group's
Existing Financing Arrangements which allows for the release of any Encumbrance to which
such Machines are subject (subject always to the Group complying in full with the terms
of the Group's Existing Financing Arrangements in relation to any proceeds of any sale
of Machines).
|
Arrangements with Shareholders and
Employees
|
|
11.
|
Enter into any agreement or transaction
with or for the benefit of any Institutional Vendor or its Connected Persons which does
not constitute Permitted Leakage.
|
|
|
12.
|
In each case excluding (i) any replacement
of existing employees, (ii) the appointment of the new managing director for Europe and
the Middle East and (iii) the appointment of the new managing director for the UK, employ
any new employee with an annual salary in excess of £85,000 per annum, or employ
such number of new employees for whom the aggregate annual salary bill exceeds £1,500,000
per annum.
|
|
|
13.
|
Dismiss any employee of the Group
with an annual salary of £85,000 or more unless summarily dismissed (for the purposes
of this Schedule such person being a "
Senior Employee
").
|
|
|
14.
|
Amend any existing pension scheme
or adopt any new pension scheme.
|
|
|
15.
|
Except in relation to any non-discretionary
bonus or non-discretionary element of any bonus provided for in the relevant individual's
service contract or the terms of the senior employee bonus scheme in effect prior to
the Locked Box Date, in each case as contained within the Data Room, grant any Senior
Employee a bonus or make any increase in their salaries except in the ordinary course
of trading not exceeding an annual aggregate cost to the Group of £100,000.
|
|
|
16.
|
Make any material changes (other
than those required by applicable law) to the terms and conditions of employment (including
the provision of any contractual or non-contractual benefits) of directors, officers
or employees (including granting any new options or other entitlements under existing
schemes or benefits) in each case having an annual aggregate cost to the Group of over
£250,000.
|
|
|
17.
|
Fail to maintain the insurance cover
currently held over the Group as at the date hereof (to the extent such cover is reasonably
available in the insurance market and continues to be reasonably affordable for the Group)
or deliberately do any thing or take any step which would make any such policies void
or voidable.
|
Acquisition and Disposal of Shares
and Assets
|
|
18.
|
Dispose of any share in the capital
of any of its subsidiaries or alter, increase or reduce the authorised or issued share
capital of any of its subsidiaries.
|
|
|
19.
|
Sell or otherwise dispose of the
undertaking of the Company or any of its subsidiaries or any substantial part thereof.
|
|
|
20.
|
Otherwise than in the ordinary course
of trading, sell any fixed asset of any member of the Group for a consideration of or
having a book value or market value of more than £100,000 whether by a single transaction
or a series of transactions.
|
|
|
21.
|
Acquire any fixed asset or incur
any capital expenditure (i) more than £250,000 in excess of the amounts for the
relevant periods in the Business Plan or (ii) otherwise than in the ordinary course for
a consideration of or having a book value or market value of more than £100,000
(whether by a single transaction or a series of transactions).
|
|
|
22.
|
Excluding the entry into of (i)
a new lease for the existing property of the Group in Bangor, and (ii) a new leases for
additional floors 3 and 4 in the existing property of the Group in Manchester purchase
or acquire, or sell or dispose of, or terminate or surrender (or accept the termination
or surrender of) or modify, any heritable or freehold or leasehold property or any interest
therein.
|
|
|
23.
|
Enter into any material contract
or material arrangement which is likely to involve expenditure in excess of £250,000
per annum.
|
|
|
24.
|
Give notice to terminate or agree
to amend in a material way any contract with an annual revenue for or cost to the Group
of £250,000.
|
|
|
25.
|
Enter into any contract with an
expected annual revenue for the Group in excess of £2,000,000.
|
|
|
26.
|
Acquire any business or undertaking
or any interest in another corporate entity with a cost to the Group of £100,000
or more.
|
Company Administration
|
|
27.
|
Change the nature of the business
or activities as undertaken by the Group in the 12 months prior to the date of this Agreement.
|
|
|
28.
|
With the exception of the dispute
currently outstanding between the Group and the Performance Rights Society (including
any claims that may become joined to this dispute), instigate, compromise, release, discharge,
compound or settle any litigation or arbitration where the value of the claim exceeds
or is reasonably likely to exceed £100,000 (exclusive of costs) or where the costs
of conducting such action are reasonably likely to exceed £100,000 other than to
recover trade debt in the ordinary course of business.
|
Taxation
|
|
29.
|
Other than in (a) the ordinary course
of trading, (b) in relation to any ongoing dispute the details of which have been made
available in the Data Room, or (c) where the amount concerned is under £100,000:
(i) settle or compromise any proceeding, dispute or litigation with respect to any liability
to Tax, (ii) consent to any extension or waiver of the limitation period applicable to
any determination, notice or assessment issued by any Tax Authority, (iii) make any change
to Tax or accounting policies, methods or practices, (iv) permit a balancing event to
occur for capital allowance purposes, (v) change any Tax accounting period, (vi) surrender
any right to claim any refund of Taxes, (vii) change residence for Tax purposes, (viii)
enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement
or advance pricing agreement relating to any Tax, or (ix) fail on a timely basis to pay
and discharge Taxes due and payable by it to a Tax Authority prior to Completion, in
each case provided that such change is not effected to comply with law, regulation, guidance
from a Tax Authority or a change in generally accepting accounting practice or principles.
|
Schedule
4 - Completion Obligations
At Completion, the following shall
occur. All of the steps described below are intended to take effect simultaneously and conditional on performance by each
other party of their obligations set out in this Schedule 4. If and to the extent any party has executed a document or transferred
funds or issued shares or otherwise performed an obligation set out in this Schedule 4 before the other parties have performed
their obligations, (i) such document shall be held as undelivered and to the order of the executing party, (ii) such funds shall
be held to the order of the paying party, (iii) such shares shall be held to the order of the issuing company and (iv) such other
performance shall to the extent legally possible be treated as in abeyance pending compliance with the remaining obligations in
this Schedule 4.
|
|
1.
|
At Completion each Vendor shall deliver
as applicable (or procure that there shall be delivered) to the Purchaser or the Purchaser's
Solicitors:
|
|
|
1.1.
|
a duly executed stock transfer
form in favour of the Purchaser for such number of Sale Shares as are set out opposite
that Vendor's name in column (3) of the tables in Schedule 1;
|
|
|
1.2.
|
certificates in respect of such
Sale Shares (or lost share certificate indemnities in a form acceptable to the Purchaser
acting reasonably);
|
|
|
1.3.
|
a duly executed loan note transfer
instrument in favour of the Purchaser for its holding of Shareholder Loan Notes (as it
is following the Pre-Completion Restructuring);
|
|
|
1.4.
|
a duly executed power of attorney
valid for a period of 30 days from the Completion Date authorising the Purchaser to exercise
the rights attached to such number of Sale Shares as are set out opposite that Vendor's
name in column (3) of the tables in Schedule 1 pending transfers in favour of the Purchaser
being registered;
|
|
|
1.5.
|
in respect of each Vendor that
is a body corporate, a copy of the minutes (or the relevant extract thereof) of a duly
held meeting of the Board of Directors of the Vendor (or a duly constituted committee
thereof) authorising the execution by the Vendor of the relevant documents; and
|
|
|
1.6.
|
in respect of each Vendor who does
not personally sign the documents referred to in this Schedule, as evidence of the authority
of each person executing such documents on such Vendor's behalf a certified copy of the
powers of attorney conferring such authority.
|
|
|
2.
|
At Completion Landgame S.à.r.l.
shall:
|
|
|
2.1.
|
deliver duly signed resignation
letters from Vitruvian Directors I Limited and Vitruvian Directors II Limited resigning
from their posts as directors of the Company; and
|
|
|
2.2.
|
procure that Vitruvian Directors
I Limited and Vitruvian Directors II Limited shall grant their written consent to the
sale and purchase of the Sale Shares, to the Pre-Completion Restructuring, and to the
transfer of the Shareholder Loan Notes pursuant to this Agreement.
|
|
|
3.
|
At Completion, the Minority Investor
Shareholders shall deliver a duly signed resignation letter from Jeremy Brade resigning
from his post as a director of the Company.
|
|
|
4.
|
At Completion the Purchaser shall:
|
|
|
4.1.
|
make a payment by electronic transfer
of cleared funds for same day value on the Completion Date to the Vendors' Solicitors'
Client Account for an amount equal to the Cash Element of the Purchase Price (and the
Purchaser shall not be concerned as to the application of the moneys so paid);
|
|
|
4.2.
|
issue the Vendors the Consideration
Shares in respect of the Stock Element of the Purchase Price;
|
|
|
4.3.
|
provide such documentation as may
be reasonably requested by the Institutional Vendors in respect of anti-money laundering
checks;
|
|
|
4.4.
|
make a payment for and on behalf
of the Management Incentive Parent by electronic transfer of cleared funds for same day
value on the Completion Date to the Vendors' Solicitors' Client Account for an amount
equal to the Parent Put/Call Consideration;
|
|
|
4.5.
|
procure that the Company shall,
in accordance with its obligations under the Management Bonus Scheme, make a payment
not exceeding £4,155,000 in the aggregate (including employer national insurance
contributions) through the payroll system of the Group on the Completion Date to the
Participating Executives for amounts equal to their Entitlements; and
|
|
|
4.6.
|
deliver to the Vendors' Representatives
or the Vendor's Solicitors:
|
|
|
4.6.1.
|
a duly signed copy of the
Warranty Deed;
|
|
|
4.6.2.
|
a copy of resolutions of
the shareholders of the Buyer adopted at the Special Meeting certified by the Corporate
Secretary of the Buyer which includes the details of the percentage of participation
by the Purchaser's stockholders in the current transaction; and
|
|
|
4.6.3.
|
as evidence of the authority
of each person executing this Agreement or a document referred to in this Schedule 4
on the Purchaser's behalf:
|
|
|
(a)
|
a copy of the minutes (or the
relevant extract thereof) of a duly held meeting of the Board of Directors of the Purchaser
(or a duly constituted committee thereof) authorising the transaction and the execution
by the Purchaser of the relevant documents; and
|
|
|
(b)
|
a certified copy of the powers
of attorney conferring the authority; or
|
|
|
(c)
|
such other evidence as may be
acceptable to the Vendors' Representative acting reasonably.
|
|
|
5.
|
At Completion, the Purchaser and
the Vendors shall together:
|
|
|
5.1.
|
cause the directors of the Company
to hold a meeting of the board of the Company at which the directors shall pass resolutions
approving:
|
|
|
(a)
|
the transfers of the Sale Shares
pursuant to this Agreement and approving such transfers for registration (subject only
to the transfers being duly stamped);
|
|
|
(b)
|
the transfer of the Shareholder
Loan Notes and approving such transfer for registration and issue of new loan note certificates
(subject only to the presentation of the duly executed loan note transfer instrument);
|
|
|
(c)
|
the resignation of each of Vitruvian
Directors I Limited, Vitruvian Directors II Limited and Jeremy Brade as directors of
the Company;.
|
|
|
(a)
|
a duly signed copy of the Stockholders'
Agreement;
|
|
|
(b)
|
a duly signed copy of the Registration
Rights Agreement.
|
|
|
(a)
|
delivery of all documents and
items required to be delivered at Completion (or waiver of the delivery thereof by the
person entitled to receive the relevant document or item); and
|
|
|
(b)
|
receipt of the electronic funds
transfers referred to in paragraphs 4.1 above,
|
the documents and items delivered
in accordance with this Schedule 4 shall cease to be held to the order of the person delivering the same and Completion shall
be deemed to have taken place.
Completion Obligations of the Management
Vendors
|
|
7.
|
At completion, the Management Vendors
shall procure delivery to the Purchaser of:
|
|
|
7.1.
|
a duly signed copy of the Completion
Disclosure Letter (if any);
|
|
|
7.2.
|
a duly signed copy of the Stockholders'
Agreement; and
|
|
|
7.3.
|
a duly signed copy of the Registration
Rights Agreement.
|
Schedule
5 – Earn-Out Consideration
Part
A – Calculation
|
|
1.
|
If, for the 12 month period ending
September 30, 2018 (the "
Earn-out Period
"), Purchaser’s Group
EBITDA in respect of all operations (whether in place at the date of this agreement or
not) undertaken in relation to China, Colombia, Greece, Norway, Spain and Ukraine (collectively,
the "
Earn-out Jurisdictions
" and the EBITDA in respect thereof, "
Earn-out
EBITDA
") is equal to or greater than £15,000,000, the Purchaser shall
issue to the Vendors, pro rata in accordance with their holding of Shareholder Loan Notes
as of immediately prior to the Effective Time, an aggregate of 2,500,000 shares of Purchaser
Stock, which shall constitute Consideration Shares subject to the Registration Rights
Agreement. If, for the Earn-out Period, Earn-out EBITDA is less than £15,000,000
but more than £0 ("
Non-Whole EBITDA
"), the Purchaser shall issue
to the Vendors, pro rata in accordance with their holding of Shareholder Loan Notes as
of immediately prior to the Effective Time, an aggregate number of shares of Purchaser
Stock equal to the product of (x) 2,500,000 and (y) a fraction, the numerator of which
is Non-Whole EBITDA and the denominator of which is £15,000,000, i.e.:
|
The shares of Purchaser
Stock issuable to the Vendors pursuant to this paragraph 1 are referred to as the "
Earn-out Shares
".
|
|
2.
|
Notwithstanding paragraph 1 above,
if the capital expenditures of the Purchaser and its Subsidiaries in the Earn-out Jurisdictions
exceed £14,300,000 in the 24 month period to September 30, 2018 (the "
Capex
Excess
"), the aggregate number of Earn-out Shares issuable to the Vendors shall
be reduced by that number of shares of Purchaser Stock having a Market Value equal to
such excess. Notwithstanding this the Institutional Vendors' Representative may by written
notice require the Purchaser to exclude the Capex Excess from the calculation of the
number of Earn-out Shares in which case there shall be no reduction in the number of
the Earn-Out Shares due to the Capex Excess.
|
|
|
3.
|
The calculation of Earn-out EBITDA
shall be determined by reference to the management accounts of the Purchaser's Group
(after making any accounting adjustments necessary to bring these management accounts
in line with the accounting policies set out in the Accounts and also with US GAAP at
such time) and shall thereafter be calculated using the pro forma format and specific
accounting policies set out in Parts B and C of this Schedule 5.
|
|
|
4.
|
It is the intention of the parties
that the number of Earn-out Shares shall have been calculated within 15 Business Days
after the completion of the Group's audited financial statements for the fiscal year
ended September 30 2018
|
|
|
5.
|
The
Earn-out Shares, if any, shall be issued to the relevant Vendors no later than thirty
(30) days after the EBITDA Calculation becomes conclusive and binding. If the Earn-out
Shares have not been issued/determined to be zero by such date, the Purchaser shall pay
interest at the Interest Rate on the monetary equivalent of any un-issued Earn-out Shares.
|
|
|
6.
|
The Purchaser acknowledges that the
purpose of this Schedule is to ensure that the Vendors are able to participate in the
future value arising out of the Earn-Out Jurisdictions. Accordingly the Purchaser undertakes
to act in good faith in relation to its operation of the Purchaser's Group business in
the Earn-Out Jurisdictions so as to develop the potential of these businesses provided
however that this shall not require the Purchaser to act in a way that is contrary to
its overall commercial interests (but excluding any interest it may have in reducing
the number of Earn-Out Shares to be issued).
|
|
|
7.
|
The
Purchaser further agrees and undertakes that:
|
|
|
7.1.
|
in
the period from the Completion Date to the end of the Earn-out Period that they will
not participate in a transaction or series of transactions or any agreement, arrangement
or understanding which is/are designed or intended to avoid (or that has the reasonably
anticipated effect of avoiding) the application of this Schedule 5 (or reducing the amounts
that would otherwise be payable pursuant to its application) and which in substance is
a transaction, agreement, arrangement or understanding which, notwithstanding such steps,
should and give the Vendors the opportunity to participate in value as aforesaid;
|
|
|
7.2.
|
to
continue to operate the business of the Group in a manner consistent with the operation
of the Group in the 12 month period immediately prior to the Completion Date and generally
in accordance with the business plan of the Group as to planned growth in the Earn-out
Jurisdictions provided that the Purchaser shall not be required to operate the business
in a manner which is contrary to its overall commercial interests; and
|
|
|
7.3.
|
it
will not and it will procure that the Group does not sell, dispose of or wind-down any
of the Group's operations in any of the Earn-out Jurisdictions except to the extent,
if any, required by any applicable laws or regulations.
|
|
|
8.
|
If at any point prior to the
issuance of the Earn-out Shares, there is:
|
|
|
8.1.
|
a subdivision or consolidation
or reclassification of Purchaser Stock;
|
|
|
8.2.
|
a reduction of capital (of whatever
nature, but excluding a cancellation of capital that is lost or not represented by available
assets), or any other reduction in the number of Purchaser Stock in issue from time to
time;
|
|
|
8.3.
|
an issue of Purchaser Stock by
way of dividend or distribution;
|
|
|
8.4.
|
an issue of Purchaser Stock by
way of capitalisation of profits or reserves (including share premium account and any
capital redemption reserve);
|
|
|
8.5.
|
a consolidation, amalgamation or
merger of the Purchaser with or into another entity (other than a consolidation, amalgamation
or merger following which the Purchaser is the surviving entity and which does not result
in any reclassification of, or change in, the Purchaser Stock); or
|
|
|
8.6.
|
an issue of Purchaser Stock at
a discount of more than 20% to the mid-market value of the Purchaser's Stock based on
a weighted average for the 15 day period prior to the date of such issue, or earlier
commitment to issue, provided always that this paragraph 8.6 shall not apply in relation
to any issue of Purchaser Stock in connection with any management equity plan or other
incentive plan implemented from time to time for the benefit of employees or consultants
of the Purchaser's Group, in an aggregate amount not to exceed 12% of the shares of Purchaser
Stock as is in existence as at the Completion Date (after giving effect to the issuance
of shares under any such plan) and diluted by the Stock Element (but specifically not
diluted by reference to the Earn-out Shares or the warrants currently existing in relation
to the Purchaser),
|
then the Purchaser shall
adjust the Earn-out Shares conditional on any such event occurring, but with effect from the date of the relevant event or, if
earlier, the record date for the event (an "
Adjustment
") so that, after such Adjustment:
|
|
(a)
|
other than in the case of
paragraph 8.6, the total number of Earn-out Shares carry as nearly as possible (and in
any event not less than) the same proportion of the voting rights attached to the entire
issued share capital of the Purchaser and the same entitlement to participate in the
profits and assets of the Purchaser (including on liquidation) as if there had been no
such event giving rise to the Adjustment; or
|
|
|
(b)
|
in the case of paragraph
8.6, the total number of Earn-out Shares carry as nearly as possible (and in any event
not less than) the same proportion of the voting rights attached to the entire issued
share capital of the Purchaser and the same entitlement to participate in the profits
and assets of the Purchaser (including on liquidation) as if the event under paragraph
8.6 giving rise to the Adjustment resulted in a lesser number of shares of Purchaser
Stock being issued, such lesser number being calculated by dividing the same aggregate
consideration as was payable for such shares actually issued by a price per share equal
to 80% of such mid-market value of the Purchaser's Stock.
|
|
|
8.7.
|
The Purchaser shall give the Institutional
Vendors' Representative written notice of any event described in paragraphs 8.1 to 8.6,
together with details of the relevant Adjustment, at the time of, or as soon as reasonably
possible after the earlier of the (i) occurrence of such event or (ii) the relevant board
or general meeting of stockholders which has resolved to implement the event giving rise
to the Adjustment.
|
|
|
8.8.
|
If the Institutional Vendors' Representative
notifies the Purchaser in writing within 20 Business Days of receipt of a notice given
under paragraph 8.7 that it disagrees with any Adjustment (an "
Adjustment Objection
Notice
"), the provisions of Part D of Schedule 5 shall apply.
|
Part
B – Accounting Balances, Policies and Procedures for the Earn-Out Consideration
|
|
1.
|
The Earn-Out Consideration as it
relates to the Earn-out EBITDA shall be determined in accordance with the following hierarchy:
|
|
|
(a)
|
firstly, on the basis set out
in paragraph 3 of Part A of this Schedule 5;
|
|
|
(b)
|
secondly, the specific instructions
as set out in paragraphs 2 to 7 of this Part B of Schedule 5;
|
|
|
(c)
|
thirdly, those accounting principles,
treatments, policies, practices and procedures (including in relation to the exercise
of accounting discretion and judgement) applied in the preparation of the Accounts (but
as adjusted to comply with US GAAP); and
|
|
|
(d)
|
fourthly, except as specifically
contemplated by this Schedule 5, be prepared in accordance with Generally Accepted Accounting
Standards, Principles and Policies in the United States of America (as such exist at
Completion) ("
US GAAP
").
|
|
|
2.
|
The EBITDA Calculation, shall be
calculated and prepared by applying the revenue recognition policies of the Group on
a basis consistent with that applied in the preparation of the Management Accounts (as
adjusted for US GAAP) (provided however that all revenue generated by reference to each
of the Earn-Out Jurisdictions shall be included in the calculation of the Earn-Out Revenue
whether or not the revenue recognition policies of the Group would have allocated such
revenue to a different jurisdiction).
|
|
|
3.
|
Any currency conversions required
in the calculation of the Earn-Out EBITDA shall be made in accordance with the average
between the relevant currency and £ sterling for the relevant period(s) in all
cases in accordance with the requirements of US GAAP.
|
|
|
4.
|
The Earn-out Consideration shall:
|
|
|
4.1.
|
take no account of information
which becomes available, or events which occur, after the date on which the Purchaser
delivers the draft EBITDA Calculation to the Vendors; and
|
|
|
4.2.
|
be expressed in pounds sterling.
|
|
|
5.
|
To the extent that the relevant management
accounts (as used pursuant to paragraph 3 of Part A of this Schedule 5) do not allocate
overhead costs, a separate calculation will be made of costs directly attributable to
the Earn-out Jurisdictions with the balance of un-attributable costs in each case being
allocated on the basis set out in this Part B of Schedule 5.
|
|
|
6.
|
Pro forma EBITDA Calculation
|
|
Pro forma
|
|
|
|
FY15 (millions)
|
|
|
FY18 (millions)
|
|
|
Earn-Out Jurisdictions
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
1.2
|
|
|
|
[
=
]
|
|
|
|
|
COS
|
|
|
(0.2
|
)
|
|
|
[
=
]
|
|
|
|
|
Gross Margin
|
|
|
1.0
|
|
|
|
[
=
]
|
|
|
|
|
Field Operations
|
|
|
-
|
|
|
|
[
=
]
|
|
|
|
|
Market & Product Costs
|
|
|
(2.0
|
)
|
|
|
[
=
]
|
|
|
|
|
Contribution
|
|
|
(1.0
|
)
|
|
|
[
=
]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Costs
|
|
|
(0.1
|
)
|
|
|
[
=
]
|
|
|
|
|
Earn-out EBITDA *
|
|
|
(1.2
|
)
|
|
|
[
=
]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Capex
|
|
|
(3.0
|
)
|
|
|
[
=
]
|
|
|
|
|
Development Capex
|
|
|
(1.9
|
)
|
|
|
[
=
]
|
|
|
|
|
Maximum Capex
|
|
|
-
|
|
|
£
|
(14.3
|
)
|
|
|
|
Capex Excess
|
|
|
(6.1
|
)
|
|
|
[
=
]
|
|
* Subject to adjustment for a Capex Excess as
required under paragraph 2 of Part A of Schedule 5.
|
|
7.
|
A description of the line items that are to be included in the
calculation of Earn-out EDITDA is set out below and a further description of the items
to be included in each of these line items is included at paragraph 7 below.
|
"
Revenue
"
shall be calculated on the same basis of the Management Accounts of the Group for the 12 month period to the Locked Box Date (as
adjusted for US GAAP) and shall specifically include all elements of revenue earned by the Group from external sources by reference
to the Earn-Out Jurisdictions (whether or not the accounting policies of the Group would otherwise have allocated that revenue
to a jurisdiction other than the Earn-out Jurisdictions).
"
Cost of Sales
"
means any expenditure of the Group directly attributable to the fulfilment of contractual obligations of its customers in each
case relating to the generation of revenue in the Earn-Out Jurisdictions.
"
Gross Margin
"
means the aggregate of all revenues generated in the Earn-out Jurisdictions less Cost of Sales in the Earn-out Jurisdictions.
"
Field Operations
"
shall be calculated on the basis of the expenditure of the Group in servicing the VLTs located in the Earn-Out Jurisdictions.
"
Market and Product
Costs
" means that expenditure incurred by the Group which are directly attributable to the provision of support linked
to local markets, products and non-capitalised development costs relating to the Group's goods and/or services in each Earn-out
Jurisdiction (but excluding the expenditure in respect of any Field Operations).
"
Corporate Costs
"
shall be the total corporate overheads of the Group which are not otherwise able to be directly attributed to any specific business(es)
of the Group and shall be allocated to the Earn-Out Jurisdictions pro rata to the aggregate amount of gross margin earned in the
Earn-Out Jurisdictions as compared to the total amount of Group Gross Margin.
"
Machine Capex
"
shall comprise the expenditure incurred by the Group in providing Machines to its customers to the extent directly attributable
to the Earn-Out Jurisdictions.
"
Development Capex
"
shall comprise the cost of labour incurred by the Group in the development of games and products of the Group to the extent directly
attributable to the Earn-Out Jurisdictions and appropriate to be capitalised under US GAAP.
"
Group Gross Margin
"
means the revenue of the Group less the Cost of Sales of the Group.
"
Market
Value"
means US$10.
|
|
8.
|
A further description of the items noted in paragraph 6 above
are as follows:
|
|
Revenue
|
|
Recurring Revenue shares
|
|
Upfront platform and licence sales
|
|
Hardware Sales
|
|
Marketing Contributions
|
|
SLA's
|
|
|
|
Cost of Sales
|
|
Consumables
|
|
Repairable Parts
|
|
Third party VLT servicing costs
|
|
Labour cost to diagnose and repair VLT's, VLT parts including pc's, screens etc
|
|
Minor refurb costs for VLT's prior to deployment
|
|
Game Content Royalties to 3rd parties
|
|
Certification costs of 3rd party games
|
|
Royalties, rebates to 3rd parties
|
|
Hardware Cost of Sales
|
|
Software Costs incurred matching any revenue recognised that is not an Intangible asset
|
|
Sales Commissions
|
|
Connectivity costs
|
|
|
|
Field Operations
|
|
Field Service Engineers employment costs
|
|
Managers of the above
|
|
Regionals Managers and Operation Management
|
|
3rd Party Field Service costs
|
|
Logistics cost of moving parts between repair centre, venues and Engineers
|
|
|
|
Market and Product Costs
|
|
Sales, Business Development, Customer Account Management and in Country Market Teams
|
|
Global Operator Support Services
|
|
VLT Operations
|
|
Hardware Design and Manufacture
|
|
Project Management Office (PMO)
|
|
Net Overheads (non capitalised element) :
|
|
- Product Strategy & Customer Experience (PSCE)
|
|
- Product Development
|
|
- Game Development
|
|
- Innovation
|
|
- Insight
|
|
- Technical Support Services
|
|
|
|
Corporate Overheads
|
|
Finance
|
|
Board
|
|
HR
|
|
Legal
|
|
Facilities
|
|
Enterprise IT
|
|
Business Services
|
|
Marketing
|
Part
C – Process for Preparation of Earn-out Statement
|
|
1.
|
The Purchaser shall prepare (or procure
that the Group prepares) drafts of its calculation of the Earn-out EBITDA (the "
EBITDA
Calculation
") in the format set out in paragraph 5 of Part B of Schedule 5,
on the basis of the accounting balances, policies and procedures set out in this Schedule
5.
|
|
|
2.
|
Following the preparation of such
draft EBITDA Calculation, the Company shall arrange for the EBITDA Calculation to be
reviewed and verified (and to the extent appropriate, amended) by an independent firm
of reputable and internationally recognised charted accountants (the "
Reviewing
Accountants
") appointed on the basis set out below. The Company shall
supply the Reviewing Accountants with copies of its relevant supporting calculations
and working papers at the same time. The Institutional Vendors' Representative shall
be entitled to waive the obligation to have the EBITDA Calculation reviewed and verified
by notice in writing to the Purchaser.
|
|
|
3.
|
The identity of the Reviewing Accountants
shall be agreed upon by Institutional Vendors' Representative and the Purchaser or, failing
such agreement within five Business Days following the first discussion on such matter,
to be selected, on the application of either the Institutional Vendors' Representative
or the Purchaser, by the President for the time being of the Institute of Chartered Accountants
in England and Wales or his duly appointed deputy. The Reviewing Accountants shall be
engaged by the Company on the terms set out in this Schedule 5 and otherwise on such
terms as shall be agreed between the Company, the Institutional Vendors' Representative,
the Purchaser and the Reviewing Accountants. The parties agree and acknowledge
that the scope of review of the Reviewing Accountants shall be such that the cost of
engaging the Reviewing Accountants to undertake such review and verification shall not
exceed UK £50,000.
|
|
|
4.
|
The Reviewing Accountants shall review
and verify the draft EBITDA Calculation for the purposes of confirming whether it has
been prepared on the basis as set out in this Schedule 5 and whether it shows a true,
fair and reasonable view of the EBITDA Calculation and, if not, it shall determine (and
make) those alterations it considers should be made to the EBITDA Calculation to ensure
that it complies with the requirements of this Schedule 5 and shows a true, fair and
reasonable view of the EBITDA Calculation. The draft EBITDA Calculation, after
the making of any such alterations, shall then comprise the EBITDA Statement for all
purposes of this Agreement.
|
|
|
5.
|
The Reviewing Accountants shall act
as an expert (and not as an arbitrator) in making their determination and their determination
of any matter falling within their jurisdiction shall be final and binding on the Vendors
and the Purchaser (in the absence of manifest error). Where any relevant part of the
Reviewing Accountants determination is void because of manifest error the matter shall
be resubmitted to the Reviewing Accountants by the Company for correction as soon as
is reasonably practicable.
|
Part
D – Process and Dispute Resolution
|
|
1.
|
The following process shall occur
in relation to any Adjustment Objection Notice:
|
|
|
1.1.
|
the Institutional Vendors' Representative
shall set out in the Adjustment Objection Notice their reasons in reasonable detail for
such non-acceptance (being the items which they dispute and the basis upon which they
dispute such items) and specify the adjustments which, in their opinion, should be made
to the Adjustment in order to comply with the requirements of this agreement; and
|
|
|
1.2.
|
the parties shall use all reasonable
endeavours to:
|
|
|
(a)
|
discuss the objections of the
Vendors; and
|
|
|
(b)
|
try to reach agreement upon
the adjustments (if any) required to be made to the Adjustment,
|
in each case, within 20 Business Days of the
Adjustment Objection Notice (or such other time as the Institutional Vendors' Representative and the Purchaser may agree in writing).
|
|
2.
|
If the Institutional Vendors' Representative
is satisfied with the Adjustment (either as originally submitted or after the adjustments
agreed between the Purchaser and the Institutional Vendors' Representative) or if the
Institutional Vendors' Representative fails to serve an Adjustment Objection Notice within
the 20 Business Day period referred to in paragraph 8.8 of Part A of Schedule 5 above
then the Adjustment (incorporating any agreed adjustments) shall constitute the Adjustment
for the purposes of this Agreement and shall be final and binding on each of the Vendors
and the Purchaser.
|
|
|
3.
|
If the Institutional Vendors' Representative
and the Purchaser do not reach agreement within the 20 Business Day period referred to
in paragraph 1.2 (or such other time as the Institutional Vendors' Representative and
Purchaser may agree in writing) then the matters in dispute and in respect of which reasonable
details have been provided by the Vendors to the Purchaser in an Adjustment Objection
Notice (and only those) shall be referred, on the application of either the Vendors or
the Purchaser, for determination by an independent firm of internationally recognised
chartered accountants to be agreed upon by the Institutional Vendors' Representative
and the Purchaser or, failing such agreement within five Business Days following the
end of the 20 Business Day period referred to in paragraph 1.2, to be selected, on the
application of either the Institutional Vendors' Representative or the Purchaser, by
the President for the time being of the Institute of Chartered Accountants in England
and Wales or his duly appointed deputy (the "
firm
"). The firm shall
be engaged by the Vendors and the Purchaser on the terms set out in this Schedule 5 and
otherwise on such terms as shall be agreed between the Vendors, the Purchaser and the
firm. The firm shall determine its own procedure, subject to the following provisions
that shall apply to the firm's determination:
|
|
|
3.1.
|
the Purchaser and/or the Purchaser's
accountants and the Vendors and/or the Vendors' accountants shall each promptly (and
in any event within such time as reasonably enables the firm to make its decision in
accordance with the timing set out in paragraph 6.3) prepare and deliver to the firm
a written statement on the matters in dispute (together with the relevant supporting
documents) and deliver a copy of such written statement and supporting documents to the
Purchaser or the Institutional Vendors' Representative (as the case may be);
|
|
|
3.2.
|
following delivery of their respective
submissions, the Purchaser and the Vendors shall have the opportunity to comment only
once (provided that nothing in this sub-paragraph shall prevent the Purchaser or the
Vendors responding to any requests from the firm under paragraph 8 below) on the other
party's submissions by written comment delivered to the firm not later than 20 Business
Days after the written statement was first submitted to the firm and copied to the other
party pursuant to paragraph 6.1;
|
|
|
3.3.
|
the firm shall be requested to
give its decision within 20 Business Days of the expiry of the 20 Business Day period
referred to in paragraph 6.2 (or such later date as the Purchaser and the Institutional
Vendors' Representative agree in writing) of the confirmation and acknowledgment by the
firm of its appointment hereunder;
|
|
|
3.4.
|
apart from procedural matters,
the firm shall determine only:
|
|
|
(a)
|
whether any of the arguments
for an adjustment to the draft Adjustment put forward in the written statements under
paragraph 6.1 is correct in whole or part; and
|
|
|
(b)
|
if
so, what alterations should be made to the draft Adjustment in order to correct the relevant
inaccuracy in it;
|
|
|
3.5.
|
in giving such determination which
shall be in writing and made available for collection by the Vendors and the Purchaser
at the offices of the firm, the firm shall state what adjustments (if any) are necessary
to the draft Adjustment solely in respect of the matters in dispute in order to comply
with the requirements of this agreement and to determine finally the Adjustment and shall
give its reasons for each relevant determination (unless otherwise agreed by the Institutional
Vendors' Representative and the Purchaser);
|
|
|
3.6.
|
the firm shall act as an expert
(and not as an arbitrator) in making any such determination and their determination of
any matter falling within their jurisdiction shall be final and binding on the Vendors
and the Purchaser (in the absence of manifest error). Where the relevant part of the
firm's determination is void the matter shall be resubmitted to the firm by either party
for correction as soon as is reasonably practicable);
|
|
|
3.7.
|
the firm shall not be entitled
to determine the scope of its own jurisdiction; and
|
|
|
3.8.
|
each of the Vendors and the Purchaser
shall bear the costs and expenses of all counsel and other advisers, witnesses and employees
retained by them and the costs and expenses of the firm shall be borne between the Vendors
and the Purchaser in such proportions as the firm shall in its discretion determine or,
in the absence of any such determination, equally between the Vendors on the one part
and the Purchaser on the other.
|
|
|
3.9.
|
When the Vendors and the Purchaser
reach (or pursuant to paragraph 6 are deemed to reach) agreement on the Adjustment or
when the Adjustment is finally determined at any stage in accordance with the procedures
set out in this Part D, the Adjustment as so agreed or determined shall be the Adjustment
for the purposes of this agreement and shall be final and binding on the Purchaser and
the Vendors.
|
|
|
4.
|
The Purchaser and the Vendors shall,
and shall procure that its accountants and other advisers shall, and shall instruct the
firm to, keep all information and documents provided to them pursuant to this Part D
confidential and shall not use them for any purpose, except for disclosure or use in
connection with the Adjustment, the proceedings of the firm or any other matter arising
out of this agreement or in defending any claim or argument or alleged claim or argument
relating to this agreement or its subject matter.
|
Schedule
6 – Purchase Price Allocation
Following the Purchaser Stockholder
Approval the Purchaser shall calculate the balance of funds which are to be released from the Trust Fund together with the funds
available to be drawn down under the Purchaser's Macquarie Agreement as well as the balance of funds standing to it credit in
any bank accounts (together the "
Available Funds
").
The Purchaser shall then determine
the amount of the Cash Element in the following way:
|
|
1.
|
it shall take the amount of the Available
Funds;
|
|
|
2.
|
it shall deduct the amount of the
"Purchaser Costs" as set out in the Waterfall in the agreed form (or if an
adjustment to the Base Consideration has been made pursuant to sub-paragraph (ii) of
the definition of Base Consideration then the amount in the Waterfall increased by the
amount of such adjustment);
|
|
|
3.
|
it shall deduct the amount of the
"Target Costs" as set out in the Waterfall in the agreed form (or if an adjustment
to the Base Consideration has been made pursuant to sub-paragraph (iii) of the definition
of Base Consideration then the amount in the Waterfall increased by the amount of such
adjustment);
|
|
|
4.
|
it shall deduct the amount of the
repayment required under the A&R Agreement together with any costs and fees associated
with the A&R Agreement;
|
|
|
5.
|
it shall deduct an amount equal to
the US Dollar equivalent of UK £5 million for the purposes of the Purchaser's Group
having cash on its balance sheet;
|
|
|
6.
|
the balance following such deductions
shall comprise the funding in US Dollars that the Purchaser must use to satisfy the Cash
Element of the Completion Payment; and
|
|
|
7.
|
the actual amount of the Cash Element
shall be paid in Pounds Sterling and shall comprise that amount available to the Purchaser
following conversion by the Purchaser of the US Dollar amount into Pounds Sterling (after
the deduction of any applicable costs and commissions).
|
|
|
8.
|
At least 1 Business Day prior to
Completion the Purchaser, acting reasonably and in good faith, shall provide to the Institutional
Vendors' Representatives their calculation of the Cash Element for the confirmation and
agreement of the Institutional Vendors' Representative as required under Clause 7.7.
|
Schedule
7 – Pre-Completion Restructuring of Shareholder Loan Notes
The following definitions shall have
the following meanings when used in this Schedule 7:
"
Relevant Proportion
"
means, in relation to any Vendor, that proportion which the value of the principal and accrued interest of the 633 Loan Notes
held by them equates to the total value of the principal and accrued interest of all the 633 Loan Notes in issue;
"
Vendor Loan Note Holder
"
means a Vendor that is the owner of any Shareholder Loan Notes;
Restructuring
|
|
1.1.
|
Following receipt of the CP Satisfaction
Notice, the Institutional Vendors' Representative shall calculate the Loan Note Payment,
the Exchanged Loan Notes and the Remaining 633 Notes (each as defined below) in accordance
with the terms set out in the SPA and based on the expected Completion Date. The Purchaser
shall provide any information reasonably requested by the Institutional Vendors' Representative
to assist in these calculations as soon as possible to enable the Institutional Vendors'
Representative to comply with the time frames set out herein. The Institutional Vendors'
Representative shall provide a copy of these calculations to the Purchaser within two
Business Days of receipt of the CP Satisfaction Notice. The Purchaser shall provide any
comments it may have on these calculations within one Business Day of receipt of the
calculations.
|
|
|
1.2.
|
Following agreement on the calculations
as detailed above, each of the Vendor Loan Note Holders, the Company, and DMWSL 632 undertakes
to carry out the below steps to the extent they apply to them in the order set out below:
|
|
|
1.2.1.
|
Step 1
– the
Vendor Loan Note Holders shall enter into a written resolution of the majority holders
of the Shareholder Loan Notes agreeing that all of the Shareholder Loan Notes in issue
shall be exchanged for an equivalent value of shareholder loan notes to be issued by
the Company (the "
633 Loan Notes
"). The Company shall issue a PIK Loan
Note Instrument for these purposes on the same terms as the Shareholder Loan Note Instrument,
with the added inclusion of a drag right enabling the holders of 633 Loan Notes to be
dragged on substantially the same terms and conditions as the drag right contained in
Article 43 of the Articles (the "
633 Loan Note Instrument
"). The Company
shall agree to issue the 633 Loan Notes for the benefit of DMWSL 632 by way of a capital
contribution to DMWSL 632 for which the Company shall receive in the aggregate one ordinary
share in the share capital of DMWSL 632; and
|
|
|
1.2.2.
|
Step 2
- the Vendors
who, following Step 1 above, are holders of 633 Loan Notes (the "
633 Loan Note
Vendors
") shall enter into a written resolution of the majority holders of the
633 Loan Notes agreeing to exchange the right to repayment of such amount of interest
(and if such amount of interest is insufficient, principal) on a proportion of the 633
Loan Notes (the "
Exchanged Loan Notes
") for ordinary shares in the Company,
such that after the exchange the number of 633 Loan Notes remaining in issue (the "
Remaining
633 Notes
") shall be equal in value to the Loan Note Payment. Each holder of
633 Loan Notes shall have their loan note holding reduced in accordance with their Relevant
Proportion and shall be entitled to be issued one ordinary share each in the Company
in exchange for compromising all of the interest together with such amount of the principal
amount of the Exchanged Loan Notes as is required to ensure that the Remaining 633 Notes
are equal in value to the Loan Note Payment (the "
Exchange Shares
").
|
|
|
1.3.
|
Each of the Company, and DMWSL
632 undertake to procure that any board minutes, filings, authorisations and other corporate
formalities required to give effect to the Pre-Completion Restructuring shall be held,
passed, and filed.
|
Schedule
8 - Definitions and Interpretation
|
|
1.
|
In this Agreement, except so far
as the context otherwise requires, the following terms shall have the following meanings:
|
"
633 Loan Note
Instrument
" has the meaning given in Schedule 7;
"
633 Loan Note
Vendors
" has the meaning given in Schedule 7;
"
Accounts
"
means the audited consolidated accounts for the Group for the financial year ending on 30 September 2015 provided at document
1.2.1.1 in the Data Room;
"
Accruing Negative
Consideration
" means the sum of £21,500 for each day from (but excluding) the Locked Box Date to (and including)
the date of Completion
;
"
A Ordinary Shares
"
means the A ordinary shares of £0.01 nominal value each issued in the share capital of the Company;
"
Accounts Date
"
means 30 September 2015;
"
AGCC
" shall
bear the meaning given in Clause 6.1(d);
"
A&R Agreement
"
means the agreement dated on or about the date of this Agreement effecting the amendment and restatement of the Group's Existing
Financing Arrangements between, among others, DMWSL 631 Limited and Ares Management Limited as Agent and Security agent;
"
Articles
"
means the articles of association of the Company as at the date of this Agreement;
"
Base
Consideration
" means the sum of the following:
|
|
(i)
|
£100,363,394.31; plus
|
|
|
(ii)
|
any amount by which the "Purchaser
Costs" to be used in the calculation of the Cash Element pursuant to Schedule 6
exceed £8,237,909.41; less
|
|
|
(iii)
|
any amount that comes within
the terms of sub-paragraph (ix) of the definition of Permitted Leakage; less
|
|
|
(iv)
|
any amount of issued PIK notes
and accrued PIK interest that exceeds £7,785,855.80 and any amount of cash interest
that exceeds £134,778 in each case on the Group's Existing Financing Agreements
as at Completion;
|
"
B Ordinary Shares
"
means the B ordinary shares of £0.01 nominal value each issued in the share capital of the Company;
"
B1 Ordinary Shares
"
means the B1 ordinary shares of £0.001 nominal value each issued in the share capital of the Company;
"
B2 Ordinary Shares
"
means the B2 ordinary shares of £0.75 nominal value each issued in the share capital of the Company;
"
B3 Ordinary Shares
"
means the B3 ordinary shares of £0.01 nominal value each issued in the share capital of the Company;
"
Business
"
means the business and activities of the Group as carried out at the date of this Agreement;
"
Business Day
"
means a day (other than a Saturday or Sunday) on which clearing banks are open for normal business in London and New York;
"
Business Plan
"
means the management plan related to the Group as set out in the Data Room at reference 1.2.3.19;
"
Call Exercise
Notice
" has the meaning given to it in the Opco Articles;
"
Cash Element
"
means that part of the Purchase Price which is payable in cash calculated in accordance with the requirements of Schedule 6 which
in no event shall be less than zero;
"
Completion
"
means the completion of the matters set out in Schedule 4;
"
Completion Date
"
means the date which is a maximum of three Business Days after the Parties have been notified that all of the Conditions Precedent
have been (or as appropriate remain) satisfied (or such other time as may be agreed in writing between the Vendor's Representatives
and the Purchaser);
"
Completion Payment
"
bears the meaning given to it in Clause 7.2;
"
Communications Plan
"
means the communications plan in form agreed in writing between the Institutional Vendors' Representative and the Purchaser following
the date of this agreement;
"
Conditions Precedent
"
has the meaning given to it in Clause 6.3;
"
Confidentiality
Agreement
" means the confidentiality agreement dated 10 November 2015 between the Company and Hydra Industries Acquisition
Corp. ;
"
Connected Person
"
means:
|
|
(i)
|
in relation to any person, a
member of that person's family within the meaning of section 253 of the Companies Act
2006;
|
|
|
(ii)
|
in relation to any person,
a family trust established for the benefit of that person or a member of that person's
family as defined above;
|
|
|
(iii)
|
in relation to any person,
a company which such person controls (within the meaning of section 435(10) of the Insolvency
Act 1986), but excluding any portfolio investee entity of any investment funds owned,
managed or advised by any of the Institutional Vendors; and/or
|
|
|
(iv)
|
in relation to any company,
a company which controls such company or which is controlled by the same person as such
company (within the meaning of section 435(10) of the Insolvency Act 1986), but excluding
any portfolio investee entity of any investment funds owned, managed or advised by any
of the Institutional Vendors;
|
"
Consideration
Shares
" means the common stock of the Purchaser issued to the Vendors hereunder, valued, for the purposes of this Agreement,
at US$10.00 per share, which shall have the same rights as the existing Purchaser Stock as at the date of this Agreement;
"
CP Satisfaction
Notice
" has the meaning given in Clause 6.13;
"
Completion Disclosure
Letter
" means the disclosure letter against the Warranty Deed to be delivered by the Management Vendors at Completion;
"
Conversion Rate
"
means the average of the spot selling and buying rates for a transaction between the two currencies in question as quoted on the
relevant Reuters page as at the close of business (London time) on the 15 Business Days prior to the Relevant Conversion Date
(as defined in Clause 27.4) or, if no such rate is quoted on that date, on the preceding date on which such rates are quoted;
"
CRC Information
"
means any information regarding the CRC Scheme or required by either the Vendors' Group or the Purchaser's Group in connection
with their respective obligations to comply with the CRC Order;
"
CRC Order
"
means the CRC Energy Efficiency Scheme Order 2013 and the CRC Energy Efficiency Scheme Order 2010 (as amended by the CRC Energy
Efficiency Scheme Order 2013 and the CRC Energy Efficiency Scheme (Amendment) Order 2011) and such laws relating to the CRC Scheme,
any guidance issued by any relevant authority and any re-enactment or variation of any such laws or guidance in force from time
to time;
"
CRC Scheme
"
means the CRC Energy Efficiency Scheme established by the CRC Order;
"
Data Room
"
means the data room of documents relating to the Company hosted by Intralinks under the name "Project Ciao – Indiana"
for the purposes of the transaction evidenced by this Agreement;
"
Data Room Documents
"
means the documents comprising the Project Ciao - Indiana on-line data room made available to the Purchaser and listed in the
data room index downloaded on 11 July 2016 and annexed to the Disclosure Letter;
"
Disclosed
"
means fairly disclosed (in a manner and with sufficient detail to enable a reasonable person to identify the nature and scope
of the matter disclosed) in or by:
|
|
(i)
|
the Disclosure
Letter;
|
|
|
(ii)
|
the Disclosure
Documents; and/or
|
"
Disclosure Documents
"
means the Data Room Documents together with any further documents annexed to or incorporated by reference into the Disclosure
Letter;
"
Disclosure Letter
"
means the disclosure letter provided by the Warrantors and accepted by the Purchaser and dated on or about the date of this Agreement;
"
Drag Provision
"
has the meaning given to it in Clause 3.1;
"
Earn-Out Consideration
"
means that amount of the Purchase Price which is calculated by reference to Schedule 5 of this Agreement;
"
Earn-Out Shares
"
bears the meaning given to it in Part A of Schedule 5;
"
EBITDA
"
shall bear the meaning given in Schedule 5;
"
Effective Time"
means immediately prior to Completion;
"
Encumbrance
"
means any charge, mortgage, pledge, security interest, lien, option, right of pre-emption, equity, power of sale, right of set-off,
hypothecation or other analogous third party right (but excluding any such right created by the articles of association of any
member of the Group);
"
Entitlements
"
has the meaning given to it in the Management Bonus Scheme;
"
Existing Investment
Agreement
" means the investment agreement relating to the Company entered into between the Company, DMWSL 632 Limited,
DMWSL 631 Limited, Gaming Acquisitions Limited, the Original Managers and the Original Institution (each as defined therein) dated
3 May 2010;
"
Exchange Shares
"
has the meaning given in Schedule 7;
"
Gambling Authorities
"
means:
|
|
(i)
|
the Gambling
Commission;
|
|
|
(ii)
|
the Licensing
Authority of Gibraltar; and
|
|
|
(iii)
|
Alderney
Gambling Control Commission;
|
"
Gambling Commission
"
means the Gambling Commission established by Part 2 of the Gambling Act 2005 (UK Statute) and which regulates gambling in Great
Britain;
"
Gibraltar Gambling
Act
" has the meaning given to it in Clause 6.1(c);
"
Gibraltar Licensing
Authority
" has the meaning given to it in Clause 6.1(c);
"
Group
"
means the Company and its subsidiaries;
"
Group Company
"
means any member of the Group;
"
Group's Existing
Financing Arrangements
" means all amounts outstanding under the senior term and revolving facilities agreement dated
18 March 2014 between, among others, DMWSL 631 Limited as Parent, certain of its subsidiaries as borrowers and guarantors, Ares
Management Limited and Lloyds Bank plc as Arrangers and Ares Management Limited as Agent and Security Agent as acceded to from
time to time including (but not limited to) all amounts of principal and interest and all costs, fees and other expenses which
are or become due and payable in connection with the repayment and/or prepayment of such facilities on the Completion Date;
"
Growth Shares
"
has the meaning given to it in the Opco Articles;
"
Growth Shareholders
"
means the holders of any Growth Shares at the relevant time;
"
Institutional Vendors
"
means those entities listed in column (1) of the table in Part A of Schedule 1;
"
Institutional Vendors'
Representative
" means Vitruvian Directors I Limited;
"
Interest Rate
"
has the meaning given in Clause 27.3;
"
Long Stop Date
"
means 31 December 2016;
"
Leakage
"
means:
|
|
(i)
|
any dividend or distribution
(in cash or in kind) declared, paid or made by a Group Company to a Vendor or its Connected
Persons;
|
|
|
(ii)
|
any payments made to a
Vendor or its Connected Persons by any Group Company in respect of any share capital,
or other securities of any Group Company being issued, redeemed, purchased or repaid,
or any other return of capital including without limitation any cash payment of interest
on the Shareholder Loan Notes to the extent not provided for in the Locked Box Accounts
and any cash payment made in respect of the restructuring of the Shareholder Loan Notes
(but for the avoidance of doubt the steps comprising Pre-Completion Restructuring shall
not constitute a cash payment for these purposes);
|
|
|
(iii)
|
the waiver, forgiveness,
release or discount (in whole or in part) by any Group Company of any amount or obligation
owed to such Group Company by a Vendor or its Connected Persons;
|
|
|
(iv)
|
any indemnity, guarantee
or other contingent liability or obligation granted or assumed by a Group Company for
the benefit of a Vendor or its Connected Persons;
|
|
|
(v)
|
the purchase by a Group
Company of any assets from a Vendor or its Connected Persons to the extent that such
transfer is at more than their market value;
|
|
|
(vi)
|
the transfer by a Group
Company to a Vendor or its Connected Persons of any assets to the extent that such transfer
is at less than market value;
|
|
|
(vii)
|
any payment by a Group
Company of, or obligation on a Group Company to pay or incur any costs, professional
fees or transaction bonuses to any person which are payable by a Vendor or its Connected
Persons in connection with the transactions contemplated by this Agreement;
|
|
|
(viii)
|
any payment of management
or investment or equivalent fees to any of the Vendors or their Connected Persons;
|
|
|
(ix)
|
any agreement or arrangement
made or entered into by any Group Company to do or give effect to any matter referred
to in (i) to (viii) above;
|
|
|
(x)
|
any Taxation arising and
payable by a Group Company as a consequence of anything described in paragraphs (i) to
(ix) above; or
|
|
|
(xi)
|
any other payment made
to a Vendor or its Connected Persons by any Group Company to the extent it is not on
arm's-length terms and in the ordinary course of business,
|
but
excludes Permitted Leakage. For the avoidance of doubt each of the items included in the Waterfall which are described as being
shared expenses shall not comprise Leakage;
"
Loan Noteholders
"
means the holders of the Shareholder Loan Notes;
"
Locked Box Accounts
"
means the management accounts for the four week period to 4 June 2016 with an agreed walk forward to 2 July 2016 in the agreed
form;
"
Locked Box Date
"
means 2 July 2016;
"
Machines
"
means all betting, gaming and entertainment machines, vending machines, self service betting terminals, ATM machines and coin
operated telephones operated by the Group (including for the avoidance of doubt, all fixed odds betting terminals, bingo hand-held
devices, video lottery terminals, amusement-with-prizes machines, skill-with-prizes machines, pool machines and the like) together
with any other revenue generating machine operated by the Group in the ordinary course of trading and including all inputs and
components of such machines;
"
Majority Noteholders
"
has the meaning given in the Shareholder Loan Note Instrument;
"
Management Accounts
"
means the management accounts of the Group for the four week period ending on 4 June 2016;
"
Management Bonus
Scheme
" means collectively the UK Cash Bonus Scheme, the UK Phantom Bonus Scheme, the Gibraltar Cash Bonus Scheme; the
Gibraltar Phantom Bonus Scheme and the Growth Share Scheme and all sums payable in connection with the Growth Shares, as such
documents are included in Data Room Documents/folders 1.1.2.16.1.2 and 2.3.9;
"
Management Vendors
"
means those individuals listed in column (1) of the table in Part B of Schedule 1;
"
Management Vendors'
Representative
" means Steven Holmes of 3 The Maltings Wetmore Road, Burton-On-Trent, Staffordshire, DE14 1SE ;
"
Material Adverse
Effect
" means a matter, event, circumstance, change or occurrence in each case that occurs after the date of this Agreement
(an "
Event
"):
|
|
(a)
|
that is not an Event that
was Disclosed by or on behalf of the Vendors (or any of them) to the Purchaser prior
to the date of this Agreement; and
|
|
|
(b)
|
that (either alone or in combination)
results in, or is reasonably likely to result in, a material adverse effect on the assets,
liabilities, business, operations, results of operations, financial condition or profits
of the Group (taken as a whole) or on the ability of the Vendors to consummate the transactions
contemplated by this Agreement,
|
|
|
(c)
|
which is in each case is not
caused by:
|
|
|
(i)
|
general changes in any financial
market, or in interest rates or currency exchange rates or in general economic, financial
or political conditions;
|
|
|
(ii)
|
changes in general laws, regulations
or accounting practices (but excluding changes in laws, regulations or accounting practices
primarily applicable to the gambling industry, which shall be taken into account in determining
whether a Material Adverse Effect has occurred, irrespective of whether such change has
been Disclosed and irrespective of whether such change disproportionately impacts the
Group);
|
|
|
(iii)
|
any transaction contemplated
by this Agreement; or
|
|
|
(iv)
|
any act or omission of any
member of the Purchaser's Group,
|
provided, however that
a matter, event, development, circumstance, change or occurrence the cause of which is set forth in items (i) or (ii) above shall
be taken into account in determining whether a Material Adverse Effect has occurred if and to the extent such Event has, or would
reasonably be expected to have, individually or in the aggregate, an impact on the assets, liabilities, business, operations,
results of operations, financial condition or profits of the Group (taken as a whole) which is substantially more adverse to the
Group relative to other similarly situated participants in the gambling industry segments in which the Group operates in the United
Kingdom or any other jurisdiction in which the Group conducts business;
"
Material Change
"
has the meaning given to it under paragraph 4(2) of Schedule 1 of the Gibraltar Gambling Act;
"
Minority
Investor Shareholders
" means the Institutional Vendors other than Landgame S.à.r.l.;
"
Minority Shareholders
"
means Barclayshare Nominees Limited, Tom Callanan, JM Finn Nominees Limited, Michael John Kelly, Mary McCarthy, Morstan Nominees
Limited, Pershing Nominees Limited, TD Waterhouse Nominees (Europe) Limited, John Stergides, and the Bank of New York Nominees
Limited;
"
Minority
Shares
" means those A Ordinary Shares held by the Minority Shareholders;
"
NASDAQ
"
means the NASDAQ Stock Market;
"
Opco Articles
"
has the meaning given to it in Clause 5.1;
"
Operating Licence
"
means an operating licence which is required by the Gambling Act 2005 and which comes within the meaning of and is issued pursuant
to Part 5 of the Gambling Act 2005;
"
Parent
Put/Call Consideration
" has the meaning given to it in the Opco Articles;
"
Participating Executives
"
has the meaning given to it in the Management Bonus Scheme;
"
Permitted
Leakage
" means:
|
|
(i)
|
all payments of remuneration,
benefit in kind, directors' fees and expenses made to or for the benefit of any of the
Vendors or any of their Connected Persons as employees or directors of any Group Company
provided that such payments are in the ordinary course of their employment and in accordance
with the terms of their employment or service agreements as disclosed to the Purchaser
in the Data Room, including the payment and/or accrual of any ordinary course end-of-year
bonuses;
|
|
|
(ii)
|
payment of the fees and
expenses of certain professional advisers or service providers of up to £4,406,556.02
(such figure to be inclusive of any irrecoverable VAT) in the aggregate to such advisers
or providers in relation to advice or other services provided and in relation to matters
contemplated by this Agreement;
|
|
|
(iii)
|
directors' and monitoring
fees in the aggregate of £41,414 per calendar quarter plus actually incurred expenses
of up to £5,000 in aggregate for the period from the Locked Box Date to Completion,
payable to Vitruvian Directors I Limited and Vitruvian Directors II Limited, and to Jeremy
Brade;
|
|
|
(iv)
|
continued accrual of interest
on the Shareholder Loan Notes (but not the payment in cash of such interest);
|
|
|
(v)
|
the restructuring of the
Shareholder Loan Notes as set out in Schedule 7;
|
|
|
(vi)
|
all payments made to the
Growth Shareholders made in exchange for the transfer of their Growth Shares;
|
|
|
(vii)
|
the payment of PIK interest
accrued and/or paid and any other costs, fees and expenses incurred in relation to the
Group's Existing Financing Arrangements or connection with the A&R Agreement;
|
|
|
(viii)
|
transaction bonuses in
an amount of up to £4,155,000 (including any employer's national insurance contributions)
payable or paid to the Management Vendors pursuant to the Management Bonus Scheme in
connection with the transactions contemplated by this Agreement;
|
|
|
(ix)
|
any additional payments
not exceeding £3,000,000 notified in writing by the Institutional Vendors' Representative
to the Purchaser so long as an equivalent amount is also deducted from the Base Consideration;
|
|
|
(x)
|
all payments approved in
advance of being made by the Purchaser in writing (including by e-mail); and
|
|
|
(xi)
|
all payments to the extent
directly related to any filing required to be made in any jurisdiction in connection
with the satisfaction of the Conditions Precedent;
|
"
Permits
"
means:
|
|
(i)
|
all licences, permits, authorisations
or consents required by law in order for it to supply or provide gambling products or
services in the same manner as currently supplied or provided by any Group Company; and
|
|
|
(ii)
|
all other necessary licences,
permits, authorisations or consents required by law (excluding IP Licences) in order
for it to carry on its business as now carried on, the absence of which would have a
material adverse effect on the business of the Group;
|
"
Pre-Completion Restructuring
"
means the process of restructuring the Shareholder Loan Notes as set out in Clause 3 and Schedule 7;
"
Possible Termination
Event Notice
" shall bear the meaning ascribed to it in Clause 9.5;
"
Purchase Price
"
has the meaning given in Clause 7.1;
"
Purchaser's Group
"
means the Purchaser, any holding company of the Purchaser, any subsidiary of the Purchaser or any such holding company from time
to time;
"
Purchaser's Knowledge
",
"
Knowledge of the Purchaser
" or any similar phrase, with respect to the Purchaser, means the actual knowledge
of Lorne Weil, George Peng and Martin Schloss;
"
Purchaser's Macquarie
Agreement
" means the agreement between the Purchaser and MIHI LLC for the contingent forward purchase of Purchaser Stock
for an aggregate price of USD$20,004,347.83;
"
Purchaser's Solicitors
"
means Mishcon de Reya LLP, Africa House, 70 Kingsway, London WC2B 6AH and Kramer Levin Naftalis & Frankel LLP, 177 Avenue
of the Americas, New York NY 10036, or their respective successors in business or any other firm appointed as solicitors by the
Purchaser for the purposes of this Agreement;
"
Purchaser Stock
"
means common stock, par value US$0.0001 per share, of the Purchaser;
"
Purchaser Stockholder
Approval
" shall bear the meaning ascribed to it in Clause 8.6;
"
Registration Rights
Agreement
" means the agreement between the Purchaser and the holders of the Consideration Shares in respect of the registration
of those shares on the NASDAQ Capital Market in the agreed form;
"
Remaining 633 Loan
Notes
" has the meaning given in Schedule 7;
"
Reports
"
means the following reports commissioned by or on behalf of the Purchaser or the Vendors in connection with the acquisition of
the Sale Shares pursuant to the Acquisition Agreement: (i) the financial due diligence report dated 7 January 2016 prepared by
KPMG LLP and trading update dated 5 February 2016, (ii) the legal due diligence report prepared by Dickson Minto W.S. dated 15
January 2016, and (iii) the regulatory due diligence report prepared by DLA Piper LLP dated 22 June 2016;
"
Representatives
"
means the offices, directors, managers, employees, solicitors, accountants, advisors, representatives, consultants and agents
of a party;
"
Sale Shares
"
means the A Ordinary Shares, B Ordinary Shares, B1 Ordinary Shares, B2 Ordinary Shares, and B3 Ordinary Shares listed in column
(3) of the tables in Part A and Part B of Schedule 1, and shall include the Exchange Shares issued pursuant to the Pre-Completion
Restructuring held by the Vendors at Completion;
"
SEC
" means
the United States Securities and Exchange Commission;
"
Senior Employee
"
has the meaning given in paragraph 14 of Part B of Schedule 3;
"
Shareholder Loan
Notes
" means the 10,415,832,274 PIK loan notes issued by DMWSL 632 Limited pursuant to the Shareholder Loan Note Instrument
held by the Vendors as at the date hereof, and, following the completion of the Pre-Completion Restructuring, shall mean the Remaining
633 Loan Notes held by the Vendors at Completion;
"
Shareholder Loan
Note Instrument
" means the PIK loan note instrument adopted by DMWSL 632 Limited on 6 July 2010 or, following the completion
of the Pre-Completion Restructuring, the replacement instrument adopted by the Company prior to Completion;
"
Stock Element
"
means that part of the Purchase Price which consists of Consideration Shares in an amount equal to the Purchaser Price less the
Cash Element as such Cash Element is calculated in accordance with Schedule 6;
"
Stockholders' Agreement
"
means the agreement between the Purchaser and the holders of the Purchaser Stock in the agreed form;
"
Taxation
"
or "
Tax
" means all forms of taxation and statutory, governmental, state, provincial, local government, municipal,
federal, or cantonal impositions, duties, contributions and levies, in each case in the nature of taxation and wherever in the
world (but not including uniform business rates, water rates, community charges or council tax, or any tax, charge, rate or duty
similar to, corresponding with, replacing or replaced by any of them);
"
Transaction Allocation
"
has the meaning given to it in Clause 7.8;
"
Transaction Documents
"
has the meaning given to it in Clause 20.1;
"
Vendors
"
means the Institutional Vendors and the Management Vendors, as listed in Schedule 1;
"
Vendors' Representatives
"
means the Institutional Vendors' Representative and the Management Vendors' Representative acting together;
"
Vendor's Solicitors
"
means Dickson Minto W.S., Broadgate Tower, 20 Primrose Street, London EC2A 2EW;
"
Vendor's Solicitors'
Bank Account
" means the Vendor's Solicitors' client account as notified in writing by the Vendor to the Purchaser at
least two Business Days prior to the Completion Date;
"
Warranty Deed
"
means the deed entered into on or around the date hereof between the Warrantors (as defined therein) and the Purchaser relating
to the management warranties to be provided in connection with the transaction that is the subject of this Agreement; and
"
Waterfall
"
means the sheet in the agreed form setting out certain items relating to Permitted Leakage and the calculation of the Cash Element.
|
|
2.
|
In this Agreement, unless the context
otherwise requires:
|
|
|
2.1.
|
references to
persons
shall include individuals, bodies corporate (wherever incorporated), unincorporated
associations and partnerships and that persons legal personal representatives and successors;
|
|
|
2.2.
|
the
headings
are
inserted for convenience only and shall not affect the construction of this Agreement;
|
|
|
2.3.
|
references
to one
gender
include all genders;
|
|
|
2.4.
|
any reference to an
enactment
or statutory provision is a reference to it as it may have been, or may from
time to time be, amended, modified, consolidated or re-enacted provided that any such
amendment, consolidation or re-enactment made after the date of this Agreement shall
not increase the liability or obligation of any party;
|
|
|
2.5.
|
reference
to the
singular
will include the plural and vice versa;
|
|
|
2.6.
|
the words
including
and
include
shall mean including without limitation and include without
limitation respectively;
|
|
|
2.7.
|
general words shall not be
given a restrictive meaning by reason of the fact that they are preceded or followed
by words indicating a particular class of acts, matters or things;
|
|
|
2.8.
|
any reference to any document
other than this Agreement is a reference to that other document as amended, varied, supplemented,
or novated (in each case, other than in breach of the provisions of this Agreement) at
any time;
|
|
|
2.9.
|
any reference to a document
in the agreed form
is to the form of the relevant document agreed between
the parties and executed at the same time as this Agreement or for the purpose of identification
initialled by or on behalf of the parties (with such amendments as may be agreed by or
on behalf of the parties);
|
|
|
2.10.
|
where a word or expression
is given a particular meaning, other grammatical forms or parts of speech of such word
or expression shall bear a corresponding meaning;
|
|
|
2.11.
|
unless otherwise stated, reference
to Recitals, Clauses and Schedules are to recitals, clauses, and schedules of and to
the Agreement;
|
|
|
2.12.
|
references to any party to
this Agreement shall include its successors and, where the benefit of this Agreement
has been assigned under Clause 17, shall mean the person or persons for the time being
entitled to the benefit of this Agreement;
|
|
|
2.13.
|
words and expressions defined
in the Companies Act 1985 or Companies Act 2006 should (unless given an inconsistent
meaning in this Agreement) bear the same meanings in this Agreement;
|
|
|
2.14.
|
any reference to a "
holding
company
" or a "
subsidiary
" means a "
holding
company
" or "
subsidiary
" as defined in section 1159
of the Companies Act 2006, save that a company shall be treated as a company whether
or not formed or incorporated in the United Kingdom and for the purposes of the membership
requirement contained in sections 1159(1)(b) and (c) as a member of another company even
if its shares in that other company are registered in the name of (i) its nominee or
(ii) another person (or its nominee) by way of security or in connection with the taking
of security. Any reference to an "
undertaking
" shall be construed
in accordance with section 1161 of the Companies Act 2006 and any reference to a "
parent
undertaking
" or a "
subsidiary undertaking
" means
respectively a "
parent undertaking
" or "subsidiary undertaking"
as defined in section 1162 of the Companies Act 2006, save that an undertaking shall
be treated as an undertaking whether or not formed or incorporated in the United Kingdom
and for the purposes of the membership requirement in sections 1162(2)(b) and (d) and
section 1162(3)(a) as a member of another undertaking even if its shares in that other
undertaking are registered in the name of (i) its nominee or (ii) another person (or
its nominee) by way of security or in connection with the taking of security;
|
|
|
2.15.
|
in relation to a limited liability
partnership, references to "
directors
" or "
employees
"
shall be taken as a reference to the designated members and (where applicable) employees
of that limited liability partnership; and
|
|
|
2.16.
|
references to any English
legal term for any action, remedy, method of judicial proceeding, legal document, legal
status, court, statute, official or any other legal concept shall, in respect of any
jurisdiction other than England, be deemed to include the legal concept which most nearly
approximates in that jurisdiction to the English legal term.
|
|
|
3.
|
The Schedules form part of this Agreement.
|
Execution
|
SIGNED
and
DELIVERED
as a
DEED
by for and on behalf of
HYDRA
INDUSTRIES ACQUISITION CORP.
in the presence of:
|
|
/s/ Martin E-Schloss
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Debra Aronowitz
|
Witness
|
|
|
|
Debra Aronowitz
|
Full Name
|
|
|
|
149 W. 80th St #2A
|
Address
|
|
|
|
New York, NY 10024
|
|
|
|
|
Lawyer
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by Luke Alvarez, Director
for and on behalf of
DMWSL 633 LIMITED
in the presence of:
|
|
/s/ Luke Alvarez
|
|
|
|
|
DIRECTOR
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by Steven Holmes, Director
for and on behalf of
DMWSL 632 LIMITED
in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
DIRECTOR
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by Steven Holmes, Director
for and on behalf of
GAMING ACQUISITIONS LIMITED
in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
DIRECTOR
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
DAVID WILSON
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
DAVID WILSON
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
JAMES O'HALLERAN
acting by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
JAMES O'HALLERAN
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
LEE GREGORY
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
LEE GREGORY
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
STEVEN ROGERS
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
STEVEN ROGERS
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
STEVEN HOLMES
in
the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
STEVEN HOLMES
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
ALISTAIR HOPKINS
acting
by his duly authorised Attorney, Steve Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
ALISTAIR HOPKINS
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
ZIRIA ENTERPRISES LTD
acting by its duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
ZIRIA ENTERPRISES LTD
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
TARIQ TUFAIL
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
TARIQ TUFAIL
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
CARLTON TERRY
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
CARLTON TERRY
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
STEVE COLLETT
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
STEVE COLLETT
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
LUCY BUCKLEY
acting
by her duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
LUCY BUCKLEY
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
ANDREW BARBER
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
ANDREW BARBER
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
ALEX MACGREGOR-DEVLIN
acting by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
ALEX MACGREGOR-DEVLIN
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
STEVEN DAVIES
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
STEVEN DAVIES
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
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|
Carys Damon
|
Full Name
|
|
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|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
RICHARD WHITE
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
RICHARD WHITE
|
|
|
|
|
|
|
/s/ Carys Damon
|
Witness
|
|
|
|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by
MATT INGRAM
acting
by his duly authorised Attorney, Steven Holmes in the presence of:
|
|
/s/ Steven Holmes
|
|
|
|
|
For and on behalf of
|
|
|
|
|
MATT INGRAM
|
|
|
|
|
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|
/s/ Carys Damon
|
Witness
|
|
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|
Carys Damon
|
Full Name
|
|
|
|
1-2 Berners St.
|
Address
|
|
|
|
London WIT 32A
|
|
|
|
|
Solicitor
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
by Gaël Sansy, Manager
for and on behalf of
LANDGAME S.À.R.L.
in the presence of:
|
|
/s/ Gaël Sansy
|
|
|
|
|
For and on behalf of
|
|
|
|
|
MANAGER
|
|
|
|
|
|
|
/s/ Christelle Petitjean
|
Witness
|
|
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|
Christelle Petitjean
|
Full Name
|
|
|
|
5 RueGuillame Knoll
|
Address
|
|
|
|
L-1882 Luxembourg
|
|
|
|
|
Chartered Accountant
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
ARES
CAPITAL EUROPE LIMITED
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Susannah Thomas
|
Witness
|
|
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|
Susannah Thomas
|
Full Name
|
|
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|
529 Elgin Gardens
|
Address
|
|
|
|
Guildford, Surrey
|
|
|
|
|
Executive Assistant
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
NORTH
ATLANTIC VALUE GP III LIMITED
acting in its capacity as General Partner, for and on behalf of
TRIDENT PRIVATE
EQUITY FUND III LP
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Susannah Thomas
|
Witness
|
|
|
|
Susannah Thomas
|
Full Name
|
|
|
|
529 Elgin Gardens
|
Address
|
|
|
|
Guildford, Surrey
|
|
|
|
|
Executive Assistant
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT A)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace
|
Address
|
|
|
|
Rd, London 3W66TA
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT B)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace
|
Address
|
|
|
|
Rd, London 3W66TA
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT SC)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace
|
Address
|
|
|
|
Palace Road London
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT NS)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace
|
Address
|
|
|
|
Palace Road London
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT C)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace Road
|
Address
|
|
|
|
London 5W66TA
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT D)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace Road
|
Address
|
|
|
|
London 5W66TA
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT D)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace Road
|
Address
|
|
|
|
London 5W66TA
|
|
|
|
|
EA
|
Occupation
|
|
|
|
SIGNED
and
DELIVERED
as a
DEED
for and on behalf of
HARWOOD
CAPITAL NOMINEES LIMITED (CLIENT ACCOUNT H)
acting by its duly authorised Attorney,
VITRUVIAN DIRECTORS I LIMITED
in the presence of:
|
|
/s/
|
|
|
|
|
Attorney
|
|
|
|
|
|
|
/s/ Sofia Skliros
|
Witness
|
|
|
|
Sofia Skliros
|
Full Name
|
|
|
|
363 Fulham Palace Road
|
Address
|
|
|
|
London 5W66TA
|
|
|
|
|
EA
|
Occupation
|
|
|
Annex B
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HYDRA INDUSTRIES ACQUISITION CORP.
December [__], 2016
Hydra Industries Acquisition
Corp., a corporation organized and existing under the laws of the State of Delaware (the “
Corporation
”),
DOES HEREBY CERTIFY AS FOLLOWS:
1.
The name of the Corporation is “Hydra Industries Acquisition Corp.”. The original certificate of incorporation was
filed with the Secretary of State of the State of Delaware on May 30, 2014 (the “
Original Certificate
”).
2.
The Amended and Restated Certificate of Incorporation (the “
First Amended and Restated Certificate
”),
which restated and amended in its entirety the Original Certificate, was duly adopted by the Board of Directors of the Corporation
(the “
Board
”) and the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware (the “
DGCL
”) and was filed with the Secretary of
State of the State of Delaware on October 24, 2014.
3.
Amendment No. 1 to the First Amended and Restated Certificate was duly adopted by the Board and the stockholders of the Corporation
in accordance with Sections 242 and 245 of the DGCL and was filed with the Secretary of State of the State of Delaware on October
28, 2016.
3.
This Second Amended and Restated Certificate of Incorporation (the “
Second Amended and Restated Certificate
”)
was duly adopted by the Board and the stockholders of the Corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware.
4.
This Second Amended and Restated Certificate restates, integrates and amends the provisions of the First Amended and Restated
Certificate, as amended. Certain capitalized terms used in this Second Amended and Restated Certificate are defined where appropriate
herein.
5.
The text of the First Amended and Restated Certificate, as amended, is hereby restated and amended in its entirety to read as
follows:
Article
I
NAME
The name of the
corporation is Inspired Entertainment, Inc. (the “
Corporation
”).
Article
II
PURPOSE
The purpose of the
Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law
of the State of Delaware (the “
DGCL
”).
ARTICLE
III
REGISTERED
AGENT
The address of the
registered office of the Corporation in the State of Delaware is Vcorp Services, LLC, 1811 Silverside Road, Wilmington, DE 19810,
County of New Castle, and the name of the Corporation’s registered agent at such address is Vcorp Services, LLC.
ARTICLE
IV
CAPITALIZATION
Section 4.1
Authorized
Capital Stock
. The total number of shares of all classes of capital stock, each with a par value of $0.0001 per share, which
the Corporation is authorized to issue is 50,000,000 shares, consisting of 49,000,000 shares of common stock, par value $0.0001
per share (the
“
Common Stock
”),
and 1,000,000 shares of preferred stock, par value $0.0001 per share
(the
“
Preferred Stock
”)
.
Section 4.2
Preferred
Stock
. The Preferred Stock may be issued from time to time in one or more series. The Board is hereby expressly authorized
to provide for the issuance of shares of the Preferred Stock in one or more series and to establish from time to time the number
of shares to be included in each such series and to fix the voting rights, if any, designations, powers, preferences and relative,
participating, optional and other special rights, if any, of each such series and any qualifications, limitations and restrictions
thereof, as shall be stated in the resolution or resolutions adopted by the Board providing for the issuance of such series and
included in a certificate of designation (a
“
Preferred Stock Designation
”)
filed pursuant to the DGCL,
and the Board is hereby expressly vested with the authority to the full extent provided by law, now or hereafter, to adopt any
such resolution or resolutions.
Section 4.3
Common
Stock
.
(a) The
holders of shares of Common Stock shall be entitled to one vote for each such share on each matter properly submitted to the stockholders
on which the holders of the Common Stock are entitled to vote.
Except as otherwise
required by law or this Second Amended and Restated Certificate (including any Preferred Stock Designation), at any annual or
special meeting of the stockholders of the Corporation, the holders of the Common Stock shall have the exclusive right to vote
for the election of directors and on all other matters properly submitted to a vote of the stockholders. Notwithstanding the foregoing,
except as otherwise required by law or this Second Amended and Restated Certificate (including any Preferred Stock Designation),
the holders of the Common Stock shall not be entitled to vote on any amendment to this Second Amended and Restated Certificate
(including any amendment to any Preferred Stock Designation) that relates solely to the terms of one or more outstanding series
of the Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of
one or more other such series, to vote thereon pursuant to this Second Amended and Restated Certificate (including any Preferred
Stock Designation).
(b) Subject
to the rights, if any, of the holders of any outstanding series of the Preferred Stock, the holders of the Common Stock shall
be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation)
when, as and if declared thereon by the Board from time to time out of any assets or funds of the Corporation legally available
therefor, and shall share equally on a per share basis in such dividends and distributions.
(c) Subject
to the rights, if any, of the holders of any outstanding series of the Preferred Stock, in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities
of the Corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available
for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them.
Section 4.4
Rights
and Options
. The Corporation has the authority to create and issue rights, warrants and options entitling the holders thereof
to purchase shares of any class or series of the Corporation's capital stock or other securities of the Corporation, and such
rights, warrants and options shall be evidenced by instrument(s) approved by the Board. The Board is empowered to set the exercise
price, duration, times for exercise and other terms and conditions of such rights, warrants or options;
provided
,
however
,
that the consideration to be received for any shares of capital stock subject thereto may not be less than the par value thereof.
ARTICLE
V
BOARD
OF DIRECTORS
Section 5.1
Board
Powers
. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board. In addition
to the powers and authority expressly conferred upon the Board by statute, this Second Amended and Restated Certificate or the
Bylaws (“
Bylaws
”) of the Corporation, the Board is hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL
and this Second Amended and Restated Certificate.
Section 5.2
Number,
Election and Term
.
(a) The
number of directors of the Corporation, other than those who may be elected by the holders of one or more series of the Preferred
Stock voting separately by class or series, shall be not less than seven (7) nor greater than fifteen (15), and which shall be,
upon initial filing of this Second Amended and Restated Certificate, seven (7), or as fixed from time to time exclusively by the
Board pursuant to a resolution adopted by a majority of the Board.
(b) Subject
to Section 5.5 hereof, a director shall hold office until his or her successor has been elected and qualified, subject, however,
to such director's earlier death, resignation, retirement, disqualification or removal.
(c) Unless
and except to the extent that the Bylaws shall so require, the election of directors need not be by written ballot.
Section 5.3
Newly
Created Directorships and Vacancies
. Subject to Section 5.5 hereof, newly created directorships resulting from an increase
in the number of directors and any vacancies on the Board resulting from death, resignation, retirement, disqualification, removal
or other cause may be filled solely by a majority vote of the remaining directors then in office, even if less than a quorum,
or by a sole remaining director (and not by stockholders), and any director so chosen shall hold office for the remainder of the
full term and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death,
resignation, retirement, disqualification or removal.
Section 5.4
Removal
.
Subject to Section 5.5 hereof, any or all of the directors may be removed from office at any time, but only for cause and only
by the affirmative vote of holders of a majority of the voting power of all then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a single class.
Section 5.5
Preferred
Stock – Directors
. Notwithstanding any other provision of this
Article V
, and except as otherwise required by
law, whenever the holders of one or more series of the Preferred Stock shall have the right, voting separately by class or series,
to elect one or more directors, the term of office, the filling of vacancies, the removal from office and other features of such
directorships shall be governed by the terms of such series of the Preferred Stock as set forth in this Second Amended and Restated
Certificate (including any Preferred Stock Designation).
ARTICLE
VI
Bylaws
In furtherance and
not in limitation of the powers conferred upon it by law, the Board shall have the power to adopt, amend, alter or repeal the
Bylaws. The affirmative vote of a majority of the Board shall be required to adopt, amend, alter or repeal the Bylaws. The Bylaws
also may be adopted, amended, altered or repealed by the stockholders;
provided
,
however,
that in addition to any
vote of the holders of any class or series of capital stock of the Corporation required by law or by this Second Amended and Restated
Certificate (including any Preferred Stock Designation), the affirmative vote of the holders of at least a majority of the voting
power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required for the stockholders to adopt, amend, alter or repeal the Bylaws; and
provided
further
,
however,
that no Bylaws hereafter adopted by the stockholders shall invalidate any prior act of the Board
that would have been valid if such Bylaws had not been adopted.
ARTICLE
VII
MEETINGS
OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT
Section 7.1
Meetings
.
Subject to the rights of the holders of any outstanding series of the Preferred Stock, and to the requirements of applicable law,
special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the Chief Executive Officer
of the Corporation, or the Board pursuant to a resolution adopted by a majority of the Board, and the ability of the stockholders
to call a special meeting is hereby specifically denied.
Section 7.2
Advance
Notice
. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders
before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws.
Section 7.3
Action
by Written Consent
. Any action required or permitted to be taken by the stockholders of the Corporation must be effected by
a duly called annual or special meeting of such holders and may not be effected by written consent of the stockholders.
ARTICLE
VIII
LIMITED
LIABILITY; INDEMNIFICATION
Section 8.1
Limitation
of Director Liability
. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is
not permitted under the DGCL as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or
omission occurring prior to the time of such amendment, modification or repeal.
Section 8.2
Indemnification
and Advancement of Expenses
.
(a) To
the fullest extent permitted by applicable law, as the same exists or may hereafter be amended, the Corporation shall indemnify
and hold harmless each person who is or was made a party or is threatened to be made a party to or is otherwise involved in any
threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “
proceeding
")
by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director, officer, general partner, manager, managing member,
employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, other enterprise
or nonprofit entity, including service with respect to an employee benefit plan (an “
indemnitee
”), whether
the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other
capacity while serving as a director, officer, employee or agent, against all liability and loss suffered and expenses (including,
without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement)
reasonably incurred by such indemnitee in connection with such proceeding. The Corporation shall to the fullest extent not prohibited
by applicable law pay the expenses (including attorneys’ fees) incurred by an indemnitee in defending or otherwise participating
in any proceeding in advance of its final disposition;
provided
,
however
, that, to the extent required by applicable
law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking,
by or on behalf of the indemnitee, to repay all amounts so advanced if it shall ultimately be determined that the indemnitee is
not entitled to be indemnified under this Section 8.2 or otherwise. The rights to indemnification and advancement of expenses
conferred by this Section 8.2 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding
the foregoing provisions of this Section 8.2(a), except for proceedings to enforce rights to indemnification and advancement of
expenses, the Corporation shall indemnify and advance expenses to an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board.
(b) The
rights to indemnification and advancement of expenses conferred on any indemnitee by this Section 8.2 shall not be exclusive of
any other rights that any indemnitee may have or hereafter acquire under law, this Second Amended and Restated Certificate, the
Bylaws, an agreement, vote of stockholders or disinterested directors, or otherwise.
(c) Any
repeal or amendment of this Section 8.2 by the stockholders of the Corporation or by changes in law, or the adoption of any other
provision of this Second Amended and Restated Certificate inconsistent with this Section 8.2, shall, unless otherwise required
by law, be prospective only (except to the extent such amendment or change in law permits the Corporation to provide broader indemnification
rights on a retroactive basis than permitted prior thereto), and shall not in any way diminish or adversely affect any right or
protection existing at the time of such repeal or amendment or adoption of such inconsistent provision in respect of any proceeding
(regardless of when such proceeding is first threatened, commenced or completed) arising out of, or related to, any act or omission
occurring prior to such repeal or amendment or adoption of such inconsistent provision.
(d) This
Section 8.2 shall not limit the right of the Corporation, to the extent and in the manner authorized or permitted by law, to indemnify
and to advance expenses to persons other than indemnitees.
ARTICLE
IX
CORPORATE
opportunity
The doctrine of
corporate opportunity, or any other analogous doctrine, shall not apply with respect to any officers or directors of the Corporation
in circumstances where the application of any such doctrine would conflict with any fiduciary duties or contractual obligations
they may have as of the date of this Second Amended and Restated Certificate or in the future. In addition to the foregoing, the
doctrine of corporate opportunity shall not apply to any other corporate opportunity with respect to any of the officers or directors
of the Corporation unless such corporate opportunity is offered to such person solely in his or her capacity as an officer or
director of the Corporation and such opportunity is one the Corporation is legally and contractually permitted to undertake and
would otherwise be reasonable for the Corporation to pursue.
ARTICLE X
GAMING AND REGULATORY MATTERS
Section 10.1
Definitions
.
For purposes of this Article X, the following terms shall have the meanings specified below:
(a) “
Affiliate
”
shall mean a Person who, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common
control with, a specified Person. For the purpose of this Section 10.1(a) of Article X, “
control
,” “
controlled
by
” and “
under common control with
” means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by
contract, or otherwise. “
Affiliated Companies
” shall mean those partnerships, corporations, limited
liability companies, trusts or other entities that are Affiliates of the Corporation, including, without limitation, subsidiaries,
holding companies and intermediary companies (as those and similar terms are defined in the Gaming Laws of the applicable Gaming
Jurisdictions) that are registered or licensed under applicable Gaming Laws.
(b) “
Gaming
”
or “
Gaming Activities
” shall mean the conduct of gaming and gambling activities, or the use of gaming
devices, equipment and supplies in the operation of a casino or other enterprise, including, without limitation, race books, sports
pools, slot machines, gaming devices, gaming tables, cards, dice, gaming chips, player tracking systems, cashless wagering systems
and associated equipment and supplies.
(c) “
Gaming
Authorities
” shall mean all international, foreign, federal, state, local and other regulatory and licensing bodies
and agencies with authority over Gaming within any Gaming Jurisdiction. “
Gaming Jurisdiction
” shall
mean all jurisdictions, domestic and foreign, and their political subdivisions, in which Gaming Activities are lawfully conducted.
(d) “
Gaming
Laws
” shall mean all laws, statutes, ordinances and regulations pursuant to which any Gaming Authority possesses
regulatory and licensing authority over Gaming within any Gaming Jurisdiction, and all orders, decrees, rules and regulations
promulgated by such Gaming Authority thereunder.
(e) “
Gaming
Licenses
” shall mean all licenses, permits, approvals, authorizations, registrations, findings of suitability, franchises,
concessions and entitlements issued by a Gaming Authority necessary for or relating to the conduct of Gaming Activities.
(f)“
Own
,”
“
Ownership
,” or “
Control
,” (and derivatives thereof) shall mean (i) ownership
of record, (ii) “
beneficial ownership
” as defined in Rule 13d-3 promulgated by the United States Securities
and Exchange Commission (as now or hereafter amended), or (iii) the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person or the disposition of Securities, by agreement, contract, agency
or other manner.
(g) “
Person
”
shall mean an individual, partnership, corporation, limited liability company, trust or any other entity.
(h) “
Redemption
Date
” shall mean the date specified in the Redemption Notice as the date on which the shares of the Securities Owned
or Controlled by an Unsuitable Person or an Affiliate of an Unsuitable Person are to be redeemed by the Corporation.
(i) “
Redemption
Notice
” shall mean that notice of redemption given by the Corporation to an Unsuitable Person or an Affiliate of
an Unsuitable Person pursuant to this Article X. Each Redemption Notice shall set forth (i) the Redemption Date, (ii) the number
and type of shares of the Securities to be redeemed, (iii) the Redemption Price and the manner of payment therefor, (iv) the place
where any certificates for such shares shall be surrendered for payment, and (v) any other requirements of surrender of the certificates,
including how they are to be endorsed, if at all.
(j)“
Redemption
Price
” shall mean the price to be paid by the Corporation for the Securities to be redeemed pursuant to this Article
X, which shall be that price (if any) required to be paid by the Gaming Authority making the finding of unsuitability, or if such
Gaming Authority does not require a certain price to be paid, that amount determined by the board of directors to be the fair
value of the Securities to be redeemed; provided, however, that the price per share represented by the Redemption Price shall
in no event be in excess of the closing sales price per share of shares on the principal national securities exchange on which
such shares are then listed on the trading date on the day before the Redemption Notice is deemed given by the Corporation to
the Unsuitable Person or an Affiliate of an Unsuitable Person or, if such shares are not then listed for trading on any national
securities exchange, then the closing sales price of such shares as quoted in the Nasdaq Capital Market or, if the shares are
not then so quoted, then the mean between the representative bid and the ask price as quoted by any other generally recognized
reporting system. The Redemption Price may be paid in cash, by promissory note, or both, as required by the applicable Gaming
Authority and, if not so required, as the board of directors determines. Any promissory note shall contain such terms and conditions
as the board of directors determines necessary or advisable, including without limitation, subordination provisions, to comply
with any law or regulation then applicable to the Corporation or any Affiliate of the Corporation or to prevent a default under,
breach of, event of default under or acceleration of any loan, promissory note, mortgage, indenture, line of credit, or other
debt or financing agreement of the Corporation or any Affiliate of the Corporation. Subject to the foregoing, the principal amount
of the promissory note together with any unpaid interest shall be due and payable no later than the tenth anniversary of delivery
of the note and interest on the unpaid principal thereof shall be payable annually in arrears at the rate of 2% per annum.
(k) “
Securities
”
shall mean the capital stock of the Corporation.
(l)“
Unsuitable
Person
” shall mean a Person who (i) is determined by a Gaming Authority to be unsuitable to Own or Control any Securities
or unsuitable to be connected or affiliated with a Person engaged in Gaming Activities in a Gaming Jurisdiction, or (ii) causes
the Corporation or any Affiliated Company to lose or to be threatened with the loss of any Gaming License, or (iii) in the sole
discretion of the board of directors of the Corporation, is deemed likely to jeopardize the Corporation’s or any Affiliated
Company’s application for, receipt of approval for, right to the use of, or entitlement to, any Gaming License.
Section 10.2
Finding
of Unsuitability
.
(a) The
Securities Owned or Controlled by an Unsuitable Person or an Affiliate of an Unsuitable Person shall be subject to redemption
by the Corporation, out of funds legally available therefor, by action of the board of directors, to the extent required by the
Gaming Authority making the determination of unsuitability or to the extent deemed necessary or advisable by the board of directors.
If a Gaming Authority requires the Corporation, or the board of directors deems it necessary or advisable, to redeem any such
Securities, the Corporation shall give a Redemption Notice to the Unsuitable Person or its Affiliate and shall purchase on the
Redemption Date the number of shares of the Securities specified in the Redemption Notice for the Redemption Price set forth in
the Redemption Notice. From and after the Redemption Date, such Securities shall no longer be deemed to be outstanding, such Unsuitable
Person or any Affiliate of such Unsuitable Person shall cease to be a stockholder with respect to such shares and all rights of
such Unsuitable Person or any Affiliate of such Unsuitable Person therein, other than the right to receive the Redemption Price,
shall cease. Such Unsuitable Person or its Affiliate shall surrender the certificates representing any shares to be redeemed in
accordance with the requirements of the Redemption Notice.
(b) Commencing
on the date that a Gaming Authority serves notice of a determination of unsuitability or the board of directors determines that
a Person is an Unsuitable Person, and until the Securities Owned or Controlled by such Person are Owned or Controlled by a Person
who is not an Unsuitable Person, the Unsuitable Person or any Affiliate of an Unsuitable Person shall not be entitled: (i) to
receive any dividend or interest with regard to the Securities, (ii) to exercise, directly or indirectly or through any proxy,
trustee, or nominee, any voting or other right conferred by such Securities, and such Securities shall not for any purposes be
included in the shares of capital stock of the Corporation entitled to vote, or (iii) to receive any remuneration in any form
from the Corporation or any Affiliated Company for services rendered or otherwise.
Section 10.3
Notices
.
All notices given by the Corporation pursuant to this Article, including Redemption Notices, shall be in writing and may be given
by mail, addressed to the Person at such Person’s address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed given at the time deposited in the United States mail. Written notice may also
be given personally or by email or facsimile and such notice shall be deemed to be given at the time of receipt thereof, if given
personally, or at the time of transmission thereof, if given by email or facsimile.
Section 10.4
Indemnification
.
Any Unsuitable Person and any Affiliate of an Unsuitable Person shall indemnify and hold harmless the Corporation and its Affiliated
Companies for any and all losses, costs, and expenses, including attorneys’ fees, incurred by the Corporation and its Affiliated
Companies as a result of, or arising out of, such Unsuitable Person’s or Affiliate’s continuing Ownership or Control
of Securities, the neglect, refusal or other failure to comply with the provisions of this Article X, or failure to promptly divest
itself of any Securities when required by the Gaming Laws or this Article X.
Section 10.5
Injunctive
Relief
. The Corporation is entitled to injunctive or other equitable relief in any court of competent jurisdiction to enforce
the provisions of this Article X and each holder of the Securities of the Corporation shall be deemed to have acknowledged, by
acquiring the Securities of the Corporation, that the failure to comply with this Article X will expose the Corporation to irreparable
injury for which there is no adequate remedy at law and that the Corporation is entitled to injunctive or other equitable relief
to enforce the provisions of this Article.
Section 10.6
Non-exclusivity
of Rights
. The Corporation’s rights of redemption provided in this Article X shall not be exclusive of any other rights
the Corporation may have or hereafter acquire under any agreement, provision of the bylaws or otherwise.
Section 10.7
Further
Actions
. Nothing contained in this Article X shall limit the authority of the board of directors to take such other action
to the extent permitted by law as it deems necessary or advisable to protect the Corporation or its Affiliated Companies from
the denial or threatened denial or loss or threatened loss of any Gaming License of the Corporation or any of its Affiliated Companies.
Without limiting the generality of the foregoing, the board of directors may conform any provisions of this Article X to the extent
necessary to make such provisions consistent with Gaming Laws. In addition, the board of directors may, to the extent permitted
by law, from time to time establish, modify, amend or rescind bylaws, regulations, and procedures of the Corporation not inconsistent
with the express provisions of this Article X for the purpose of determining whether any Person is an Unsuitable Person and for
the orderly application, administration and implementation of the provisions of this Article X. Such procedures and regulations
shall be kept on file with the Secretary of the Corporation, the secretary of its Affiliated Companies and with the transfer agent,
if any, of the Corporation and any Affiliated Companies, and shall be made available for inspection by the public and, upon request,
mailed to any holder of Securities. The board of directors shall have exclusive authority and power to administer this Article
X and to exercise all rights and powers specifically granted to the board of directors or the Corporation, or as may be necessary
or advisable in the administration of this Article X. All such actions which are done or made by the board of directors in good
faith shall be final, conclusive and binding on the Corporation and all other Persons; provided, however, that the board of directors
may delegate all or any portion of its duties and powers under this Article X to a committee of the board of directors as it deems
necessary or advisable.
Section 10.8
Severability
.
If any provision of this Article X or the application of any such provision to any Person or under any circumstance shall be held
invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceablilty
shall not affect any other provision of this Article X.
Section 10.9
Termination
and Waivers
. Except as may be required by any applicable Gaming Law or Gaming Authority, the board of directors may waive
any of the rights of the Corporation or any restrictions contained in this Article X in any instance in which the board of directors
determines that a waiver would be in the best interests of the Corporation. The board of directors may terminate any rights of
the Corporation or restrictions set forth in this Article X to the extent that the board of directors determines that any such
termination is in the best interests of the Corporation. Except as may be required by a Gaming Authority, nothing in this Article
X shall be deemed or construed to require the Corporation to repurchase any Securities Owned or Controlled by an Unsuitable Person
or an Affiliate of an Unsuitable Person.
ARTICLE XI
ADJUDICATION OF DISPUTES
Unless the Corporation
consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest
extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the
Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or
agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against
the Corporation arising pursuant to any provision of the DGCL or the Corporation’s Certificate of Incorporation or Bylaws,
(iv) any action to interpret, apply, enforce or determine the validity of the Corporation’s Certificate of Incorporation
or Bylaws or (v) any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each such
case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed
to have notice of and consented to the provisions of this Article XI.
ARTICLE XII
AMENDMENT OF SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The Corporation
reserves the right to amend, alter, change or repeal any provision contained in this Second Amended and Restated Certificate (including
any Preferred Stock Designation), in the manner now or hereafter prescribed by this Second Amended and Restated Certificate and
the DGCL; and, except as set forth in
Article VIII,
all rights, preferences and privileges herein conferred upon stockholders,
directors or any other persons by and pursuant to this Second Amended and Restated Certificate in its present form or as hereafter
amended are granted subject to the right reserved in this
Article XII;
provided
,
however,
that this
Article
XII
of this Second Amended and Restated Certificate may be amended only as provided therein.
IN WITNESS WHEREOF,
Hydra Industries Acquisition Corp. has caused this Second Amended and Restated Certificate of Incorporation to be duly executed
in its name and on its behalf by and authorized officer as of the date first set forth above.
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HYDRA INDUSTRIES ACQUISITION CORP.
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By:
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Name:
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Title:
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Annex C
Inspired
Entertainment, Inc.
2016 Long-Term Incentive Plan
1.
Purpose.
The purpose of
the Plan is to assist the Company in attracting, retaining, motivating, and rewarding certain employees, officers, directors,
and consultants of the Company and its Affiliates and promoting the creation of long-term value for stockholders of the Company
by closely aligning the interests of such individuals with those of such stockholders. The Plan authorizes the award of Stock-
based and cash-based incentives to Eligible Persons to encourage such Eligible Persons to expend maximum effort in the creation
of stockholder value.
2.
Definitions.
For purposes of
the Plan, the following terms shall be defined as set forth below:
(a)
“
Affiliate
” means, with respect to a Person, any other Person that, directly or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control with, such Person.
(b)
“
Award
” means any Option, award of Restricted Stock, Restricted Stock Unit, Stock Appreciation Right,
Stock-based or cash-based Performance Award, or other Stock-based award granted under the Plan.
(c)
“
Award Agreement
” means an Option Agreement, a Restricted Stock Agreement, an RSU Agreement, a SAR Agreement,
a Performance Award Agreement, or an agreement governing the grant of any other Stock-based Award granted under the Plan.
(d)
“
Board
” means the Board of Directors of the Company.
(e)
“Cause
” shall have the meaning set forth in the applicable Award Agreement or Participant Agreement,
provided that if the applicable Award Agreement or Participant Agreement does not contain such a definition, “
Cause
”
shall mean, (1) the Participant’s plea of nolo contendere to, conviction of or indictment for, any crime (whether or not
involving the Company or its Affiliates) (i) constituting a felony or (ii) that has, or could reasonably be expected to result
in, an adverse impact on the performance of the Participant’s duties to the Service Recipient, or otherwise has, or could
reasonably be expected to result in, an adverse impact on the business or reputation of the Company or its Affiliates, (2) conduct
of the Participant, in connection with his or her employment or service, that has resulted, or could reasonably be expected to
result, in material injury to the business or reputation of the Company or its Affiliates, (3) any material violation of the Award
Agreement, the Participation Agreement, or any policies of the Service Recipient, including, but not limited to, those relating
to sexual harassment or the disclosure or misuse of confidential information, or those set forth in the manuals or statements
of policy of the Service Recipient; (4) the Participant’s act(s) of gross negligence or willful misconduct in the course
of his or her employment or service with the Service Recipient; (5) misappropriation by the Participant of any assets or
business opportunities of the Company or its Affiliates; (6) embezzlement or fraud committed by the Participant, at the Participant’s
direction, or with the Participant’s prior actual knowledge; or (7) willful neglect in the performance of the Participant’s
duties for the Service Recipient or willful or repeated failure or refusal to perform such duties. If, subsequent to the Termination
of a Participant for any reason other than by the Service Recipient for Cause, it is discovered that the Participant’s employment
or service could have been terminated for Cause, such Participant’s employment or service shall, at the discretion of the
Committee, be deemed to have been terminated by the Service Recipient for Cause for all purposes under the Plan, and the Participant
shall be required to repay to the Company all amounts received by him or her in respect of any Award following such Termination
that would have been forfeited under the Plan had such Termination been by the Service Recipient for Cause. For the avoidance
of doubt, in the event that there is an Award Agreement or Participant Agreement defining Cause, “
Cause
” shall
have the meaning provided in such agreement rather than the definition included herein, and a Termination by the Service Recipient
for Cause hereunder shall not be deemed to have occurred unless all applicable notice and cure periods in such Award Agreement
or Participant Agreement are complied with.
(f)
“
Change in Control
” shall have the meaning set forth in the applicable Award Agreement or Participant
Agreement, provided that if the applicable Award Agreement or Participant Agreement does not contain such a definition, “
Change
in Control
” shall mean:
(1)
a change in ownership or control of the Company effected through a transaction or series of transactions (other than an
offering of Stock to the general public through a registration statement filed with the U.S. Securities and Exchange Commission
or similar non
-
U.S. regulatory agency or pursuant to a Non-Control
Transaction) whereby any “person” (as defined in Section 3(a) (9) of the Exchange Act) or any two or more persons
deemed to be one “person” (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than the Company
or any of its Affiliates, an employee benefit plan sponsored or maintained by the Company or any of its Affiliates (or its related
trust), or any underwriter temporarily holding securities pursuant to an offering of such securities, directly or indirectly acquire
“beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing
more than fifty percent (50%) of the total combined voting power of the Company’s securities eligible to vote in the election
of the Board (the “
Company Voting Securities
”);
(2)
the date, within any consecutive twenty-four (24) month period commencing on or after the Effective Date, upon which individuals
who constitute the Board as of the Effective Date (the “
Incumbent Board
”) cease for any reason to constitute
at least a majority of the Board; provided
,
however, that any individual who becomes a director subsequent to the
Effective Date whose election or nomination for election by the Company’s stockholders was approved by a vote of at least
a majority of the directors then constituting the Incumbent Board (either by a specific vote or by approval of the proxy statement
of the Company in which such individual is named as a nominee for director, without objection to such nomination) shall be considered
as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election contest (including, but not limited to, a consent
solicitation) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the Board;
(3)
the consummation of a merger, consolidation, share exchange, or similar form of corporate transaction involving the Company
or any of its Affiliates that requires the approval of the Company’s stockholders (whether for such transaction, the issuance
of securities in the transaction or otherwise) (a “
Reorganization
”), unless immediately following such Reorganization
(i) more than fifty percent (50%) of the total voting power of (A) the corporation resulting from such Reorganization (the “
Surviving
Company
”) or (B) if applicable, the ultimate parent corporation that has, directly or indirectly, beneficial ownership
of one hundred percent (100%) of the voting securities of the Surviving Company (the “
Parent Company
”), is
represented by Company Voting Securities that were outstanding immediately prior to such Reorganization (or, if applicable, is
represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization), and such voting
power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities
among holders thereof immediately prior to such Reorganization, (ii) no person, other than an employee benefit plan sponsored
or maintained by the Surviving Company or the Parent Company (or its related trust), is or becomes the beneficial owner, directly
or indirectly, of fifty percent (50%) or more of the total voting power of the outstanding voting securities eligible to elect
directors of the Parent Company, or if there is no Parent Company, the Surviving Company, and (iii) at least a majority of the
members of the board of directors of the Parent Company, or if there is no Parent Company, the Surviving Company, following the
consummation of such Reorganization are members of the Incumbent Board at the time of the Board’s approval of the execution
of the initial agreement providing for such Reorganization (any Reorganization which satisfies all of the criteria specified in
clauses (i), (ii), and (iii) above shall be a “
Non-Control Transaction
”); or
(4)
the sale or disposition, in one transaction or a series of related transactions, of all or substantially all of the assets
of the Company to any “person” (as defined in Section 3(a)(9) of the Exchange Act) or to any two or more persons deemed
to be one “person” (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Company’s
Affiliates.
Notwithstanding the foregoing, (x)
a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of fifty percent (50%)
or more of the Company Voting Securities as a result of an acquisition of Company Voting Securities by the Company that reduces
the number of Company Voting Securities outstanding;
provided
that if after such acquisition by the Company such person
becomes the beneficial owner of additional Company Voting Securities that increase the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control shall then be deemed to occur, and (y) with respect to the payment
of any amount that constitutes a deferral of compensation subject to Section 409A of the Code payable upon a Change in Control,
a Change in Control shall not be deemed to have occurred, unless the Change in Control constitutes a change in the ownership or
effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v)
of the Code. For the avoidance of doubt, in the event that there is an Award Agreement or Participant Agreement defining Change
in Control, “
Change in Control
” shall have the meaning provided in such agreement rather than the definition
included herein.
(g)
“
Code
” means the U.S. Internal Revenue Code of 1986, as amended from time to time, including the rules
and regulations thereunder and any successor provisions, rules and regulations thereto.
(h)
“
Committee
” shall mean the Compensation Committee of the Board, or a subcommittee thereof, or such other
committee designated by the Board, in each case, consisting of two or more members of the Board, each of whom is intended to be
(i) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act, (ii) an “outside director”
within the meaning of Section 162(m) of the Code and (iii) “independent” within the meaning of the rules of the principal
stock exchange on which the Stock is then traded.
(i)
“
Company
” means Inspired Entertainment, Inc. (known prior to the consummation of the Business Combination
as Hydra Industries Acquisition Corp.), and its successors by operation of law.
(j)
“
Corporate Event
” has the meaning set forth in Section 11(b) hereof.
(k)
“
Data
” has the meaning set forth in Section 21(f) hereof.
(l)
“
Disability
” shall have the meaning set forth in the applicable Award Agreement or Participant Agreement,
provided that if the applicable Award Agreement or Participant Agreement does not contain such a definition, “
Disability
”
shall mean, the permanent and total disability of such Participant within the meaning of Section 22(e)(3) of the Code.
(m)
“
Disqualifying Disposition
” means any disposition (including, without limitation, any sale) of Stock
acquired upon the exercise of an Incentive Stock Option within the period that ends either (1) two years after the date on which
the Participant was granted the Incentive Stock Option or (2) one year after the date upon which the Participant acquired the
Stock subject to the Incentive Stock Option.
(n)
“
Effective Date
” means November , 2016, which is the date on which the Plan was approved by the Board.
(o)
“
Eligible Person
” means such officers, other employees, non-employee directors, consultants, independent
contractors, agents and individuals expected to become officers, other employees, non-employee directors, consultants, independent
contractors and agents of the Company and any of its Affiliates as the Committee in its sole discretion may select from time to
time; provided that any such prospective service providers may not receive any payment or exercise any right relating to
an Award until such Person has commenced employment or service with the Company or its Affiliates; provided further, that
(i) with respect to any Award that is intended to qualify as a “stock right” that does not provide for a “deferral
of compensation” within the meaning of Section 409A of the Code, the term “Affiliate” as used in this Section
2(o) shall include only those corporations or other entities in the unbroken chain of corporations or other entities beginning
with the Company where each of the corporations or other entities in the unbroken chain other than the last corporation or other
entity owns stock possessing at least fifty percent (50%) or more of the total combined voting power of all classes of stock in
one of the other corporations or other entities in the chain, and (ii) with respect to any Award that is intended to be an Incentive
Stock Option, the term “Affiliate” as used in this Section 2(o) shall include only those entities that qualify as
a “subsidiary corporation” with respect to the Company within the meaning of Section 424(f) of the Code. An employee
on an approved leave of absence may be considered as still in the employ of the Company or any of its Affiliates for purposes
of eligibility for participation in the Plan.
(p)
“
Exchange Act
” means the U.S. Securities Exchange Act of 1934, as amended from time to time, including
the rules and regulations thereunder and any successor provisions, rules and regulations thereto.
(q)
“
Expiration Date
” means, with respect to an Option or Stock Appreciation Right, the date on which the
term of such Option or Stock Appreciation Right expires, as determined under Section 5(b) or 8(b) hereof, as applicable.
(r)
“
Fair Market Value
” means, as of any date when the Stock is listed on one or more national securities
exchanges, the closing price reported on the principal national securities exchange on which such Stock is listed and traded on
the date of determination or, if the closing price is not reported on such date of determination, the closing price reported on
the most recent date prior to the date of determination. If the Stock is not listed on a national securities exchange, “
Fair
Market Value
” shall mean the amount determined by the Board in good faith, and in a manner consistent with Section 409A
of the Code, to be the fair market value per share of Stock.
(s)
“
GAAP
” has the meaning set forth in Section 9(f)(3) hereof.
(t)
“
Incentive Stock Option
” means an Option that meets the requirements of Section 422 of the Code, or
any successor provision, and that is intended to qualify as an “incentive stock option” within the meaning of Section
422 of the Code, or any successor provision.
(u)
“Nonqualified Stock Option
” means an Option which is not an Incentive Stock Option.
(v)
“
Option
” means a conditional right, granted to a Participant under Section 5 hereof, to purchase Stock
at a specified price during a specified time period.
(w)
“
Option Agreement
” means a written agreement between the Company and a Participant evidencing the terms
and conditions of an individual Option Award.
(x)
“
Participant
” means an Eligible Person who has been granted an Award under the Plan or, if applicable,
such other Person who holds an Award.
(y)
“
Participant Agreement
” means an employment or other services agreement between a Participant and the
Service Recipient that describes the terms and conditions of such Participant’s employment or service with the Service Recipient
and is in effect as of the date the Committee approves the grant of the applicable Award to the Participant.
(z)
“
Performance Award
” means an Award granted to a Participant under Section 9 hereof, which Award is subject
to the achievement of Performance Objectives during a Performance Period. A Performance Award shall be designated as a Performance
Share, a Performance Unit or a Performance Cash Award at the time of grant.
(aa)
“
Performance Award Agreement
” means a written agreement between the Company and a Participant evidencing
the terms and conditions of an individual Performance Award.
(bb)
“
Performance Cash Award
” means a Performance Award which is a cash award (for a dollar value not in
excess of that set forth in Section 4(c)(1) hereof), the payment of which is subject to the achievement of Performance Objectives
during a Performance Period. A Performance Cash Award may also require the completion of a specified period of employment or service.
(cc)
“
Performance Objectives
” means the performance objectives established pursuant to the Plan for Participants
who have received Performance Awards.
(dd)
“
Performance Period
” means the period of time designated by the Committee over which the achievement
of one or more Performance Objectives will be measured for the purpose of determining a Participant’s right to and the payment
of an Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Committee.
(ee)
“
Performance Share
” means a Performance Award denominated in shares of Stock (for the number of shares
not in excess of that set forth in Section 4(c)(1) hereof) which is subject to the achievement of Performance Objectives during
a Performance Period. An Award of Performance Shares may also require the completion of a specified period of employment or service.
(ff)
“
Performance Unit
” means a Performance Award denominated as a notional unit representing the right to
receive one share of Stock (for the number of shares not in excess of that set forth in Section 4(c)(1) hereof) or the cash value
of one share of Stock, if so determined by the Committee and specified in the Award Agreement, (for a dollar value not in excess
of that set forth in Section 4(c)(1) hereof) which is subject to the achievement of Performance Objectives during a Performance
Period. An Award of Performance Units may also require the completion of a specified period of employment or service.
(gg)
“
Person
” means any individual, corporation, partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, or other entity.
(hh)
“
Plan
” means the Inspired Entertainment, Inc. 2016 Long-Term Incentive Plan, as amended from time to
time.
(ii)
“
Qualified Performance-Based Award
” means an Option, Stock Appreciation Right, or Performance Award
that is intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of
the Code.
(jj)
“
Restricted Stock
” means Stock granted to a Participant under Section 6 hereof that is subject to certain
restrictions and to a risk of forfeiture.
(kk)
“
Restricted Stock Agreement
” means a written agreement between the Company and a Participant evidencing
the terms and conditions of an individual Restricted Stock Award.
(ll)
“
Restricted Stock Unit
” means a notional unit representing the right to receive one share of Stock (or
the cash value of one share of Stock, if so determined by the Committee at the time of grant) on a specified settlement date.
(mm)
“
RSU Agreement
” means a written agreement between the Company and a Participant evidencing the terms
and conditions of an individual Award of Restricted Stock Units.
(nn)
“
SAR Agreement
” means a written agreement between the Company and a Participant evidencing the terms
and conditions of an individual Award of Stock Appreciation Rights.
(oo)
“
Securities Act
” means the U.S. Securities Act of 1933, as amended from time to time, including the
rules and regulations thereunder and any successor provisions, rules and regulations thereto.
(pp)
“
Service Recipient
” means, with respect to a Participant holding an Award, either the Company or an
Affiliate of the Company by which the original recipient of such Award is, or following a Termination was most recently, principally
employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(qq)
“
Stock
” means the common stock, par value $0.0001 per share, of the Company, and such other securities
as may be substituted for such stock pursuant to Section 11 hereof.
(rr)
“
Stock Appreciation Right
” means a conditional right to receive an amount equal to the value of the
appreciation in the Stock over a specified period. Stock Appreciation Rights shall be settled in Stock or, to the extent provided
in the Award Agreement, cash or a combination thereof.
(ss)
“
Substitute Award
” shall mean an award granted under the Plan upon the assumption of, or in substitution
for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, including,
without limitation, a merger, combination, consolidation or acquisition of property or stock; provided, however, that in
no event shall the term “Substitute Award” be construed to refer to an Award made in connection with the cancellation
and repricing of an Option or Stock Appreciation Right.
(tt)
“
Termination
” means the termination of a Participant’s employment or service, as applicable, with
the Service Recipient; provided, however, that, if so determined by the Committee at the time of any change in status in
relation to the Service Recipient (
e.g.
, a Participant ceases to be an employee and begins providing services as a consultant,
or vice versa), such change in status will not be deemed a Termination hereunder. Unless otherwise determined by the Committee,
in the event that the Service Recipient ceases to be an Affiliate of the Company (by reason of sale, divestiture, spin-off, or
other similar transaction), unless a Participant’s employment or service is transferred to another entity that would constitute
the Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination
hereunder as of the date of the consummation of such transaction. Notwithstanding anything herein to the contrary, a Participant’s
change in status in relation to the Service Recipient (for example, a change from employee to consultant) shall not be deemed
a Termination hereunder with respect to any Awards constituting “nonqualified deferred compensation” subject to Section
409A of the Code that are payable upon a Termination unless such change in status constitutes a “separation from service”
within the meaning of Section 409A of the Code. Any payments in respect of an Award constituting nonqualified deferred compensation
subject to Section 409A of the Code that are payable upon a Termination shall be delayed for such period as may be necessary to
meet the requirements of Section 409A(a)(2)(B)(i) of the Code. On the first business day following the expiration of such period,
the Participant shall be paid, in a single lump sum without interest, an amount equal to the aggregate amount of all payments
delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the
payment schedule applicable to such Award.
3.
Administration.
(a)
Authority of the Committee
. Except as otherwise provided below, the Plan shall be administered by the Committee.
The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to
(1) select Eligible Persons to become Participants, (2) grant Awards, (3) determine the type, number of shares of Stock subject
to, other terms and conditions of, and all other matters relating to, Awards, (4) prescribe Award Agreements (which need not be
identical for each Participant) and rules and regulations for the administration of the Plan, (5) construe and interpret the Plan
and Award Agreements and correct defects, supply omissions, and reconcile inconsistencies therein, (6) subject to applicable law,
suspend the right to exercise Awards during any period that the Committee deems appropriate to comply with applicable securities
laws, and thereafter extend the exercise period of an Award by an equivalent period of time or such shorter period required by,
or necessary to comply with, applicable law, (7) accelerate the vesting of any outstanding Award at any time and for any reason
(including, without limitation, by taking action such that (A) any or all outstanding Options and Stock Appreciation Rights shall
become exercisable in part or in full, (B) all or a portion of any period of restriction applicable to Restricted Stock or Restricted
Stock Units shall lapse, (C) all or a portion of the Performance Period applicable to any outstanding Awards shall lapse, or (D)
the Performance Objectives (if any) applicable to any outstanding Award shall be deemed to be satisfied at the target or any other
level), and (8) make all other decisions and determinations as the Committee may deem necessary or advisable for the administration
of the Plan. Any action taken by the Committee in good faith shall be final, conclusive, and binding on all Persons, including,
without limitation, the Company, its stockholders and Affiliates, Eligible Persons, Participants, and beneficiaries of Participants.
For the avoidance of doubt, the Board shall have the authority to take all actions under the Plan that the Committee is permitted
to take.
(b)
Delegation
. To the extent permitted by applicable law, the Committee may delegate to the Board, a member of the
Board or an executive officer of the Company, or committees thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions under the Plan, as the Committee may determine to be appropriate; provided, however,
that (i) the Committee may not delegate its power and authority to the Board or any executive officer of the Company with regard
to the grant of an Award to any Person who is a “covered employee” within the meaning of Section 162(m) of the Code
or who, in the Committee’s judgment, is likely to be a covered employee at any time during the period an Award hereunder
to such Person would be outstanding, and (ii) the Committee may not delegate its power and authority to a member of the Board
or any executive officer of the Company with regard to the selection for participation in this Plan of an officer, director or
other Person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an Award to such
an officer, director or other Person. The Committee may appoint agents, including employees, to assist it in administering the
Plan. Any actions taken in accordance with delegated authority pursuant to this Section 3(b) within the scope of such delegation
shall, for all purposes under the Plan, be deemed to be an action taken by the Committee.
(c)
Section 409A; Section 457A
. The Committee shall take into account compliance with Sections 409A and 457A of
the Code in connection with any grant of an Award under the Plan, to the extent applicable. While the Awards granted hereunder
are intended to be structured in a manner to avoid the imposition of any penalty taxes under Sections 409A and 457A of the Code,
in no event whatsoever shall the Company or any of its Affiliates be liable for any additional tax, interest, or penalties that
may be imposed on a Participant as a result of Section 409A or Section 457A of the Code or any damages for failing to comply with
Section 409A or Section 457A of the Code or any similar state or local laws (other than for withholding obligations or other obligations
applicable to employers, if any, under Section 409A or Section 457A of the Code).
(d)
Section 162(m)
. Notwithstanding anything herein to the contrary, with regard to any provision of the Plan or any
Award Agreement that is intended to comply with Section 162(m) of the Code, any action or determination by the Committee shall
be permitted only to the extent such action or determination would be permitted under Section 162(m) of the Code. The Plan has
been adopted by the Board, with respect to Awards intended to be “performance-based” within the meaning of Section
162(m) of the Code, to comply with the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed
and interpreted in a manner so as to comply therewith.
(e)
Certain Limitations
. Notwithstanding anything herein to the contrary, any Award of Restricted Stock, Restricted
Stock Units or Stock Appreciation Rights, or other Stock-based Award, under the Plan (other than any Award to a non-employee director)
shall include conditions to the vesting of such Award or the delivery of Stock thereunder that are no more favorable to the Participant
than those set forth on Annex A hereto.
4.
Shares Available Under the Plan; Other Limitations.
(a)
Number of Shares Available for Delivery
. Subject to adjustment as provided in Section 11 hereof, the total number
of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall equal the
lesser
of (x) 3,250,000 shares of Stock or (y) 12% of the shares of Stock issued and outstanding upon consummation of the acquisition
and other transactions contemplated by the Share Sale Agreement, dated as of July 13, 2016, as it may be amended, by and among
the Company and,
inter alia
, those persons identified on Schedule I thereto (the “
Business Combination
”)
and after giving effect to the issuance of shares under the Plan (but not the issuance of any Earn-out shares in connection with
the Business Combination or shares issuable pursuant to outstanding warrants). Shares of Stock delivered under the Plan shall
consist of authorized and unissued shares or previously issued shares of Stock reacquired by the Company on the open market or
by private purchase.
(b)
Share Counting Rules
. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid
double-counting (as, for example, in the case of tandem awards) and make adjustments if the number of shares of Stock actually
delivered differs from the number of shares previously counted in connection with an Award. To the extent that an Award expires
or is canceled, forfeited, settled in cash, or otherwise terminated without delivery to the Participant of the full number of
shares of Stock to which the Award related, the undelivered shares of Stock will again be available for grant. Shares of Stock
subject to an Award under the Plan shall not again be available for issuance under the Plan if such shares are (i) shares delivered
to or withheld by the Company to pay the withholding taxes for Awards, (ii) shares that were subject to an Option or a Stock-settled
Stock Appreciation Right and were not issued or delivered upon the net settlement or net exercise of such Option or Stock Appreciation
Right (including, without limitation, any shares withheld to pay the purchase price of or withholding taxes for an Option or Stock
Appreciation Right), (iii) shares delivered to the Company to pay the purchase price related to an outstanding Option or Stock
Appreciation Right or (iv) shares repurchased by the Company on the open market with the proceeds of an option exercise. The number
of shares of Stock available for awards under the Plan shall not be reduced by the number of shares of Stock subject to Substitute
Awards. Shares of Stock to be delivered under the Plan shall be made available from authorized and unissued shares of Stock, or
authorized and issued shares of Stock reacquired and held as treasury shares or otherwise or a combination thereof.
(c)
162(m) Limitation; Director Limits; Incentive Stock Options
.
(1)
Notwithstanding anything herein to the contrary, at all times when the Company is subject to the provisions of Section
162(m) of the Code, (i) the maximum number of shares of Stock with respect to which any combination of Options, Stock Appreciation
Rights, and Performance Awards, in each case and to the extent the Award is intended to be a Qualified Performance-Based Award,
may be granted to any individual in any one calendar year shall not exceed 1,000,000 shares of Stock (subject to adjustment as
provided in Section 11 hereof) and (ii) the maximum value of the aggregate payment that any individual may receive with respect
to a Qualified Performance-Based Award that is valued in dollars in respect of any annual Performance Period is $2,000,000
.
(2)
The maximum value of the aggregate cash compensation that may be paid to any non-employee director of the Company and the
grant date Fair Market Value of shares of Stock that may be granted to any non-employee director of the Company (whether in the
form of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, or other Stock-Based Award) during any one
calendar year shall not exceed $250,000.
(3)
No more than 3,250,000 shares of Stock (subject to adjustment as provided in Section 11 hereof) reserved for issuance hereunder
may be issued or transferred upon exercise or settlement of Incentive Stock Options.
(d)
Shares Available Under Acquired Plans
. Additionally, to the extent permitted by NASDAQ Listing Rule 5635(c) or other
applicable stock exchange rules, subject to applicable law, in the event that a company acquired by the Company or with which
the Company combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation
of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted,
to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio of formula used in such acquisition
or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition
or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Stock reserved and available
for delivery in connection with Awards under the Plan; provided that Awards using such available shares shall not be made
after the date awards could have been made under the terms of such pre-existing plan, absent the acquisition or combination, and
shall only be made to individuals who were not employed by the Company or any subsidiary of the Company immediately prior to such
acquisition or combination.
5.
Options.
(a)
General
. Certain Options granted under the Plan may be intended to be Incentive Stock Options; however, no
Incentive Stock Options may be granted hereunder following the 10
th
anniversary of the earlier of (i) the date the
Plan is adopted by the Board and (ii) the date the stockholders of the Company approve the Plan. Options may be granted to Eligible
Persons in such form and having such terms and conditions as the Committee shall deem appropriate; provided, however, that
Incentive Stock Options may be granted only to Eligible Persons who are employees of the Company or an Affiliate (as such definition
is limited pursuant to Section 2(o) hereof) of the Company. The provisions of separate Options shall be set forth in separate
Option Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Options.
(b)
Term
. The term of each Option shall be set by the Committee at the time of grant; provided, however, that no
Option granted hereunder shall be exercisable after, and each Option shall expire, ten (10) years from the date it was granted
(or five years in the case of an Incentive Stock Option granted to a 10% stockholder).
(c)
Exercise Price
. The exercise price per share of Stock for each Option shall be set by the Committee at the time
of grant and shall not be less than the Fair Market Value on the date of grant, subject to Section 5(g) hereof in the case of
an Incentive Stock Option granted to a 10% stockholder. Notwithstanding the foregoing, in the case of an Option that is a Substitute
Award, the exercise price per share of Stock for such Option may be less than the Fair Market Value on the date of grant;
provided, that such exercise price is determined in a manner consistent with the provisions of Section 409A of the Code and, if
applicable, Section 424(a) of the Code.
(d)
Payment for Stock
. Payment for shares of Stock acquired pursuant to an Option granted hereunder shall be made in
full upon exercise of the Option in a manner approved by the Committee and set forth in the Option Agreement, which may include
any of the following payment methods: (1) in immediately available funds in U.S. dollars, or by certified or bank cashier’s
check, (2) by delivery of shares of Stock having a value equal to the exercise price, (3) by a broker-assisted cashless exercise
in accordance with procedures approved by the Committee, whereby payment of the Option exercise price or tax withholding obligations
may be satisfied, in whole or in part, with shares of Stock subject to the Option by delivery of an irrevocable direction to a
securities broker (on a form prescribed by the Committee) to sell shares of Stock and to deliver all or part of the sale proceeds
to the Company in payment of the aggregate exercise price and, if applicable, the amount necessary to satisfy the Company’s
withholding obligations, or (4) by any other means approved by the Committee (including, without limitation, by delivery of a
notice of “net exercise” to the Company, pursuant to which the Participant shall receive the number of shares of Stock
underlying the Option so exercised reduced by the number of shares of Stock equal to the aggregate exercise price of the Option
divided by the Fair Market Value on the date of exercise). Notwithstanding anything herein to the contrary, if the Committee determines
that any form of payment available hereunder would be in violation of Section 402 of the Sarbanes-Oxley Act of 2002, such form
of payment shall not be available.
(e)
Vesting
. Options shall vest and become exercisable in such manner, on such date or dates, or upon the achievement
of performance or other conditions, in each case as may be determined by the Committee and set forth in the Option Agreement;
provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting
of any Option at any time and for any reason. Unless otherwise specifically determined by the Committee or in the applicable Award
Agreement or Participant Agreement, the vesting of an Option shall occur only while the Participant is employed by or rendering
services to the Service Recipient, and all vesting shall cease upon a Participant’s Termination for any reason. If an Option
is exercisable in installments, such installments or portions thereof that become exercisable shall remain exercisable until the
Option expires, is canceled or otherwise terminates.
(f)
Termination of Employment or Service
. Except as provided by the Committee in an Option Agreement, Participant Agreement
or otherwise:
(1)
In the event of a Participant’s Termination prior to the applicable Expiration Date for any reason other than (i)
by the Service Recipient for Cause, or (ii) by reason of the Participant’s death or Disability, (A) all vesting with respect
to such Participant’s Options outstanding shall cease, (B) all of such Participant’s unvested Options outstanding
shall terminate and be forfeited for no consideration as of the date of such Termination, and (C) all of such Participant’s
vested Options outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration
Date and (y) the date that is ninety (90) days after the date of such Termination.
(2)
In the event of a Participant’s Termination prior to the applicable Expiration Date by reason of such Participant’s
death or Disability, (i) all vesting with respect to such Participant’s Options outstanding shall cease, (ii) all of such
Participant’s unvested Options outstanding shall terminate and be forfeited for no consideration as of the date of such
Termination, and (iii) all of such Participant’s vested Options outstanding shall terminate and be forfeited for no consideration
on the earlier of (x) the applicable Expiration Date and (y) the date that is twelve (12) months after the date of such Termination.
In the event of a Participant’s death, such Participant’s Options shall remain exercisable by the Person or Persons
to whom such Participant’s rights under the Options pass by will or by the applicable laws of descent and distribution for
such time as the Options would have remained exercisable had the Participant been alive, but only to the extent that the Options
were vested at the time of such Termination.
(3)
In the event of a Participant’s Termination prior to the applicable Expiration Date by the Service Recipient for
Cause, all of such Participant’s Options outstanding (whether or not vested) shall immediately terminate and be forfeited
for no consideration as of such Termination.
(g)
Special Provisions Applicable to Incentive Stock Options
.
(1)
No Incentive Stock Option may be granted to any Eligible Person who, at the time the Option is granted, owns directly,
or indirectly within the meaning of Section 424(d) of the Code, stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any parent or subsidiary thereof (a “
10% stockholder
”),
unless such Incentive Stock Option (i) has an exercise price of at least one hundred ten percent (110%) of the Fair Market Value
on the date of the grant of such Option and (ii) cannot be exercised more than five (5) years after the date it is granted.
(2)
To the extent that the aggregate Fair Market Value (determined as of the date of grant) of Stock for which Incentive Stock
Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its
Affiliates) exceeds $100,000 (or such other limit specified in the Code), such excess Incentive Stock Options shall be treated
as Nonqualified Stock Options.
(3)
Each Participant who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the
Participant makes a Disqualifying Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock Option.
6.
Restricted Stock.
(a)
General
. Restricted Stock may be granted to Eligible Persons in such form and having such terms and conditions as
the Committee shall deem appropriate. The provisions of separate Awards of Restricted Stock shall be set forth in separate Restricted
Stock Agreements, which agreements need not be identical. Subject to the restrictions set forth in Section 6(b) hereof, and except
as otherwise set forth in the applicable Restricted Stock Agreement, the Participant shall generally have the rights and privileges
of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock. Unless otherwise set forth in
a Participant’s Restricted Stock Agreement, cash dividends and stock dividends, if any, with respect to the Restricted Stock
shall be withheld by the Company for the Participant’s account, and shall be subject to forfeiture to the same degree as
the shares of Restricted Stock to which such dividends relate; provided, however, notwithstanding anything in the Restricted
Stock Agreement to the contrary, dividends with respect to shares of Stock that are subject to performance-based vesting conditions,
shall be deposited with the Company and shall be subject to the same restrictions as the shares of Stock with respect to which
such distribution was made. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount
of any cash dividends withheld.
(b)
Vesting and Restrictions on Transfer
. Restricted Stock shall vest in such manner, on such date or dates, or upon
the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in a Restricted
Stock Agreement; provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion
accelerate the vesting of any Award of Restricted Stock at any time and for any reason. Unless otherwise specifically determined
by the Committee or set forth in the applicable Award Agreement or Participant Agreement, the vesting of an Award of Restricted
Stock shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall
cease upon a Participant’s Termination for any reason. In addition to any other restrictions set forth in a Participant’s
Restricted Stock Agreement, the Participant shall not be permitted to sell, transfer, pledge, or otherwise encumber the Restricted
Stock prior to the time the Restricted Stock has vested pursuant to the terms of the Restricted Stock Agreement.
(c)
Termination of Employment or Service
. Except as provided by the Committee in a Restricted Stock Agreement, Participant
Agreement or otherwise, in the event of a Participant’s Termination for any reason prior to the time that such Participant’s
Restricted Stock has vested, (1) all vesting with respect to such Participant’s Restricted Stock outstanding shall cease,
and (2) as soon as practicable following such Termination, the Company shall repurchase from the Participant, and the Participant
shall sell, all of such Participant’s unvested shares of Restricted Stock at a purchase price equal to the lesser of the
(x) Fair Market Value of the Restricted Stock as of the date of Termination or (y) the original purchase price paid for the Restricted
Stock; provided that, if the original purchase price paid for the Restricted Stock is equal to zero dollars ($0), such unvested
shares of Restricted Stock shall be forfeited to the Company by the Participant for no consideration as of the date of such Termination.
7.
Restricted Stock Units.
(a)
General
. Restricted Stock Units may be granted to Eligible Persons in such form and having such terms and conditions
as the Committee shall deem appropriate. The provisions of separate Restricted Stock Units shall be set forth in separate RSU
Agreements, which agreements need not be identical.
(b)
Vesting
. Restricted Stock Units shall vest in such manner, on such date or dates, or upon the achievement of performance
or other conditions, in each case as may be determined by the Committee and set forth in an RSU Agreement; provided, however,
that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Restricted
Stock Unit at any time and for any reason. Unless otherwise specifically determined by the Committee or in the applicable Award
Agreement or Participant Agreement, the vesting of a Restricted Stock Unit shall occur only while the Participant is employed
by or rendering services to the Service Recipient, and all vesting shall cease upon a Participant’s Termination for any
reason.
(c)
Settlement
. Restricted Stock Units shall be settled in Stock, cash, or other property, as determined by the Committee,
in its sole discretion, on the date or dates determined by the Committee and set forth in an RSU Agreement. Unless otherwise set
forth in a Participant’s RSU Agreement, a Participant shall not be entitled to dividends, if any, or dividend equivalents
with respect to Restricted Stock Units prior to settlement; provided, however, notwithstanding anything in the RSU Agreement
to the contrary, any dividends or dividend equivalents with respect to RSUs that are subject to performance-based vesting conditions
shall be subject to the same restrictions as such RSUs.
(d)
Termination of Employment or Service
. Except as provided by the Committee in an RSU Agreement, Participant Agreement
or otherwise, in the event of a Participant’s Termination for any reason prior to the time that such Participant’s
Restricted Stock Units have been settled, (1) all vesting with respect to such Participant’s Restricted Stock Units outstanding
shall cease, (2) all of such Participant’s unvested Restricted Stock Units outstanding shall be forfeited for no consideration
as of such Termination, and (3) any shares remaining undelivered with respect to vested Restricted Stock Units then held by such
Participant shall be delivered in accordance with the RSU Agreement.
8.
Stock Appreciation Rights.
(a)
General
. Stock Appreciation Rights may be granted to Eligible Persons in such form and having such terms and conditions
as the Committee shall deem appropriate. The provisions of separate Stock Appreciation Rights shall be set forth in separate SAR
Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Stock Appreciation Rights.
(b)
Term
. The term of each Stock Appreciation Right shall be set by the Committee at the time of grant; provided,
however, that no Stock Appreciation Right granted hereunder shall be exercisable after, and each Stock Appreciation Right shall
expire, ten (10) years from the date it was granted.
(c)
Base Price
. The base price per share of Stock for each Stock Appreciation Right shall be set by the Committee at
the time of grant and shall not be less than the Fair Market Value on the date of grant. Notwithstanding the foregoing, in the
case of a Stock Appreciation Right that is a Substitute Award, the base price per share of Stock for such Stock Appreciation Right
may be less than the Fair Market Value on the date of grant; provided, that such base price is determined in a manner consistent
with the provisions of Section 409A of the Code.
(d)
Vesting
. Stock Appreciation Rights shall vest and become exercisable in such manner, on such date or dates, or upon
the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in a SAR
Agreement; provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate
the vesting of any Stock Appreciation Right at any time and for any reason. Unless otherwise specifically determined by the Committee
or in the applicable Award Agreement or Participant Agreement, the vesting of a Stock Appreciation Right shall occur only while
the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participant’s
Termination for any reason. If a Stock Appreciation Right is exercisable in installments, such installments or portions thereof
that become exercisable shall remain exercisable until the Stock Appreciation Right expires, is canceled or otherwise terminates.
(e)
Payment upon Exercise
. Payment upon exercise of a Stock Appreciation Right may be made in cash, Stock, or other
property as specified in the SAR Agreement, in each case having a value in respect of each share of Stock underlying the portion
of the Stock Appreciation Right so exercised, equal to the difference between the base price of such Stock Appreciation Right
and the Fair Market Value of one (1) share of Stock on the exercise date. For purposes of clarity, each share of Stock to be issued
in settlement of a Stock Appreciation Right is deemed to have a value equal to the Fair Market Value of one (1) share of Stock
on the exercise date. In no event shall fractional shares be issuable upon the exercise of a Stock Appreciation Right, and in
the event that fractional shares would otherwise be issuable, the number of shares issuable will be rounded down to the next lower
whole number of shares, and the Participant shall not be entitled to receive a cash payment equal to the value of such fractional
share.
(f)
Termination of Employment or Service
. Except as provided by the Committee in a SAR Agreement, Participant Agreement
or otherwise:
(1)
In the event of a Participant’s Termination prior to the applicable Expiration Date for any reason other than (i)
by the Service Recipient for Cause, or (ii) by reason of the Participant’s death or Disability, (A) all vesting with respect
to such Participant’s Stock Appreciation Rights outstanding shall cease, (B) all of such Participant’s unvested Stock
Appreciation Rights outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and
(C) all of such Participant’s vested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration
on the earlier of (x) the applicable Expiration Date and (y) the date that is ninety (90) days after the date of such Termination.
(2)
In the event of a Participant’s Termination prior to the applicable Expiration Date by reason of such Participant’s
death or Disability, (i) all vesting with respect to such Participant’s Stock Appreciation Rights outstanding shall cease,
(ii) all of such Participant’s unvested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration
as of the date of such Termination, and (iii) all of such Participant’s vested Stock Appreciation Rights outstanding shall
terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is
twelve (12) months after the date of such Termination. In the event of a Participant’s death, such Participant’s Stock
Appreciation Rights shall remain exercisable by the Person or Persons to whom such Participant’s rights under the Stock
Appreciation Rights pass by will or by the applicable laws of descent and distribution for such time as the Stock Appreciation
Rights would have remained exercisable had the Participant been alive, but only to the extent that the Stock Appreciation Rights
were vested at the time of such Termination.
(3)
In the event of a Participant’s Termination prior to the applicable Expiration Date by the Service Recipient for
Cause, all of such Participant’s Stock Appreciation Rights outstanding (whether or not vested) shall immediately terminate
and be forfeited for no consideration as of such Termination.
9.
Performance Awards.
(a)
General
. Performance Awards may be granted to Eligible Persons in such form and having such terms and conditions
as the Committee shall deem appropriate. The provisions of separate Performance Awards, including, without limitation, the determination
of the Committee with respect to the form of payout of Performance Awards, shall be set forth in separate Performance Award Agreements,
which agreements need not be identical. Cash dividends and stock dividends, if any, with respect to the Performance Shares shall
be withheld by the Company for the Participant’s account, and shall be subject to forfeiture to the same degree as the Performance
Shares to which such dividends relate and a Participant shall not be entitled to dividends, if any, or dividend equivalents with
respect to Performance Units that are not earned and vested. Except as otherwise determined by the Committee, no interest will
accrue or be paid on the amount of any cash dividends withheld.
(b)
Value of Performance Awards
. Each Performance Unit shall have an initial value that is established by the Committee
at the time of grant. Each Performance Share shall represent a share of Stock as of the date of grant. Each Performance Award
Agreement in respect of any Performance Cash Award shall specify the dollar amount payable under the Performance Cash Award. In
addition to any other non-performance terms included in the Performance Award Agreement, the Committee shall set the applicable
Performance Objectives in its discretion, which objectives, depending on the extent to which they are met, will determine the
value and number of Performance Units or Performance Shares, or the value of a Performance Cash Award, as the case may be, that
will be paid out to the Participant.
(c)
Earning of Performance Awards
. Upon the expiration of the applicable Performance Period or other non-performance-based
vesting period, if longer, the holder of a Performance Award shall be entitled to receive the following payouts: (1) if the holder
holds Performance Units or Performance Shares, payout on the value and number of the applicable Performance Units or Performance
Shares earned by the Participant over the Performance Period, or (2) if the holder holds a Performance Cash Award, payout on the
value of the Performance Cash Award earned by the Participant over the Performance Period, in any case, to be determined as a
function of the extent to which the corresponding Performance Objectives have been achieved and any other non-performance-based
terms met.
(d)
Form and Timing of Payment of Performance Awards
. Payment of earned Performance Awards shall be as determined by
the Committee and as evidenced in the Performance Award Agreement. Subject to the terms of the Plan, the Performance Award Agreement
shall specify whether the earned Performance Units and Performance Shares may be paid in the form of cash, Stock, or other Awards
(or in any combination thereof) equal to the value of the earned Performance Units or Performance Shares, as the case may be,
at the close of the applicable Performance Period, or as soon as practicable after the end of the Performance Period. Unless otherwise
determined by the Committee, earned Performance Cash Awards shall be paid in cash. Any cash, Stock, or other Awards issued in
connection with a Performance Award may be issued subject to any restrictions deemed appropriate by the Committee.
(e)
Termination of Employment or Service
. Except as provided by the Committee in a Performance Award Agreement, Participant
Agreement or otherwise, if, prior to the end of an applicable Performance Period, a Participant undergoes a Termination for any
reason, all of such Participant’s Performance Awards shall be forfeited by the Participant to the Company for no consideration,
and any shares remaining undelivered with respect to the Participant’s vested Performance Awards will be delivered in accordance
with the Award Agreement.
(f)
Performance Objectives
.
(1)
Each Performance Award shall specify the Performance Objectives that must be achieved before such Performance Award shall
become earned. The Company may also specify a minimum acceptable level of achievement below which no payment will be made and
may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable
level but falls short of the maximum achievement of the specified Performance Objectives.
(2)
With respect to Qualified Performance-Based Awards and to the extent required to comply with Section 162(m) of the Code,
Performance Objectives shall be based on specified levels of or increases in one or more of the following business criteria (alone
or in combination with any other criterion, whether gross or net, before or after taxes, and/or before or after other adjustments,
as determined by the Committee in accordance with Section 162(m) of the Code): (i) earnings, including, without limitation, net
earnings, total earnings, operating earnings, earnings growth, operating income, earnings before or after taxes, earnings before
or after interest, depreciation, amortization, book value per share, tangible book value or growth in book value per share;
(ii) pre-tax income or after tax income; (iii) earnings per share (basic or diluted); (iv) operating profit; (v)
revenue, revenue growth, or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on
capital, return on equity, or internal rates of return; (vii) returns on sales or revenues; (viii) operating expenses;
(ix) stock price appreciation; (x) cash flow (including, but not limited to, operating cash flow and free cash flow), cash
flow return on investment (discounted or otherwise), net cash provided by operations or cash flow in excess of cost of capital,
working capital turnover; (xii) economic value created; (xiii) cumulative earnings per share growth; (xiv) operating
margin, profit margin, or gross margin; (xv) stock price or total stockholder return; (xvi) cost or expense targets,
reductions and savings, productivity and efficiencies; (xvii) sales or sales growth; (xviii) strategic business criteria,
consisting of one or more objectives based on meeting specified market penetration, market share, geographic business expansion,
customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and
goals relating to acquisitions, divestitures or joint ventures; and (xix) to the extent that an Award is not intended to
be a Qualified Performance-Based Award, other measures of performance selected by the Committee. Performance Objectives may be
established on a Company-wide basis, project or geographical basis or, as the context permits, with respect to one or more business
units, divisions, lines of business or business segments, subsidiaries, products, or other operational units or administrative
departments of the Company (or any combination thereof) or may be related to the performance of an individual Participant and
may be expressed in absolute terms, or relative or comparative to (A) current internal targets or budgets, (B) the past performance
of the Company (including, without limitation, the performance of one or more subsidiaries, divisions, or operating units), (C)
the performance of one or more similarly situated companies, (D) the performance of an index covering multiple companies, or (E)
other external measures of the selected performance criteria. Performance Objectives may be in either absolute terms or relative
to the performance of one or more comparable companies or an index covering multiple companies.
(3)
The business criteria mentioned above (i) may be combined with cost of capital, assets, invested capital and/or stockholders’
equity to form an appropriate measure of performance and (ii) shall have any reasonable definitions that the Committee may specify
in accordance with Section 162(m) of the Code. Unless specified otherwise by the Committee (i) in the Performance Award Agreement
at the time the Performance Award is granted or (ii) in such other document setting forth the Performance Objectives at the time
the Performance Objectives are established, the Committee, in its sole discretion, will appropriately make adjustments in the
method of calculating the attainment of Performance Objectives for a Performance Period to provide for objectively determinable
adjustments, modifications or amendments, as determined in accordance with Generally Accepted Accounting Principles (“
GAAP
”),
to any one or more of the business criteria described above for one or more of the following items of gain, loss, profit or expense:
(A) determined to be extraordinary, unusual infrequently occurring, or non-recurring in nature; (B) related to changes in
accounting principles under GAAP or tax laws; (C) related to currency fluctuations; (D) related to financing activities
(
e.g.
, effect on earnings per share of issuing convertible debt securities); (E) related to restructuring, divestitures,
productivity initiatives or new business initiatives; (F) related to discontinued operations that do not qualify as a segment
of business under GAAP; (G) attributable to the business operations of any entity acquired by the Company during the fiscal
year; (H) non-operating items; and (I) acquisition or divestiture expenses.
(g)
Section 162(m) Compliance
. Unless otherwise permitted in compliance with the requirements of Section 162(m) of the
Code with respect to a Performance Award intended to be a Qualified Performance-Based Award, the Committee will establish the
Performance Objectives applicable to, and the formula for calculating the amount payable under, the Performance Award no later
than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period, and (b) the date
on which twenty-five percent (25%) of the Performance Period has elapsed, and in any event at a time when the achievement of the
applicable Performance Objectives remains substantially uncertain. Prior to the payment of any compensation under a Performance
Award intended to be a Qualified Performance-Based Award, the Committee will certify the extent to which any Performance Objectives
and any other material terms under such Performance Award have been satisfied (other than in cases where such Performance Objectives
relate solely to the increase in the value of the Stock).
10.
Other Stock or Cash-Based Awards.
The Committee is
authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or
payable in, valued in whole or in part by reference to, or otherwise based upon or related to Stock or cash (including annual
or long-term performance Awards payable in cash), as deemed by the Committee to be consistent with the purposes of the Plan. The
Committee may also grant Stock as a bonus (whether or not subject to any vesting requirements or other restrictions on transfer),
and may grant other Awards in lieu of obligations of the Company or an Affiliate to pay cash or deliver other property under the
Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Committee. The terms
and conditions applicable to such Awards shall be determined by the Committee and evidenced by Award Agreements, which agreements
need not be identical.
11.
Adjustment for Recapitalization, Merger, etc.
(a)
Capitalization Adjustments
. The aggregate number of shares of Stock that may be delivered in connection with Awards
(as set forth in Section 4 hereof), the numerical share limits in Section 4 hereof, the number of shares of Stock covered by each
outstanding Award, and the price per share of Stock underlying each such Award shall be equitably and proportionally adjusted
or substituted by the Committee as to the number, price, or kind of a share of Stock or other consideration subject to such Awards
in the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification
Topic 718, Compensation—Stock Compensation, or any successor or replacement accounting standard) that causes the per share
value of Stock to change, such as stock dividends, recapitalizations through extraordinary cash dividends, stock splits, and reverse
stock splits, occurring after the date of grant of any such Award; provided, however, that any such adjustments to be made
in the case of outstanding Options and Stock Appreciation Rights shall be made without an increase in the aggregate purchase price
or base price and in accordance with Section 409A of the Code. In the event of any other change in corporate capitalization, including,
without limitation, a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such equitable
adjustments described in the previous sentence may be made as determined to be appropriate and equitable by the Committee to prevent
dilution or enlargement of rights of Participants. The decision of the Committee regarding any such adjustments shall be final,
binding and conclusive.
(b)
Corporate Events
. Notwithstanding the foregoing, except as provided by the Committee in an Award Agreement, Participant
Agreement or otherwise, in connection with a Change in Control or the reorganization, dissolution or liquidation of the Company
(each, a “
Corporate Event
”), the Committee may, in its discretion, provide for any one or more of the following:
(1)
The assumption or substitution of any or all Awards in connection with such Corporate Event, in which case the Awards shall
be subject to the adjustment set forth in subsection (a) above, and to the extent that such Awards are Performance Awards or other
Awards that vest subject to the achievement of Performance Objectives or similar performance criteria, such Performance Objectives
or similar performance criteria shall be adjusted appropriately to reflect the Corporate Event;
(2)
The acceleration of vesting of any or all Awards not assumed or substituted in connection with such Corporate Event, subject
to the consummation of such Corporate Event; provided that any Performance Awards or other Awards that vest subject to the
achievement of Performance Objectives or similar performance criteria will be deemed earned based on actual performance through
the date of the Corporate Event or (ii) at the target level (or if no target is specified, the maximum level), in the event actual
performance cannot be measured through the date of the Corporate Event, in each case, with respect to any unexpired Performance
Periods or Performance Periods for which satisfaction of the Performance Objectives or other material terms for the applicable
Performance Period has not been certified by the Committee prior to the date of the Corporate Event;
(3)
The cancellation of any or all Awards (whether vested or unvested) as of the consummation of such Corporate Event, together
with the payment to the Participants holding Awards (whether vested or unvested) so canceled of an amount in respect of cancellation
equal to the amount payable pursuant to any Performance Cash Award or, with respect to other Awards, an amount based upon the
per-share consideration being paid for the Stock in connection with such Corporate Event, less, in the case of Options, Stock
Appreciation Rights, and other Awards subject to exercise, the applicable exercise, base or purchase price; provided, however,
that holders of Options, Stock Appreciation Rights, and other Awards subject to exercise shall be entitled to consideration in
respect of cancellation of such Awards only if the per-share consideration less the applicable exercise, base or purchase price
is greater than zero dollars ($0), and to the extent that the per-share consideration is less than or equal to the applicable
exercise, base or purchase price, such Awards shall be canceled for no consideration;
(4)
The cancellation of any or all Options, Stock Appreciation Rights and other Awards subject to exercise (whether vested
or unvested) as of the consummation of such Corporate Event; provided that all Options, Stock Appreciation Rights and other
Awards to be so canceled pursuant to this paragraph (4) shall first become exercisable for a period of at least ten (10) days
prior to such Corporate Event (whether vested or unvested), with any exercise during such period of any unvested Options, Stock
Appreciation Rights or other Awards to be (A) contingent upon and subject to the occurrence of the Corporate Event, and (B) effectuated
by such means as are approved by the Committee; and
(5)
The replacement of any or all Awards (other than Awards that are intended to qualify as “stock rights” that
do not provide for a “deferral of compensation” within the meaning of Section 409A of the Code) with a cash incentive
program that preserves the economic value of the Awards so replaced (determined as of the consummation of the Corporate Event),
with subsequent payment of cash incentives subject to the same vesting conditions and payment terms as applicable to the Awards
so replaced.
Payments to holders pursuant to paragraph
(3) above shall be made in cash or, in the sole discretion of the Committee, and to the extent applicable, in the form of such
other consideration necessary for a Participant to receive property, cash, or securities (or a combination thereof) as such Participant
would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such
transaction, the holder of the number of shares of Stock covered by the Award at such time (less any applicable exercise or base
price). In addition, in connection with any Corporate Event, prior to any payment or adjustment contemplated under this subsection
(b), the Committee may require a Participant to (A) represent and warrant as to the unencumbered title to his or her Awards, (B)
bear such Participant’s pro-rata share of any post-closing indemnity obligations, and be subject to the same post-closing
purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Stock,
and (C) deliver customary transfer documentation as reasonably determined by the Committee. The Committee need not take the same
action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Committee may take different
actions with respect to the vested and unvested portions of an Award.
(c)
Fractional Shares
. Any adjustment provided under this Section 11 may, in the Committee’s discretion, provide
for the elimination of any fractional share that might otherwise become subject to an Award. No cash settlements shall be made
with respect to fractional shares so eliminated.
12.
Use of Proceeds.
The proceeds received
from the sale of Stock pursuant to the Plan shall be used for general corporate purposes.
13.
Rights and Privileges as a Stockholder.
Except as otherwise
specifically provided in the Plan, no Person shall be entitled to the rights and privileges of Stock ownership in respect of shares
of Stock that are subject to Awards hereunder until such shares have been issued to that Person.
14.
Transferability of Awards.
Awards may not
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws
of descent and distribution, and to the extent subject to exercise, Awards may not be exercised during the lifetime of the grantee
other than by the grantee. Notwithstanding the foregoing, except with respect to Incentive Stock Options, Awards and a Participant’s
rights under the Plan shall be transferable for no value to the extent provided in an Award Agreement or otherwise determined
at any time by the Committee and to the extent permitted by applicable law.
15.
Employment or Service Rights.
No individual shall
have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected
for the grant of any other Award. Neither the Plan nor any action taken hereunder shall be construed as giving any individual
any right to be retained in the employ or service of the Company or an Affiliate of the Company. Except as provided otherwise
in an Award Agreement, for purposes of the Plan, references to employment by the Company shall also mean employment by an Affiliate
of the Company, and references to employment shall include service as a non-employee director, consultant, independent contractor
or agent.
16.
Compliance with Laws.
The obligation
of the Company to deliver Stock upon issuance, vesting, exercise, or settlement of any Award shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or
conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited
from offering to sell or selling, any shares of Stock pursuant to an Award unless such shares have been properly registered for
sale with the U.S. Securities and Exchange Commission pursuant to the Securities Act (or with a similar non
-
U.S.
regulatory agency pursuant to a similar law or regulation) or unless the Company has received an opinion of counsel, satisfactory
to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom
and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register
for sale or resale under the Securities Act any of the shares of Stock to be offered or sold under the Plan or any shares of Stock
to be issued upon exercise or settlement of Awards. If the shares of Stock offered for sale or sold under the Plan are offered
or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares
and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability
of any such exemption.
17.
Withholding Obligations.
As a condition
to the issuance, vesting, exercise, or settlement of any Award (or upon the making of an election under Section 83(b) of the Code),
the Committee may require that a Participant satisfy, through deduction or withholding from any payment of any kind otherwise
due to the Participant, or through such other arrangements as are satisfactory to the Committee, the minimum amount of all federal,
state, and local income and other taxes of any kind required or permitted to be withheld in connection with such issuance, vesting,
exercise, or settlement (or election). The Committee, in its discretion, may permit shares of Stock to be used to satisfy tax
withholding requirements, and such shares shall be valued at their Fair Market Value as of the issuance, vesting, exercise, or
settlement date of the Award, as applicable; provided, however, that the aggregate Fair Market Value of the number of shares
of Stock that may be used to satisfy tax withholding requirements may not exceed the minimum statutorily required withholding
amount with respect to such Award (unless the Committee determines, in its discretion, that a greater number of shares of Stock
may be used to satisfy tax withholding requirements without resulting in adverse accounting treatment under Financial Accounting
Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)).
18.
Amendment of the Plan or Awards.
(a)
Amendment of Plan
. The Board or the Committee may amend the Plan at any time and from time to time.
(b)
Amendment of Awards
. The Board or the Committee may amend the terms of any one or more Awards at any time and from
time to time.
(c)
Stockholder Approval; No Material Impairment
. Notwithstanding anything herein to the contrary, no amendment
to the Plan or any Award shall be effective without stockholder approval to the extent that such approval is required pursuant
to applicable law or the applicable rules of each national securities exchange on which the Stock is listed. Additionally, no
amendment to any Award shall materially impair a Participant’s rights under any outstanding Award unless the Participant
consents in writing (it being understood that no action taken by the Board or the Committee that is expressly permitted under
the Plan, including, without limitation, any actions described in Section 11 hereof, shall constitute an amendment to the Plan
or an Award for such purpose). Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without
an affected Participant’s consent, the Board or the Committee may amend the terms of the Plan or any one or more Awards
from time to time as necessary to bring such Awards into compliance with applicable law, including, without limitation, Section
409A of the Code.
(d)
No Repricing of Awards Without Stockholder Approval
. Notwithstanding subsection (a) or (b) above, or any other provision
of the Plan, the repricing of Awards shall not be permitted without stockholder approval. For this purpose, a “
repricing
”
means any of the following (or any other action that has the same effect as any of the following): (1) changing the terms of an
Award to lower its exercise or base price (other than on account of capital adjustments resulting from share splits, etc., as
described in Section 11(a) hereof), (2) any other action that is treated as a repricing under GAAP or applicable stock exchange
rules, and (3) repurchasing for cash or canceling an Award in exchange for another Award at a time when its exercise or base price
is greater than the Fair Market Value of the underlying Stock, unless the cancellation and exchange occurs in connection with
an event set forth in Section
11(b)
hereof
.
19.
Termination or Suspension of the Plan.
The Board or the
Committee may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10
th
) anniversary of the date the stockholders of the Company approve the Plan. No Awards may be granted
under the Plan while the Plan is suspended or after it is terminated; provided, however, that following any suspension or
termination of the Plan, the Plan shall remain in effect for the purpose of governing all Awards then outstanding hereunder until
such time as all Awards under the Plan have been terminated, forfeited, or otherwise canceled, or earned, exercised, settled,
or otherwise paid out, in accordance with their terms.
20.
Effective Date of the Plan.
The Plan is effective
as of the Effective Date, subject to (a) stockholder approval of the Plan and (b) consummation of the Business Combination.
21.
Miscellaneous.
(a)
Certificates
. Stock acquired pursuant to Awards granted under the Plan may be evidenced in such a manner as the
Committee shall determine. If certificates representing Stock are registered in the name of the Participant, the Committee may
require that (1) such certificates bear an appropriate legend referring to the terms, conditions, and restrictions applicable
to such Stock, (2) the Company retain physical possession of the certificates, and (3) the Participant deliver a stock power to
the Company, endorsed in blank, relating to the Stock. Notwithstanding the foregoing, the Committee may determine, in its sole
discretion, that the Stock shall be held in book-entry form rather than delivered to the Participant pending the release of any
applicable restrictions.
(b)
Other Benefits
. No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing
benefits under any retirement plan of the Company or its Affiliates nor affect any benefits under any other benefit plan now or
subsequently in effect under which the availability or amount of benefits is related to the level of compensation.
(c)
Corporate Action Constituting Grant of Awards
. Corporate action constituting a grant by the Company of an Award
to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Committee,
regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted
by, the Participant. In the event that the corporate records (
e
.
g
., Committee consents, resolutions or minutes)
documenting the corporate action constituting the grant contain terms (
e
.g., exercise price, vesting schedule or number
of shares of Stock) that are inconsistent with those in the Award Agreement as a result of a clerical error in connection with
the preparation of the Award Agreement, the corporate records will control and the Participant will have no legally binding right
to the incorrect term in the Award Agreement.
(d)
Awards Subject to Clawback
. Except to the extent prohibited by law, the Awards granted under this Plan and any cash
payment or Shares delivered pursuant to an Award are subject to forfeiture, recovery by the Company or other action pursuant to
the applicable Award Agreement, Participant Agreement or any clawback or recoupment policy which the Company may adopt from time
to time, including, without limitation, any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street
Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law; provided,
however, except as otherwise required by applicable law, the applicable clawback or recoupment policy with respect to an Award
shall be the policy that was in effect on the date of grant with respect to such Award.
(e)
Non-Exempt Employees
. If an Option is granted to an employee of the Company or any of its Affiliates in the United
States who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option will not be first
exercisable for any shares of Stock until at least six (6) months following the date of grant of the Option (although the Option
may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (1) if such employee dies
or suffers a Disability, (2) upon a Corporate Event in which such Option is not assumed, continued, or substituted, (3) upon a
Change in Control, or (4) upon the Participant’s retirement (as such term may be defined in the applicable Award Agreement
or a Participant Agreement, or, if no such definition exists, in accordance with the Company’s then current employment policies
and guidelines), the vested portion of any Options held by such employee may be exercised earlier than six (6) months following
the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection
with the exercise or vesting of an Option will be exempt from his or her regular rate of pay. To the extent permitted and/or required
for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection
with the exercise, vesting or issuance of any shares under any other Award will be exempt from such employee’s regular rate
of pay, the provisions of this Section 21(e) will apply to all Awards.
(f)
Data Privacy
. As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to
the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 21(f) by and among,
as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan
and Awards and the Participant’s participation in the Plan. In furtherance of such implementation, administration, and management,
the Company and its Affiliates may hold certain personal information about a Participant, including, but not limited to, the Participant’s
name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary,
nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of all Awards
(the “
Data
”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation,
administration, and management of the Plan and Awards and the Participant’s participation in the Plan, the Company and its
Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management
of the Plan and Awards and the Participant’s participation in the Plan. Recipients of the Data may be located in the Participant’s
country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy
laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain, and
transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration,
and management of the Plan and Awards and the Participant’s participation in the Plan, including any requisite transfer
of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit
any shares of Stock. The Data related to a Participant will be held only as long as is necessary to implement, administer, and
manage the Plan and Awards and the Participant’s participation in the Plan. A Participant may, at any time, view the Data
held by the Company with respect to such Participant, request additional information about the storage and processing of the Data
with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or
withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative.
The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion,
the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents described herein. For
more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human
resources representative.
(g)
Participants Outside of the United States
. The Committee may modify the terms of any Award under the Plan made to
or held by a Participant who is then a resident, or is primarily employed or providing services, outside of the United States
in any manner deemed by the Committee to be necessary or appropriate in order that such Award shall conform to laws, regulations,
and customs of the country in which the Participant is then a resident or primarily employed or providing services, or so that
the value and other benefits of the Award to the Participant, as affected by non–U.S. tax laws and other restrictions applicable
as a result of the Participant’s residence, employment, or providing services abroad, shall be comparable to the value of
such Award to a Participant who is a resident, or is primarily employed or providing services, in the United States. An Award
may be modified under this Section 21(g) in a manner that is inconsistent with the express terms of the Plan, so long as such
modifications will not contravene any applicable law or regulation or result in actual liability under Section 16(b) of the Exchange
Act for the Participant whose Award is modified. Additionally, the Committee may adopt such procedures and sub-plans as are necessary
or appropriate to permit participation in the Plan by Eligible Persons who are non–U.S. nationals or are primarily employed
or providing services outside the United States.
(h)
Change in Time Commitment
. In the event a Participant’s regular level of time commitment in the performance
of his or her services for the Company or any of its Affiliates is reduced (for example, and without limitation, if the Participant
is an employee of the Company and the employee has a change in status from a full-time employee to a part-time employee) after
the date of grant of any Award to the Participant, the Committee has the right in its sole discretion to (i) make a corresponding
reduction in the number of shares of Stock subject to any portion of such Award that is scheduled to vest or become payable after
the date of such change in time commitment, and (ii) in lieu of or in combination with such a reduction and to the extent permitted
by Section 409A of the Code, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction,
the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(i)
No Liability of Committee Members, etc
. Neither any member of the Committee nor any of the Committee’s permitted
delegates shall be liable personally by reason of any contract or other instrument executed by such member or on his or her behalf
in his or her capacity as a member of the Committee or a delegate or for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each member of the Committee and each other employee, officer, or director of the Company to
whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against all
costs and expenses (including, without limitation, counsel fees) and liabilities (including, without limitation, sums paid in
settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such Person’s
own fraud or willful misconduct; provided, however, that approval of the Board shall be required for the payment of any amount
in settlement of a claim against any such Person. The foregoing right of indemnification shall not be exclusive of any other rights
of indemnification to which such Persons may be entitled under the Company’s certificate or articles of incorporation or
by-laws, each as may be amended from time to time, as a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
(j)
Payments Following Accidents or Illness
. If the Committee shall find that any Person to whom any amount is payable
under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment
due to such Person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative)
may, if the Committee so directs the Company, be paid to his or her spouse, child, or other relative, an institution maintaining
or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person
otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company
therefor.
(k)
Governing Law
. The Plan shall be governed by and construed in accordance with the internal laws of the State of
Delaware without reference to the principles of conflicts of laws thereof.
(l)
Electronic Delivery
. Any reference herein to a “written” agreement or document or “writing”
will include any agreement or document delivered electronically or posted on the Company’s intranet (or other shared electronic
medium controlled or authorized by the Company to which the Participant has access) to the extent permitted by applicable law.
(m)
Funding
. No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under
the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate
any assets, nor shall the Company be required to maintain separate bank accounts, books, records, or other evidence of the existence
of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan
other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as other employees and service providers under general
law.
(n)
Reliance on Reports
. Each member of the Committee and each member of the Board shall be fully justified in relying,
acting, or failing to act, and shall not be liable for having so relied, acted, or failed to act in good faith, upon any report
made by the independent public accountant of the Company and its Affiliates and upon any other information furnished in connection
with the Plan by any Person or Persons other than such member.
(o)
Titles and Headings
. The titles and headings of the sections in the Plan are for convenience of reference only,
and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
* * *
Annex C
(continued)
Annex
A
|
Vesting
Dates and Conditions; Acceleration
|
Vesting.
Each grant
of Restricted Stock and Restricted Stock Units will be subject to the following vesting conditions (in each case, subject
to the Participant’s continued employment or service on each applicable vesting date except as otherwise provided
below in respect of certain accelerated vesting):
|
|
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●
|
One third (1/3rd) of the award will vest on the
First Anniversary (as defined below) (the “
First Tranche
”), provided that a period of at least thirty
(30) consecutive trading days has elapsed during which period the average of the closing prices for the Company’s
common stock was equal to or greater than the First Tranche Price Threshold (as defined below). If the foregoing condition
is not satisfied on such anniversary date, then the First Tranche will vest immediately on the first date thereafter such
condition is satisfied.
|
|
|
●
|
An additional one-third (1/3rd) of the award will
vest on the Second Anniversary (as defined below) (the “
Second Tranche
”), provided that a period of
at least thirty (30) consecutive trading days has elapsed during which period the average of the closing prices for the
Company’s common stock was equal to or greater than the Second Tranche Price Threshold (as defined below). (For
the avoidance of doubt, and for illustration purposes, if the Second Tranche Price Threshold is achieved within the first
90 days after the Closing Date, the Second Tranche will not vest until the actual date of the Second Anniversary.) If
the foregoing condition is not satisfied on such anniversary date, then the Second Tranche will vest immediately on the
first date thereafter such condition is satisfied.
|
|
|
●
|
The final one-third (1/3rd) of the award will vest
on the Third Anniversary (as defined below) (the “
Third Tranche
”), provided that a period of at least
thirty (30) consecutive trading days has elapsed during which period the average of the closing prices for the Company’s
common stock was equal to or greater than the Third Tranche Price Threshold (as defined below). (For the avoidance of
doubt, and for illustration purposes, if the Third Tranche Price Threshold is achieved within the first 180 days after
the Closing Date, the Third Tranche will not vest until the actual date of the Third Anniversary.) If the foregoing condition
is not satisfied on such anniversary date, then the Third Tranche will vest immediately on the first date thereafter such
condition is satisfied.
|
|
|
●
|
Unless otherwise provided in the applicable Award
Agreement, any tranche that has not vested as of the fifth anniversary after the Closing Date will be immediately forfeited.
|
|
|
Consultants
.
Notwithstanding the foregoing, if a Consultant’s consulting contract with the Company (or any of its subsidiaries or
affiliates) terminates due to the expiration of the consulting term, provided that the Consultant has not breached such consulting
contract and has not been terminated for cause, the tranche (if any) that is eligible to vest on the immediately succeeding
anniversary of the Closing Date will remain eligible to vest on such anniversary date if the applicable tranche price threshold
is satisfied by such anniversary date. This provision shall only apply to a Consultant who has completed at least 60 billing
days during the 12-month period preceding and ending on such anniversary date, and shall not apply to awards with respect
to any more than 50,000 shares in the aggregate.
|
|
|
Accelerated Vesting on Change
in Control
. Upon a Change in Control, each then outstanding and unvested tranche will fully vest immediately prior
to such change in control, provided that the Change in Control consideration per share is not less than the applicable
tranche price threshold. For purposes of determining the Change in Control consideration per share amount, all earnout,
escrowed and/or heldback amounts not paid at the consummation of such Change in Control shall be taken into account.
Certain Accelerated Vesting
Upon Termination
. The applicable Award Agreement may provide that in the event of a Participant’s termination
of employment or service with the Company (or any of its subsidiaries or affiliates) by:
(1) reason of death or disability;
(2) termination by the Company
(or any of its subsidiaries or affiliates) without Cause; or
(3) termination by the Participant
for Good Reason,
the unvested portion of any
outstanding award will not be forfeited but will remain eligible to vest on the occurrence of the vesting dates described
above (including on a Change in Control), in each case, subject to achievement of the applicable tranche price threshold(s),
as if the Participant’s employment or service had not been terminated.
|
|
Applicable
Definitions
|
“
Closing
Date
” means the date of consummation of the Business Combination.
“
First
Anniversary
” means the date that is the first anniversary of the Closing Date.
“
First
Tranche Price Threshold
” means $12.50 per share.
“
Second Anniversary
”
means the date that is the second anniversary of the Closing Date.
“
Second Tranche Price
Threshold
” means $15.00 per share.
“
Third Anniversary
”
means the date that is the third anniversary of the Closing Date.
“
Third Tranche Price
Threshold
” means $17.50 per share.
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|
|
|
Annex
D
[Macquarie Letterhead]
July 13, 2016
DMWSL 633 Limited
3 The Maltings
Wetmore Road
Burton-on-Trent
Staffordshire DE14 1SE
Gentlemen:
Reference is made to (i) that certain
Share Sale Agreement (the “SPA”), dated July __, 2016, by and among,
inter alia
, the persons identified in
Schedule 1 thereto (the “Vendors”), DMWSL 633 Limited (the “Company”), DMWSL 632 Limited, Gaming Acquisition
Limited and Hydra Industries Acquisition Corp. (“Hydra”); and (ii) that certain letter agreement (the “2014
Letter Agreement”), dated October 24, 2014, by and among,
inter alia
, Hydra, MIHI LLC (the “Macquarie Sponsor”),
and Hydra Industries Sponsor LLC (the “Hydra Sponsor”). Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the 2014 Letter Agreement. As an inducement for, and in consideration of, the Company
and the Vendors’ entry into the SPA, the Macquarie Sponsor hereby:
|
|
(a)
|
(i) Reaffirms its obligations
under the provisions of Paragraph 1 of the 2014 Letter Agreement and agrees that the
Company on behalf of itself and the Vendors, shall be entitled to enforce such obligations
of the Macquarie Sponsor under such provisions as if parties thereto and (ii) agrees
to provide its written consent in accordance with Section 3.3.4 of the Contingent Forward
Purchase Contract, dated October 24, 2014, by and between the Macquarie Sponsor and Hydra;
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|
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(b)
|
Agrees that it, its subsidiaries
and the Macquarie Capital division of Macquarie Capital (USA) Inc. shall not (whether
directly or indirectly through directors, officers, employees, representatives, advisors
or other intermediaries): (i) solicit, initiate or knowingly encourage the submission
of inquiries, proposals or offers from any Person relating to any Business Combination,
or agree to or endorse any Business Combination; (ii) enter into any agreement to (x)
consummate any Business Combination, or (y) approve or endorse any Business Combination;
(iii) enter into or participate in any discussions or negotiations in connection with
any Business Combination or inquiry with respect to any Business Combination, or furnish
to any Person any non-public information with respect to the business, properties or
assets of Hydra in connection with any potential Business Combination; or (iv) agree
to or resolve to take any of the actions prohibited by clause (i), (ii) or (iii) of this
section (b), in each case other than in connection with the acquisition transaction contemplated
by the SPA; as used in this paragraph (b), Business Combination shall include any purchase
or sale of equity or assets of Hydra or any other Person (involving Hydra or any subsidiary
thereof) or a merger, combination or recapitalisation of Hydra or any subsidiary thereof);
|
|
|
(a)
|
Agrees to immediately cease,
and direct its representatives, advisors and other intermediaries to immediately cease,
any and all existing activities, discussions or negotiations with any Person conducted
heretofore with respect to any of the actions prohibited by section (b) hereof;
|
|
|
(b)
|
Agrees to promptly inform
its representatives and advisors of the obligations under sections (b) and (c) hereof;
|
|
|
(c)
|
Agrees that violation of sections
(b) and (c) hereof by any of its representatives or its subsidiaries shall be deemed
to be a breach of this letter agreement (the “Voting Letter Agreement”) by
the Macquarie Sponsor;
|
|
|
(d)
|
Agrees not to Transfer any
shares of Common Stock prior to the completion of the acquisition transaction contemplated
by the SPA, except to a transferee which executes a customary joinder agreeing to be
bound by this Voting Letter Agreement in the same manner as the Macquarie Sponsor; and
|
|
|
(e)
|
Acknowledges that the Company
and the Vendors are entering into the SPA in reliance upon the execution and delivery
of this Voting Letter Agreement.
|
For purposes of sections (b) and (c)
hereof, the term “Person” means any person, corporation, entity or “group,” as defined in Section 13(d)
of the Exchange Act, other than Hydra or any subsidiaries of Hydra.
Counterparts
. This Voting Letter
Agreement may be executed in two or more counterparts, each of which, when so executed and delivered, shall be deemed to be an
original, but all of which counterparts, taken together, shall constitute one and the same instrument.
Amendments
. The provisions of
this Voting Letter Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions
hereof may not be given, except with the written consent of the Company and the Macquarie Sponsor.
Assignment
. This Voting Letter
Agreement may not be assigned by a party without the prior written consent of the other parties hereto.
No Conflicts
. The Macquarie
Sponsor represents and warrants that the execution, delivery and performance of this Voting Letter Agreement by it does not conflict
with, violate or result in the breach of any of its obligations or duties under any contract or other agreement to which it is
a party, or violate applicable law or require the consent or approval of any person or entity.
Certain Representations and Warranties
.
The Macquarie Sponsor represents and warrants that (a) there is no applicable law to which is subject, or agreement, commitment,
or understanding to which it is a party, that would preclude or restrict it from entering into and performing its obligations
under this Voting Letter Agreement; and (b) this Voting Letter Agreement has been duly executed and delivered by the Macquarie
Sponsor and constitutes a legal, valid, binding, and enforceable obligation of such party, except to the extent enforcement may
be limited by bankruptcy or similar laws relating to creditors’ rights or by general equitable principles.
Specific Performance
. The parties
agree that money damages would be both incalculable and an insufficient remedy and that irreparable damage would occur if any
of the provisions of this Voting Letter Agreement were not performed in accordance with their terms or were otherwise breached.
It is accordingly agreed that, subject to the discretion of the applicable courts, the Company, on behalf of itself and the Vendors,
shall be entitled to seek an injunction or other equitable relief to prevent breaches or violations of this Voting Letter Agreement
and to seek to enforce specifically the terms and provisions of this Voting Letter Agreement, in addition to any other remedy
to which they may be entitled at law or in equity.
Termination
. This Voting Letter
Agreement and all of the obligations hereunder shall terminate upon the earliest to occur of (a) the consummation of the
acquisition transaction contemplated by the SPA, (b) the termination of the SPA in accordance with its terms, and (c) the
mutual agreement of the Company and the Macquarie Sponsor.
[Remainder of
Page Intentionally Left Blank]
Please confirm your acceptance of,
and agreement with, the foregoing by signing one copy of this Voting Letter Agreement and returning it (by mail, by facsimile
transmission, or by any other form of delivery) to the undersigned.
|
|
Very truly yours,
|
|
|
|
|
|
MIHI LLC
|
|
|
|
|
|
|
By:
|
/s/ Duncan Murdoch
|
|
|
|
Name: Duncan Murdoch
|
|
|
|
Title: Vice President
|
|
|
|
|
|
|
By:
|
/s/ Jin Chun
|
|
|
|
Name: Jin Chun
|
|
|
|
Title: Authorized Signatory
|
[
Signature
Page to Voting Letter Agreement
]
|
Accepted and agreed:
|
|
|
|
|
|
DMSWL 633 LIMITED
|
|
|
|
|
|
|
By:
|
/s/ Luke Alvarez
|
|
|
Name: Luke Alvarez
|
|
|
Title: Director
|
|
[
Signature
Page to Voting Letter Agreement
]
EXECUTION VERSION
[Hydra Sponsor
Letterhead]
July 12, 2016
DMWSL 633 Limited
3 The Maltings
Wetmore Road
Burton-on-Trent
Staffordshire DE14 1SE
Gentlemen:
Reference is made to (i) that certain
Share Sale Agreement (the “SPA”), dated July __, 2016, by and among,
inter alia
, the persons identified in
Schedule 1 thereto (the “Vendors”), DMWSL 633 Limited (the “Company”), DMWSL 632 Limited, Gaming Acquisition
Limited and Hydra Industries Acquisition Corp. (“Hydra”); and (ii) that certain letter agreement (the “2014
Letter Agreement”), dated October 24, 2014, by and among,
inter alia
, Hydra, MIHI LLC (the “Macquarie Sponsor”),
and Hydra Industries Sponsor LLC (the “Hydra Sponsor”). Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the 2014 Letter Agreement. As an inducement for, and in consideration of, the Company
and the Vendors’ entry into the SPA, the Hydra Sponsor hereby:
|
|
(a)
|
Reaffirms its obligations
under the provisions of Paragraph 1 of the 2014 Letter Agreement and agrees that the
Company on behalf of itself and the Vendors, shall be entitled to enforce such obligations
of the Hydra Sponsor under such provisions as if parties thereto;
|
|
|
(b)
|
Agrees that it and its subsidiaries
shall not (whether directly or indirectly through directors, officers, employees, representatives,
advisors or other intermediaries): (i) solicit, initiate or knowingly encourage the submission
of inquiries, proposals or offers from any Person relating to any Business Combination,
or agree to or endorse any Business Combination; (ii) enter into any agreement to (x)
consummate any Business Combination, or (y) approve or endorse any Business Combination;
(iii) enter into or participate in any discussions or negotiations in connection with
any Business Combination or inquiry with respect to any Business Combination, or furnish
to any Person any non-public information with respect to the business, properties or
assets of Hydra in connection with any potential Business Combination; or (iv) agree
to or resolve to take any of the actions prohibited by clause (i), (ii) or (iii) of this
section (b), in each case other than in connection with the acquisition transaction contemplated
by the SPA; as used in this paragraph (b), Business Combination shall include any purchase
or sale of equity or assets of Hydra or any other Person (involving Hydra or any subsidiary
thereof) or a merger, combination or recapitalisation of Hydra or any subsidiary thereof);
|
|
|
(c)
|
Agrees to immediately cease,
and direct its representatives, advisors and other intermediaries to immediately cease,
any and all existing activities, discussions or negotiations with any Person conducted
heretofore with respect to any of the actions prohibited by section (b) hereof;
|
|
|
(d)
|
Agrees to promptly inform
its representatives and advisors of the obligations under sections (b) and (c) hereof;
|
|
|
(e)
|
Agrees that violation of sections
(b) and (c) hereof by any of its representatives or its subsidiaries shall be deemed
to be a breach of this letter agreement (the “Voting Letter Agreement”) by
the Hydra Sponsor;
|
|
|
(f)
|
Agrees not to Transfer any
shares of Common Stock prior to the completion of the acquisition transaction contemplated
by the SPA, except to a transferee which executes a customary joinder agreeing to be
bound by this Voting Letter Agreement in the same manner as the Hydra Sponsor; and
|
|
|
(g)
|
Acknowledges that the Company
and the Vendors are entering into the SPA in reliance upon the execution and delivery
of this Voting Letter Agreement.
|
For purposes of sections (b) and (c)
hereof, the term “Person” means any person, corporation, entity or “group,” as defined in Section 13(d)
of the Exchange Act, other than Hydra or any subsidiaries of Hydra.
Counterparts
. This Voting Letter
Agreement may be executed in two or more counterparts, each of which, when so executed and delivered, shall be deemed to be an
original, but all of which counterparts, taken together, shall constitute one and the same instrument.
Amendments
. The provisions of
this Voting Letter Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions
hereof may not be given, except with the written consent of the Company and the Hydra Sponsor.
Assignment
. This Voting Letter
Agreement may not be assigned by a party without the prior written consent of the other parties hereto.
No Conflicts
. The Hydra Sponsor
represents and warrants that the execution, delivery and performance of this Voting Letter Agreement by it does not conflict with,
violate or result in the breach of any of its obligations or duties under any contract or other agreement to which it is a party,
or violate applicable law or require the consent or approval of any person or entity.
Certain Representations and Warranties
.
The Hydra Sponsor represents and warrants that (a) there is no applicable law to which is subject, or agreement, commitment, or
understanding to which it is a party, that would preclude or restrict it from entering into and performing its obligations under
this Voting Letter Agreement; and (b) this Voting Letter Agreement has been duly executed and delivered by the Hydra Sponsor and
constitutes a legal, valid, binding, and enforceable obligation of such party, except to the extent enforcement may be limited
by bankruptcy or similar laws relating to creditors’ rights or by general equitable principles.
Specific Performance
. The parties
agree that money damages would be both incalculable and an insufficient remedy and that irreparable damage would occur if any
of the provisions of this Voting Letter Agreement were not performed in accordance with their terms or were otherwise breached.
It is accordingly agreed that, subject to the discretion of the applicable courts, the Company, on behalf of itself and the Vendors,
shall be entitled to seek an injunction or other equitable relief to prevent breaches or violations of this Voting Letter Agreement
and to seek to enforce specifically the terms and provisions of this Voting Letter Agreement, in addition to any other remedy
to which they may be entitled at law or in equity.
Termination
. This Voting Letter
Agreement and all of the obligations hereunder shall terminate upon the earliest to occur of (a) the consummation of the
acquisition transaction contemplated by the SPA, (b) the termination of the SPA in accordance with its terms, and (c) the
mutual agreement of the Company and the Hydra Sponsor.
[Remainder of Page Intentionally Left
Blank]
Please confirm your acceptance of,
and agreement with, the foregoing by signing one copy of this Voting Letter Agreement and returning it (by mail, by facsimile
transmission, or by any other form of delivery) to the undersigned.
|
|
Very truly yours,
|
|
|
|
|
|
HYDRA INDUSTRIES SPONSOR LLC
|
|
|
|
|
|
|
By:
|
/s/ Martin E. Schloss
|
|
|
|
Name: Martin E. Schloss
|
|
|
|
Title: Executive Vice President
|
|
|
|
|
|
|
By:
|
/s/ A. Lorne Weil
|
|
|
|
Name: A. Lorne Weil
|
|
|
|
Title: Managing Member
|
[
Signature
Page to Voting Letter Agreement
]
|
Accepted and agreed:
|
|
|
|
|
|
DMSWL 633 LIMITED
|
|
|
|
|
|
|
By:
|
/s/ Luke Alvarez
|
|
|
Name: Luke Alvarez
|
|
|
Title: Director
|
|
[
Signature
Page to Voting Letter Agreement
]
HYDRA INDUSTRIES ACQUISITION CORP.