Item 1. Business
Introduction
We are a blank check company incorporated
in Delaware that was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this Report
as our initial business combination.
On December 20,
2016, we entered into a Business Combination Agreement (the “Merger Agreement”) with Tema Oil and Gas Company
(“Tema”) pursuant to which we will acquire (the “Proposed Business Combination”), assuming no
redemptions, approximately 39% of the equity of a wholly-owned subsidiary of Tema to be named Rosehill Operating Company, LLC
(“Rosehill LLC”), to which Tema will contribute certain assets and liabilities prior to closing of the Proposed
Business Combination, for aggregate consideration of $35 million in cash, issuance of 29,807,692 shares of our newly created
Class B common stock, 4,000,000 Warrants exercisable for shares of our Class A Common Stock (each entitling the holder
to purchase one share of Class A Common Stock for $11.50) (each, a “Warrant”), additional cash held by us in the
trust account and in connection with a private placement of 8.0% Series A Cumulative Perpetual Preferred Stock (the
“Series A Preferred Stock”) and Warrants to certain qualified institutional buyers and accredited investors
(the “Private Placement”), and the assumption of $55 million in debt, subject to certain customary purchase price
adjustments. In the Proposed Business Combination, Tema will obtain a majority of our voting shares and will retain a
majority of its equity in Rosehill LLC. The Business Combination Agreement and the transactions contemplated thereby were
approved by our board of directors on December 15, 2016.
Tema is an independent
oil and natural gas company focused on the exploration, development, acquisition and production of unconventional oil and associated
liquids-rich natural gas reserves in the Permian Basin. Rosehill Operating’s assets are concentrated in the Delaware Basin,
a sub-basin of the Permian Basin, and the Fort Worth Basin. In the Delaware Basin, its properties consist of acreage blocks in
Loving and Reeves Counties, Texas and Lea and Eddy Counties, New Mexico. Properties in the Barnett Shale producing area of the
Fort Worth Basin are exclusively located in Wise County, Texas.
Consummation of the
transactions contemplated by the Merger Agreement is subject to customary conditions of the respective parties, including the
approval of the Proposed Business Combination by the Company’s stockholders in accordance with the Company’s amended
and restated certificate of incorporation and the completion of a redemption offer whereby the Company will be providing its public
stockholders with the opportunity to redeem their shares of Company common stock for cash equal to their pro rata share of the
aggregate amount on deposit in the Company’s trust account.
The Merger Agreement
and related agreements are further described in the Form 8-K filed by the Company on December 23, 2016. For additional information
regarding the Merger Agreement and the Proposed Business Combination, see the Preliminary Proxy Statement on Schedule 14A filed
by the Company on January 18, 2017
,
as may be amended from time to time, and the Definitive Proxy Statement on Schedule
14A when filed by the Company.
Other than as specifically discussed, this
Report does not assume the closing of the Proposed Business Combination.
Objective and Business Opportunity
While we may pursue an acquisition opportunity
in any sector or geographical location, we are focused on the sector that complements our management team’s expertise in
the exploration, exploitation, operation and development of crude oil and natural gas wells and related infrastructure, and to
capitalize on the ability of our management team to source, screen, evaluate, negotiate, structure, close and manage acquisitions
of attractive assets or businesses in the U.S. In the event that we find an acquisition opportunity in a different sector, or
in a different geographic region, that is more compelling than the opportunities presented to us in to the U.S. oil and gas industry,
we would pursue the opportunity in such other sector or such other geographic region. However, we have not established any particular
parameters or criteria as to when we might turn our attention to opportunities outside of the U.S. oil and gas industry. We will
seek to acquire one or more businesses with an aggregate enterprise value of approximately $400 million to $1 billion.
Our strategy is to source, acquire and,
after our initial business combination, build, an oil and gas exploration and production (“E&P”) business. E&P
companies focus on finding, producing and marketing various forms of crude oil and natural gas. We believe that there is a unique
and timely opportunity to achieve attractive returns by acquiring and developing E&P assets in proven basins with known operational
and limited geologic risks. We believe this opportunity exists due to several key factors: (i) the recent decline of commodity
prices had an immediate and meaningful impact on the cash flows of E&P companies, creating a need for many E&P firms to
issue external capital or sell assets, (ii) the recent decline of commodity prices has substantially reduced E&P asset valuations
and is moderating drilling and completion costs, and operating costs, resulting in a lower cost to acquire and develop, (iii)
the short-term volatility and cyclical nature of commodity prices underpinned by a positive long-term outlook for crude oil and
natural gas demand and the need for higher commodity prices to meet expected demand growth and (iv) the advantages enjoyed by
E&P companies operating in the U.S., including access to industry-leading technologies and expertise, top-tier oil and gas-producing
basins, established infrastructure and favorable political policies relative to other regions.
Competitive Strengths
Our Executive Officers.
We believe our management team is in a prime
position to take advantage of opportunities within oil and gas and to create value for our stockholders. Our management team has
a long history in oil and gas, with a deep knowledge of the industry and a well-established network of relationships with public
and private oil and gas companies, equity sponsors, lending institutions, family offices, attorneys and brokers, from which we
expect to generate attractive acquisition opportunities.
Gary C. Hanna
has over 30 years
of executive experience in the energy exploration and production and service sectors, with a primary focus in the mid-continent
U.S. and Gulf of Mexico regions. From 2009 until June 2014, Mr. Hanna served as the Chief Executive Officer of EPL Oil & Gas
Inc., or EPL and was elected as a director of EPL in June 2010 and Chairman in 2013. EPL was a public E&P company with a $270
million equity value in 2009 that Mr. Hanna and Ms. Thom, our Chief Financial Officer, grew into a $2.3 billion company by the
time it was sold to Energy XXI Ltd. in 2014. Following the reorganization of EPL in September 2009 and within a rising oil price
environment in the four years following, the company completed acquisitions of new assets and executed organically through increasing
capital spending. This combined approach resulted in a significant increase in proved reserves, production volumes and the company’s
drilling portfolio. The acquisitions provided EPL with access to infrastructure and extensive acreage, with significant exploitation
and development potential. From 2009, the year the company reorganized, through 2013, the year prior to the sale of the company
in June 2014, EPL’s revenue increased from $191.6 million to $693.0 million and net income (loss) increased from $(57.1)
million to $85.3 million. The price of oil increased from $55.07 in 2009 to $97.82 in 2013. From 2008 to 2009, Mr. Hanna served
as President and Chief Executive Officer of Admiral Energy Services, a start-up company focused on the development of offshore
energy services. From 1999 to 2007, Mr. Hanna served in various capacities at Tetra Technologies, Inc., an international oil and
gas services production company, including serving as Senior Vice President from 2002 to 2007. Mr. Hanna also served as President
and Chief Executive Officer of Tetra’s affiliate, Maritech Resources, Inc., and as President of Tetra Applied Technologies,
Inc., another Tetra affiliate. From 1996 to 1998, Mr. Hanna served as the President and Chief Executive Officer of Gulfport Energy
Corporation, a public oil and gas exploration company. From 1995 to 1998, he also served as the Chief Operations Officer for DLB
Oil & Gas, Inc., a mid-continent exploration public company. From 1982 to 1995, Mr. Hanna served as President and Chief Executive
Officer of Hanna Oil Properties, Inc., a company engaged in oil services and the development of mid-continent oil and gas prospects.
Since November 2015, Mr. Hanna has served as a member of the boards of directors of Hercules Offshore, Inc. and Aspire Holdings
Corp.
Edward Kovalik
has been the Chief
Executive Officer and Managing Partner of KLR Group, LLC (“KLR Group”), KLR Group Holdings, LLC and certain of KLR
Holdings’ direct and indirect subsidiaries (collectively, “KLR Holdings”), an investment bank specializing in
the energy sector which he co-founded in the spring of 2012. Mr. Kovalik manages the firm and focuses on structuring bespoke financing
solutions for the firm’s clients. Mr. Kovalik has over 17 years of experience as an investment banker. Prior to founding
KLR Holdings, from 2002 until April 2012, Mr. Kovalik served in various capacities at Rodman & Renshaw, most recently as Head
of Capital Markets and the head of Rodman’s Energy Investment Banking team. From 1999 to 2002, Mr. Kovalik was a Vice President
at Ladenburg Thalmann & Co., where he focused on private placement transactions for public companies. Mr. Kovalik has served
as a member of the boards of directors of River Bend Oil and Gas, LLC since June 2013 and Marathon Patent Group, Inc. a public
company, since April 2014.
Tiffany J. (“T.J.”) Thom
has more than 20 years of financial and operational experience in the energy industry. Ms. Thom served in various capacities
for EPL from October 2000 until June 2014. Ms. Thom served as Principal Financial Officer of EPL from July 2009, as Senior Vice
President of Business Development from September 2009, as Chief Financial Officer from June 2010 and as Executive Vice President
from January 2014, to June 2014. Ms. Thom helped lead EPL through its Chapter 11 bankruptcy proceeding which culminated in 2009.
From 1992 to 2000, Ms. Thom served as Senior Reservoir Engineer for Exxon Production Company and ExxonMobil Company with operational
roles, including reservoir engineering and subsurface completion engineering for numerous offshore Gulf of Mexico properties.
Ms. Thom has served as a member of the board of directors of Yates Petroleum Corporation since October 2015 and as a member of
the board of directors of Patterson-UTI Energy Inc. since August 2014.
Gregory R. Dow
has served as the
Chief Operating Officer and General Counsel of KLR Holdings since April 2012. Mr. Dow was General Counsel at Rodman & Renshaw
Capital Group, Inc. from February 2008 until April 2012 and a Managing Director and the Deputy General Counsel at Cowen and Company,
LLC from May 2004 until December 2007. From 1998 through 2004, Mr. Dow was a Director and the Equity Capital Markets Counsel at
Merrill Lynch, serving in New York and in London, where he covered the UK, Europe, Middle East and Africa. Prior to that, he was
Equity Capital Markets Counsel at Peregrine Capital Markets in Hong Kong, which at the time was the largest independent investment
bank in Asia. Mr. Dow began his legal career at the law firm Milbank, Tweed, Hadley and McCloy, where he focused on Latin America.
Mr. Dow also had five years of experience in strategic consulting with Taylor Research and Greenwich Associates, where he focused
on telecommunications, media and financial industry clients.
Our Board of Directors
. We have assembled
a group of independent directors who bring us public company governance, executive leadership, operations oversight, private equity
investment management and capital markets experience. Our Board members have extensive experience, having served as directors,
CEOs, CFOs and in other executive and advisory capacities for numerous publicly-listed and privately-owned companies and private
equity firms. Our directors have experience with acquisitions, divestitures and corporate strategy and implementation, which we
believe will be of significant benefit to us as we evaluate potential acquisition or merger candidates as well as following the
completion of our initial business combination.
Status as a Public Company
We believe our structure will make us an
attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative
to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the
target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares
of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. Although there are various
costs and obligations associated with being a public company, we believe target businesses will find this process a more certain
and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering,
there are additional expenses incurred in marketing, road show and public reporting efforts that may not be present to the same
extent in connection with a business combination with us.
Furthermore, once a proposed business combination
is completed, the target business will have effectively become public, whereas an initial public offering is always subject to
the underwriters’ ability to complete the offering, as well as general market conditions, which could prevent the offering
from occurring. Once public, we believe the target business would then have greater access to capital and an additional means
of providing management incentives consistent with stockholders’ interests. It can offer further benefits by augmenting
a company’s profile among potential new customers and vendors and aid in attracting talented employees.
We are an “emerging growth company,”
as defined in the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year
(a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross
revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value
of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30
th
, and (2) the date
on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Financial Position
With funds available for a business combination
currently in the amount of approximately $85.6 million (including approximately $228,000 held outside the trust account at December
31, 2016) assuming no redemptions, less $46,330 of deferred underwriting fees, we offer a target business a variety of options
such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations
or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our business combination using
our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination
that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have
not taken any steps to secure third party financing and there can be no assurance it will be available to us.
Conflicts of Interest
An affiliate of ours, KLR Group, is a registered
broker-dealer operating in the oil and gas sector. KLR Group undertakes a wide range of financial advisory, merchant and investment
banking, research and sales and trading activities for a wide variety of clients, including public and private companies in the
oil and gas sector. Accordingly, there may be situations in which KLR Group has an obligation or an interest that actually or
potentially conflicts with our interests. These conflicts may not be resolved in our favor and, as a result, we may be denied
certain investment opportunities or may be otherwise disadvantaged in some situations by our relationship to KLR Group.
KLR Group is regulated by Financial Industry
Regulatory Authority, or FINRA. KLR Group’s merchant banking business generally targets transactions of a similar size as
those that would be suitable for our initial business combination, and thus may compete with us for one or more potential targets.
Further, other investors in affiliates of ours and KLR Group’s may be in direct competition with us for a possible target
for our initial business combination. KLR Group may also choose to operate, or have an interest in, investment entities similar
to us or that otherwise compete with us in the future.
Other clients of KLR Group’s advisory
business may also compete with us for investment opportunities meeting our investment objectives. If KLR Group is engaged to act
for any such clients, we may be precluded from pursuing such opportunities. In addition, investment ideas generated within KLR
Group, including by Mr. Kovalik and other persons who may make decisions for the company, may be suitable for both us and for
an investment banking client or a current or future KLR Group internal investment vehicle, including other blank check companies
in which KLR Group may participate, and may be directed to such client or investment vehicle rather than to us. KLR Group’s
advisory business may also be engaged to advise the seller of a company, business or assets that would qualify as an investment
opportunity for us. In such cases, we may be precluded from participating in the sale process or from purchasing the company,
business or assets. If we are permitted to pursue the opportunity, KLR Group’s interests or its obligations to the seller
will diverge from our interests. Neither KLR Group nor members of our management who are also employed by KLR Group have any obligation
to present us with any opportunity for a potential business combination of which they become aware unless such opportunity was
expressly offered in writing to our management solely in their capacity as officers or directors of the company. KLR Group and/or
our management, in their capacities as officers of KLR Group or in their other endeavors, may choose to present potential business
combinations to the related entities described above, current or future KLR Group internal investment vehicles, including other
blank check companies in which KLR Group may participate, or third parties, including clients of KLR Group, before they present
such opportunities to us. In addition, our President, Edward Kovalik, is a director of River Bend Oil & Gas, LLC, a private
company operating in the oil and gas sector, and our other executive officers are affiliated either with KLR Group or with other
companies in the oil and gas industry. In addition, our independent directors (expected to be appointed just prior to the consummation
of our public offering) may have pre-existing duties or obligations that prevent them from presenting otherwise suitable target
businesses to us. Our independent directors will be under no obligation to present opportunities of which they become aware to
the company unless such opportunity was expressly offered to the independent director solely in his capacity as a director of
the company.
Any of these factors may place us at a competitive
disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public
entity and potential access to the United States public equity markets may give us a competitive advantage over privately-held
entities having a similar business objective as ours in acquiring a target business or businesses with significant growth potential
on favorable terms.
If we succeed in effecting a business combination,
there will be, in all likelihood, intense competition from competitors of the target business. Subsequent to a business combination,
we may not have the resources or ability to compete effectively.
None of the members of our management team,
the sponsor, KLR Group or KLR Holdings has previous experience as sponsor or in a management capacity with other blank check companies.
Effecting our Initial Business Combination
General
We are not presently engaged in, and we
will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination
using cash from the proceeds of our initial public offering and the private placement of the private placement warrants, our capital
stock, debt or a combination of these as the consideration to be paid in our initial business combination. We may seek to complete
our initial business combination with a company or business that may be financially unstable or in its early stages of development
or growth, which would subject us to the numerous risks inherent in such companies and businesses.
If the entire purchase price of our initial
business combination is paid for using stock or debt securities, or if not all of the funds released from the trust account are
used for payment of the consideration in connection with our business combination or used for redemptions of purchases of our
common stock, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including
for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness
incurred in completing our initial business combination, to fund the purchase of other companies, to pay $46,330 in deferred underwriting
commissions or for working capital.
Although our management will assess the
risks inherent in a particular target business with which we may combine, we cannot assure you that this assessment will result
in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control,
meaning that we can do nothing to control or reduce the chances that those risks will adversely impact a target business.
We may seek to raise additional funds through
a private offering of debt or equity securities in connection with the completion of our initial business combination, and we
may effectuate our initial business combination using the proceeds of such offering rather than using the amounts held in the
trust account. Subject to compliance with applicable securities laws, we would complete such financing only simultaneously with
the completion of our business combination. In the case of an initial business combination funded with assets other than the trust
account assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of
the financing and, only if required by law, we would seek stockholder approval of such financing. There are no prohibitions on
our ability to raise funds privately or through loans in connection with our initial business combination. At this time, we are
not a party to any arrangement or understanding with any third party with respect to raising any additional funds through the
sale of securities or otherwise.
In the case of an initial business combination
funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business
combination would disclose the terms of the financing and, only if required by law, we would seek stockholder approval of such
financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with our initial business
combination. At this time, we are not a party to any arrangement or understanding with any third party with respect to raising
any additional funds through the sale of securities or otherwise.
Selection of a target business and structuring of our initial
business combination
The NASDAQ rules require that our initial
business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of
the balance in the trust account (less any deferred underwriting commissions and taxes payable on interest earned) at the time
of our signing a definitive agreement in connection with our initial business combination. The fair market value of the target
or targets will be determined by our board of directors based upon one or more standards generally accepted by the financial community,
such as discounted cash flow valuation or value of comparable businesses. If our board is not able to independently determine
the fair market value of the target business or businesses, we will obtain an opinion from an independent accounting firm or an
independent investment banking firm, with respect to the satisfaction of such criteria. We do not intend to purchase multiple
businesses in unrelated industries in connection with our initial business combination. Subject to this requirement, our management
will have virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses, although
we will not be permitted to effectuate our initial business combination with another blank check company or a similar company
with nominal operations.
In any case, we will only complete an initial
business combination in which we own or acquire 50% or more of the outstanding voting securities of the target or otherwise acquire
a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment
Company Act. If we own or acquire less than 100% of the equity interests or assets of a target business or businesses, the portion
of such business or businesses that are owned or acquired by the post-transaction company is what will be valued for purposes
of the 80% fair market value test.
To the extent we effect our business combination
with a company or business that may be financially unstable or in its early stages of development or growth we may be affected
by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in
a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
The time required to select and evaluate
a target business and to structure and complete our initial business combination, and the costs associated with this process,
are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation
of a prospective target business with which our business combination is not ultimately completed will result in our incurring
losses and will reduce the funds we can use to complete another business combination.
In connection with the consummation of our
business combination, or thereafter, we may retain KLR Group to provide certain financial advisory, underwriting, capital raising,
and other services for which they may receive fees upon consummation of such business combination or thereafter. The amount of
fees we pay to KLR Group will be based upon the prevailing market for similar services rendered by comparable investment banks
for such transactions at such time, and will be subject to the review of our audit committee pursuant to the audit committee’s
policies and procedures relating to transactions that may present conflicts of interest. KLR Group will not be asked to render
a fairness opinion with respect to our initial business combination as KLR Group may have a conflict of interest by virtue of
its affiliation with our sponsor. As a consequence, we may be required to retain another firm to render such an opinion if one
is required.
Lack of business diversification
For an indefinite period of time after the
completion of our initial business combination, the prospects for our success may depend entirely on the future performance of
a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one
or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of
being in a single line of business. By completing our business combination with only a single entity, our lack of diversification
may:
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subject us
to negative economic, competitive and regulatory developments, any or all of which may
have a substantial adverse impact on the particular industry in which we operate after
our initial business combination, and
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cause us to
depend on the marketing and sale of a single product or limited number of products or
services.
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Limited ability to evaluate the target’s management
team
Although we intend to closely scrutinize
the management of a prospective target business when evaluating the desirability of effecting our business combination with that
business, our assessment of the target business’s management may not prove to be correct. In addition, the future management
may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members
of our management team, if any, in the target business cannot presently be stated with any certainty. While it is possible that
one or more of our directors will remain associated in some capacity with us following our business combination, it is unlikely
that any of them will devote their full efforts to our affairs subsequent to our business combination. Moreover, we cannot assure
you that members of our management team will have significant experience or knowledge relating to the operations of the particular
target business.
We cannot assure you that any of our key
personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any
of our key personnel will remain with the combined company will be made at the time of our initial business combination.
Following a business combination, we may
seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we
will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or
experience necessary to enhance the incumbent management.
Stockholders may not have the ability to approve our initial
business combination
We may conduct redemptions without a stockholder
vote pursuant to the tender offer rules of the SEC. However, we will seek stockholder approval if it is required by law or applicable
stock exchange rule, or we may decide to seek stockholder approval for business or other legal reasons. Presented in the table
below is a graphic explanation of the types of initial business combinations we may consider and whether stockholder approval
is currently required under Delaware law for each such transaction.
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Type of Transaction
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Whether
Stockholder
Approval is
Required
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Purchase of assets
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No
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Purchase of stock of target not involving a merger with the company
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No
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Merger of target into a subsidiary of the company
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No
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Merger of the company with a target
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Yes
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Under NASDAQ’s listing rules, stockholder
approval would be required for our initial business combination if, for example:
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we issue common
stock that will be equal to or in excess of 20% of the number of shares of our Class
A common stock then outstanding (other than in a public offering);
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any of our
directors, executive 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
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the issuance
or potential issuance of common stock will result in our undergoing a change of control.
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Permitted purchases of our securities
In the event we seek stockholder approval
of our business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender
offer rules, our sponsor, directors, executive officers, advisors or their affiliates may purchase shares in privately negotiated
transactions or in the open market either prior to or following the completion of our initial business combination. However, they
have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions
for any such transactions. None of the funds in the trust account will be used to purchase shares in such transactions. They will
not make any such purchases when they are in possession of any material non-public information not disclosed to the seller or
if such purchases are prohibited by Regulation M under the Exchange Act. Such a purchase may include a contractual acknowledgement
that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore
agrees not to exercise its redemption rights. We have adopted an insider trading policy which requires insiders to: (i) refrain
from purchasing shares during certain blackout periods and when they are in possession of any material non-public information
and (ii) to clear all trades with our legal counsel prior to execution. We cannot currently determine whether our insiders will
make such purchases pursuant to a Rule 10b5-1 plan, as it will be dependent upon several factors, including but not limited to,
the timing and size of such purchases. Depending on such circumstances, our insiders may either make such purchases pursuant to
a Rule 10b5-1 plan or determine that such a plan is not necessary.
In the event that our sponsor, directors,
executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders
who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior
elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer
subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under
the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such
rules, the purchasers will comply with such rules.
The purpose of such purchases would be to
(i) vote such shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval
of the business combination or (ii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum
net worth or a certain amount of cash at the closing of our business combination, where it appears that such requirement would
otherwise not be met. This may result in the completion of our business combination that may not otherwise have been possible.
In addition, if such purchases are made,
the public “float” of our common stock may be reduced and the number of beneficial holders of our securities may be
reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities
exchange.
Our sponsor, executive officers, directors
and/or their affiliates anticipate that they may identify the stockholders with whom our sponsor, executive officers, directors
or their affiliates may pursue privately negotiated purchases by either the stockholders contacting us directly or by our receipt
of redemption requests submitted by stockholders following our mailing of proxy materials in connection with our initial business
combination. To the extent that our sponsor, executive officers, directors, advisors or their affiliates enter into a private
purchase, they would identify and contact only potential selling stockholders who have expressed their election to redeem their
shares for a pro rata share of the trust account or vote against the business combination. Our sponsor, executive officers, directors,
advisors or their affiliates will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the
other federal securities laws.
Any purchases by our sponsor, executive
officers, directors and/or their affiliates who are affiliated purchasers under Rule 10b-18 under the Exchange Act will only be
made to the extent such purchases are able to be made in compliance with Rule 10b-18, which is a safe harbor from liability for
manipulation under Section 9(a)(2) and Rule 10b-5 of the Exchange Act. Rule 10b-18 has certain technical requirements that must
be complied with in order for the safe harbor to be available to the purchaser. Our sponsor, executive officers, directors and/or
their affiliates will not make purchases of common stock if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange
Act.
Redemption rights for public stockholders upon completion
of our initial business combination
We will provide our public stockholders
with the opportunity to redeem all or a portion of their shares of Class A common stock upon the completion of our initial
business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust
account as of two business days prior to the consummation of the initial business combination, including interest (which
interest shall be net of income taxes payable) divided by the number of then outstanding public shares, subject to
the limitations described herein. As of December 31, 2016, the Company had approximately $85.3 million in the trust account,
and the conversion amount per share in any subsequent business combination or liquidation would have been approximately
$10.42 per public share. Our initial stockholders, executive officers and directors have entered into letter agreements with
us, pursuant to which they have agreed to waive their redemption rights with respect to their founder shares and public
shares in connection with the completion of our initial business combination.
Manner of Conducting Redemptions
We will provide our public stockholders
with the opportunity to redeem all or a portion of their shares of Class A common stock upon the completion of our initial business
combination either (i) in connection with a stockholder meeting called to approve the business combination or (ii) by means of
a tender offer. The decision as to whether we will seek stockholder approval of a proposed business combination or conduct a tender
offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction
and whether the terms of the transaction would require us to seek stockholder approval under the law or stock exchange listing
requirement. Asset acquisitions and stock purchases would not typically require stockholder approval while direct mergers with
our company where we do not survive and any transactions where we issue more than 20% of our outstanding common stock or seek
to amend our amended and restated certificate of incorporation would require stockholder approval. We may conduct redemptions
without a stockholder vote pursuant to the tender offer rules of the SEC unless stockholder approval is required by law or stock
exchange listing requirement or we choose to seek stockholder approval for business or other legal reasons.
If a stockholder vote is not required and
we do not decide to hold a stockholder vote for business or other legal reasons, we will, pursuant to our amended and restated
certificate of incorporation:
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conduct the
redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate
issuer tender offers, and
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file tender
offer documents with the SEC prior to completing our initial business combination which
contain substantially the same financial and other information about the initial business
combination and the redemption rights as is required under Regulation 14A of the Exchange
Act, which regulates the solicitation of proxies.
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Upon the public announcement of our business
combination, we or our sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase shares of our Class
A common stock in the open market if we elect to redeem our public shares through a tender offer, to comply with Rule 14e-5 under
the Exchange Act.
In the event we conduct redemptions pursuant
to the tender offer rules, our offer to purchase will remain open for at least 20 business days, in accordance with Rule 14e-1(a)
under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the
tender offer period. In addition, the tender offer will be conditioned on public stockholders not tendering more than a specified
number of public shares which are not purchased by our sponsor, which number will be based on the requirement that we may not
redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon the consummation of
our initial business combination (so that we are not subject to the SEC’s “penny stock” rules) or any greater
net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. If
public stockholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete the
initial business combination.
If, however, stockholder approval of the
transaction is required by law or stock exchange listing requirement, or we decide to obtain stockholder approval for business
or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:
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conduct the
redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the
Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender
offer rules, and
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file proxy
materials with the SEC.
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In the event that we seek stockholder approval
of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public stockholders
with the redemption rights described above upon completion of the initial business combination.
If we seek stockholder approval, we will
complete our initial business combination only if a majority of the outstanding shares of common stock voted are voted
in favor of the business combination. A quorum for such meeting will consist of the holders present in person or by proxy of shares
of outstanding capital stock of the company representing a majority of the voting power of all outstanding shares of capital stock
of the company entitled to vote at such meeting. The founder shares held by our initial stockholders will count towards this quorum
and our initial stockholders have agreed to vote their founder shares and any public shares purchased during or after our initial
public offering in favor of our initial business combination, and our executive officers and directors have also agreed to vote
any public shares purchased during or after our initial public offering in favor of our initial business combination. Public stockholders
may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or if we conduct
a tender offer. In addition, our initial stockholders, executive officers and directors have entered into letter agreements with
us, pursuant to which they have agreed to waive their redemption rights with respect to their founder shares and public shares
in connection with the completion of our initial business combination.
Our amended and restated certificate of
incorporation provides that in no event will we redeem our public shares in an amount that would cause our net tangible assets
to be less than $5,000,001 upon the consummation of our initial business combination (so that we are not subject to the SEC’s
“penny stock” rules). Redemptions of our public shares may also be subject to a higher net tangible asset test or
cash requirement pursuant to an agreement relating to our initial business combination. For example, the proposed business combination
may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working
capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the
terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all
shares of Class A common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant
to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the
business combination or redeem any shares, and all shares of Class A common stock submitted for redemption will be returned to
the holders thereof.
Tendering stock certificates in connection with redemption
rights
We may require our public stockholders seeking
to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either
tender their certificates to our transfer agent up to two business days prior to the vote on the proposal to approve the business
combination in the event we distribute proxy materials, or to deliver their shares to the transfer agent electronically using
Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. The proxy materials
that we will furnish to holders of our public shares in connection with our initial business combination will indicate whether
we are requiring public stockholders to satisfy such delivery requirements. Accordingly, a public stockholder would have from
two days prior to the vote on the business combination if we distribute proxy materials to tender its shares if it wishes to seek
to exercise its redemption rights. Given the relatively short exercise period, it is advisable for stockholders to use electronic
delivery of their public shares.
There is a nominal cost associated with
the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The
transfer agent will typically charge the tendering broker $35.00 and it would be up to the broker whether or not to pass this
cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to
exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights
regardless of the timing of when such delivery must be effectuated.
The foregoing is different from the procedures
used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many
blank check companies would distribute proxy materials for the stockholders’ vote on an initial business combination, and
a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was
seeking to exercise his or her redemption rights. After the business combination was approved, the company would contact such
stockholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, the stockholder then
had an “option window” after the completion of the business combination during which he or she could monitor the price
of the company’s stock in the market. If the price rose above the redemption price, he or she could sell his or her shares
in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights,
to which stockholders were aware they needed to commit before the stockholder meeting, would become “option” rights
surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement
for physical or electronic delivery prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable
once the business combination is approved.
Any request to redeem such shares, once
made, may be withdrawn at any time up to the date set forth in the tender offer materials or the date of the stockholders meeting
set forth in our proxy materials, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection
with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights,
such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated
that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly
after the completion of our business combination.
If our initial business combination is not
approved or completed for any reason, then our public stockholders who elected to exercise their redemption rights would not be
entitled to redeem their shares for the applicable pro rata share of the trust account. In such case, we will promptly return
any certificates delivered by public holders who elected to redeem their shares.
If our initial proposed business combination
is not completed, we may continue to try to complete a business combination with a different target until September 16, 2017.
Redemption of public shares and liquidation if no initial
business combination
Our sponsor, executive officers and directors
have agreed to complete our initial business combination by September 16, 2017. If we are unable to complete our business combination
by September 16, 2017, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal
to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of income taxes
payable) divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’
rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law,
and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders
and our board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to our obligations under Delaware
law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating
distributions with respect to our warrants, which will expire worthless if we fail to complete our business combination by September
16, 2017.
Our initial stockholders have entered into
a letter agreement with us, pursuant to which they have waived their rights to liquidating distributions from the trust account
with respect to their founder shares if we fail to complete our initial business combination by September 16, 2017. However, if
our initial stockholders (or any of our executive officers, directors or affiliates) acquire public shares in or after our initial
public offering, they will be entitled to liquidating distributions from the trust account with respect to such public shares
if we fail to complete our initial business combination by September 16, 2017.
Our sponsor, executive officers and directors
have agreed, pursuant to a letter agreement with us that they will not propose any amendment to our amended and restated certificate
of incorporation that would affect the substance or timing of our obligation to allow holders to redeem their public shares unless
we provide our public stockholders with the opportunity to redeem their shares of Class A common stock upon approval of any such
amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including
interest (which interest shall be net of income taxes payable) divided by the number of then outstanding public shares. However,
we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon the
consummation of our initial business combination (so that we are not subject to the SEC’s “penny stock” rules).
We expect that all costs and
expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from
approximately $228,000 in cash held outside the trust account (as of December 31, 2016), and our sponsor’s commitment
to loan us up to an additional amount of $100,000 for working capital purposes (of which we have not borrowed any amount under
this commitment as of December 31, 2016), although we cannot assure you that there will be sufficient funds for such
purpose.
If we were to expend all of the net proceeds
of our initial public offering, other than the proceeds deposited in the trust account, and without taking into account interest,
if any, earned on the trust account, the per-share redemption amount received by stockholders upon our dissolution would be approximately
$10.40. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would
have higher priority than the claims of our public stockholders. We cannot assure you that the actual per-share redemption amount
received by stockholders will not be substantially less than $10.40. Under Section 281(b) of the DGCL, our plan of dissolution
must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if
there are sufficient assets. These claims must be paid or provided for before we make any distribution of our remaining assets
to our stockholders. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay
or provide for all creditors’ claims.
Although we will seek to have all vendors,
service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving
any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders,
there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented
from bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility
or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage
with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute
an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives
available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes
that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible
instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant
whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that
would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver.
In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of,
or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for
any reason. In order to protect the amounts held in the trust account, Mr. Kovalik has agreed to be liable to us if and to the
extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have
discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.40 per public
share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account,
due to reductions in value of the trust assets other than due to the failure to obtain such waiver, in each case net of the amount
of interest which may be withdrawn to pay income taxes, except as to any claims by a third party who executed a waiver of any
and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of our
initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed
waiver is deemed to be unenforceable against a third party, then Mr. Kovalik will not be responsible to the extent of any liability
for such third-party claims. We cannot assure you, however, that Mr. Kovalik would be able to satisfy those obligations. None
of our other executive officers will indemnify us for claims by third parties including, without limitation, claims by vendors
and prospective target businesses.
In the event that the proceeds in the trust
account are reduced below (i) $10.40 per public share or (ii) such lesser amount per public share held in the trust account as
of the date of the liquidation of the trust account, due to reductions in value of the trust assets other than due to the failure
to obtain such waiver, in each case net of the amount of interest which may be withdrawn to pay income taxes, and Mr. Kovalik
asserts that he is unable to satisfy its indemnification obligations or that he has no indemnification obligations related to
a particular claim, our independent directors would determine whether to take legal action against Mr. Kovalik to enforce his
indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against
Mr. Kovalik to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their
business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of
creditors the actual value of the per-share redemption price will not be substantially less than $10.40 per share.
We will seek to reduce the possibility
that Mr. Kovalik will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors,
service providers, prospective target businesses or other entities with which we do business execute agreements with us
waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Mr. Kovalik will also not
be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain
liabilities, including liabilities under the Securities Act. As of December 31, 2016, we have access to up to approximately
$228,000 in cash held outside the trust account and our sponsor’s commitment to loan us up to an additional amount of
$100,000 for working capital purposes (of which we have not borrowed any amount under this commitment as of December 31, 2016). In
the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is
insufficient, stockholders who received funds from our trust account could be liable for claims made by creditors.
Under the DGCL, stockholders may be held
liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The
pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event
we do not complete our business combination by September 16, 2017 may be considered a liquidation distribution under Delaware
law. Delaware law provides that if a corporation complies with certain procedures set forth in Section 280 of the DGCL intended
to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party
claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and
an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders
with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or
the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of
the dissolution.
Furthermore, if the pro rata portion of
our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete
our business combination by September 16, 2017, is not considered a liquidation distribution under Delaware law and such redemption
distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors
could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution.
If we are unable to complete our business combination by September 16, 2017, we will: (i) cease all operations except for the
purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public
shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest
(net of the amount of interest which may be withdrawn to pay income taxes), divided by the number of then outstanding public shares,
which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive
further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject
in the case of clauses (ii) and (iii) to our obligations under Delaware law to provide for claims of creditors and the requirements
of other applicable law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following
September 16, 2017 and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially
be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may
extend well beyond the third anniversary of such date.
Because we will not be complying with Section
280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our
payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent 10 years.
However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching
for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment
bankers) or prospective target businesses. As described above, pursuant to the obligation contained in our underwriting agreement,
we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business
execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account.
As a result of this obligation, the claims
that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending
to the trust account is remote. Further, our sponsor may be liable only to the extent necessary to ensure that the amounts in
the trust account are not reduced below (i) $10.40 per public share or (ii) such lesser amount per public share held in the trust
account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets other than due
to the failure to obtain such waiver, in each case net of the amount of interest withdrawn to pay income taxes, and less any per-share
amounts distributed from our trust account to our public stockholders in the event we are unable to complete our business combination
by September 16, 2017 and will not be liable as to any claims under our indemnity of the underwriters of our initial public offering
against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to
be unenforceable against a third party, Mr. Kovalik will not be responsible to the extent of any liability for such third-party
claims.
If we file a bankruptcy petition or an involuntary
bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable
bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the
claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able
to return $10.40 per share to our public stockholders. Additionally, if we file a bankruptcy petition or an involuntary bankruptcy
petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable
debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.”
As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, our board may be
viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself
and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims
of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our public stockholders will be entitled
to receive funds from the trust account only in the event of the redemption of our public shares if we do not complete our business
combination by September 16, 2017 or if they redeem their respective shares for cash upon the completion of the initial business
combination. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account. In
the event we seek stockholder approval in connection with our initial business combination, a stockholder’s voting in connection
with the business combination alone will not result in a stockholder’s redeeming its shares to us for an applicable pro
rata share of the trust account. Such stockholder must have also exercised its redemption rights described above.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate of
incorporation contains certain requirements and restrictions relating to our initial public offering that will apply to us until
the consummation of our initial business combination. If we seek to amend any provisions of our amended and restated certificate
of incorporation relating to stockholders’ rights or pre-business combination activity, we will provide public stockholders
with the opportunity to redeem their public shares in connection with any such vote. Our initial stockholders, executive officers
and directors have entered into letter agreements with us, pursuant to which they have agreed to waive their redemption rights
with respect to their founder shares and public shares in connection with the completion of our initial business combination.
Specifically, our amended and restated certificate of incorporation provides, among other things, that:
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prior to the
consummation of our initial business combination, we shall either (1) seek stockholder
approval of our initial 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 the proposed business combination, into their pro rata share of the aggregate
amount then on deposit in the trust account, including interest (which interest shall
be net of income taxes payable) or (2) provide our public stockholders with the opportunity
to tender their shares to us by means of a tender offer (and thereby avoid the need for
a stockholder vote) for an amount equal to their pro rata share of the aggregate amount
then on deposit in the trust account, including interest (which interest shall be net
of income taxes payable) in each case subject to the limitations described herein;
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we will consummate
our initial business combination only if we have net tangible assets of at least $5,000,001
upon such consummation and, solely if we seek stockholder approval, a majority of the
outstanding shares of common stock voted are voted in favor of the business combination;
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if our initial
business combination is not consummated by September 16, 2017, then our existence will
terminate and we will distribute all amounts in the trust account; and
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prior to our
initial business combination, we may not issue additional shares of capital stock that
would entitle the holders thereof to (i) receive funds from the trust account or (ii)
vote on any initial business combination.
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These provisions cannot be amended without
the approval of holders of 65% of our common stock, and then only if we allow dissenting holders the opportunity to get their
pro rata share from the trust account. In the event we seek stockholder approval in connection with our initial business combination,
our amended and restated certificate of incorporation provides that we may consummate our initial business combination only if
approved by a majority of the shares of common stock voted by our stockholders at a duly held stockholders meeting.
Competition
In identifying, evaluating and selecting
a target business for our business combination, we have encountered, and may continue to encounter, intense competition from other
entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged
buyout funds, and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive
experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors
possess greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will
be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition
of a target business. Furthermore, our obligation to pay cash in connection with our public stockholders who exercise their redemption
rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future
dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place
us at a competitive disadvantage in successfully negotiating an initial business combination.
Employees
We currently have four executive officers.
Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote
as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount
of time that any members of our management will devote in any time period will vary based on whether a target business has been
selected for our initial business combination and the current stage of the business combination process.
Periodic Reporting and Financial Information
Our units, Class A common stock and warrants
are registered under the Exchange Act and we have reporting obligations, including the requirement that we file annual, quarterly
and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports contain financial
statements audited and reported on by our independent registered public auditors.
We will provide stockholders with audited
financial statements of the prospective target business as part of the tender offer materials or proxy solicitation materials
sent to stockholders to assist them in assessing the target business. In all likelihood, these financial statements will need
to be prepared in accordance with GAAP. We cannot assure you that any particular target business identified by us as a potential
acquisition candidate will have financial statements prepared in accordance with GAAP or that the potential target business will
be able to prepare its financial statements in accordance with GAAP. To the extent that this requirement cannot be met, we may
not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do
not believe that this limitation will be material.
We will be required to evaluate our
internal control procedures for the fiscal year ending December 31, 2017 as required by the Sarbanes-Oxley Act. As long as we maintain our status as an emerging growth company, we will not be required to comply with the independent registered
public accounting firm attestation requirement on our internal control over financial reporting. A target
company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls.
The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase
the time and costs necessary to complete any such acquisition.
We are an “emerging growth company,”
as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section
404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors
find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of
our securities may be more volatile.
In addition, Section 107 of the JOBS Act
also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company
until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial
public offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be
a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million
as of the prior June 30
th
, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt
during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated
with it in the JOBS Act.
Item 1A. Risk Factors
You should carefully consider all of
the following risk factors and all the other information contained in this Report, including the financial statements. If any
of the following risks occur, our business, financial condition or results of operations may be materially and adversely affected.
The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with
respect to us and our business. For risk factors related to Tema, see the Preliminary Proxy Statement on Schedule 14A filed by
the Company on January 18, 2017, as may be amended from time to time, and the Definitive Proxy Statement on Schedule 14A when
filed by the Company.
We are a recently formed company with no operating history
and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
We are a recently formed company with no
operating results. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business
objective of completing our initial business combination with one or more target businesses. We may be unable to complete our
business combination. If we fail to complete our business combination, we will never generate any operating revenues.
Our independent registered public accounting firm’s
report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”
As of December 31, 2016, we had approximately
$228,000 in cash and cash equivalents and a working capital deficiency of approximately $842,000. Further, we have incurred
and expect to continue to incur significant costs in pursuit of our acquisition plans. Our plans to consummate our initial business
combination may not be successful. These factors, among others, raise substantial doubt about our ability to continue as a going
concern. The financial statements contained elsewhere in this Report do not include any adjustments that might result from our
inability to continue as a going concern.
Our public stockholders may not be afforded an opportunity
to vote on our proposed business combination, which means we may complete our initial business combination even if a majority
of our public stockholders do not support such a combination.
We may not hold a stockholder vote to approve
our initial business combination unless the business combination would require stockholder approval under applicable state law
or the NASDAQ rules or if we decide to hold a stockholder vote for business or other reasons. For instance, the NASDAQ rules currently
allow us to engage in a tender offer in lieu of a stockholder meeting but would still require us to obtain stockholder approval
if we were seeking to issue more than 20% of our outstanding shares to a target business as consideration in any business combination.
Therefore, if we were structuring a business combination that required us to issue more than 20% of our outstanding shares, we
would seek stockholder approval of such business combination. However, except for as required by law or the NASDAQ rules, the
decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell
their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors,
such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder
approval. Accordingly, we may consummate our initial business combination even if holders of a majority of the outstanding shares
of our common stock do not approve of the business combination we consummate.
If we seek stockholder approval of our initial business
combination, after approval of our board, our initial stockholders, our executive officers and directors have agreed to vote any
public shares purchased during or after our initial public offering in favor of our initial business combination, regardless of
how our public stockholders vote.
After approval of our board, our initial
stockholders have agreed to vote their founder shares, as well as any public shares purchased during or after our initial public
offering, in favor of our initial business combination. Our initial stockholders own approximately 20.0% of our outstanding shares
of common stock. In addition, our executive officers and directors have also agreed to vote any public shares purchased during
or after our initial public offering in favor of our initial business combination. Accordingly, if we seek stockholder approval
of our initial business combination, after approval of our board, it is more likely that the necessary stockholder approval will
be received than would be the case if our initial stockholders and our executive officers and directors agreed to vote their founder
shares and public shares, as applicable, in accordance with the majority of the votes cast by our public stockholders.
Your only opportunity to affect the investment decision
regarding a potential business combination will be limited to the exercise of your right to redeem your shares from us for cash,
unless we seek stockholder approval of the business combination.
You may not be provided with an opportunity
to evaluate the specific merits or risks of one or more target businesses. Since our board of directors may complete a business
combination without seeking stockholder approval (unless stockholder approval is required by law or the NASDAQ rules, or if we
decide to obtain stockholder approval for business or other legal reasons), public stockholders may not have the right or opportunity
to vote on the business combination, unless we seek such stockholder vote. Accordingly, if we do not seek stockholder approval,
your only opportunity to affect the investment decision regarding a potential business combination may be limited to exercising
your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents
mailed to our public stockholders in which we describe our initial business combination.
The ability of our public stockholders to redeem their
shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult
for us to enter into a business combination with a target.
We may seek to enter into a business combination
transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain
amount of cash. If too many public stockholders exercise their redemption rights, we would not be able to meet such closing condition
and, as a result, would not be able to proceed with the business combination. Furthermore, in no event will we redeem our public
shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon the consummation of our initial business
combination (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset
or cash requirement which may be contained in the agreement relating to our initial business combination. Consequently, if accepting
all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 upon the consummation
of our initial business combination or such greater amount necessary to satisfy a closing condition as described above, we would
not proceed with such redemption and the related business combination and may instead search for an alternate business combination.
Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a business combination transaction
with us.
The ability of our public stockholders to exercise redemption
rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize
our capital structure.
At the time we enter into an agreement for
our initial business combination, we will not know how many stockholders may exercise their redemption rights, and therefore will
need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption.
If our business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price,
or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the trust account
to meet such requirements, or arrange for third party financing. In addition, if a larger number of shares are submitted for redemption
than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the trust account
or arrange for third party financing. Raising additional third party financing may involve dilutive equity issuances or the incurrence
of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable
business combination available to us or optimize our capital structure.
The ability of our public stockholders to exercise redemption
rights with respect to a large number of our shares could increase the probability that our initial business combination is not
consummated and that you would have to wait for liquidation in order to redeem your stock.
If the definitive agreement for our business
combination requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a
minimum amount of cash at closing, the probability that our initial business combination would not be consummated is increased.
If our initial business combination is not consummated, you would not receive your pro rata portion of the trust account until
we liquidate the trust account in connection with our liquidation. If you are in need of immediate liquidity, you could attempt
to sell your stock in the open market; however, at such time our stock may trade at a discount to the pro rata amount per share
in the trust account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected
in connection with our redemption until we liquidate or you are able to sell your stock in the open market.
The requirement that we complete our initial business
combination within the prescribed time frame may give potential target businesses leverage over us in negotiating a business combination
and may decrease our ability to conduct due diligence on potential business combination targets as we approach our dissolution
deadline, which could undermine our ability to complete our business combination on terms that would produce value for our stockholders.
Any potential target business with which
we enter into negotiations concerning a business combination will be aware that we must complete our initial business combination
by September 16, 2017. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing
that if we do not complete our initial business combination with that particular target business, we may be unable to complete
our initial business combination with any target business. This risk will increase as we get closer to the timeframe described
above. In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms
that we would have rejected upon a more comprehensive investigation.
We may not be able to complete our initial business combination
within the prescribed time frame, in which case we would cease all operations except for the purpose of winding up and we would
redeem our public shares and liquidate.
Our sponsor, executive officers and directors
have agreed that we must complete our initial business combination by September 16, 2017. We may not be able to find a suitable
target business and complete our initial business combination by September 16, 2017. If we have not completed our initial business
combination by September 16, 2017, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as
reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in
cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of income
taxes payable) divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’
rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law,
and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders
and our board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to our obligations under Delaware
law to provide for claims of creditors and the requirements of other applicable law.
If we seek stockholder approval of our initial business
combination, our sponsor, directors, executive officers, advisors and their affiliates may elect to purchase shares from public
stockholders, which may influence a vote on a proposed business combination and reduce the public “float” of our common
stock.
If we seek stockholder approval of our initial
business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer
rules, our sponsor, directors, executive officers, advisors or their affiliates may purchase shares in privately negotiated transactions
or in the open market either prior to or following the completion of our initial business combination, although they are under
no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record
holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In
the event that our sponsor, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated
transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders
would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such
shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval of the business
combination or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a
certain amount of cash at the closing of our business combination, where it appears that such requirement would otherwise not
be met. This may result in the completion of our business combination that may not otherwise have been possible.
In addition, if such purchases are made,
the public “float” of our common stock and the number of beneficial holders of our securities may be reduced, possibly
making it difficult to maintain the quotation, listing or trading of our securities on a national securities exchange.
If a stockholder fails to receive notice of our offer
to redeem our public shares in connection with our business combination, or fails to comply with the procedures for tendering
its shares, such shares may not be redeemed.
We will comply with the tender offer rules
or proxy rules, as applicable, when conducting redemptions in connection with our business combination. Despite our compliance
with these rules, if a stockholder fails to receive our tender offer or proxy materials, as applicable, such stockholder may not
become aware of the opportunity to redeem its shares. In addition, the tender offer documents or proxy materials, as applicable,
that we will furnish to holders of our public shares in connection with our initial business combination will describe the various
procedures that must be complied with in order to validly tender or redeem public shares. In the event that a stockholder fails
to comply with these procedures, its shares may not be redeemed.
You will not have any rights or interests in funds from
the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell
your public shares or warrants, potentially at a loss.
Our public stockholders will be entitled
to receive funds from the trust account only upon the earlier to occur of: (i) our completion of an initial business combination,
and then only in connection with those shares of our common stock that such stockholder properly elected to redeem, subject to
the limitations described herein, and (ii) the redemption of our public shares if we are unable to complete an initial business
combination by September 16, 2017, subject to applicable law and as further described herein. In addition, if our plan to redeem
our public shares if we are unable to complete an initial business combination by September 16, 2017 is not completed for any
reason, compliance with Delaware law may require that we submit a plan of dissolution to our then-existing stockholders for approval
prior to the distribution of the proceeds held in our trust account. In that case, public stockholders may be forced to wait beyond
September 16, 2017 before they receive funds from our trust account. In no other circumstances will a public stockholder have
any right or interest of any kind in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your
public shares or warrants, potentially at a loss.
You will not be entitled to protections normally afforded
to investors of many other blank check companies.
Since the net proceeds of our initial public
offering and the sale of the private placement warrants are intended to be used to complete an initial business combination with
a target business, we may be deemed to be a “blank check” company under the United States securities laws. However,
because we have net tangible assets in excess of $5,000,000, we are exempt from rules promulgated by the SEC to protect investors
in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules.
Among other things, this means that we will have a longer period of time to complete our business combination than do companies
subject to Rule 419. Moreover, if our initial public offering were subject to Rule 419, that rule would prohibit the release of
any interest earned on funds held in the trust account to us unless and until the funds in the trust account were released to
us in connection with our completion of an initial business combination.
If we seek stockholder approval of our initial business
combination and we do not conduct redemptions pursuant to the tender offer rules, a stockholder or a “group” of stockholders
holding a substantial portion of our Class A common stock may influence our ability to complete our business combination.
Unlike other blank check companies, if we
seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial
business combination pursuant to the tender offer rules, our amended and restated certificate of incorporation does not provide
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 Exchange Act) holding in excess of any certain percentage
of shares offered in our initial public offering will be restricted from seeking redemption rights with respect to any shares
they hold. The ability of any such stockholder to redeem all their shares will increase their influence over our ability to complete
our business combination and you could suffer a material loss on your investment in us.
Because of our limited resources and the significant
competition for business combination opportunities, it may be more difficult for us to complete our initial business combination.
If we are unable to complete our initial business combination, our public stockholders may receive, without taking into account, interest, if any, earned on the trust account, only approximately $10.40 per
share, on our redemption, and our warrants will expire worthless.
We have encountered and expect to encounter
intense competition from other entities having a business objective similar to ours, including private investors (which may be
individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing
for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive
experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services
to various industries. Many of these competitors possess greater technical, human and other resources or more local industry knowledge
than we do and our financial resources are relatively limited when contrasted with those of many of these competitors. While we
believe there are numerous target businesses we could potentially acquire with the net proceeds of our initial public offering
and the sale of the private placement warrants, our ability to compete with respect to the acquisition of certain target businesses
that are sizable is limited by our available financial resources. This inherent competitive limitation gives others an advantage
in pursuing the acquisition of certain target businesses. Furthermore, if we are obligated to pay cash for the shares of Class
A common stock redeemed and, in the event we seek stockholder approval of our business combination, we make purchases of our Class
A common stock, potentially reducing the resources available to us for our initial business combination. Any of these obligations
may place us at a competitive disadvantage in successfully negotiating a business combination. If we are unable to complete our
initial business combination, our public stockholders may receive, without taking into account, interest, if any, earned on the trust account, only approximately $10.40 per share on the liquidation of our
trust account and our warrants will expire worthless.
If the net proceeds of our initial public offering not
being held in the trust account are insufficient to allow us to operate until September 16, 2017, we may be unable to complete
our initial business combination.
The funds available to us outside of the
trust account may not be sufficient to allow us to operate until September 16, 2017, assuming that our initial business combination
is not completed during that time. We believe that the funds available to us outside of the trust account, will be sufficient
to allow us to operate until September 16, 2017; however, we cannot assure you that our estimate is accurate. Of the funds available
to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target
business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision
in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies
on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do
not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity
from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise),
we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. If
we are unable to complete our initial business combination, our public stockholders may receive, without taking into account, interest, if any, earned on the trust account, only approximately $10.40 per
share on the liquidation of our trust account and our warrants will expire worthless.
If the net proceeds of our initial public offering not
being held in the trust account are insufficient, it could limit the amount available to fund our search for a target business
or businesses and complete our initial business combination and we will depend on loans from our sponsor or management team to
fund our search, to pay our income taxes and to complete our business combination.
Of the net proceeds of our initial public
offering, only approximately $228,000 (as of December 31, 2016) are available
to us outside the trust account to fund our working capital requirements. If we are required to seek additional capital, we would
need to borrow funds from our sponsor, management team or other third parties to operate or may be forced to liquidate. Neither
our sponsor, members of our management team nor any of their affiliates is under any obligation to advance funds to us in such
circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon
completion of our initial business combination. If we are unable to complete our initial business combination because we do not
have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our
public stockholders may only receive, without taking into account, interest, if any, earned on the trust account, approximately $10.40 per share on our redemption of our public shares, and our warrants will
expire worthless.
Subsequent to our completion of our initial business
combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have
a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to
lose some or all of your investment.
Even if we conduct extensive due diligence
on a target business with which we combine, we cannot assure you that this diligence will surface all material issues that may
be present inside a particular target business, that it would be possible to uncover all material issues through a customary amount
of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result
of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or
other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected
risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Although
these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this
nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause
us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target
business or by virtue of our obtaining post-combination debt financing. Accordingly, any stockholders who choose to remain stockholders
following the business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have
a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our
executive officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring
a private claim under securities laws that the tender offer materials or proxy statement relating to the business combination
contained an actionable material misstatement or material omission.
If third parties bring claims against us, the proceeds
held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.40
per share, without taking into account, interest, if any, earned on the trust account.
Our placing of funds in the trust account
may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers,
prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title,
interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, such parties
may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against
the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims,
as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim
against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving
such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to
it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third
party’s engagement would be significantly more beneficial to us than any alternative.
Examples of possible instances where we
may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular
expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to
execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there
is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of,
any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption
of our public shares, if we are unable to complete our business combination within the prescribed timeframe, or upon the exercise
of a redemption right in connection with our business combination, we will be required to provide for payment of claims of creditors
that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption
amount received by public stockholders could be less than the $10.40 per share initially held in the trust account, due to claims
of such creditors. Mr. Kovalik has agreed to be liable to us if and to the extent any claims by a vendor for services rendered
or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce
the amount of funds in the trust account to below (i) $10.40 per public share or (ii) such lesser amount per public share held
in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets,
in each case net of the interest which may be withdrawn to pay income taxes, except as to any claims by a third party who executed
a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters
of our initial public offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event
that an executed waiver is deemed to be unenforceable against a third party, Mr. Kovalik will not be responsible to the extent
of any liability for such third party claims. We have not independently verified whether Mr. Kovalik has sufficient funds to satisfy
their indemnity obligations and, therefore, Mr. Kovalik may not be able to satisfy those obligations. We have not asked Mr. Kovalik
to reserve for such eventuality.
Our directors may decide not to enforce the indemnification
obligations of our President, resulting in a reduction in the amount of funds in the trust account available for distribution
to our public stockholders.
In the event that the proceeds in the trust
account are reduced below the lesser of (i) $10.40 per share or (ii) other than due to the failure to obtain such waiver such
lesser amount per share held in the trust account as of the date of the liquidation of the trust account due to reductions in
the value of the trust assets, in each case net of the interest which may be withdrawn to pay income taxes, and Mr. Kovalik asserts
that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our
independent directors would determine whether to take legal action against Mr. Kovalik to enforce his indemnification obligations.
While we currently expect that our independent directors would take legal action on our behalf against Mr. Kovalik to enforce
his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may
choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations,
the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.40 per
share.
If, after we distribute the proceeds in the trust account
to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not
dismissed, a bankruptcy court may seek to recover such proceeds, and the members of our board of directors may be viewed as having
breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive
damages.
If, after we distribute the proceeds in
the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against
us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy
laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court
could seek to recover all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached
its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages,
by paying public stockholders from the trust account prior to addressing the claims of creditors.
If, before distributing the proceeds in the trust account
to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not
dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per-share
amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If, before distributing the proceeds in
the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against
us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included
in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the
extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by our stockholders
in connection with our liquidation may be reduced.
If we are deemed to be an investment company under the
Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted,
which may make it difficult for us to complete our business combination.
If we are deemed to be an investment company
under the Investment Company Act, our activities may be restricted, including:
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restrictions on
the nature of our investments, and
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restrictions on
the issuance of securities, each of which may make it difficult for us to complete our
business combination.
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In addition, we may have imposed upon us
burdensome requirements, including:
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registration as
an investment company;
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adoption of a specific
form of corporate structure; and
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reporting, record
keeping, voting, proxy and disclosure requirements and other rules and regulations.
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We do not believe that our anticipated principal
activities will subject us to the Investment Company Act. The proceeds held in the trust account may be invested by the trustee
only in United States government treasury bills with a maturity of 180 days or less or in money market funds investing solely
in United States Treasuries and meeting certain conditions under Rule 2a-7 under the Investment Company Act. Because the investment
of the proceeds will be restricted to these instruments, we believe we will meet the requirements for the exemption provided in
Rule 3a-1 promulgated under the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance
with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder
our ability to consummate a business combination. If we were deemed to be subject to the Investment Company Act, compliance with
these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our
ability to complete a business combination. If we are unable to complete our initial business combination, our public stockholders
may receive, without taking into account, interest, if any, earned on the trust account, only approximately $10.40 per share on the liquidation of our trust account and our warrants will expire worthless.
Our stockholders may be held liable for claims by third
parties against us to the extent of distributions received by them upon redemption of their shares.
Under the DGCL, stockholders may be held
liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The
pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event
we do not complete our initial business combination by September 16, 2017 may be considered a liquidation distribution under Delaware
law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable
provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against
the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting
period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating
distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the
stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it
is our intention to redeem our public shares as soon as reasonably possible following September 16, 2017 in the event we do not
complete our business combination and, therefore, we do not intend to comply with those procedures.
Because we will not be complying with Section
280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our
payment of all existing and pending claims or claims that may be potentially brought against us within the 10 years following
our dissolution. However, because we are a blank check company, rather than an operating company, and our operations will be limited
to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as
lawyers, investment bankers, etc.) or prospective target businesses. If our plan of distribution complies with Section 281(b)
of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s
pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be
barred after the third anniversary of the dissolution. We cannot assure you that we will properly assess all claims that may be
potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions
received by them (but no more) and any liability of our stockholders may extend beyond the third anniversary of such date. Furthermore,
if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in
the event we do not complete our initial business combination by September 16, 2017 is not considered a liquidation distribution
under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute
of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years,
as in the case of a liquidation distribution.
We may not hold an annual meeting of stockholders until
after our consummation of a business combination and you will not be entitled to any of the corporate protections provided by
such a meeting.
We may not hold an annual meeting of stockholders
until after we consummate a business combination (unless required by NASDAQ), and thus may not be in compliance with Section 211(b)
of the DGCL, which requires an annual meeting of stockholders be held for the purposes of electing directors in accordance with
a company’s bylaws unless such election is made by written consent in lieu of such a meeting. Therefore, if our stockholders
want us to hold an annual meeting prior to our consummation of a business combination, they may attempt to force us to hold one
by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
We have not registered the shares of Class A common stock
issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration
may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its
warrants and causing such warrants to expire worthless.
We have not registered the shares of Class
A common stock issuable upon exercise of the warrants issued in our initial public offering under the Securities Act or any state
securities laws at this time. However, under the terms of the warrant agreement, we have agreed, as soon as practicable, but in
no event later than 30 days after the closing of our initial business combination, to use our best efforts to file a registration
statement under the Securities Act covering such shares and no later than 90 days after the closing of our initial business combination
to use our best efforts to have an effective registration statement covering such shares, and to maintain a current prospectus
relating to the Class A common stock issuable upon exercise of the warrants issued in our initial public offering, until the expiration
of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so
if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration
statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or
the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act,
we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable
for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants,
unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the
exercising holder, unless an exemption is available. In no event will we be required to net cash settle any warrant, or issue
securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares
underlying the warrants under the Securities Act or applicable state securities laws. If the issuance of the shares upon exercise
of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall
not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired
their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Class A common
stock included in the units.
The grant of registration rights to our initial stockholders
and holders of our private placement warrants may make it more difficult to complete our initial business combination, and the
future exercise of such rights may adversely affect the market price of our Class A common stock.
Pursuant to an agreement entered into concurrently
with the issuance and sale of the securities in our initial public offering, our initial stockholders and EarlyBirdCapital and
their permitted transferees can demand that we register the founder shares, holders of our private placement warrants and their
permitted transferees can demand that we register the private placement warrants and the shares of Class A common stock issuable
upon exercise of the private placement warrants. We will bear the cost of registering these securities. The registration and availability
of such a significant number of securities for trading in the public market may have an adverse effect on the market price of
our Class A common stock. In addition, the existence of the registration rights may make our initial business combination more
costly or difficult to conclude. This is because the stockholders of the target business may increase the equity stake they seek
in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our Class A common
stock that is expected when the securities owned by our initial stockholders, holders of our private placement warrants or their
respective permitted transferees are registered.
Unlike many other similarly structured blank check companies,
our initial stockholders will receive additional Class A common stock if we issue shares to consummate an initial business combination.
The founder shares will automatically convert
into Class A common stock on the first business day following the consummation of our initial business combination on a one-for-one
basis, subject to adjustment as provided herein. In the case that additional Class A common stock, or equity-linked securities
convertible or exercisable for Class A common stock, are issued or deemed issued in excess of the amounts offered in our initial
public offering and related to the closing of the initial business combination, the ratio at which founder shares shall convert
into Class A common stock will be adjusted so that the number of Class A common stock issuable upon conversion of all founder
shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of all outstanding shares of common stock
upon completion of the initial business combination, excluding any shares or equity-linked securities issued, or to be issued,
to any seller in the initial business combination and any private placement warrants issued upon conversion of working capital
loans, after taking into account Class A common stock redeemed in connection with the business combination. This is different
from many other similarly structured blank check companies in which the initial shareholders will only be issued an aggregate
of 20% of the total number of shares to be outstanding prior to the initial business combination.
Because we are not limited to a particular industry or
any specific target businesses with which to pursue our initial business combination, you will be unable to ascertain the merits
or risks of any particular target business’s operations.
We seek to complete a business combination
with an operating company in the energy sector, but may also pursue acquisition opportunities with other characteristics, except
that under our amended and restated certificate of incorporation we are not permitted to effectuate our business combination with
another blank check company or similar company with nominal operations. To the extent we complete our business combination, we
may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a
financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks
inherent in the business and operations of a financially unstable or an early stage entity. Although our executive officers, directors
and members of our sponsor will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you
that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due
diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the
chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our securities
will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business
combination target. Accordingly, any stockholders who choose to remain stockholders following the business combination could suffer
a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they
are able to successfully claim that the reduction was due to the breach by our executive officers or directors of a duty of care
or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the
tender offer or proxy statement materials relating to the business combination contained an actionable material misstatement or
material omission.
We may seek acquisition opportunities in industries or
sectors outside the energy sector, which may or may not be outside of our management’s area of expertise.
We will consider an initial business combination
outside the energy sector (which sectors may or may not be outside our management’s areas of expertise) if a business combination
candidate is presented to us and we determine that such candidate offers an acquisition opportunity for our company. Although
our management will endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure
you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment
in our securities will not ultimately prove to be less favorable to investors than a direct investment, if an opportunity were
available, in a business combination candidate. In the event we elect to pursue an acquisition outside of the areas of our management’s
expertise, our management’s expertise may not be directly applicable to its evaluation or operation, and the information
contained herein regarding the areas of our management’s expertise would not be relevant to an understanding of the business
that we elect to acquire.
Although we identified general criteria and guidelines
that we believe are important in evaluating prospective target businesses, we may enter into our initial business combination
with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our
initial business combination may not have attributes entirely consistent with our general criteria and guidelines.
Although we have identified general criteria
and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our
initial business combination will not have all of these positive attributes. If we complete our initial business combination with
a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a
business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination
with a target that does not meet our general criteria and guidelines, a greater number of stockholders may exercise their redemption
rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum
net worth or a certain amount of cash. In addition, if stockholder approval of the transaction is required by law, or we decide
to obtain stockholder approval for business or other legal reasons, it may be more difficult for us to attain stockholder approval
of our initial business combination if the target business does not meet our general criteria and guidelines. If we are unable
to complete our initial business combination, our public stockholders may receive, without taking into account, interest, if any, earned on the trust account, only approximately $10.40 per share on the liquidation
of our trust account and our warrants will expire worthless.
We may seek investment opportunities with a financially
unstable business or an entity lacking an established record of revenue or earnings.
To the extent we complete our initial business
combination with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected
by numerous risks inherent in the operations of the business with which we combine. These risks include volatile revenues or earnings
and difficulties in obtaining and retaining key personnel. Although our executive officers and directors will endeavor to evaluate
the risks inherent in a particular target business, we may not be able to properly ascertain or assess all of the significant
risk factors and we may not have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our
control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business.
We are not required to obtain an opinion from an independent
investment banking or accounting firm, and consequently, you may have no assurance from an independent source that the price we
are paying for the business is fair to our company from a financial point of view.
Unless we complete our business combination
with an affiliated entity, we are not required to obtain an opinion from an independent investment banking firm or accounting
firm that the price we are paying is fair to our company from a financial point of view. If no opinion is obtained, our stockholders
will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted
by the financial community. Such standards used will be disclosed in our tender offer documents or proxy solicitation materials,
as applicable, related to our initial business combination.
We may issue additional shares of Class A common stock
or preferred stock to complete our initial business combination or under an employee incentive plan after completion of our initial
business combination. We may also issue shares of Class A common stock upon the conversion of the Class F common stock at a ratio
greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions contained
therein. Any such issuances would dilute the interest of our stockholders and likely present other risks.
Our amended and restated certificate of
incorporation authorizes the issuance of up to 35,000,000 shares of Class A common stock, par value $0.0001 per share and 6,000,000
shares of Class F common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share.
There are currently 10,220,522 and 3,953,670 authorized but unissued shares of Class A and Class F common stock available, respectively,
for issuance, which amount takes into account shares reserved for issuance upon exercise of outstanding warrants but not upon
the conversion of the Class F common stock. Shares of Class F common stock are automatically convertible into shares of our Class
A common stock at the time of our initial business combination, initially at a one-for-one ratio but subject to adjustment as
set forth herein. There are no shares of preferred stock issued and outstanding.
We may issue a substantial number of additional
shares of Class A common or preferred stock to complete our initial business combination or under an employee incentive plan after
completion of our initial business combination. We may also issue shares of Class A common stock upon conversion of the Class
F common stock at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution
provisions contained therein. However, our amended and restated certificate of incorporation provides, among other things, that
prior to our initial business combination, we may not issue additional shares of capital stock that would entitle the holders
thereof to (i) receive funds from the trust account or (ii) vote on any initial business combination. The issuance of additional
shares of common or preferred stock:
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may significantly
dilute the equity interest of investors in our initial public offering;
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may subordinate
the rights of holders of common stock if preferred stock is issued with rights senior
to those afforded our common stock;
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could cause
a change in control if a substantial number of common stock is issued, which may affect,
among other things, our ability to use our net operating loss carry forwards, if any,
and could result in the resignation or removal of our present executive officers and
directors; and
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may adversely
affect prevailing market prices for our units, common stock and/or warrants.
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Resources could be wasted in researching acquisitions
that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another
business. If we are unable to complete our initial business combination, our public stockholders may receive, without taking into account, interest, if any, earned on the trust account, only approximately
$10.40 per share on the liquidation of our trust account and our warrants will expire worthless.
We anticipate that the investigation of
each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other
instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others.
If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction
likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to
complete our initial business combination for any number of reasons including those beyond our control. Any such event will result
in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire
or merge with another business. If we are unable to complete our initial business combination, our public stockholders may receive, without taking into account, interest, if any, earned on the trust account,
only approximately $10.40 per share on the liquidation of our trust account and our warrants will expire worthless.
We are dependent upon our executive officers and directors
and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively
small group of individuals and, in particular, Mr. Hanna, Mr. Kovalik and our other executive officers and directors. We believe
that our success depends on the continued service of our executive officers and directors, at least until we have completed our
business combination. In addition, our executive officers and directors are not required to commit any specified amount of time
to our affairs and, accordingly, will have conflicts of interest in allocating management time among various business activities,
including identifying potential business combinations and monitoring the related due diligence. We do not have key-man insurance
on the life of any of our directors or executive officers. The unexpected loss of the services of one or more of our directors
or executive officers could have a detrimental effect on us.
Our ability to successfully effect our initial business
combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may
join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability
of our post-combination business.
Our ability to successfully effect our business
combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however,
cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or
advisory positions following our business combination, it is likely that some or all of the management of the target business
will remain in place. While we intend to closely scrutinize any individuals we engage after our business combination, we cannot
assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements
of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar
with such requirements.
None of our executive officers or directors has ever
been associated with a special purpose acquisition corporation and such lack of experience could adversely affect our ability
to consummate a business combination.
None of our executive officers or directors
has ever been associated with a special purpose acquisition corporation. Our management’s lack of experience in operating
a special purpose acquisition corporation could adversely affect our ability to consummate a business combination and could result
in our not completing a business combination in the prescribed time frame.
Our key personnel may negotiate employment or consulting
agreements with a target business in connection with a particular business combination. These agreements may provide for them
to receive compensation following our business combination and as a result, may cause them to have conflicts of interest in determining
whether a particular business combination is the most advantageous.
Our key personnel may be able to remain
with the company after the completion of our business combination only if they are able to negotiate employment or consulting
agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation
of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or
our securities for services they would render to us after the completion of the business combination. The personal and financial
interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe
the ability of such individuals to remain with us after the completion of our business combination will not be the determining
factor in our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however,
that any of our key personnel will remain with us after the completion of our business combination. We cannot assure you that
any of our key personnel will remain in senior management or advisory positions with us. The determination as to whether any of
our key personnel will remain with us will be made at the time of our initial business combination.
We may have a limited ability to assess the management
of a prospective target business and, as a result, may effect our initial business combination with a target business whose management
may not have the skills, qualifications or abilities to manage a public company.
When evaluating the desirability of effecting
our initial business combination with a prospective target business, our ability to assess the target business’s management
may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target’s management,
therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should
the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations
and profitability of the post-combination business may be negatively impacted. Accordingly, any stockholders who choose to remain
stockholders following the business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely
to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach
by our executive officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully
bring a private claim under securities laws that the tender offer or proxy statement materials relating to the business combination
contained an actionable material misstatement or material omission.
The officers and directors of an acquisition
candidate may resign upon completion of our initial business combination. The departure of a business combination target’s
key personnel could negatively impact the operations and profitability of our post-combination business. The role of an acquisition
candidates’ key personnel upon the completion of our initial business combination cannot be ascertained at this time. Although
we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition
candidate following our initial business combination, it is possible that members of the management of an acquisition candidate
will not wish to remain in place.
Our executive officers and directors will allocate their
time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs.
This conflict of interest could have a negative impact on our ability to complete our initial business combination.
Our executive officers and directors are
not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating
their time between our operations and our search for a business combination and their other businesses. We do not intend to have
any full-time employees prior to the completion of our business combination. Our independent directors also serve as officers
and board members for other entities. If our executive officers’ and directors’ other business affairs require them
to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability
to devote time to our affairs which may have a negative impact on our ability to complete our initial business combination.
Certain of our executive officers and directors are now,
and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to
be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity
should be presented.
Until we consummate our initial business
combination, we will continue to engage in the business of identifying and combining with one or more businesses. Our sponsor
and executive officers and directors are, or may in the future become, affiliated with entities that are engaged in a similar
business.
Our executive officers and directors also
may become aware of business opportunities which may be appropriate for presentation to us and the other entities to which they
owe certain fiduciary or contractual duties, including KLR Group. Mr. Kovalik and certain other persons who may make decisions
for us are not independent from KLR Group and have other responsibilities within KLR Group. Conflicts related to the allocation
of potential business opportunities to us will be considered and resolved on a case-by-case and discretionary basis by KLR Group,
including Mr. Kovalik. Accordingly, they may have conflicts of interest in determining whether a particular business opportunity
should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another
entity prior to its presentation to us. Our amended and restated certificate of incorporation provides that we renounce our interest
in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely
in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted
to undertake and would otherwise be reasonable for us to pursue.
Our executive officers, directors, security holders and
their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly
prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial
interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest.
In fact, we may enter into a business combination with a target business that is affiliated with our sponsor, our directors or
executive officers, although we do not intend to do so. We do not have a policy that expressly prohibits any such persons from
engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may
have a conflict between their interests and ours.
In addition, certain of our executive officers
and directors, including Mr. Kovalik, are employed by KLR Group, which provides investment banking services to a wide variety
of clients. Mr. Kovalik and certain of our other officers who may make decisions for our business concurrently work for and receive
compensation relating to such investment banking services. Such compensation may incentivize them to serve the interests of KLR
Group’s investment banking business and its clients over our interests.
We may engage in a business combination with one or more
target businesses that have relationships with entities that may be affiliated with our executive officers, directors or existing
holders which may raise potential conflicts of interest.
In light of the involvement of our sponsor,
executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with our sponsor,
executive officers and directors. Our directors also serve as officers and board members for other entities. Such entities may
compete with us for business combination opportunities. Although we are not specifically focusing on, or targeting, any transaction
with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria
for a business combination and such transaction was approved by a majority of our disinterested directors. Despite our agreement
to obtain an opinion from an independent accounting firm or independent investment banking firm regarding the fairness to our
company from a financial point of view of a business combination with one or more domestic or international businesses affiliated
with our executive officers, directors or existing holders, potential conflicts of interest still may exist and, as a result,
the terms of the business combination may not be as advantageous to our public stockholders as they would be absent any conflicts
of interest.
Since our sponsor, executive officers and directors will
lose their entire investment in us if our business combination is not completed, a conflict of interest may arise in determining
whether a particular business combination target is appropriate for our initial business combination.
In November 2015, our sponsor
purchased an aggregate of 4,312,500 founder shares for an aggregate purchase price of $25,000, or approximately $0.006 per
share. In December 2015 and February and March 2016, our sponsor returned to us, at no cost, an aggregate of 1,972,500
founder shares, which we cancelled. In addition, in January 2016, our sponsor transferred 150,000 shares to Ms. Thom, our
Chief Financial Officer, 50,000 shares to Mr. Dow, our Chief Operating Officer and General Counsel, and 10,000 shares each to
Messrs. Abbas, Buckner and York, our directors. In March 2016, Mr. Dow and Ms. Thom returned to us, at no cost, 10,000 and
30,000 founder shares, respectively, which we cancelled. On March 21, 2016, the underwriters of our initial public offering
exercised their over-allotment option in part. In connection with such partial exercise of the over-allotment option, our
sponsor forfeited 253,670 shares of Class F common stock, which we canceled. The founder shares will be worthless if we do
not complete an initial business combination. In addition, our sponsor and EarlyBirdCapital (and/or its designees) purchased
an aggregate of 8,408,838 private placement warrants, among which 7,863,150 insider warrants were purchased by our sponsor
and 545,688 warrants were purchased by EarlyBirdCapital (and/or its designees) (“EBC”), each exercisable for one share of our Class
A common stock at $11.50 per share, for a purchase price of approximately $6.3 million, or $0.75 per warrant, that will also
be worthless if we do not complete a business combination. In addition, as of December 31, 2016, our sponsor has loaned us an
aggregate of $275,000, which is not payable until the closing of our business combination.
The founder shares are identical to the
shares of common stock included in the units being sold in our initial public offering, except that (i) the founder shares are
subject to certain transfer restrictions, (ii) our initial stockholders, officers, and directors have entered into letter agreements
with us, pursuant to which they have agreed (a) to waive their redemption rights with respect to their founder shares and public
shares in connection with the completion of our initial business combination, (b) to waive their rights to liquidating distributions
from the trust account with respect to their founder shares if we fail to complete our initial business combination by September
16, 2017 (although they will be entitled to liquidating distributions from the trust account with respect to any public shares
they hold if we fail to complete our business combination within the prescribed time frame) and (iii) the founder shares are automatically
convertible into shares of our Class A common stock at the time of our initial business combination on a one-for-one basis, subject
to adjustment pursuant to certain anti-dilution rights.
Additionally, in connection with the consummation
of our business combination, or thereafter, we may retain KLR Group to provide certain financial advisory, underwriting, capital
raising, and other services for which they may receive fees.
The personal and financial interests of
our executive officers and directors may influence their motivation in identifying and selecting a target business combination,
completing an initial business combination and influencing the operation of the business following the initial business combination.
Since our sponsor, executive officers and directors will
not be eligible to be reimbursed for their out-of-pocket expenses if our business combination is not completed, a conflict of
interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
At the closing of our initial business combination,
our sponsor, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due
diligence on suitable business combinations. In the event our business combination is completed, there is no cap or ceiling on
the reimbursement of out-of-pocket expenses incurred in connection with activities on our behalf. However, our sponsor, executive
officers and directors, or any of their respective affiliates will not be eligible for any such reimbursement if our business
combination is not completed and we do not have funds outside the trust account. These financial interests of our sponsor, executive
officers and directors may influence their motivation in identifying and selecting a target business combination and completing
an initial business combination.
We may issue notes or other debt securities, or otherwise
incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition and
thus negatively impact the value of our stockholders’ investment in us.
Although we have no commitments as of the
date of this Report to issue any notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur
substantial debt to complete our business combination. We have agreed that we will not incur any indebtedness unless we have obtained
from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the trust account. As
such, no issuance of debt will affect the per-share amount available for redemption from the trust account. Nevertheless, the
incurrence of debt could have a variety of negative effects, including:
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default and
foreclosure on our assets if our operating revenues after an initial business combination
are insufficient to repay our debt obligations;
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acceleration
of our obligations to repay the indebtedness even if we make all principal and interest
payments when due if we breach certain covenants that require the maintenance of certain
financial ratios or reserves without a waiver or renegotiation of that covenant;
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our immediate
payment of all principal and accrued interest, if any, if the debt security is payable
on demand;
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our inability
to obtain necessary additional financing if the debt security contains covenants restricting
our ability to obtain such financing while the debt security is outstanding;
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our inability
to pay dividends on our common stock;
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using a substantial
portion of our cash flow to pay principal and interest on our debt, which will reduce
the funds available for dividends on our common stock if declared, expenses, capital
expenditures, acquisitions and other general corporate purposes;
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limitations
on our flexibility in planning for and reacting to changes in our business and in the
industry in which we operate;
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increased vulnerability
to adverse changes in general economic, industry and competitive conditions and adverse
changes in government regulation; and
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limitations
on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions,
debt service requirements, execution of our strategy and other purposes and other disadvantages
compared to our competitors who have less debt.
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We may only be able to complete one business combination
with the proceeds of our initial public offering and the sale of the private placement warrants, which will cause us to be solely
dependent on a single business which may have a limited number of products or services. This lack of diversification may negatively
impact our operations and profitability.
The net proceeds from our initial public
offering and the private placement of warrants provided us with approximately $85.6 million (including $228,000 held outside the
trust as of December 31, 2016) that we may use to complete our initial business combination, less $46,330 in deferred underwriting
commissions being held in the trust account.
We may effectuate our business combination
with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not
be able to effectuate our business combination with more than one target business because of various factors, including the existence
of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present
operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By
completing our initial business combination with only a single entity our lack of diversification may subject us to numerous economic,
competitive and regulatory risks. Further, we would not be able to diversify our operations or benefit from the possible spreading
of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations
in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
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solely dependent
upon the performance of a single business, property or asset, or
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dependent upon
the development or market acceptance of a single or limited number of products, processes
or services.
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This lack of diversification may subject
us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the
particular industry in which we may operate subsequent to our business combination.
We may attempt to simultaneously complete business combinations
with multiple prospective targets, which may hinder our ability to complete our business combination and give rise to increased
costs and risks that could negatively impact our operations and profitability.
If we determine to simultaneously acquire
several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its
business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us,
and delay our ability, to complete our initial business combination. With multiple business combinations, we could also face additional
risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations
(if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services
or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could
negatively impact our profitability and results of operations.
We may attempt to complete our initial business combination
with a private company about which little information is available, which may result in a business combination with a company
that is not as profitable as we suspected, if at all.
In pursuing our acquisition strategy, we
may seek to effectuate our initial business combination with a privately held company. By definition, very little public information
exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business
combination on the basis of limited information, which may result in a business combination with a company that is not as profitable
as we suspected, if at all.
Our management may not be able to maintain control of
a target business after our initial business combination. We cannot provide assurance that, upon loss of control of a target business,
new management will possess the skills, qualifications or abilities necessary to profitably operate such business.
We may structure a business combination
so that the post-transaction company in which our public stockholders own shares will own less than 100% of the equity interests
or assets of a target business, but we will only complete such business combination if the post-transaction company owns or acquires
50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient
for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction
that does not meet such criteria. Even if the post-transaction company owns 50% or more of the voting securities of the target,
our stockholders prior to the business combination may collectively own a minority interest in the post business combination company,
depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a
transaction in which we issue a substantial number of new shares of common stock in exchange for all of the outstanding capital
stock of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial
number of new shares of common stock, our stockholders immediately prior to such transaction could own less than a majority of
our outstanding shares of common stock subsequent to such transaction. In addition, other minority stockholders may subsequently
combine their holdings resulting in a single person or group obtaining a larger share of the company’s stock than we initially
acquired. Accordingly, this may make it more likely that our management will not be able to maintain our control of the target
business.
We do not have a specified maximum redemption threshold.
The absence of such a redemption threshold may make it possible for us to complete a business combination with which a substantial
majority of our stockholders seek redemption.
Our amended and restated certificate of
incorporation does not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares
in an amount that would cause our net tangible assets to be less than $5,000,001 upon the consummation of our initial business
combination (such that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset
or cash requirement which may be contained in the agreement relating to our initial business combination. As a result, we may
be able to complete our business combination even if a substantial majority of our public stockholders have redeemed their shares
or, if we seek stockholder approval of our initial business combination and do not conduct redemptions in connection with our
business combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares
to our sponsor, executive officers, directors, advisors or their affiliates. In the event the aggregate cash consideration we
would be required to pay for all shares of common stock that are validly submitted for redemption plus any amount required to
satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available
to us, we will not complete the business combination or redeem any shares, all shares of common stock submitted for redemption
will be returned to the holders thereof, and we instead may search for an alternate business combination.
In order to effectuate an initial business combination,
blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments.
We cannot assure you that we will not seek to amend our amended and restated certificate of incorporation or governing instruments
in a manner that will make it easier for us to complete our initial business combination that our stockholders may not support.
In order to effectuate a business combination,
blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments.
For example, blank check companies have amended the definition of business combination and extended deadlines to complete business
combinations. We cannot assure you that we will not seek to amend our charter or governing instruments in order to effectuate
our initial business combination.
The provisions of our amended and restated certificate
of incorporation that relate to our pre-business combination activity (and corresponding provisions of the agreement governing
the release of funds from our trust account) may be amended with the approval of holders of 65% of our common stock, which is
a lower amendment threshold than that of some other blank check companies. It may be easier for us, therefore, to amend our amended
and restated certificate of incorporation to facilitate the completion of an initial business combination that some of our stockholders
may not support.
Some other blank check companies have a
provision in their charter which prohibits the amendment of certain of its provisions, including those which relate to a company’s
pre-business combination activity, without approval by a certain percentage of the company’s stockholders. In those companies,
amendment of these provisions requires approval by between 90% and 100% of the company’s public stockholders. Our amended
and restated certificate of incorporation provides that any of its provisions related to pre-business combination activity (including
the requirement to deposit proceeds of our initial public offering and the private placement of warrants into the trust account
and not release such amounts except in specified circumstances, and to provide redemption rights to public stockholders as described
herein) may be amended if approved by holders of 65% of our common stock, and then only if we allow dissenting holders the opportunity
to get their pro rata share from the trust account, and corresponding provisions of the trust agreement governing the release
of funds from our trust account may be amended if approved by holders of 65% of our common stock. In all other instances, our
amended and restated certificate of incorporation may be amended by holders of a majority of our common stock, subject to applicable
provisions of the DGCL or the NASDAQ rules. Our initial stockholders, who beneficially own 20.0% of our common stock will participate
in any vote to amend our amended and restated certificate of incorporation and/or trust agreement and will have the discretion
to vote in any manner it chooses. As a result, we may be able to amend the provisions of our amended and restated certificate
of incorporation which govern our pre-business combination behavior more easily than some other blank check companies, and this
may increase our ability to complete a business combination with which you do not agree. Our stockholders may pursue remedies
against us for any breach of our amended and restated certificate of incorporation.
Our sponsor, executive officers and directors
have agreed, pursuant to a letter agreement with us, that they will not propose any amendment to our amended and restated certificate
of incorporation that would affect the substance or timing of our obligation to allow holders to redeem their public shares unless
we provide our public stockholders with the opportunity to redeem their shares of common stock upon approval of any such amendment
at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest
(net of the interest which may be withdrawn to pay income taxes) divided by the number of then outstanding public shares. These
agreements are contained in letter agreements that we have entered into with our sponsor, executive officers and directors. Our
public stockholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the
ability to pursue remedies against our sponsor, executive officers, or directors for any breach of these agreements. As a result,
in the event of a breach, our public stockholders would need to pursue a stockholder derivative action, subject to applicable
law.
We may be unable to obtain additional financing to complete
our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure
or abandon a particular business combination.
We believe that the net proceeds of our
initial public offering and the sale of the private placement warrants will be sufficient to allow us to complete our initial
business combination. However, if such proceeds prove to be insufficient, either because of the size of our initial business combination,
the depletion of the available net proceeds in search of a target business, the obligation to repurchase for cash a significant
number of shares from stockholders who elect redemption in connection with our initial business combination or the terms of negotiated
transactions to purchase shares in connection with our initial business combination, we may be required to seek additional financing
or to abandon the proposed business combination. We cannot assure you that such financing will be available on acceptable terms,
if at all. To the extent that additional financing proves to be unavailable when needed to complete our initial business combination,
we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative
target business. In addition, even if we do not need additional financing to complete our business combination, we may require
such financing to fund the operations or growth of the target business. The failure to secure additional financing could have
a material adverse effect on the continued development or growth of the target business. None of our executive officers, directors
or stockholders is required to provide any financing to us in connection with or after our business combination. If we are unable
to complete our initial business combination, our public stockholders may only receive, without taking into account, interest, if any, earned on the trust account, approximately $10.40 per share on the liquidation
of our trust account, and our warrants will expire worthless.
Our initial stockholders control a substantial interest
in us and thus may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do
not support.
Our initial stockholders own 20.0% of our
issued and outstanding shares of common stock. Accordingly, they may exert a substantial influence on actions requiring a stockholder
vote, potentially in a manner that you do not support, including amendments to our amended and restated certificate of incorporation.
If our initial stockholders or our executive officers and directors purchase any additional shares of common stock in the aftermarket
or in privately negotiated transactions, this would increase such control.
In addition, our board of directors, whose
members were elected by our sponsor, is and will be divided into two classes, each of which will generally serve for a term of
two years with only one class of directors being elected in each year. We may not hold an annual meeting of stockholders to elect
new directors prior to the completion of our business combination, in which case all of the current directors will continue in
office until at least the completion of the business combination. If there is an annual meeting, as a consequence of our “staggered”
board of directors, only a minority of the board of directors will be considered for election and our initial stockholders, because
of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial stockholders will
continue to exert control at least until the completion of our business combination.
We may amend the terms of the warrants in a manner that
may be adverse to holders with the approval by the holders of at least 65% of the then outstanding public warrants.
Our warrants are issued in registered form
under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement
provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any
defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make
any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms
of the warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of
such amendment. Although our ability to amend the terms of the warrants with the consent of at least 65% of the then outstanding
public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price
of the warrants, shorten the exercise period or decrease the number of shares of our common stock purchasable upon exercise of
a warrant.
We may redeem your unexpired warrants prior to their
exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem outstanding
warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that
the last reported sales price of our Class A common stock equals or exceeds $21.00 per share for any 20 trading days within a
30 trading-day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders.
Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a
time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might
otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants
are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private placement
warrants will be redeemable by us so long as they are held by their initial purchasers or their permitted transferees.
Our warrants may have an adverse effect on the market
price of our Class A common stock and make it more difficult to effectuate our business combination.
We issued warrants to purchase 8,185,320
shares of our Class A common stock as part of the units offered in our initial public offering and, simultaneously with the closing
of our initial public offering, we issued in a private placement an aggregate of 8,408,838 private placement warrants, each exercisable
to purchase one share of Class A common stock at $11.50 per share. To the extent we issue shares of Class A common stock to effectuate
a business transaction, the potential for the issuance of a substantial number of additional shares of Class A common stock upon
exercise of these warrants could make us a less attractive acquisition vehicle to a target business. Such warrants, when exercised,
will increase the number of issued and outstanding shares of our Class A common stock and reduce the value of the shares of Class
A common stock issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a
business transaction or increase the cost of acquiring the target business.
The private placement warrants are identical
to the warrants sold as part of the units in our initial public offering except that, so long as they are held by the initial
holders or their permitted transferees, (i) they will not be redeemable by us, (ii) they (including the Class A common stock issuable
upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by our sponsor
until 30 days after the completion of our initial business combination and (iii) they may be exercised by the holders on a cashless
basis.
The requirements of being a public company may strain
our resources and divert management’s attention.
As a public company, we are subject to the
reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”), the Dodd-Frank
Wall Street Reform and Consumer Protection Act, the listing requirements of NASDAQ and other applicable securities rules and regulations.
Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult,
time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging
growth company.” The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and
procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls
and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight
may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely
affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply
with these requirements, which will increase our costs and expenses.
A market for our securities may not develop, which would
adversely affect the liquidity and price of our securities.
The price of our securities may vary significantly
due to one or more potential business combinations and general market or economic conditions. Furthermore, an active trading market
for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless
a market can be established and sustained.
NASDAQ may delist our securities from trading on its
exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading
restrictions.
Our securities are currently listed on NASDAQ.
However, we cannot assure you that our securities will continue to be listed on NASDAQ in the future or prior to our initial business
combination. In order to continue listing our securities on NASDAQ prior to our initial business combination, we must maintain
certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity
(generally $2,500,000) and a minimum number of holders of our securities (generally 300 public holders). Additionally, in connection
with our initial business combination, we will be required to demonstrate compliance with NASDAQ’s initial listing requirements,
which are more rigorous than NASDAQ’s continued listing requirements, in order to continue to maintain the listing of our
securities on NASDAQ. For instance, our stock price would generally be required to be at least $4 per share, our stockholders’
equity would generally be required to be at least $5 million and we would be required to have 300 round lot holders. We cannot
assure you that we will be able to meet those initial listing requirements at that time.
If NASDAQ delists our securities from trading
on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could
be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
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a limited availability
of market quotations for our securities;
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reduced liquidity
for our securities;
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a determination
that our Class A common stock is a “penny stock” which will require brokers
trading in our Class A common stock to adhere to more stringent rules and possibly result
in a reduced level of trading activity in the secondary trading market for our securities;
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a limited amount
of news and analyst coverage; and
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a decreased ability
to issue additional securities or obtain additional financing in the future.
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The National Securities Markets Improvement
Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which
are referred to as “covered securities.” Because our units, Class A common stock and warrants are listed on NASDAQ,
our units, Class A common stock and warrants are covered securities. Although the states are preempted from regulating the sale
of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if
there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular
case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank
check companies, other than the state of Idaho, certain state securities regulators view blank check companies unfavorably and
might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states.
Further, if we were no longer listed on NASDAQ, our securities would not be covered securities and we would be subject to regulation
in each state in which we offer our securities.
Because we must furnish our stockholders with target
business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with
some prospective target businesses.
The federal proxy rules require that a proxy
statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or
pro forma financial statement disclosure in periodic reports. We will include the same financial statement disclosure in connection
with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may
be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States
of America, or GAAP, or international financing reporting standards, or IFRS, depending on the circumstances and the historical
financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight
Board (United States), or PCAOB. These financial statements may also be required to be prepared in accordance with GAAP in connection
with our current report on Form 8-K announcing the closing our initial business combination within four business days following
such closing. These financial statement requirements may limit the pool of potential target businesses we may acquire because
some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy
rules and complete our initial business combination within the prescribed time frame.
We
are an emerging growth company within the meaning of the Securities Act, and if we take
advantage of certain exemptions from disclosure requirements available to emerging growth
companies, this could make our securities less attractive to investors and may make it
more difficult to compare our performance with other public companies.
We are an “emerging growth company”
within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not
limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important.
We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier,
including if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time,
in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors
will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less
attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise
would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act
exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that
apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such
extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt
the new or revised standard. This may make comparison of our financial statements with another public company which is neither
an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accountant standards used.
Compliance obligations under the Sarbanes-Oxley Act may
make it more difficult for us to effectuate our business combination, require substantial financial and management resources,
and increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act requires
that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending
December 31, 2017. As long as we maintain our status as an emerging growth company, we will not be required to comply with the
independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are
a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared
to other public companies because a target company with which we seek to complete our business combination may not be in compliance
with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control
of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any
such acquisition.
Provisions in our amended and restated certificate of
incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in
the future for our Class A common stock and could entrench management.
Our amended and restated certificate of
incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their
best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate
the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage
transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
We are also subject to anti-takeover provisions
under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal
of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices
for our securities.
If we effect our initial business combination with a
company located outside the United States, or with operations located outside the United States, we would be subject to a variety
of additional risks that may negatively impact our operations.
If we effect our initial business combination
with a company located outside the United States, or with operations or opportunities outside of the United States, we would be
subject to any special considerations or risks associated with companies operating in an international setting, including any
of the following:
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costs and difficulties
inherent in managing cross-border business operations;
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rules and regulations
regarding currency redemption;
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complex corporate
withholding taxes on individuals;
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laws governing
the manner in which future business combinations may be effected;
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tariffs and
trade barriers;
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regulations
related to customs and import/export matters;
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tax issues,
such as tax law changes and variations in tax laws as compared to the United States;
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currency fluctuations
and exchange controls;
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challenges
in collecting accounts receivable;
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cultural and
language differences;
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employment
regulations;
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crime, strikes,
riots, civil disturbances, terrorist attacks and wars; and
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deterioration
of political relations with the United States.
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We may not be able to adequately address
these additional risks. If we were unable to do so, our operations might suffer, which may adversely impact our results of operations
and financial condition.
We may face risks related to oil and gas exploration
and production companies.
Business combinations with oil and gas exploration
and production companies entail special considerations and risks. If we acquire a target business in the oil and gas exploration
and production industry, we may be subject to, and possibly adversely affected by, the following risks:
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our success
may be dependent on the prices of oil and natural gas;
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low oil or
natural gas prices and the substantial volatility in these prices may adversely affect
our financial condition and our ability to meet our capital expenditure requirements
and financial obligations;
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our exploration,
development and exploitation projects may require substantial capital expenditures that
may exceed our cash flows from operations and potential borrowings, and we may be unable
to obtain needed capital on satisfactory terms, which could adversely affect our future
growth;
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drilling for
and producing oil and natural gas are highly speculative and involve a high degree of
operational and financial risk, with many uncertainties that could adversely affect our
business;
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we may incur
indebtedness which could reduce our financial flexibility, increase interest expense
and adversely impact our operations and our unit costs;
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our operations
may be subject to operational hazards and unforeseen interruptions for which we may not
be adequately insured;
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our reserves
and production may be concentrated in a few core areas, such that problems in production
and markets relating to a particular area could have a material impact on our business;
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the unavailability
or high cost of drilling rigs, completion equipment and services, supplies and personnel
could adversely affect our ability to establish and execute exploration and development
plans within budget and on a timely basis, which could have a material adverse effect
on our financial condition, results of operations and cash flows;
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our oil and
natural gas reserves may be estimated and may not reflect the actual volumes of oil and
natural gas we will recover, and significant inaccuracies in these reserves estimates
or underlying assumptions could materially affect the quantities and present value of
our reserves;
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our identified
drilling locations may be scheduled over several years, making them susceptible to uncertainties
that could materially alter the occurrence or timing of their drilling;
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our competitors
may use superior technology and data resources that we may be unable to afford or that
would require a costly investment by us in order to compete with them more effectively;
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strategic relationships
upon which we may rely may be subject to change, which may diminish our ability to conduct
our operations;
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the marketability
of our production may be dependent upon oil and natural gas gathering, processing and
transportation facilities owned and operated by third parties, and the unavailability
of satisfactory oil and natural gas gathering, processing and transportation arrangements
would have a material adverse effect on our revenue;
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financial difficulties
encountered by our oil and natural gas purchasers, third party operators or other third
parties could decrease our cash flows from operations and adversely affect the exploration
and development of our prospects and assets;
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gathering,
processing and transportation services are subject to complex federal, state and other
laws that could adversely affect the cost, manner or feasibility of conducting our business;
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a component
of our growth may come through acquisitions, and our failure to identify or complete
future acquisitions successfully could reduce our earnings and hamper our growth;
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we may purchase
oil and natural gas properties with liabilities or risks that we did not know about or
that we did not assess correctly, and, as a result, we could be subject to liabilities
that could adversely affect our results of operations;
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we may incur
losses or costs as a result of title deficiencies in the properties in which we invest;
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we may be required
to write down the carrying value of our proved properties under accounting rules and
these write-downs could adversely affect our financial condition;
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hedging transactions,
or the lack thereof, may limit our potential gains and could result in financial losses;
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we may be subject
to government regulation and liability, including complex environmental laws, which could
require significant expenditures; and
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we may have
difficulty managing growth in our business, which could have a material adverse effect
on our business, financial condition, results of operations and cash flows and our ability
to execute our business plan in a timely fashion.
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