EX-99.(A)(1)(P) 2 exh99a1p_otp.htm SECOND AMENDED OFFER TO PURCHASE Exhibit 99(a)(1)(P)

Exhibit 99(a)(1)(P)


Second Amended and Restated Offer To Purchase For Cash

by

SCG FINANCIAL ACQUISITION CORP.

of

ALL OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK

OF

SCG FINANCIAL ACQUISITION CORP.

At A Purchase Price Of $10.00 Per Share

In Connection With Its Consummation Of A Proposed Business Combination

THE OFFER AND WITHDRAWAL RIGHTS SPECIFIED HEREIN WILL EXPIRE AT
5:00 P.M. EASTERN TIME ON APRIL 5, 2013 UNLESS THE OFFER IS EXTENDED.

SCG Financial Acquisition Corp., a Delaware corporation (“SCG”, the “Company”, “we”, “us” or “our”), hereby offers to purchase all of the issued and outstanding shares of common stock of SCG, par value $0.0001 per share (“SCG Common Stock” and each share of SCG Common Stock, a “SCG Common Share”), including the 8,000,000 SCG Common Shares issued as part of the units in SCG’s initial public offering (the “IPO”, and each SCG Common Share issued as part of the units in the IPO, a “Public Share”), at a purchase price of $10.00 per SCG Common Share, net to the seller in cash, without interest (the “Share Purchase Price” or “Purchase Price”), upon the terms and subject to the conditions described in this Offer to Purchase for Cash (this “Offer to Purchase”) and in the related Letter of Transmittal for the SCG Common Shares (the “Letter of Transmittal”, which, together with this Offer to Purchase, as they may be amended or supplemented from time to time, constitute the “Offer”).  

The Share Purchase Price of $10.00 is equal to the per share amount of the SCG Common Shares sold in the IPO on deposit in the trust account established for the benefit of the holders of the Public Shares (the “Trust Account”, and the holders of Public Shares are hereinafter referred to as the “SCG Public Stockholders”) as of the commencement of the Offer, less taxes and interest earned on the IPO proceeds placed in the Trust Account.  See “The Offer — Number of SCG Common Shares; Share Purchase Price”.

The Offer is being made pursuant to the terms of an Agreement and Plan of Merger, dated as of January 11, 2013 (as may be amended from time-to-time, the “Merger Agreement”), by and among SCG, SCG Financial Merger II Corp., a Delaware corporation and an indirect and wholly-owned subsidiary of SCG (“Merger Sub”), Reach Media Group Holdings, Inc., a Delaware corporation (“RMG”), and Shareholder Representative Services LLC as the Stockholder Representative (the “Stockholder Representative”).  Pursuant to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into RMG (the “Merger”).  Upon consummation of the Merger, the separate existence of Merger Sub will thereupon cease, and RMG, as the surviving corporation in the Merger (the “Surviving Corporation”), will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  Pursuant to the terms of the Amended and Restated Certificate of Incorporation of SCG, as amended (the “SCG Charter”), the Delaware General Corporation Law, as amended (the “DGCL”) and the Merger Agreement, SCG may consummate its initial business combination with RMG and conduct redemptions of Public Shares without approval of SCG’s stockholders (the “Stockholders”) by providing the Stockholders with the opportunity to redeem their Public Shares through a tender offer pursuant to the tender offer rules promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Offer is being made in part to provide the Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Merger to be completed without a vote of the Stockholders.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “The Merger Agreement”.

THIS OFFER IS CONDITIONED ON THE SATISFACTION OF THE MERGER CONDITION (AS FURTHER DESCRIBED IN THIS OFFER TO PURCHASE).  SEE “THE OFFER—CONDITIONS TO THE OFFER”.

Only SCG Common Shares validly tendered and not validly withdrawn will be purchased pursuant to the Offer. SCG Common Shares tendered pursuant to the Offer but not purchased in the Offer will be returned at our expense promptly following the expiration of the Offer.  See “The Offer — Procedures for Tendering Shares”.




We will fund the purchase of SCG Common Shares in the Offer with cash available to us from the Trust Account upon consummation of the Merger. Except as otherwise set forth in the Merger Agreement, all expenses (including, without limitation, each party’s respective legal, accounting and roadshow travel expenses) incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such expenses, whether or not the Merger or any other related transaction is consummated.  As of December 31, 2012, SCG had approximately $411,217 of cash and cash equivalents not held in the Trust Account.  See “The Offer — Source and Amount of Funds”.  The Offer is not conditioned on any maximum or minimum number of SCG Common Shares being tendered.  The Offer is, however, subject to certain other conditions, including the satisfaction of the Merger Condition.  See “The Offer — Purchase of Shares and Payment of Purchase Price” and “The Offer—Conditions of the Offer”.

The SCG Common Shares are listed on the Nasdaq Capital Market under the symbol “SCGQ”.  As of March 27, 2013, the last reported closing price of the SCG Common Shares was $9.98 per SCG Common Share.  Stockholders are urged to obtain current market quotations for the SCG Common Shares before deciding whether to tender their SCG Common Shares pursuant to the Offer.  See “Price Range of Securities and Dividends”.

We also have outstanding units comprised of one SCG Common Share and one warrant to acquire one SCG Common Share (a “Warrant” and, together with one SCG Common Share, the “Units”).  The Warrants and Units are quoted on the OTC Bulletin Board (the “OTCBB”) under the symbols “SCGQW” and “SCGQU”, respectively.  The Offer is only open for the SCG Common Shares, but not those together as part of the Units.  You may tender SCG Common Shares that are included in Units, but to do so you must separate such SCG Common Shares from the Warrants prior to tendering such SCG Common Shares.  While this is typically done electronically the same business day, you should allow at least one full business day to accomplish the separation. See “The Offer — Procedure for Tendering Shares”.

Our intention is to consummate the Merger.  Our board of directors (the “Board”), with only Gregory H. Sachs abstaining, has unanimously (i) approved our making the Offer, (ii) adopted and approved the Merger Agreement and approved the Merger and the other transactions contemplated by the Merger Agreement (collectively, the “Transaction”), and (iii) determined that the Merger is in the best interests of the Stockholders and, if consummated, would constitute our initial business combination pursuant to the SCG Charter.  If you tender your SCG Common Shares in the Offer, you will not be participating in the Transaction because you will no longer hold such SCG Common Shares.  SCG will be the public holding company for RMG upon the consummation of the Transaction.  See “Price Range of Securities and Dividends” and “The Offer”.  Neither we, the Board, Morrow & Co., LLC, as information agent (the “Information Agent”) for the Offer, nor Continental Stock Transfer & Trust Company, as depositary (the “Depositary”) for the Offer, is making any recommendation to you as to whether to tender or refrain from tendering your SCG Common Shares pursuant to the Offer.  The members of the Board may directly benefit from the Transaction and have interests in the Transaction that may be different from, or in addition to, the interests of the Stockholders.  See “The Transaction — Certain Benefits of SCG’s Directors and Officers and Others in the Transaction”.  You must make your own decision as to whether to tender your SCG Common Shares and, if so, how many SCG Common Shares to tender.  In doing so, you should read carefully the information in this Offer to Purchase and in the related Letter of Transmittal, including the purposes and effects of the Offer.  See “The Offer –Purpose of the Offer; Certain Effects of the Offer”.  You should discuss whether to tender your SCG Common Shares with your broker, if any, or other financial advisor.  See “Risk Factors” for a discussion of risks that you should consider before participating in the Offer and the Transaction.

SCG Financial Holdings LLC, an Illinois limited liability company and our sponsor (the “Sponsor”), which is beneficially owned by our officers, one of our directors, Donald R. Wilson, Jr., and certain employees of an affiliate of the Sponsor, and each of such equityholders of the Sponsor, have agreed not to tender any SCG Common Shares pursuant to the Offer.  In addition, on December 14, 2012, SCG entered into an equity commitment letter agreement (as may be amended from time-to-time, the “Equity Commitment Letter”) with 2012 DOOH Investments LLC, an Illinois limited liability company and a member of the Sponsor (“DOOH”), a copy of which is annexed hereto as Annex II, which is incorporated herein by reference. On January 8, 2013, DOOH assigned its obligations and rights under the Equity Commitment Letter to DRW Commodities, LLC, a Delaware limited liability company and an affiliate of DOOH (“DRW”), pursuant to an Assignment and Assumption Agreement between the parties (the “Assignment Agreement”), a copy of which is annexed hereto as Annex III, which is incorporated herein by reference.  Pursuant to the Equity Commitment Letter and the Assignment Agreement, DRW purchased 2,354,450 SCG Common Shares in privately negotiated transactions at a price per SCG Common Share that did not exceed $10.02 per SCG Common Share (the “DRW Public Shares”) and was thereafter issued an additional 120,000 SCG Common Shares by SCG as consideration for such purchases (the “Additional DRW Shares”, and, together with the DRW Public Shares, the “DRW Shares”).  Pursuant to the Equity Commitment Letter, the Assignment Agreement and related agreements, DRW agreed not to tender the DRW Shares in the Offer and further waived its redemption rights in the event of SCG’s liquidation with respect to the Additional DRW Shares.  This commitment by DOOH and DRW was designed to provide SCG with sufficient financial resources to consummate the Transaction regardless of the number of other SCG Common Shares tendered in the Offer.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “Certain Relationships and Related Transactions — SCG”.






SCG has also entered into an Agreement and Plan of Merger among SCG, SCG Financial Merger III Corp., a Delaware corporation (“Symon Merger Sub”), Symon Holdings Corporation, a Delaware corporation (“Symon Holdings”), and the securityholders’ representative named therein (the “Symon Merger Agreement”) on March 1, 2013.  Pursuant to the terms and conditions of the Symon Merger Agreement, Symon Merger Sub will be merged with and into Symon (the “Symon Merger”).  Upon consummation of the Symon Merger, the separate existence of Symon Merger Sub will thereupon cease, and Symon, as the surviving corporation in the Symon Merger (the “Symon Surviving Corporation”), will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG. Consummation of the Symon Merger is conditioned upon, among other things, consummation of the Merger with RMG, but consummation of the Merger with RMG is not conditioned upon consummation of the Symon Merger.  See “The Symon Merger” and “The Symon Merger Agreement.

Neither the SEC nor any state securities commission has approved or disapproved of the SCG Common Shares or passed upon the accuracy or adequacy of the Offer.  Any representation to the contrary is a criminal offense.

Questions and requests for assistance regarding the Offer may be directed to the Information Agent at the telephone number set forth on the back cover of this Offer to Purchase.  You may request additional copies of this Offer to Purchase, the Letter of Transmittal, and the other Offer documents from the Information Agent at the telephone numbers and address on the back cover of this Offer to Purchase. You may also contact your broker, dealer, commercial bank, trust company or nominee for copies of these documents.

March 28, 2013






IMPORTANT

On December 14, 2012, SCG entered into the Equity Commitment Letter with DOOH. On January 8, 2013, DOOH assigned its obligations and rights under the Equity Commitment Letter to DRW pursuant to the Assignment Agreement.  Pursuant to the Equity Commitment Letter and the Assignment Agreement, DRW purchased the 2,354,450 DRW Shares in privately negotiated transactions at a price of $10.00 per SCG Common Share and was thereafter issued the Additional DRW Shares by SCG as consideration for such purchases. Pursuant to the Equity Commitment Letter, the Assignment Agreement and related agreements, DRW agreed not to tender the DRW Shares in the Offer and further waived its redemption rights in the event of SCG’s liquidation with respect to the Additional DRW Shares. This commitment by DOOH and DRW was designed to provide SCG with sufficient financial resources to consummate the Transaction regardless of the number of other SCG Common Shares tendered in the Offer.

The public announcement of the Offer for purposes of Rule 14e-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may have occurred as early as November 21, 2012, when SCG publicly disclosed that it had entered into a letter of intent with RMG. As a result, the transactions contemplated by, and completed pursuant to, the Equity Commitment Letter, the Assignment Agreement and the related agreements constitute arrangements prohibited by Rule 14e-5 to purchase SCG Common Shares outside the Offer, and do not fall within the exception provided by Rule 14e-5(b)(7). This may result in us being subject to monetary or injunctive penalties under Section 14(e) of the Exchange Act.


If you desire to tender all or any portion of your SCG Common Shares, you must do one of the following before the Offer expires:


·

if your SCG Common Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact the nominee and have the nominee tender your SCG Common Shares for you;

·

if you hold certificates for SCG Common Shares registered in your own name, you must complete and sign the accompanying Letter of Transmittal according to its instructions and deliver it, together with any required signature guarantees, the certificates for your SCG Common Shares and any other documents required by the Letter of Transmittal, to the Depositary at the address shown on the back cover of this Offer to Purchase.  Do not send such materials to SCG or the Information Agent;

·

if you are an institution participating in The Depository Trust Company, you must tender your SCG Common Shares according to the procedure for book-entry transfer described in “The Offer — Procedures for Tendering Shares”; or

·

if you are the holder of Units and wish to tender SCG Common Shares included in such Units, you must separate the SCG Common Shares from the Units prior to tendering such SCG Common Shares pursuant to the Offer.  You must instruct your broker to do so, or if you hold Units registered in your own name, you must contact the Depositary directly and instruct them to do so.  If you fail to cause your SCG Common Shares to be separated in a timely manner before the Offer expires, you will likely not be able to validly tender such SCG Common Shares prior to the expiration of the Offer.


To validly tender SCG Common Shares pursuant to the Offer, other than SCG Common Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must properly complete and duly execute the Letter of Transmittal.

We are not making the Offer to the Stockholders in any jurisdiction where it would be illegal to do so.  However, we may, at our discretion, take any actions necessary for us to comply with the applicable laws and regulations to make the Offer to the Stockholders in any such jurisdiction.

We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your SCG Common Shares pursuant to the Offer. You should rely only on the information contained in this Offer to Purchase and in the Letter of Transmittal or to which we have referred you.  We have not authorized anyone to provide you with information or to make any representation in connection with the Offer other than those contained in this Offer to Purchase or in the Letter of Transmittal. If anyone makes any recommendation or gives any information or representation regarding the Offer, you must not rely upon that recommendation, information or representation as having been authorized by us, the Board, the Depositary or the Information Agent. You should not assume that the information provided in this Offer to Purchase is accurate as of any date other than the date as of which it is shown, or if no date is otherwise indicated, the date of this Offer to Purchase.






Questions and requests for assistance should be directed to the Information Agent at its address and telephone numbers set forth below and on the back cover of this Offer to Purchase.  Additional copies of this Offer to Purchase, the Letter of Transmittal, and other materials related to the Offer may also be obtained for free from the Information Agent.  Copies of this Offer to Purchase, the Letter of Transmittal, and any other material related to the Offer may also be obtained at the website maintained by the Securities and Exchange Commission at www.sec.gov.  You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance.  See “Where You Can Find More Information”.

The Information Agent for the Offer is:

[exh99a1p_otp002.gif]

470 West Avenue

Stamford, CT 06902

(203) 658-9400


U.S. Banks and Brokerage Firms, Please Call: (203) 658-9400

U.S. Stockholders Call Toll Free: (800) 607-0088

E-mail: scg.info@morrowco.com






TABLE OF CONTENTS


 

Page

SUMMARY TERM SHEET AND QUESTIONS AND ANSWERS

1

FORWARD-LOOKING STATEMENTS

11

RISK FACTORS

12

INFORMATION ABOUT THE COMPANIES

32

SELECTED HISTORICAL FINANCIAL INFORMATION

34

SELECTED UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION

35

COMPARATIVE SHARE INFORMATION

37

THE TRANSACTION

38

THE MERGER AGREEMENT

45

RELATED AGREEMENTS

52

THE SYMON MERGER

55

THE SYMON MERGER AGREEMENT

59

THE OFFER

64

DESCRIPTION OF SECURITIES

75

MATERIAL DIFFERENCES IN THE RIGHTS OF SCG STOCKHOLDERS FOLLOWING THE TRANSACTION

79

PRICE RANGE OF SECURITIES AND DIVIDENDS

81

BUSINESS OF SCG

83

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SCG  

87

MANAGEMENT OF SCG

92

BUSINESS OF RMG

98

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RMG  

104

MANAGEMENT OF RMG

114

BUSINESS OF SYMON

118

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SYMON  

124

MANAGEMENT OF SYMON

136

SCG EXECUTIVE OFFICERS, DIRECTORS, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE FOLLOWING THE TRANSACTION  

140

UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION

143

BENEFICIAL OWNERSHIP OF SCG SECURITIES

151

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

153

APPRAISAL RIGHTS

156

WHERE YOU CAN FIND MORE INFORMATION

157

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

ANNEX I – RMG MERGER AGREEMENT

 

ANNEX II – EQUITY COMMITMENT LETTER

 

ANNEX III – ASSIGNMENT AND ASSUMPTION AGREEMENT

 

ANNEX IV – SYMON MERGER AGREEMENT

 










SUMMARY TERM SHEET AND QUESTIONS AND ANSWERS

This summary term sheet highlights important information regarding this Amended and Restated Offer to Purchase for Cash (this “Offer to Purchase”) the SCG Common Shares (as defined below), the Transaction (as defined below) and the Symon Merger (as defined below). To understand the Offer (as defined below), the Transaction and the Symon Merger fully and for a more complete description of the terms of the Offer, the Transaction and the Symon Merger, you should carefully read this entire Offer to Purchase, including the Annexes thereto, and the related Amended and Restated Letter of Transmittal for the SCG Common Shares (the “Letter of Transmittal”), which collectively constitute the “Offer”.  We have included references to the sections of this Offer to Purchase where you will find a more complete description of the topics addressed in this summary term sheet.


SCG Common Shares Subject of the Offer

All of the issued and outstanding shares of common stock, par value $0.0001 per share, of SCG (the “SCG Common Shares”), including the SCG Common Shares issued as part of SCG’s initial public offering (the “IPO”; and such SCG Common Shares, the “Public Shares”).

 

 

Price Offered Per SCG Common Share

$10.00 net to the seller in cash, without interest thereon (the “Share Purchase Price” or “Purchase Price”).

 

 

Scheduled Expiration of the Offer

5:00 p.m., Eastern Time, on April 5, 2013, unless the Offer is otherwise extended, which may depend on the timing and process of the Securities and Exchange Commission’s (the “SEC”) review of this Offer to Purchase, or terminated (the “Expiration Date”).

 

 

Party Making the Offer

SCG Financial Acquisition Corp., a Delaware corporation.


For further information regarding the Offer, see “The Offer”.

General

What is the background of SCG?

SCG Financial Acquisition Corp., a Delaware corporation (“SCG”, the “Company”, “we”, “us” or “our”), is a blank check or special purpose acquisition company formed on January 5, 2011 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, involving SCG and one or more businesses (a “business combination”).  

On April 18, 2011, SCG consummated the IPO of 8,000,000 units (the “Units”), each consisting of one SCG Common Share and one SCG Public Warrant, which is exercisable for an additional SCG Common Share (the “Warrants” or the “SCG Public Warrants”) at an exercise price of $11.50 per Warrant, and received proceeds of approximately $77,600,000, net of underwriting discounts and commissions and expenses of approximately $2,400,000, excluding deferred underwriting discounts and commissions placed in the trust account established for the benefit of the SCG Public Stockholders (as hereinafter defined) (the “Trust Account”) pending completion of a business combination. Simultaneously with the consummation of the IPO, SCG consummated the private sale of 4,000,000 Sponsor Warrants to the Sponsor at a price of $0.75 per Warrant (the “Sponsor Warrants”) for an aggregate purchase price of $3,000,000. $77,000,000 in proceeds from the IPO and the proceeds of this private placement were placed in the Trust Account. The proceeds outside of the Trust Account as well as up to $1,250,000 in interest income (net of franchise and income taxes payable), earned on the Trust Account balance may be released to SCG to be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses; provided, however, that after such release there remains in the Trust Account a sufficient amount of interest income previously earned on the Trust Account balance to pay any taxes on such $1,250,000 of interest income.  For purposes herein, the term “SCG Public Stockholders” shall mean all holders of the Public Shares.

Who is Reach Media Group Holdings, Inc.?

Reach Media Group Holdings, Inc., a Delaware corporation (“RMG”), is a media and technology company serving the digital out-of-home advertising industry through its wholly-owned subsidiary, RMG Networks, Inc., a Delaware corporation.  RMG operates a targeted national advertising network that gives advertisers access to digital media assets in executive clubs, in-flight entertainment systems, in-flight Wi-Fi portals and private airport terminals in the United States (the “RMG Airline Media Network”).  RMG also offers digital signage solutions and related professional services to enterprises and small and medium-sized businesses.



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Who is offering to purchase the SCG Common Shares?

SCG is offering to purchase the SCG Common Shares.  See “Business of SCG”.

What SCG Common Shares are sought?

We are offering to purchase all of the issued and outstanding SCG Common Shares validly tendered and not validly withdrawn pursuant to the Offer.  

What will be the purchase price for the SCG Common Shares and what will be the form of payment?

The Share Purchase Price for the Offer is $10.00 per SCG Common Share.  All of the issued and outstanding SCG Common Shares we purchase pursuant to the Offer will be purchased at the Share Purchase Price.  See “The Offer — Number of SCG Common Shares; Share Purchase Price”.  If your SCG Common Shares are purchased in the Offer, you will be paid the Share Purchase Price per SCG Common Share purchased, in cash, without interest, promptly after the Expiration Date.  Our Amended and Restated Certificate of Incorporation, as amended (the “SCG Charter”) requires that we offer a price per SCG Common Share, subject to lawfully available funds therefor, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account as of two business days prior to the date of the commencement of the Offer plus interest accrued from the date of the commencement of the Offer until two business days prior to the consummation of the initial business combination, less franchise and income taxes payable and less any interest that SCG may withdraw for working capital requirements, by (B) the total number of then outstanding Public Shares.  See “The Offer — Number of SCG Common Shares; Share Purchase Price” and “The Offer— Purchase of Shares and Payment of Purchase Price”.

Has SCG or its Board of Directors adopted a position on the Offer?

Our board of directors (the “Board”), with only Gregory H. Sachs abstaining, has unanimously approved our making the Offer, declared the advisability of the Merger (as hereinafter defined) and approved the Merger Agreement (as hereinafter defined) and the transactions contemplated thereby (collectively with the Merger, the “Transaction”).  Furthermore, the Board has determined that the Transaction is in the best interests of our stockholders (the “Stockholders”) and if consummated, would constitute our initial business combination pursuant to the SCG Charter.  If you tender your SCG Common Shares in the Offer, you will not be participating in the Transaction because you will no longer hold such SCG Common Shares.  SCG will be the public holding company for RMG upon the consummation of the Transaction.  See “Price Range of Securities and Dividends” and “The Offer”.  Neither we, the Board, Morrow & Co., LLC, as information agent (the “Information Agent”) for the Offer, nor Continental Stock Transfer & Trust Company, as depositary (the “Depositary”) for the Offer, is making any recommendation to you as to whether to tender or refrain from tendering your SCG Common Shares pursuant to the Offer.  The members of the Board may directly benefit from the Transaction and have interests in the Transaction that may be different from, or in addition to, the interests of the Stockholders.  See “The Transaction — Certain Benefits of SCG’s Directors and Officers and Others in the Transaction”.  You must make your own decision as to whether to tender your SCG Common Shares and, if so, how many SCG Common Shares to tender.  In doing so, you should read carefully the information in this Offer to Purchase and in the related Letter of Transmittal, including the purposes and effects of the Offer.  See “The Offer –Purpose of the Offer; Certain Effects of the Offer”.  You should discuss whether to tender your SCG Common Shares with your broker, if any, or other financial advisor.  See “Risk Factors” for a discussion of risks that you should consider before participating in the Offer and the Transaction.

Why must we complete our business combination by April 12, 2013?

The SCG Charter, prior to the adoption of the Amendment to the Amended and Restated Certificate of Incorporation of SCG on December 19, 2012 (the “SCG Charter Amendment”), provided that if SCG did not consummate a business combination by January 12, 2013 (unless extended by 3 months by amendment to the SCG Charter), SCG would cease all operations and commence winding up, as described below.  On recommendation of the Board, the Stockholders approved and adopted the SCG Charter Amendment on December 19, 2012 to extend the date on which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.  Pursuant to the terms of the SCG Charter, following the adoption of the SCG Charter Amendment, SCG is not permitted to pursue any other potential initial business combination other than the Transaction.

If SCG does not consummate the Transaction by April 12, 2013, SCG expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit



2





in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.

Is there any limit on the maximum number of SCG Common Shares the Stockholders can tender in the Offer?

No. Pursuant to the SCG Charter and the Delaware General Corporation Law, as amended (the “DGCL”), SCG may consummate a business combination without approval of the Stockholders by offering to redeem their Public Shares upon the consummation of the initial business combination, pursuant to the tender offer rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Offer is being made in part to provide the SCG Public Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Transaction to be completed without a Stockholder vote.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer”.  There is no limit on the maximum number of SCG Common Shares the Stockholders can tender in the Offer due to the existence of an equity commitment letter agreement dated as of December 14, 2012, as may be amended from time-to-time (the “Equity Commitment Letter”) between SCG and 2012 DOOH Investments LLC, an Illinois limited liability company (“DOOH”), a copy of which is annexed hereto as Annex II, which is incorporated herein by reference.  DOOH is a member of SCG Financial Holdings LLC, an Illinois limited liability company and our sponsor, which is beneficially owned by our officers, one of our directors, Donald R. Wilson, Jr., and certain employees of an affiliate of the Sponsor (the “Sponsor”).  The Sponsor and each such equityholder of the Sponsor has agreed not to tender any SCG Common Shares pursuant to the Offer.  On January 8, 2013, DOOH assigned its obligations and rights under the Equity Commitment Letter to DRW Commodities, LLC, a Delaware limited liability company and an affiliate of DOOH (“DRW”) pursuant to an Assignment and Assumption Agreement between the parties (the “Assignment Agreement”), a copy of which is annexed hereto as Annex III, which is incorporated herein by reference.  Pursuant to the Equity Commitment Letter and the Assignment Agreement, DRW purchased 2,354,450 SCG Common Shares in privately negotiated transactions at a price per SCG Common Share that did not exceed $10.02 per SCG Common Share (the “DRW Public Shares”) and was thereafter issued an additional 120,000 SCG Common Shares by SCG as consideration for such purchases (the “Additional DRW Shares”, and, together with the DRW Public Shares, the “DRW Shares”).  Pursuant to the Equity Commitment Letter and the Assignment Agreement, DRW agreed not to tender the DRW Shares in the Offer and further waived its redemption rights in the event of SCG’s liquidation with respect to the Additional DRW Shares.  This commitment by DOOH and DRW was designed to provide SCG with sufficient financial resources to consummate the Transaction regardless of the number of other SCG Common Shares tendered in the Offer.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “Certain Relationships and Related Transactions — SCG”.

The Transaction

Is there a Merger Agreement related to the Offer?

Yes.  

The Offer is being made pursuant to the terms of a Merger Agreement, dated as of January 11, 2013 (as may be amended from time-to-time, the “Merger Agreement”), by and among SCG, SCG Financial Merger II Corp., a Delaware corporation and an indirect and wholly-owned subsidiary of SCG (“Merger Sub”), RMG, and Shareholder Representative Services LLC as the Stockholder Representative (the “Stockholder Representative”).  Pursuant to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into RMG (the “Merger”).  Upon consummation of the Transaction, the separate existence of Merger Sub will thereupon cease, and RMG, as the surviving corporation in the Merger (the “Surviving Corporation”), will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  Pursuant to the terms of the SCG Charter, the DGCL and the Merger Agreement, SCG may consummate its initial business combination with RMG and conduct redemptions of Public Shares without approval of the Stockholders by providing the Stockholders with the opportunity to redeem their Public Shares through a tender offer pursuant to the tender offer rules promulgated by the SEC under the Exchange Act.  The Offer is being made in part to provide the Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Merger to be completed without a vote of the Stockholders.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “The Merger Agreement”.



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What is the structure of the Merger and the Stock Consideration?

Upon consummation of the Transaction, subject to the terms of the Merger Agreement, RMG’s stockholders will receive an aggregate of 100,000 SCG Common Shares (the “Up-Front Purchase Consideration”) at the time of closing.  An additional 300,000 SCG Common Shares (the “Escrow Shares”, and together with the Up-Front Purchase Consideration, the “Stock Consideration”) will be deposited in an escrow account (the “Escrow Account”) with Wilmington Trust, N.A. (the “Escrow Agent”), which will be disbursed to the Stockholder Representative or to SCG in accordance with the terms and conditions of the Merger Agreement and the Escrow Agreement to be entered into among SCG, the Stockholder Representative and the Escrow Agent (the “Escrow Agreement”).  

Upon consummation of the Transaction, (i) the Up-Front Purchase Consideration will represent approximately 1.0% of the issued and outstanding SCG Common Shares, and the Stock Consideration will represent approximately 3.8% of the issued and outstanding SCG Common Shares, in the event that no SCG Common Shares are validly tendered pursuant to the Offer and (ii) the Up-Front Purchase Consideration will represent approximately 2.1% of the issued and outstanding SCG Common Shares, and the Stock Consideration will represent approximately 8.4% of the issued and outstanding SCG Common Shares, in the event that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer. See “The Merger Agreement—Structure of the Transaction; Consideration to be Paid” for a further description of the Stock Consideration.

Additionally, SCG will pay, on behalf of RMG and its subsidiaries, all indebtedness of RMG and its subsidiaries under that certain Credit Agreement, dated as of April 11, 2011, among RMG, RMG Networks Inc., the lenders party thereto and Obsidian Agency Services, Inc., as administrative agent and collateral agent thereunder (the “RMG Credit Agreement”), at a discounted amount equal to $23,500,000, of which $21,000,000 will be paid in cash and the balance will be paid by the issuance of 250,000 SCG Common Shares (the “Lender Shares”).

See “The Transaction”, “The Merger Agreement”, “Description of Securities” and “Price Range of Securities and Dividend”.

Will there be a single controlling Stockholder following the completion of the Transaction?

Possibly. The ownership of the SCG Common Shares following the consummation of the Transaction will depend on the number of SCG Common Shares that are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.  Assuming that no SCG Common Shares are validly tendered pursuant to the Offer, the Sponsor, DRW and their ultimate beneficial owners, including Gregory H. Sachs and Donald R. Wilson, Jr., will beneficially own in the aggregate approximately 39.4% of the outstanding SCG Common Shares.  Assuming that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer, then the Sponsor, DRW and their ultimate beneficial owners, including Gregory H. Sachs and Donald R. Wilson, Jr., will beneficially own in the aggregate approximately 86.3% of the outstanding SCG Common Shares.

See “Beneficial Ownership of SCG Securities” for more information regarding the beneficial ownership of SCG following the Transaction.

How will the Offer and issuance of the Stock Consideration affect the number of SCG Common Shares outstanding and the number of holders of SCG Common Shares?

As of March 27, 2013 we had outstanding (i) 9,643,810 SCG Common Shares, including 1,523,810 SCG Common Shares issued to our Sponsor prior to the IPO and 8,000,000 SCG Common Shares issued in the IPO and (ii) Warrants to acquire 12,000,000 SCG Common Shares at an exercise price of $11.50 per share that will become exercisable 30 days after the consummation of the Transaction, provided that there is an effective registration statement under the Securities Act covering the SCG Common Shares issuable upon exercise of the Warrants and a current prospectus relating to them is available.  Immediately following consummation of the Transaction, we will have 10,393,810 SCG Common Shares outstanding in the event no SCG Common Shares are validly tendered pursuant to the Offer.  Assuming all Public Shares other than the DRW Public Shares are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer, we will have 4,748,260 SCG Common Shares outstanding immediately following consummation of the Transaction.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “Beneficial Ownership of SCG Securities”.

Are there any restrictions on the transfer of the Stock Consideration or the Lender Shares?

Yes. RMG’s principal shareholders (the “RMG Principal Stockholders”) will enter into lock-up agreements (each a “Lock-Up Agreement”) with SCG with respect to the Stock Consideration (and the underlying SCG Common Shares)



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received by them, pursuant to which such RMG Principal Stockholders agree, for a period commencing on the date of the consummation of the Transaction and ending on the earlier of (i) the one year anniversary of the issuance to each RMG Principal Stockholder of the Stock Consideration or (ii) the date that SCG consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in the Stockholders having the right to exchange their SCG Common Shares for cash, securities or other property, not to (a) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position (within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the SEC promulgated thereunder), such RMG Principal Stockholder’s SCG Common Shares, (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of such RMG Principal Stockholder’s SCG Common Shares, whether any such transaction is to be settled by delivery of SCG Common Shares or such other securities, in cash or otherwise, or (c) publicly announce any intention to effect any transaction specified in clauses (a) or (b) above.  

Notwithstanding anything to the contrary above, each RMG Principal Stockholder may transfer its SCG Common Shares: (i) by gift to a member of such RMG Principal Stockholder’s immediate family (for the purposes of each Lock-Up Agreement, “immediate family” means any relationship by blood, marriage, domestic partnership or adoption, no more remote than a first cousin) or to a trust, the beneficiary of which is a member of such RMG Principal Stockholder’s immediate family, an affiliate (as such term is defined in Rule 405 promulgated under the Exchange Act) of such RMG Principal Stockholder or to a charitable organization; (ii) if such RMG Principal Stockholder is a natural person, by virtue of the laws of descent and distribution upon death of the undersigned; (iii) if such RMG Principal Stockholder is a natural person, pursuant to a qualified domestic relations order; (iv) if such RMG Principal Stockholder is a corporation, partnership or other business entity, to another corporation, partnership or other business entity that directly or indirectly controls, is controlled by or managed by, or is under common control with, such RMG Principal Stockholder; or (v) if such RMG Principal Stockholder is a trust, to a trustor or beneficiary of the trust; provided, however, that in each case the permitted transferees shall have entered into a written agreement with SCG agreeing to be bound by the transfer restrictions described above.

The Lender Shares will be subject to a substantially similar Lock-Up Agreement.

See “Related Agreements — Lock-Up Agreement”.

Are there other agreements that will be entered into in connection with the Transaction?

Yes.  In addition to the Merger Agreement, and the Lock-Up Agreements, SCG will also enter into a Registration Rights Agreement with certain of RMG’s shareholders and with RMG’s lenders. Additionally, SCG, the Stockholder Representative and the Escrow Agent will enter into the Escrow Agreement.  The proposed terms of such agreements are described in greater detail under the heading “Related Agreements”.

Are the Offer and the Transaction conditioned on one another?

Yes.  Pursuant to the Merger Agreement, it is a condition to the consummation of the Transaction that SCG shall have conducted the Offer, and the Offer is subject to the condition that the Merger Condition (as described below) is satisfied.  If the Merger Condition is not satisfied upon the Expiration Date, we will terminate or extend the Offer.  In the event the Offer is terminated, we will promptly return any SCG Common Shares, at our expense, that were delivered pursuant to the Offer and we will not consummate the Transaction.  See “The Offer”.

What are the most significant conditions to the Offer?

Our obligation to purchase the SCG Common Shares validly tendered and not validly withdrawn prior to the Expiration Date is conditioned upon, among other things, our determination that the Merger, in our reasonable judgment immediately prior to the Expiration Date, is capable of being consummated contemporaneously with the Offer, but in no event later than three business days after the Expiration Date.  We refer to this condition, which is not waivable, as the “Merger Condition”. See “Merger Agreement — Conditions to the Closing of the Transaction” and “The Offer — Conditions of the Offer”.

What are the most significant conditions to the Transaction?   

Pursuant to the Merger Agreement, the consummation of the Transaction is conditioned upon, among other things, (i) SCG shall have conducted the Offer, (ii) the number of Public Shares immediately prior to the closing of the Transaction equaling not less than 2,400,000, of which we know at least 2,354,450 Public Shares will be issued and outstanding at such time because DRW has agreed not to tender the DRW Shares and (iii) typical transaction closing conditions (including, but



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not limited to, that the representations and warranties are true and correct in all material respects, covenants and agreements have been performed, the other agreements contemplated therein shall have been executed and delivered, certificates and other instruments have been executed and delivered, regulatory approvals have been obtained, no material adverse effect has occurred with respect to SCG or RMG, and no law or order is in effect prohibiting the Transaction).  If any of the conditions to the Transaction are not met, SCG or RMG may choose to exercise any applicable right to terminate the Merger Agreement as set forth therein, and the Merger Condition may not be satisfied  See “Risk Factors — Risks Related to the Transaction” and “The Merger Agreement— Conditions to the Closing of the Transaction”.

What interests do the directors and executive officers of SCG have in the Transaction?

SCG’s directors and officers may have interests in the Transaction that are different from your interests as a Stockholder. You should keep in mind the following interests of SCG’s directors and officers:


·

In January 2011, the Sponsor purchased 2,190,477 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.01 per share. On April 12, 2011, SCG effected a 0.8 for one reverse split, the result of which left the Sponsor with 1,752,381 Founder Shares.  The Sponsor returned an aggregate of 228,571 Founder Shares to SCG for no consideration after the underwriters of the IPO determined that they would not exercise their option to purchase additional units to cover any over-allotments. In addition, simultaneously with the consummation of the IPO, SCG consummated the private sale of 4,000,000 Sponsor Warrants to the Sponsor at a price of $0.75 per warrant for an aggregate purchase price of $3,000,000. The membership interests in the Sponsor are owned, directly or indirectly, by certain family estate planning entities of Gregory H. Sachs, SCG’s founder and chairman, chief executive officer and president, DOOH, an entity ultimately controlled by Donald R. Wilson, Jr., Michelle Sibley, Kenneth B. Leonard and by certain employees of an affiliate of the Sponsor. SCG’s directors and officers will likely benefit from the completion of the Transaction even if the Transaction causes the market price of SCG’s securities to significantly decrease. The likely benefit to SCG’s directors and officers may influence their motivation for promoting the Transaction.

·

If SCG does not consummate the Transaction by April 12, 2013, SCG will be required to commence proceedings to dissolve and liquidate and the 1,523,810 Founder Shares held by the Sponsor will be worthless because the Sponsor has agreed to waive its redemption rights with respect to its Founder Shares if SCG fails to consummate a business combination on or before April 12, 2013.  In such event, the Sponsor Warrants will also expire worthless.  On the other hand, in the event the Transaction is consummated, the Sponsor, through its interests in the Founder Shares, would have an economic interest in SCG Common Shares with an aggregate value of $15,207,624, based on the closing sales price of SCG Common Stock of $9.98 on the Nasdaq Capital Market on March 27, 2013.


In addition, the exercise of SCG’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in SCG Public Stockholders’ best interest.

The Offer

Why are we making the Offer?

Our business objective is to consummate the Transaction.  We are making the Offer in connection with the Transaction because the provisions of the SCG Charter, as disclosed in our final prospectus, dated April 12, 2011 (File No. 333-172085) (the “Prospectus”), and the Merger Agreement, require us to conduct the Offer to provide the SCG Public Stockholders an opportunity to redeem their SCG Common Shares for a pro-rata portion of the Trust Account upon our consummation of an initial business combination.  We also represented that, in connection with the Offer, we would provide the Stockholders with offering documents that contained substantially the same financial and other information about our proposed business combination and tender offer rights that would otherwise be required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.  Accordingly, SCG is making the Offer so that it may provide the SCG Public Stockholders with appropriate disclosure regarding the business and finances of SCG and RMG so that the SCG Public Stockholders can decide whether to hold their SCG Common Shares, or ask that such SCG Common Shares be redeemed by us pursuant to the Offer if the Merger Condition is satisfied.

Promptly following the scheduled Expiration Date, we will publicly announce whether the Merger Condition and the other conditions to the Offer have been satisfied or waived (to the extent waivable) and whether the Offer has been completed, extended, terminated or delayed.  If such conditions are satisfied or waived, promptly after the Expiration Date and contemporaneous with the consummation of the Transaction, SCG shall purchase and pay the Purchase Price for each



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SCG Common Share validly tendered and not validly withdrawn prior to the Expiration Date.  If we terminate the Offer, we will NOT: (i) purchase any SCG Common Shares pursuant to the Offer or (ii) consummate the Transaction in accordance with the terms of the Merger Agreement, and we will promptly return all of the issued and outstanding SCG Common Shares delivered pursuant to the Offer at our expense.  

Upon consummation of the Transaction, RMG will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  The Transaction would be consummated without a meeting of the Stockholders pursuant to the SCG Charter and the DGCL.  See “The Transaction”.

How will SCG fund the payment for the SCG Common Shares?

SCG will use funds raised in connection with its IPO, which funds are currently held in the Trust Account for the benefit of the SCG Public Stockholders and which funds will become available to us upon consummation of the Transaction, to purchase the SCG Common Shares tendered in the Offer.  See “The Offer — Source and Amount of Funds” and “The Merger Agreement”.

How long do I have to tender my SCG Common Shares?

You may tender your SCG Common Shares pursuant to the Offer until the Offer expires on the Expiration Date.  Consistent with a condition of the Offer, SCG may need to extend the Offer depending on the timing and process of the SEC’s staff review of this Offer to Purchase and related materials.  The Offer will expire on April 5, 2013 at 5:00 p.m., Eastern Time, unless we terminate or extend the Offer.  See “The Offer — Number of SCG Common Shares; Share Purchase Price” and “The Offer — Extension of the Offer; Termination; Amendment”.  If a broker, dealer, commercial bank, trust company or other nominee (each, a “nominee”) holds your SCG Common Shares, it is likely such nominee has established an earlier deadline for you to act to instruct such nominee to accept the Offer on your behalf.  We urge you to contact such nominee to find out such nominee’s deadline.  See “The Offer — Procedures for Tendering Shares”.

Can the Offer be extended, amended or terminated and, if so, under what circumstances?

We may extend or amend the Offer to the extent we determine such extension or amendment is necessary or is required by applicable law or regulation, subject to certain restrictions in the Merger Agreement.  If we extend the Offer, we will delay the acceptance of any SCG Common Shares that have been validly tendered and not validly withdrawn pursuant to the Offer.  We can also terminate the Offer if the Merger Condition is not satisfied. See “The Offer — Extension of the Offer; Termination; Amendment”.

How will I be notified if the Offer is extended, amended or terminated?

If the Offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., Eastern Time, on the first business day after the previously scheduled Expiration Date.  We will announce any amendment to or termination of the Offer by promptly making a public announcement of the amendment or termination.  See “The Offer — Extension of the Offer; Termination; Amendment”.

How do I tender my SCG Common Shares?

If you hold your SCG Common Shares in your own name as a holder of record and decide to tender your SCG Common Shares, you must deliver your SCG Common Shares by mail or physical delivery and deliver a completed and signed Letter of Transmittal or an Agent’s Message (as defined in “The Offer — Procedures for Tendering Shares”) to the Depositary before 5:00 p.m., Eastern Time, on April 5, 2013, or such later time and date to which we may extend the Offer.  No Stockholder should deliver any such materials to SCG or the Information Agent.  

If you hold your SCG Common Shares in a brokerage account or otherwise through a nominee (i.e., in “street name”), you must contact such nominee if you wish to tender your SCG Common Shares.  See “The Offer — Procedures for Tendering Shares” and the instructions to the Letter of Transmittal.

If you are an institution participating in The Depository Trust Company, you must tender your SCG Common Shares according to the procedure for book-entry transfer described in “The Offer — Procedures for Tendering Shares”.

You may contact the Information Agent, or your nominee for assistance.  The telephone numbers for the Information Agent are set forth on the back cover of this Offer to Purchase.  See “The Offer — Procedures for Tendering Shares” and the instructions to the Letter of Transmittal.



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Can I tender my Units?

No.  If you hold Units, comprised of one SCG Common Share and a Warrant, and desire to tender the SCG Common Shares included in such Units, you must separate the SCG Common Shares from the Warrants that comprise the Units prior to tendering your SCG Common Shares pursuant to the Offer.  You may instruct your nominee to do so, or if you hold Units registered in your own name, you must contact the Depositary directly and instruct them to do so.  While this is typically done electronically the same business day, you should allow at least one full business day to accomplish the separation.  If you fail to cause your SCG Common Shares to be separated in a timely manner before the Offer expires you will likely not be able to validly tender those SCG Common Shares prior to the expiration of the Offer.  See “The Offer — Procedures for Tendering Shares”.

Can I tender my Warrants?

No.  SCG is not offering to purchase the Warrants in the Offer.  Furthermore, our Warrants are not exercisable until 30 days after the consummation of the Transaction, provided that there is an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) covering the SCG Common Shares issuable upon exercise of the Warrants and a current prospectus relating to them is available. Therefore, a holder of Warrants will not be able to exercise his, her or its Warrants to purchase SCG Common Shares and then tender the SCG Common Shares pursuant to the Offer.

Until what time can I validly withdraw previously tendered SCG Common Shares?

You may validly withdraw SCG Common Shares that you have previously tendered pursuant to the Offer at any time prior to the Expiration Date, namely 5:00 p.m. on April 5, 2013 unless otherwise extended.  Except as otherwise provided in “The Offer — Withdrawal Rights”, tenders of SCG Common Shares are irrevocable.

How do I validly withdraw SCG Common Shares previously tendered?

You must deliver, on a timely basis, a written notice of your withdrawal to the Depositary at the address appearing on the back cover page of this Offer to Purchase.  Your notice of withdrawal must specify your name, the number of SCG Common Shares to be withdrawn and the name of the registered holder of such SCG Common Shares.  Certain additional requirements apply if the certificates for SCG Common Shares to be withdrawn have been delivered to the Depositary or if your SCG Common Shares have been tendered under the procedure for book-entry transfer set forth in “The Offer — Procedures for Tendering Shares”.  See “The Offer — Withdrawal Rights”.

When and how will SCG pay for the SCG Common Shares I tender that are accepted for payment?

SCG will pay the Share Purchase Price in cash, without interest, for the SCG Common Shares accepted for payment by depositing the aggregate Purchase Price with the Depositary promptly after the expiration of the Offer, provided the Merger Condition is satisfied. The Depositary will act as your agent and will transmit to you the payment for all of your SCG Common Shares accepted for payment.  See “The Offer — Purchase of Shares and Payment of Purchase Price”.

Will I have to pay brokerage fees and commissions if I tender my SCG Common Shares?

If you are a holder of record of your SCG Common Shares and you tender your SCG Common Shares directly to the Depositary, you will not incur any brokerage fees or commissions.  If you hold your SCG Common Shares in street name through a nominee and your nominee tenders SCG Common Shares on your behalf, your nominee may charge you a fee for doing so.  We urge you to consult your nominee to determine whether any charges will apply.  See “The Offer — Procedures for Tendering Shares”.

What are the U.S. federal income tax consequences if I tender my SCG Common Shares?

The receipt of cash for your tendered SCG Common Shares will generally be treated for U.S. federal income tax purposes either as (i) a sale of your tendered SCG Common Shares or (ii) a corporate distribution.  See “The Offer — Material U.S. Federal Income Tax Considerations”.

Will I have to pay stock transfer tax if I tender my SCG Common Shares?

We will not pay any stock transfer taxes in connection with this Offer.  If you instruct the Depositary in the Letter of Transmittal to make the payment for the SCG Common Shares to the registered holder, you may incur domestic stock transfer tax.  See “The Offer — Purchase of Shares and Payment of Purchase Price”.



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What are the U.S. federal income tax consequences if I do not tender my SCG Common Shares?

If you do not tender your SCG Common Shares, the U.S. federal income tax consequences of owning your SCG Common Shares will not change solely as a result of the Offer.  “The Offer — Material U.S. Federal Income Tax Considerations — Non-Participation in the Offer and Expected Future Activities”.

Who do I contact if I have questions about the Offer?

For additional information or assistance, you may contact the Information Agent at the telephone numbers set forth on the back cover of this Offer to Purchase.  You may request additional copies of the Offer, the Letter of Transmittal and other Offer documents from the Information Agent at Morrow & Co., LLC, 470 West Avenue, 3rd Floor, Stamford, CT 06902; telephone: (203) 658-9400.

Will the Sponsor tender its SCG Common Shares in the Offer?

No.  The Sponsor currently holds 1,523,810 founder shares of SCG Common Stock (the “Founder Shares”), equal to 16% of the issued and outstanding SCG Common Shares as of December 31, 2012.  The Sponsor is an entity ultimately controlled by Gregory H. Sachs, SCG’s founder and chairman of the board, chief executive officer and president, and Donald R. Wilson, Jr.  The Sponsor has agreed not to tender any of its SCG Common Shares pursuant to the Offer.  Additionally, DRW, an entity ultimately controlled by Donald R. Wilson, Jr., purchased 2,354,450 SCG Common Shares pursuant to the Equity Commitment Letter and the Assignment Agreement and was issued an additional 120,000 SCG Common Shares as consideration for such purchases by SCG, and has further agreed not to tender any of the DRW Shares pursuant to the Offer and further waived its redemption rights in the event of SCG’s liquidation with respect to the Additional DRW Shares.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer”.

If I object to the price being offered for my SCG Common Shares, will I have appraisal rights?

No.  No appraisal rights will be available to you in connection with the Offer or the Transaction.  See “Appraisal Rights”.

What will happen if I do not tender my SCG Common Shares?

The Stockholders who choose not to tender their SCG Common Shares will retain their SCG Common Shares and may have a greater percentage of ownership in our outstanding SCG Common Shares following the completion of the Offer to the extent SCG Common Shares are validly tendered, not validly withdrawn and accepted for purchase pursuant to the Offer and the Transaction is consummated.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer”, “Beneficial Ownership of SCG Securities” and “Price Range of Securities and Dividends”.

What is the recent market price for the SCG Common Shares?

As of March 27, 2013, the last reported closing price on the Nasdaq Capital Market was $9.98 per SCG Common Share.  You are urged to obtain current market quotations for the SCG Common Shares before deciding whether to tender your SCG Common Shares.  See “Price Range of Securities and Dividends”.

Will the SCG Common Shares be listed on a stock exchange following the Transaction?

The SCG Common Shares are currently listed on the Nasdaq Capital Market in accordance with the requirements of that exchange.  

If the Nasdaq Capital Market delists the SCG Common Shares from trading on its exchange in the future, SCG could face significant material adverse consequences, including:


·

a limited availability of market quotations for the SCG Common Shares;

·

a determination that SCG Common Stock is a “penny stock” which will require brokers trading in its common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for SCG Common Stock;

·

a limited amount of news and analyst coverage; and

·

a decreased ability to issue additional securities or obtain additional financing in the future.




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Symon


Who is Symon Holdings Corporation?


Symon Holdings Corporation, a Delaware corporation (“Symon Holdings”), is a leading global provider of award-winning visual communications solutions that helps organizations engage, inform and influence their audiences through intelligent visual solutions.


Is there a Merger Agreement between SCG and Symon?


Yes.  SCG has entered into an Agreement and Plan of Merger (the “Symon Merger Agreement”) among SCG, SCG Financial Merger III Corp., a Delaware corporation (“Symon Merger Sub”), Symon Holdings Corporation, a Delaware corporation (“Symon Holdings”), and the securityholders’ representative named therein (the “Securityholders’ Representative”) on March 1, 2013.  Pursuant to the terms and conditions of the Symon Merger Agreement, Symon Merger Sub will be merged with and into Symon (the “Symon Merger”).  Upon consummation of the Symon Merger, the separate existence of Symon Merger Sub will thereupon cease, and Symon, as the surviving corporation in the Symon Merger (the “Symon Surviving Corporation”), will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG. Consummation of the Symon Merger is conditioned upon, among other things, consummation of the Merger with RMG, but consummation of the Merger with RMG is not conditioned upon consummation of the Symon Merger.  See “The Symon Merger” and “The Symon Merger Agreement.


What is the structure of the Symon Merger and what is the consideration for the Symon Merger?


In connection with the Symon Merger, Symon Holdings’s stockholders will receive an aggregate of $45 million, minus (i) the amount of any indebtedness of Symon Holdings and its subsidiaries as of the date (the “Symon Closing Date”) of the closing of the Symon Merger (the “Symon Closing”), which indebtedness will be repaid in full by SCG on the Symon Closing Date, (ii) the amount, if any, by which the expenses of Symon Holdings and its subsidiaries and securityholders in connection with the transactions contemplated by the Symon Merger Agreement (the “Symon Transaction Expenses”) exceeds $2 million, and (iii) $250,000, which amount will be paid by SCG to the Securityholders’ Representative on the Symon Closing Date to be held in trust as a source of reimbursement for Symon costs and expenses incurred by the Securityholders’ Representative in such capacity (the “Expense Fund”). Pursuant to the Symon Merger Agreement, SCG is required to pay, on the Symon Closing Date, the Symon Transaction Expenses. See “The Symon Merger” and “The Symon Merger Agreement.”


Are there other agreements were entered into in connection with the Symon Merger?


Yes. On March 1, 2013, SCG entered into a financing commitment letter (the “Commitment Letter”) with the Donald R. Wilson, Jr. 2002 Trust (the “Trust”), whereby the Trust has agreed to provide a standby credit facility up to the aggregate amount of (i) SCG’s obligations under the Merger Agreement and (ii) all out-of-pocket fees, expenses and other amounts payable by SCG under or in connection with the Merger Agreement. See “The Symon Merger Agreement – Financing Commitment Letter.”


Are the Symon Merger and the Transaction conditioned on one another?


Pursuant to the Symon Merger Agreement, it is a condition to the consummation of the Symon Merger that SCG shall have conducted the Merger with RMG. If the Merger with RMG is not consummated, the Symon Merger will not be consummated. Consummation of the Merger with RMG is not conditioned upon the consummation of the Symon Merger. See “The Symon Merger Agreement”.


What are the most significant conditions to the Symon Merger?   


Pursuant to the Symon Merger Agreement, the consummation of the Symon Merger is conditioned upon, among other things, (i) SCG having consummated the Merger with RMG, (ii) delivery of audited consolidated financial statements of Symon Holdings and its subsidiaries for the fiscal years ended January 31, 2012 and 2011, and (iii) typical transaction closing conditions (including, but not limited to, that the representations and warranties are true and correct, covenants and agreements have been performed, the other agreements contemplated therein shall have been executed and delivered, certificates and other instruments have been executed and delivered, regulatory approvals have been obtained, no material adverse effect has occurred with respect to SCG or Symon Holdings, and no law or order is in effect prohibiting the Symon Merger).  If any of the conditions to the Symon Merger are not met, SCG or Symon Holdings may choose to exercise any applicable right to terminate the Merger Agreement as set forth therein. See “The Symon Merger Agreement— Conditions to the Closing of the Symon Merger”.




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FORWARD-LOOKING STATEMENTS

Some of the statements in this Offer to Purchase constitute “forward-looking statements.”  When used in this Offer to Purchase, the words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “predict”, “potential” and “should”, as they relate to us are intended to identify these forward-looking statements.  All statements by us regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives and similar matters are forward-looking statements.

Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control), set forth in this section and elsewhere in this Offer to Purchase, that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Our future results may differ materially from those expressed in these forward-looking statements.  These risks, uncertainties and other important factors include, but are not limited to, the statements set forth under “Risk Factors” and the following:


·

the risk that governmental and regulatory review of the tender offer documents may delay the Transaction or result in the inability of the Transaction to be consummated by April 12, 2013;

·

costs of the Transaction and the Symon Merger;

·

success in retaining or recruiting, or changes required in, RMG’s and Symon Holdings’s management and other key personnel following the Transaction;

·

listing or de-listing of the SCG Common Stock from the Nasdaq Capital Market;

·

the potential liquidity and trading of SCG’s securities;

·

RMG’s history of incurring significant net losses and limited operating history;

·

the competitive environment in the advertising markets in which RMG and Symon Holdings operate;

·

the risk that a condition to consummation of the Transaction or of the Symon Merger may not be satisfied or waived;

·

the risk that the anticipated benefits of the Transaction or of the Symon Merger may not be fully realized or may take longer to realize than expected;

·

the risk that any projections, including earnings, revenues, expenses, margins or any other financial items are not realized;

·

the risk that the businesses of SCG, RMG and/or Symon Holdings will not be integrated successfully;

·

changing legislation and regulatory environments;

·

business development activities of RMG and/or Symon Holdings following the consummation of the Transaction or the Symon Merger, including RMG’s or Symon’s ability to contract with, and retain, customers on attractive terms;

·

the effect of actions by the U.S. Federal Reserve and the U.S. Treasury on the liquidity of the capital markets;

·

the general volatility of the market price of the SCG Common Shares;

·

risks and costs associated with regulation of corporate governance and disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley Act); and

·

general economic conditions.


This Offer to Purchase contains statistical data that we obtained from various government and private publications.  We have not independently verified the data in these reports.  Statistical data in these publications also include projections based on a number of assumptions.  The air travel industry and the advertising industry, particularly the air travel media advertising sector and the broader digital out-of-home advertising sector, may not grow at the projected rates or at all.  The failure of the air travel industry and the advertising industry to grow at the projected rates may have a material adverse effect on our business and the market price of the SCG Common Shares.  Furthermore, if any one or more of the assumptions underlying the statistical data turns out to be incorrect, actual results may differ from the projections based on these assumptions.  You should not place undue reliance on these forward-looking statements.

You should carefully consider these risks, in addition to the risks factors set forth in the section titled “Risk Factors” and other information in this Offer to Purchase and in our other filings with the SEC, including the Prospectus and our Annual Report on Form 10-K (File No. 001-35534) for the fiscal year ended December 31, 2012.  The documents we file with the SEC, including those referred to above, also discuss some of the risks that could cause our actual results to differ from those contained or implied in the forward-looking statements.  See “Where You Can Find More Information”.




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RISK FACTORS

You should carefully consider the following risk factors in addition to the other information included in this Offer to Purchase, including matters addressed in the section entitled “Forward-Looking Statements” before you decide whether to tender your SCG Common Shares in the Offer.  As SCG’s operations will be those of RMG upon completion of the Transaction, and those of Symon Holdings’s subsidiary, Symon Communications, Inc. (together with its subsidiaries, “Symon”), if the Symon Merger is also consummated, a number of the following risk factors relate to the business and operations of RMG, Symon and SCG, as the successor to such business.

The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein, as well as the Prospectus and Annual Report on Form 10-K.  We caution you not to place undue reliance on the forward-looking statements contained in the Offer, which speak only as of the date hereof.

Risks Related to the Offer

There is no guarantee that your decision whether or not to tender your SCG Common Shares will put you in a better future economic position.

We can give no assurance as to the price at which a Stockholder may be able to sell its SCG Common Shares in the future following the completion of the Offer. Certain future events may cause an increase in our share price, and may result in a lower value realized now than you might realize in the future had you not agreed to tender your SCG Common Shares. Similarly, if you do not tender your SCG Common Shares, you will continue to bear the risk of ownership of your SCG Common Shares after the consummation of the Transaction, and there can be no assurance that you can sell your SCG Common Shares in the future at a higher price than the Share Purchase Price. You should consult your own individual tax and/or financial advisor for assistance on how this may affect your individual situation.

If certain conditions to the Offer are not met, SCG will not have access to the funds in the Trust Account to purchase any SCG Common Shares which are validly tendered and not validly withdrawn and will terminate the Offer.

Upon the consummation of the Transaction, we plan to use the cash available from the funds held in the Trust Account to purchase the SCG Common Shares validly tendered and not validly withdrawn pursuant to the Offer. Accordingly, if the conditions to the Offer are not satisfied, including the Merger Condition, we will not be able to access the funds held in the Trust Account and thus will terminate or extend the Offer. See “The Offer — Conditions of the Offer”.

Following the Offer, the amount of cash available to us for working capital purposes may be reduced, additional sources of financing may not be available and our purchase of shares in the Offer will cause our public float to be reduced.   As a result, our stock price could decline and our continuing Stockholders may be disadvantaged by reduced liquidity in our securities.

Although the Board, with only Gregory H. Sachs abstaining, has unanimously determined that the Transaction and making the Offer are in the best interests of the Stockholders, the Offer exposes us to a number of risks including:


·

a substantial portion of the cash in the Trust Account will be used to purchase SCG Common Shares in the Offer and to pay the $500,000 deferred underwriter’s compensation from the IPO and expenses of the IPO, Offer and Transaction;

·

as a condition to closing under the Merger Agreement, we will need to use $21,000,000 of remaining funds released to us from the Trust Account (or the proceeds of the purchases by DRW of the DRW Public Shares) to pay off indebtedness owed by RMG or its subsidiaries at an agreed-upon and discounted rate, thereby reducing funds available as working capital for the RMG businesses, available for significant cash acquisitions in the future or available for other business opportunities offered;

·

we may not be able to replenish our cash reserves by raising debt or equity financing in the future on terms acceptable to us, or at all; and

·

our “public float,” which is the number of SCG Common Shares owned by non-affiliate Stockholders and available for trading in the securities markets, may be reduced, which may reduce the volume of trading in the SCG Common Shares and may result in lower stock prices and reduced liquidity in the trading of the SCG Common Shares following completion of the Offer and limit our ability to meet the NASDAQ Stock Market Listing Standards.




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Risks Related to SCG

If the Transaction is not consummated, we will liquidate the Company.

The SCG Charter, prior to the adoption of the SCG Charter Amendment, provided that if SCG did not consummate a business combination by January 12, 2013 (unless extended by 3 months by amendment to the SCG Charter), SCG would cease all operations and commence winding up, as described herein.  On recommendation of the Board, the Stockholders approved and adopted the SCG Charter Amendment on December 19, 2012 to extend the date on which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.  Pursuant to the terms of the SCG Charter, following the adoption of the SCG Charter Amendment, SCG is not permitted to pursue any potential initial business combination other than the Transaction.

Accordingly, if SCG does not consummate the Transaction by April 12, 2013, SCG expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to  the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.

Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to tender your SCG Common Shares to us for cash. 

Since the Board may consummate the Transaction without seeking Stockholder approval in accordance with the SCG Charter and the DGCL, the SCG Public Stockholders will not have the right or opportunity to vote on the business combination with RMG, unless we seek such Stockholder vote. The Board does not currently intend to seek a Stockholder vote. Accordingly, your only opportunity to affect the investment decision regarding a potential business combination is limited to deciding whether to support the Transaction (and not tender any SCG Common Shares) or tender all or a portion of your SCG Common Shares prior to the Expiration Date. In addition, your election to exercise your redemption rights could still be rejected if the conditions to the Offer are not satisfied or waived. See “The Offer”.

If SCG does not consummate the Transaction by April 12, 2013, SCG expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.

In that case, the SCG Public Stockholders may be forced to wait beyond April 12, 2013 before the redemption proceeds of our Trust Account become available to them and they receive their pro rata portion of the proceeds from our Trust Account.  We have no obligation to return funds to the SCG Public Stockholders prior to the date of our redemption or liquidation unless we consummate a business combination prior thereto and only then in cases where investors have sought to redeem their SCG Common Shares through the Offer. Only upon our redemption or any liquidation will the SCG Public Stockholders be entitled to distributions if we are unable to complete a business combination.



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If, after we distribute the proceeds in the Trust Account to the SCG 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 the Board may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of the Board and us to claims of punitive damages.

If, after we distribute the proceeds in the trust account to the SCG Public Stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by the 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 the Stockholders. In addition, the Board 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 the SCG Public Stockholders from the Trust Account prior to addressing the claims of creditors.

If, before distributing the proceeds in the Trust Account to the SCG 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 the Stockholders and the per-share amount that would otherwise be received by the Stockholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the Trust Account to the SCG 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 the Stockholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by the Stockholders in connection with our liquidation may be reduced.

SCG has not registered the SCG Common Shares issuable upon exercise of the SCG Public Warrants. Although SCG has agreed to use its best efforts to file a registration statement registering such SCG Common Shares prior to the time the SCG Public Warrants become exercisable, an effective registration statement may not be in place when an investor desires to exercise such Warrants, thus precluding such investor from being able to exercise the Warrants and causing such Warrants to expire worthless.

None of the SCG Public Warrants will be exercisable, and SCG will not be obligated to issue shares of SCG Common Stock, unless, at the time of exercise, a prospectus relating to the SCG Common Stock issuable upon exercise of the SCG Public Warrants is current and available and a related registration statement is effective and such SCG Common Stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the SCG Public Warrants. SCG has not registered the SCG Common Shares issuable upon exercise of the SCG Public Warrants. However, under the terms of the warrant agreement governing such Warrants, SCG has agreed to use its best efforts to file a registration statement covering such SCG Common Shares and maintain a current prospectus relating to the SCG Common Stock issuable upon exercise of the SCG Public Warrants until the expiration of such Warrants. SCG cannot assure holders of SCG Public Warrants that it will be able to do so, and if it does not maintain a current prospectus related to the SCG Common Stock issuable upon exercise of the SCG Public Warrants, holders will be unable to exercise their Warrants, except pursuant to cashless exercise provisions in limited circumstances. SCG will not be required to settle any such warrant exercise. If the registration statement is not effective or the prospectus relating to the SCG Common Stock issuable upon the exercise of the SCG Public Warrants is not current or if such common stock is not qualified or exempt from qualification in the jurisdiction in which a holder resides, SCG will not be required to net cash settle or cash settle the warrant exercise, the SCG Public Warrants may have no value, the market for the SCG Public Warrants may be limited and the SCG Public Warrants may expire worthless.

The SCG Common Shares may not continue to be listed on a stock exchange following the Transaction, which could limit the liquidity and price of the SCG Common Shares more than if the SCG Common Shares were quoted or listed on Nasdaq Capital Market or another national exchange.

The SCG Common Shares are currently listed on the Nasdaq Capital Market in accordance with the requirements of that exchange.  



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If the Nasdaq Capital Market delists the SCG Common Shares from trading on its exchange in the future, SCG could face significant material adverse consequences, including:


·

a limited availability of market quotations for the SCG Common Shares;

·

a determination that SCG Common Stock is a “penny stock” which will require brokers trading in its common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for SCG Common Stock;

·

a limited amount of news and analyst coverage; and

·

a decreased ability to issue additional securities or obtain additional financing in the future.


Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.

Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires that we evaluate and report on our system of internal controls and requires that we have such system of internal controls audited beginning with our Annual Report on Form 10-K for the year ending December 31, 2012.  If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or Stockholder litigation.  Any inability to provide reliable financial reports could harm our business.  RMG may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls and does not employ a full-time chief financial officer.  The development of the internal controls of RMG to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.  Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations.  Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.

We do not currently intend to hold an annual meeting of the Stockholders until after our consummation of our initial business combination. The SCG Charter specifically denies the Stockholders the ability to call a special meeting.

We do not currently intend to hold an annual meeting of the Stockholders until after we consummate the Transaction. Furthermore, the SCG Charter, pursuant to Article VII, specifically denies the ability of the Stockholders to call a special meeting of Stockholders and provides that a special meeting of Stockholders may be called only by the chairman of the board, chief executive officer or the Board pursuant to a resolution adopted by a majority of the Board.

Risks Related to the Transactions

SCG’s working capital will be reduced to the extent SCG Common Shares are tendered in connection with the Offer or to the extent our cash and cash equivalents are lower than expected.

The approximately $80,000,000 in funds to be released from the Trust Account to SCG upon consummation of the Transaction and SCG’s cash and cash equivalents on hand immediately prior to the consummation of the Transaction will be used to pay (i) the Share Purchase Price to the SCG Public Stockholders who shall have validly tendered and not validly withdrawn their SCG Common Shares pursuant to the Offer, (ii) indebtedness owed by RMG under the RMG Credit Agreement upon consummation of the Transaction at a discounted amount equal to $23,500,000 (of which $21,000,000 will be paid in cash and the balance will be paid by the issuance of the Lender Shares) and (iii) to third parties (e.g., professionals, advisors, printers, etc.) who have rendered services to SCG in connection with the IPO, the Transaction and the Offer.  We expect that, following our purchase of SCG Common Shares tendered in the Offer, the remaining funds from the Trust Account will be at least $23,544,500 assuming that all Public Shares other than the DRW Public Shares are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.  Any remaining funds from the Trust Account following the payments described above will be retained by us to fund our post-Transaction working capital requirements and general corporate purposes.  If the Transaction is consummated and such amount is insufficient to fund our post-Transaction working capital requirements, we would need to sell debt or equity securities or borrow the funds necessary to satisfy such requirements following the consummation of the Transaction. There is no assurance that such funds would be available to us on terms favorable to us or at all.



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Following the consummation of the Transaction, SCG will be a holding company and rely on distributions, loans and other payments, advances and transfers of funds from RMG (and, if the Symon Merger is consummated, Symon Holdings) to pay dividends, pay expenses and meet our other obligations.

Following the consummation of the Transaction, SCG will have no direct operations and no significant assets other than its ownership interests in RMG as part of the Transaction, and in Symon Holdings if the Symon Merger is consummated. Because we will conduct our operations through RMG (and, if the Symon Merger is consummated, Symon Holdings) following the consummation of the Transaction, we will depend on RMG (and, if the Symon Merger is consummated, Symon Holdings) for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company, and to pay any dividends with respect to the SCG Common Shares. Legal and contractual restrictions in agreements governing future indebtedness of RMG and/or Symon Holdings, as well as the financial condition and operating requirements of RMG and/or Symon Holdings, may limit our ability to obtain cash from RMG and/or Symon Holdings. The earnings from, or other available assets of, RMG and/or Symon Holdings may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our SCG Common Shares or satisfy our other financial obligations.

Following the Transaction, SCG may have a single controlling Stockholder or a highly concentrated ownership structure.

The ownership of the SCG Common Shares following the consummation of the Transaction will depend on the number of SCG Common Shares that are validly tendered pursuant to the Offer.  Assuming that no SCG Common Shares are validly tendered pursuant to the Offer, the Sponsor, DOOH and their ultimate beneficial owners, including Gregory H. Sachs and Donald R. Wilson, Jr., will beneficially own in the aggregate approximately 39.4% of the outstanding SCG Common Shares.  Assuming that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer, then the Sponsor, DOOH and their ultimate beneficial owners, including Gregory H. Sachs and Donald R. Wilson, Jr. will beneficially own in the aggregate approximately 86.3% of the outstanding SCG Common Shares. This concentrated ownership interest could allow these stockholders to influence the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions after the consummation of the Transaction.

See “Beneficial Ownership of SCG Securities” for more information regarding the beneficial ownership of SCG following the Transaction.

 The Sponsor will lose its entire investment in SCG if the Transaction is not consummated, and a conflict of interest may thereby arise in determining whether the Transaction is appropriate for SCG’s initial business combination.

SCG’s directors and officers may have interests in the Transaction that are different from your interests as a Stockholder. You should keep in mind the following interests of SCG’s directors and officers:


·

In January 2011, the Sponsor purchased 2,190,477 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.01 per share. On April 12, 2011, SCG effected a 0.8 for one reverse split, the result of which left the Sponsor with 1,752,381 Founder Shares.  The Sponsor returned an aggregate of 228,571 Founder Shares to SCG for no consideration after the underwriters of the IPO determined that they would not exercise their option to purchase additional units to cover any over-allotments. In addition, simultaneously with the consummation of the IPO, SCG consummated the private sale of 4,000,000 Sponsor Warrants to the Sponsor at a price of $0.75 per warrant for an aggregate purchase price of $3,000,000. The membership interests in the Sponsor are owned, directly or indirectly, by certain family estate planning entities of Gregory H. Sachs, SCG’s founder and chairman, chief executive officer and president, DOOH, an entity ultimately controlled by Donald R. Wilson, Jr., Michelle Sibley, Kenneth B. Leonard and by certain employees of an affiliate of the Sponsor. SCG’s directors and officers will likely benefit from the completion of the Transaction even if the Transaction causes the market price of SCG’s securities to significantly decrease. The likely benefit to SCG’s directors and officers may influence their motivation for promoting the Transaction.

·

If SCG does not consummate the Transaction by April 12, 2013, SCG will be required to commence proceedings to dissolve and liquidate and the 1,523,810 Founder Shares held by the Sponsor will be worthless because the Sponsor has agreed to waive its redemption rights with respect to its Founder Shares if SCG fails to consummate a business combination on or before April 12, 2013.  In such event, the Sponsor Warrants will also expire worthless.  On the other hand, in the event the Transaction is consummated, the Sponsor, through its interests in the Founder Shares, would have an economic interest in SCG Common Shares with an aggregate value of $15,207,624, based on the closing sales price of SCG Common Stock of $9.98 on the Nasdaq Capital Market on March 27, 2013.




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In addition, the exercise of SCG’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in SCG Public Stockholders’ best interest.


SCG’s ability to request indemnification from RMG for damages arising out of claims for indemnification pursuant to the Merger Agreement is limited to 300,000 SCG Common Shares of the Stock Consideration issued in the Transaction, which will be held in escrow. Consequently, SCG may not be able to be entirely compensated for indemnifiable damages that it may sustain.

The indemnification obligations of RMG against losses that SCG may sustain and that result from, arise out of or relate to any breach by RMG or the RMG shareholders of any of their representations, warranties, or the covenants or agreements contained in the Merger Agreement is limited to the Escrow Shares. Certain claims for indemnification may be asserted against the Escrow Shares by SCG once its damages exceed a $100,000 deductible and will be reimbursable to the full extent of the damages in excess of such amount up to a maximum amount of the Escrow Shares. The Escrow Shares will no longer be subject to claims for indemnification after April 30, 2014. As a consequence of these limitations, SCG may not be able to be entirely compensated for indemnifiable damages that it may sustain.

SCG’s ability to request indemnification from Symon Holdings for damages arising out of claims for indemnification pursuant to the Symon Merger Agreement is limited. Consequently, SCG may not be able to be entirely compensated for indemnifiable damages that it may sustain.


The indemnification obligations of Symon Holdings against losses that SCG may sustain and that result from, arise out of or relate to any breach by Symon Holdings or its shareholders of for breaches of their representations and warranties contained in the Symon Merger Agreement is limited to certain specified fundamental representations. SCG is not entitled to indemnification for breaches of most representations and warranties regarding Symon’s business or operations. Accordingly, SCG may not be able to be compensated for indemnifiable damages that it may sustain.

The exercise of discretion by SCG’s directors and executive officers in agreeing to changes to the terms of or waivers of closing conditions in the Merger Agreement or the Offer may result in a conflict of interest when determining whether such changes or waivers are appropriate and in the Stockholders’ best interest.

In the period leading up to the consummation of the Transaction, events may occur that, pursuant to the Merger Agreement, would require SCG to agree to amend the Merger Agreement, to consent to certain actions taken by RMG or to waive rights that SCG is entitled to under the Merger Agreement. Such events could arise because of changes in the course of RMG’s business, a request by RMG to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or the occurrence of other events that would have a material adverse effect on RMG’s business and would entitle SCG to terminate the Merger Agreement. In any of such circumstances, it would be in the discretion of SCG, acting through the Board, to grant its consent or waive its rights. The existence of the financial and personal interests of the directors and executive officers described elsewhere in this Offer to Purchase may result in a conflict of interest on the part of one or more of SCG’s directors or executive officers between what he may believe is best for SCG and the Stockholders and what he may believe is best for himself in determining whether or not to take the requested action. As of the date of this Offer to Purchase, SCG does not believe there will be any changes or waivers that its directors and executive officers would be likely to make prior to consummation of the Transaction. While certain changes could be made without notification to the Stockholders, if there is a change to the terms of the Transaction that would have a material impact on the Stockholders, SCG may be required to circulate a new or amended Offer to Purchase or supplement thereto prior to the Expiration Date of the Offer.

If the benefits of the Transaction or the Symon Merger do not meet the expectations of investors and/or the Stockholders, the market price of SCG’s securities may decline.

The market price of SCG’s securities, including the SCG Common Shares, prior to the consummation of the Transaction or the market price of its securities following the consummation of the Transaction may decline as a result of the Transaction if SCG does not achieve the perceived benefits of the Transaction or the Symon Merger as rapidly, or to the extent anticipated by investors and/or the Stockholders.  Accordingly, the Stockholders may experience a loss as a result of a decline in the market price of SCG’s securities prior to or following the consummation of the Transaction or the Symon Merger. A decline in the market price of SCG’s securities also could adversely affect its ability to issue additional securities and its ability to obtain additional financing in the future.



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We have not obtained an opinion from an independent investment banking firm as to whether the acquisition of RMG represents fair value to the Stockholders.

We are not required to obtain an opinion from an independent investment banking firm  as to whether the price we are paying in connection with our initial business combination represents fair value to the Stockholders. Pursuant to the SCG Charter, the Board determined that the acquisition of RMG represented fair value based upon standards generally accepted by the financial community to value comparable businesses, such as actual and potential, earnings, and the price for which comparable businesses are currently valued by the public equity markets. The Stockholders therefore will be relying on the judgment of the Board with respect to such matters.

Risks Related to the Business of RMG

RMG has a history of incurring significant net losses and its future profitability is not assured.

For the years ended December 31, 2012 and 2011, RMG incurred net losses of $11.5 million and $14.8 million, respectively. RMG’s operating results for future periods are subject to numerous uncertainties and there can be no assurances that RMG will not continue to experience net losses for the foreseeable future. If RMG is not able to increase revenue and reduce its costs, it may not be able to achieve profitability.  RMG has revenue share commitments with four of its advertising partners. These commitments constitute a significant part of RMG’s cost of revenues. If RMG’s revenues decrease in a given period, it may be unable to reduce cost of revenues as a significant part of its cost of revenues is fixed, which could materially and adversely affect RMG’s business and results of operations and lead to a net loss for that period.

RMG has a limited operating history, which may make it difficult to evaluate its business and prospects.

RMG began business operations in September 2005 as Danouv Inc., developing a digital signage technology platform for ad serving and content distribution. RMG launched an initial media network with 650 screens in coffee shops and eateries in August 2006. In September 2006, Danouv Inc. changed its name to Danoo Inc. In July 2009, Danoo purchased certain assets of IdeaCast Inc., which operated a digital signage network in gyms and fitness centers and in the airline in-flight entertainment space. In August 2009, Danoo was renamed RMG Networks, Inc.

RMG acquired certain assets and cash from Pharmacy TV Network, LLC in March 2010 in an all-stock transaction. Pharmacy TV was a retail point of sale network in pharmacies across the United States. RMG subsequently shut this network down during the fourth quarter of 2011 due to lack of scale and advertiser demand. RMG acquired Executive Media Network Worldwide and its wholly-owned subsidiaries Corporate Image Media, Inc. and Prophet Media, LLC (collectively the Executive Media Network) in April 2011 to extend its airline media offering from airport business lounges to in-flight media. The Executive Media Network acquisition introduced a proprietary booking, tracking and inventory system called Charlie into the RMG technology portfolio. The Executive Media Network was subsequently transitioned to the RMG technology platform for content delivery and network management. This acquisition also consolidated the number of companies in the United States working with airlines to sell media. During the first quarter of 2012, RMG divested the NYTimes.com Today network, and in July 2012 RMG sold the Fitness Network.

RMG took steps to align resources behind the airline media properties because RMG was a category leader in that space in 2012.  Accordingly, it has a limited operating history for operations upon which you can evaluate the viability and sustainability of its business and its acceptance by advertisers and consumers. It is also difficult to evaluate the viability of its use of audiovisual advertising displays in airline executive clubs, IFE displays, Wi-Fi advertising and other digital out-of-home commercial locations as a business model because it does not have sufficient experience to address the risks frequently encountered by early stage companies using new forms of advertising media and entering new and rapidly evolving markets. These circumstances may make it difficult to evaluate RMG’s business and prospects.

If RMG is unable to retain or renew existing partnerships with airlines, IFE and Wi-Fi providers on commercially advantageous terms, it may be unable to maintain or expand RMG Airline Media Network coverage and its costs may increase significantly in the future.

RMG’s ability to generate revenues from advertising sales depends largely upon its ability to provide a large air travel advertising network for the display of advertisements. However, there can be no assurances that RMG will be able retain or renew its existing partnerships with airlines, IFE and Wi-Fi providers, and any failure to maintain its network could damage its relationships with advertisers and materially and negatively affect RMG’s business.



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RMG currently has ten partnership contracts that have terms ranging from one to five years. Four contracts renew automatically unless terminated prior to renewal while the rest have no automatic renewal provisions. Three partnership contracts were subject to renewal in 2013. RMG has renewed two of these contracts before expiration at terms comparable to the prior contracts. One contract expired and was not renewed. In addition, RMG has minimum revenue commitments to four of its partners, which comprise a significant portion of RMG’s total cost of revenues.  These commitments may increase over time and as partnership contracts terminate, RMG may experience a significant increase in its costs of revenues when it has to renew these contracts. If RMG cannot pass increased costs onto advertisers through rate increases, its earnings and results of operations could be materially and adversely affected. In addition, many of RMG’s partnership contracts contain provisions granting RMG certain exclusive advertising rights. RMG may not be able to retain these exclusivity provisions when it renews these contracts. If RMG were to lose exclusivity, its advertisers may decide to advertise with RMG’s competitors or otherwise reduce their spending on the RMG Airline Media Network and RMG may lose market share.

RMG’s partners may terminate their contracts with RMG or may not enter into new contracts with RMG on terms that are commercially advantageous to RMG. If RMG’s partners seek to negotiate terms that are less favorable to RMG and RMG accepts such terms, or if RMG seeks to negotiate better terms, but is unable to do so, then its business, operating results and financial condition could be materially and adversely affected.

RMG has relied, and expects to continue to rely, on a limited number of advertisers for a significant portion of its revenues, and its revenues could decline due to the delay of orders from, or the loss of, one or more significant advertisers.

In addition to RMG’s relationships with airline partners, RMG has relationships with major advertisers.  For the year ended December 31, 2012, Ford Motor Company represented approximately 15.8% of RMG’s total revenues for the period. RMG expects that a small number of advertisers will constitute a significant portion of its revenues for the foreseeable future. RMG’s relationships with these advertisers may not expand or may be disrupted. If a major advertiser purchases less advertising or defers orders in any particular period, or if a relationship with a major advertiser is terminated, RMG’s revenues could decline and its operating results may suffer. RMG is also obligated to provide minimum annual guarantees to certain airline and media partners, which RMG could have difficulty satisfying if RMG’s advertising revenues significantly decrease for any reason.

The airline industry is highly competitive, and a substantial weakening of, or business failure by, any of RMG’s partner airlines could negatively affect RMG’s revenues and jeopardize any investment RMG makes in deploying the RMG Airline Media Network in airline executive clubs.

The airline industry is highly competitive and has experienced substantial consolidation. Because RMG’s ability to generate revenues from advertising sales and services depends upon its ongoing relationships with a limited number of airlines, any substantial weakening or failure of the business of one or more of its existing airlines, or the consolidation of one or more of its airlines with a third party, could cause RMG’s revenues to decline, damaging its business and prospects.

RMG has in the past made, and plans in the future to make, significant investments in the equipment, installation and support of the RMG Airline Media Network within airline executive clubs. RMG intends to pursue opportunities where it may invest in new airline relationships and the deployment of new media inventory, and the weakening, failure or acquisition of any of its airline partners in the future could result in RMG’s loss of its investment and/or a negative return on its investment. In addition, RMG may incur additional expense recovering its equipment from airline executive clubs in the event any such clubs cease to operate or close for any reason.

If advertisers or the viewing public do not accept, or lose interest in, RMG’s digital out-of-home advertising network, its revenues may be negatively affected and its business may not expand or be successful.

The market for digital out-of-home advertising networks worldwide is relatively new and its potential is uncertain. RMG competes for advertising spending with many forms of more established advertising media. RMG’s success depends on the acceptance of digital out-of-home advertising networks by advertisers and their continuing interest in these media networks as components of their advertising strategies. RMG’s success also depends on the viewing public continuing to be receptive towards its advertising network. Advertisers may elect not to use RMG’s services if they believe that consumers are not receptive to RMG’s networks or that RMG’s networks do not provide sufficient value as effective advertising media. Likewise, if consumers find some element of RMG’s networks, such as its in-flight Roadblock Unit, to be disruptive or intrusive, the airlines may decide not to place RMG’s digital displays in their properties or allow RMG to sell advertising on their IFE systems and advertisers may view RMG’s advertising network as a less attractive advertising medium compared to other alternatives. In that event, advertisers may decide to reduce their spending on the RMG Airline Media Network. If a substantial number of advertisers lose interest in advertising on the RMG Airline Media Network for these or other reasons, RMG will be unable to generate sufficient revenues and cash flow to operate its business, and its advertising service revenue, liquidity and results of operations could be negatively affected.



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Advertisers may not accept RMG’s measurements of the RMG Airline Media Network audience or the methodologies may change, which could negatively impact its ability to market and sell its advertising packages.

RMG engages third-party research firms to study the number of people viewing the RMG Airline Media Network, consumer viewing habits and brand recall. Because the RMG Airline Media Network is different from at-home broadcast media, third-party research firms have developed measuring standards and methodologies that differ from those used to measure the amount and characteristics of viewers for other broadcast media. RMG markets and sells advertising packages to advertisers based on these measurements. If third-party research firms were to change the way they measure the viewers on the RMG Airline Media Network or their viewing habits, it could have an adverse effect on RMG’s ability to sell advertising on the RMG Airline Media Network. In addition, if advertisers do not accept or challenge the way third parties measure RMG’s viewers or their viewing habits, advertisers may be unwilling to purchase advertising at prices acceptable to RMG, if at all, and RMG’s revenues and operating results could be negatively impacted.

If consumers do not accept the RMG Airline Media Network as a part of the travel experience, RMG will be unable to grow or maintain its business.

The success of RMG’s business depends upon the long-term acceptance of digital media within airline executive clubs and in-flight by consumers. If consumer viewership of the RMG Airline Media Network, or sentiment towards advertising in general, shifts such that consumers become less receptive to the RMG Airline Media Network, advertisers may reduce their spending on the RMG Airline Media Network and airlines may decide not to carry the RMG Airline Media Network in their airplanes and executive clubs.

If people change the way they travel or reduce the amount that they travel, RMG’s revenues may decline and its business may suffer.

RMG’s success in selling advertising depends, in part, on high traffic airlines and airline executive clubs, which increases the number of potential viewers for the RMG Airline Media Network. The price at which RMG sells advertising aired on the RMG Airline Media Network is a direct result of the number of viewers and the quality of those viewers. If the number of travelers visiting the airline clubs or flying on commercial airplanes decreases, advertisers may decide not to advertise on the RMG Airline Media Network, may purchase less advertising on the RMG Airline Media Network or may not be willing to pay for advertising at price points necessary for it to succeed. If alternative methods of communication such as the Internet and other forms of travel increase in popularity, fewer consumers may visit RMG’s travel media locations. If consumers change the way they travel, such as increasing travel by car, they may not be receptive to RMG’s programming. In either case, RMG’s ability to generate revenues from advertisers could decrease and its operating results could decline.

RMG’s quarterly revenues and operating results are difficult to predict and may fluctuate significantly in the future.

RMG’s quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter. These fluctuations may cause the market price of RMG’s common stock to decline. RMG bases its planned operating expenses in part on expectations of future revenues, and its expenses are relatively fixed in the short term. If revenues for a particular quarter are lower than RMG expects, it may be unable to proportionately reduce its operating expenses for that quarter, which would harm its operating results for that quarter. In future periods, RMG’s revenue and operating results may be below the expectation of analysts and investors, which may cause the market price of its common stock to decline. Factors that are likely to cause RMG’s revenues and operating results to fluctuate include those discussed elsewhere in this section.

The nature of advertising sales cycles and shifting needs of advertisers makes it difficult for RMG to forecast revenues and increases the variability of quarterly fluctuations, which could cause RMG to improperly plan for its operations.  

A substantial amount of RMG’s advertising commitments are made months in advance of when the advertising airs on the RMG Airline Media Network. Between the time at which advertising commitments are made and the advertising is aired, the needs of RMG’s advertisers can change. Advertisers may desire to change the timing, level of commitment and other aspects of their advertising placements. As a result, RMG’s future advertising commitment at any particular date is not necessarily indicative of actual revenues for any succeeding period, making it more difficult to predict RMG’s financial performance. These changes could also negatively impact RMG’s financial performance, including quarterly fluctuations.

The markets for advertising are competitive and RMG may be unable to compete successfully.

The market for advertising is very competitive. Digital out-of-home advertising is a small component of the overall U.S. advertising market and RMG must compete with established, larger and better known national and local media platforms



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such as cable, broadcast and satellite television networks, out-of-home, print and other newly emerging media platforms such as the Internet and mobile. RMG competes for advertising directly with all media platforms, including radio and television broadcasting, cable and satellite television services, various local print media, billboards and Internet portals and search engines.

RMG also competes directly with other digital out-of-home advertising companies. RMG expects these competitors to devote significant effort to maintaining and growing their respective positions in the digital out-of-home advertising segment. RMG also expects existing competitors and new entrants to the digital out-of-home advertising business to constantly revise and improve their business models in light of challenges from RMG or competing media platforms. If RMG cannot respond effectively to advances by its competitors, its business may be adversely affected.

Increased competition may result in price reductions, reduced margins or loss of market share. RMG may be unable to compete successfully against current or future competitors, many of whom have significantly greater financial, technical, manufacturing, marketing, sales and other resources than RMG does.

RMG derives a substantial majority of its revenues from the provision of advertising services, which is particularly sensitive to changes in economic conditions and advertising trends.

Expenditures by advertisers tend to be cyclical, reflecting economic conditions, budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may be accompanied by a decrease in advertising spending. The global economic downturn that began in 2008 resulted in a decline in consumer spending in the United States, which resulted in a corresponding slowdown in advertising spending by businesses and advertisers. Although there are signs that global economic conditions are improving, economic conditions remain uncertain. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again, global economic conditions could adversely impact RMG’s revenue, profit margins, cash flow and liquidity.

In addition, even in the absence of a downturn in general economic conditions, advertisers may reduce the money they spend to advertise on the RMG Airline Media Network for a number of other reasons, including:


·

a decline in economic conditions in the travel industry;

·

a decline in advertising spending in general;

·

a decision to shift advertising expenditures from the digital out-of-home market to other available advertising media;

·

a decrease in demand for advertising media in general and for RMG’s advertising services in particular;

·

unfavorable local or regional economic conditions;  or

·

a downturn in an individual business sector or market.


Such conditions could have a material and adverse effect on RMG’s ability to generate revenue from its advertising services, with a corresponding adverse effect on RMG’s financial condition and results of operations.

The recent and ongoing global economic uncertainty may adversely impact RMG’s business, operating results or financial condition.

As widely reported, financial markets in the U.S., Europe and Asia have experienced extreme disruption since late 2008, and while there has been improvement in recent years, the world-wide economy remains fragile as uncertainty remains regarding when the economy will improve to historical growth levels. Any return to the conditions that existed during the recent recession or other unfavorable changes in economic conditions, including declining consumer confidence, concerns about inflation or deflation, the threat of another recession, increases in the rates of default and bankruptcy and extreme volatility in the credit and equity markets, may lead to decreased demand or delay in payments by RMG’s customers to RMG, and RMG’s results of operations and financial condition could be adversely affected by these actions. These challenging economic conditions also may result in:


·

increased competition for fewer media technology services and advertising dollars;

·

pricing pressure that may adversely affect revenue and gross margin;

·

reduced credit availability and/or access to capital markets;

·

difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers; or

·

customer financial difficulty and increased risk of doubtful accounts receivable.




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If RMG fails to manage its growth effectively, it may not be able to take advantage of market opportunities, execute on expansion strategies or meet the demands of advertisers.

RMG has expanded, and continues to expand, its operations to meet the demands of advertisers for broader and more diverse network coverage.  The growth in RMG’s business and operations has required, and will continue to require, significant attention from management and will continue to place a strain on operational systems and resources. To accommodate this growth, RMG will need to upgrade, improve or implement a variety of operational and financial systems, procedures and controls, including the improvement of accounting and other internal management systems, all of which require substantial management efforts.

RMG will also need to continue to expand, train, manage and motivate its workforce, manage its relationships with airline partners and advertisers, and add sales and marketing offices and personnel to service these relationships. As RMG adds new airline executive clubs to its network, it will incur greater maintenance costs to maintain equipment. All of these endeavors will require substantial managerial efforts and skill, and incur additional expenditures. RMG may not be able to manage its growth effectively, and as a result may not be able to take advantage of market opportunities, execute on expansion strategies or meet the demands of its advertisers.

RMG may make acquisitions or investments in technologies, products, media networks and businesses, and may not realize the anticipated benefits of these acquisitions or investments.

RMG has grown its business in part through acquisitions. For example, RMG established its executive airline club business through the acquisition of the Executive Media Network and its wholly-owned subsidiaries, Corporate Image Media, Inc. and Prophet Media, LLC in April 2011. As part of its business strategy, RMG may make future acquisitions of, or investments in, technologies, products, captive media networks and businesses that it believes could complement or expand its business, enhance its technical capabilities or offer growth opportunities. RMG may be unable to identify suitable acquisition candidates in the future or make these acquisitions on a commercially reasonable basis, or at all. In addition, RMG may spend significant management time and resources in analyzing and negotiating acquisitions or investments that do not come to fruition. These resources could otherwise be spent on RMG’s own internal airline development, advertiser sales, marketing efforts and research and development.

Any future acquisitions and investments would have several risks, including:


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failure to transition key advertiser relationships and sustain or grow advertising levels, particularly in the short-term;

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loss of key airlines or employees related to acquisitions;

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inability to successfully integrate acquired technologies or operations;

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failure to realize anticipated synergies in sales, marketing and distribution;

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diversion of management’s attention;

·

adverse effects on RMG’s existing business relationships with its advertisers and airlines;

·

potentially dilutive issuances of equity securities or the incurrence of debt or contingent liabilities;

·

expenses related to amortization of intangible assets and potential write-offs of acquired assets; and

·

the inability to recover the costs of acquisitions.


If RMG is unable to integrate acquired companies, operations or assets successfully or to create new or enhanced services, it might not achieve the anticipated benefits from its acquisitions. For example, in 2012, RMG disposed of the NYTimes.com Today Network in cafés and Fitness Entertainment Network in health and fitness centers. RMG also discontinued the operation of its Pharmacy TV Network which was acquired in 2010. The integration of acquired entities into RMG’s operations has required, and will continue to require, significant attention from management. Future acquisitions will also likely present similar challenges. If RMG fails to achieve the anticipated benefits from acquisitions, such as new airline relationships or technology deployments, it might incur increased expenses and experience a shortfall in anticipated revenues and might not obtain a satisfactory return on its investment.

If the market does not accept RMG’s digital signage solutions services, RMG’s results of operations could be harmed.

Digital signage solutions services revenue for the year ended December 31, 2012 was derived primarily from a single customer, DIRECTV, and represented approximately 15.7% of RMG’s total revenues. As of the fourth quarter of 2012, DIRECTV was no longer a customer. If RMG is unable to replace the sales revenue from DIRECTV, its results of operations could be materially and adversely affected. RMG is identifying new sources of digital signage solutions business, however, there can be no certainty that RMG will be able to identify, secure and manage such new business opportunities effectively.



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In addition, the success of RMG’s digital signage solutions services depends, in part, on its ability to adapt to rapidly changing technology. RMG must continually anticipate the emergence of, and adapt its digital signage solutions software and hardware to the introduction of new technologies, including new IFE, Wi-Fi and digital signage media formats and delivery channels, any of which could render RMG’s technology obsolete, unmarketable or unnecessary.

RMG’s strategy to expand its sales and marketing operations and activities may not generate the revenue increases anticipated or such revenue increases may only be realized over a longer period than currently expected.

Building a digital signage solutions customer base and achieving broader market acceptance of RMG’s digital signage solutions will depend to a significant extent on RMG’s ability to expand its sales and marketing operations and activities. RMG plans to expand its direct sales force both domestically and internationally, however, there is significant competition for direct sales personnel with the sales skills and technical knowledge that RMG requires. RMG’s ability to achieve significant growth in revenue in the future will depend, in large part, on its success in recruiting, training and retaining sufficient numbers of direct sales personnel. RMG’s business could be harmed if its sales and marketing expansion efforts do not generate a corresponding significant increase in revenue.

If a market for ChalkboxTV does not develop or if RMG is unable to successfully develop, introduce, market and sell ChalkboxTV, its results of operations could be harmed.

RMG plans to make ChalkboxTV, an easy-to-install in-store signage solution, available in April 2013 through a network of dealers and resellers.  The success of ChalkboxTV depends upon market acceptance of the product. Digital signage is an emerging market, and RMG cannot be sure that potential customers will accept ChalkboxTV as an advertising solution. Demand and market acceptance of the product is subject to a high level of uncertainty and risk and it is difficult to predict the size of the market and its growth rate. If a sufficient market fails to develop or develops more slowly than RMG anticipates, it may be unable to recover the losses it will have incurred in the development of ChalkboxTV.

The process of introducing a new product to the market is extremely complex, time consuming and expensive, and will become more complex as new platforms and technologies emerge. In the event ChalkboxTV does not gain wide acceptance in the marketplace, RMG may not recoup its research and development costs, and its business, financial condition and results of operations may be materially adversely affected. RMG may experience unanticipated delays in introducing ChalkboxTV to the market and may be unable to introduce ChalkboxTV in time to capture market opportunities, satisfy the requirements and specifications of its customers or achieve significant or sustainable acceptance in the marketplace.  

To market and sell ChalkboxTV, RMG will need to develop warranties, guarantees and other terms and conditions relating to the product that will be acceptable to the marketplace, and develop a service organization to aid in servicing the product. Failure to achieve any of these objectives may slow the development of a sufficient market for ChalkboxTV.  In addition, RMG will also need to develop and manage new sales channels and distribution arrangements. Because RMG has limited experience in developing and managing such channels, it may not be successful in reaching a sufficiently broad customer base. Failure to develop or manage sales channels effectively would limit RMG’s ability to succeed in this market and could adversely affect its ability to grow its customer base and revenue. RMG’s inability to generate satisfactory revenues from ChalkboxTV to offset its development costs could harm its operating results.

The growth of RMG’s business is dependent in part on successfully implementing its international expansion strategy.

RMG’s growth strategy includes expanding the geographic coverage and reach of the RMG Airline Media Network and expanding the digital signage solutions business. RMG has limited experience in international operations, and it may encounter difficulties due to different technology standards, legal considerations, language barriers, distance and cultural differences. RMG may not be able to manage international operations effectively and efficiently or compete effectively in international markets. If RMG does not generate sufficient revenues from international operations to offset the expense of these operations, or if RMG does not effectively manage accounts receivable, foreign currency exchange rate fluctuations and taxes, its business and its ability to increase revenues and enhance its operating results could suffer.

As part of RMG’s international expansion strategy, it intends to add a sales team in the People’s Republic of China or PRC. RMG’s wholly-owned subsidiary in the PRC has historically served as a technology research and development center, and RMG may not be successful in implementing its sales strategy in the PRC. Moreover, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to PRC laws and regulations that prohibit or restrict foreign ownership of Internet-related services and advertising businesses.  While RMG believes these laws and regulations do not apply to its operations in the PRC and while there are no existing PRC laws or regulations that specifically define or regulate digital out-of-home media, if RMG were found to be in violation of existing or future PRC laws or regulations or if interpretations of those laws and regulations were to change, RMG could be subject to fines and other financial penalties, have its licenses revoked or be forced to shut down its PRC operations.  Moreover, changes in PRC laws and regulations or the enactment of new laws and regulations governing digital out-of-home advertising, RMG’s business licenses or otherwise affecting RMG’s operations in the PRC could materially and adversely affect RMG’s international expansion strategy and cause its operating results to suffer.



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The failure of RMG’s service providers to provide, install and maintain its equipment could result in service interruptions and damage to RMG’s business.

RMG is and will continue to be significantly dependent upon third-party service providers to provide, install and maintain relevant video display and media player equipment at each airport location. The failure of any third-party provider to continue to perform these services adequately and timely could interrupt RMG’s business and damage its relationship with its partners and their relationship with consumers. Any outage would also impact RMG’s ability to deliver on the contracted impression levels, which would prevent RMG from recognizing revenues.

RMG relies on third parties for data transmission, and the interruption or unavailability of adequate bandwidth for transmission could prevent RMG from distributing its programming as planned.

RMG transmits the majority of the content that is aired on the RMG Airline Media Network using the Internet connectivity supplied by a variety of third-party network providers. RMG also relies on the networks of some of its partners to transmit content to individual screens. If RMG or its partners experience failures or limited network capacity, RMG may be unable to maintain programming and meet its advertising commitments. Problems with data transmission may be due to hardware failures, operating system failures or other causes beyond RMG’s control. In addition, there are a limited number of Internet providers with whom RMG could contract, and it may be unable to replace its current providers on favorable terms, if at all. If the transmission of data over the RMG Airline Media Network becomes unavailable, limited due to bandwidth constraints or is interrupted or delayed because of necessary equipment changes, RMG’s airline relationships and its ability to obtain revenues from current and new advertisers could suffer.

Computer viruses could cause significant downtime for the RMG Airline Media Network, decreasing RMG’s revenues and damaging RMG’s relationships with airlines, advertisers and consumers.

RMG generates revenues from the sales of advertising that is aired in its airlines’ planes and clubs. Computer hackers infecting RMG’s network, or the networks of the airlines or clubs in which RMG’s network is integrated, with viruses could cause RMG’s network to be unavailable. Significant downtime could decrease RMG’s revenues and harm its relationships and reputation with airlines, advertisers and consumers.

The RMG Airline Media Network operates on the same network used by the airlines for other aspects of their business, and RMG may be held responsible for defects or breakdowns in their networks if it is believed that such defects or breakdowns were caused by the RMG Airline Media Network.

In some cases, the RMG Airline Media Network is operated across an airline’s proprietary network, which is used to operate other aspects of the airline’s business. In these circumstances, any defect or virus that occurs on the RMG Airline Media Network may enter an airlines’ network, which could impact other aspects of the airlines’ business. The impact on an airlines’ business could be severe, and if RMG were held responsible, it could have an adverse effect on RMG’s airline relationships and on RMG’s operating results.

Shortages of components or a loss of, or problems with, a supplier could result in a disruption in the installation or operation of the RMG Airline Media Network.

From time to time, RMG has experienced delays in configuring and maintaining the in-club infrastructure of the RMG Airline Media Network for several reasons, including component delivery delays, component shortages and component quality deficiencies. Component shortages, including video displays and video cards, delays in the delivery of components, and supplier product quality deficiencies may occur in the future. These delays or problems have in the past and could in the future result in installation delays, reduced revenues, strained relations with airlines and advertisers and loss of business. Also, in an effort to avoid actual or perceived component shortages, RMG may purchase more components than it may otherwise require. Excess component inventory resulting from over-purchases, obsolescence, installation cancellations or a decline in the demand for the RMG Airline Media Network by airlines could result in equipment impairment, which in the past has had and in the future would have a negative effect on RMG’s financial results.

RMG obtains several of the components used in the in-club infrastructures of the RMG Airline Media Network, including video cards, audio equipment and other equipment from limited sources. RMG rarely has guaranteed supply arrangements with its suppliers, and cannot be sure that suppliers will be able to meet its current or future component requirements. If component manufacturers do not allocate a sufficient supply of components to meet RMG’s needs or if current suppliers do not provide components of adequate quality or compatibility, RMG may have to obtain these components at a higher cost from distributors or on the spot market. If RMG is forced to use alternative suppliers of components, it may have to alter its in-club infrastructure to accommodate these components. Modification of RMG’s in-club infrastructure to use alternative components could cause significant delays and reduce its ability to generate revenues.



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Government regulation of the telecommunications and advertising industries could require RMG to change its business practices and expose it to legal action.

The Federal Communications Commission, or the FCC, has broad jurisdiction over the telecommunications industry. FCC licensing, program content and related regulations generally do not currently affect RMG because RMG operates a private network within airline properties. However, the FCC could promulgate new regulations that impact RMG’s business directly or indirectly or interpret existing laws in a manner that would cause RMG to incur significant compliance costs or force RMG to alter its business strategy.

FCC regulations also affect many of RMG’s content providers and, therefore, these regulations may indirectly affect RMG’s business. In addition, the advertising industry is subject to regulation by the Federal Trade Commission, the Food and Drug Administration and other federal and state agencies, and to review by various civic groups and trade organizations, including the National Advertising Division of the Council of Better Business Bureaus. New laws or regulations governing advertising could substantially harm RMG’s business.

RMG may also be required to obtain various regulatory approvals from local, state or federal governmental bodies before it is permitted to expand the RMG Airline Media Network in particular industries. RMG may not be able to obtain any required approvals, and any approval may be granted on terms that are unacceptable to RMG or that adversely affect its business.

Changes in regulations relating to Wi-Fi networks or other areas of the Internet may require RMG to alter its business practices or incur greater operating expenses.

A number of regulations, including those referenced below, may impact RMG’s business as a result of its use of Wi-Fi networks. The Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, liability for distributing materials that infringe copyrights or other rights. Portions of the Communications Decency Act are intended to provide statutory protections to online service providers who distribute third-party content. The Child Online Protection Act and the Children’s Online Privacy Protection Act restrict the distribution of materials considered harmful to children and impose additional restrictions on the ability of online services to collect information from minors. The costs of compliance with these regulations, and other regulations relating to RMG’s Wi-Fi networks or other areas of RMG’s business, may be significant. The manner in which these and other regulations may be interpreted or enforced may subject RMG to potential liability, which in turn could have an adverse effect on its business, results of operations, or financial condition. Changes to these and other regulations may impose additional burdens on RMG or otherwise adversely affect its business and financial results because of, for example, increased costs relating to legal compliance, defense against adverse claims or damages, or the reduction or elimination of features, functionality or content from RMG’s Wi-Fi networks. Likewise, any failure on RMG’s part to comply with these and other regulations may subject it to additional liabilities.

The content RMG distributes on the RMG Airline Media Network may expose RMG to liability.

The RMG Airline Media Network facilitates the distribution of content. This content includes advertising-related content, as well as movie and television content and other media, much of which is obtained from third parties. As a distributor of content, RMG faces potential liability for negligence, copyright, patent or trademark infringement, or other claims based on the content that it distributes. RMG or entities that it licenses content from may not be adequately insured or indemnified to cover claims of these types or liability that may be imposed on RMG.

RMG may not obtain sufficient patent protection for its systems, processes and technology, which could harm its competitive position and increase its expenses.

RMGs success and ability to compete depends to a significant degree upon the protection of its proprietary technology. As of December 31, 2012, RMG held 3 issued patents in the United States. Any patents issued may provide only limited protection for RMG’s technology and the rights that may be granted under any future issued patents may not provide competitive advantages to RMG. Any patent applications may not result in issued patents. Also, patent protection in foreign countries may be limited or unavailable where RMG needs this protection. Competitors may independently develop similar technologies, design around RMG’s patents or successfully challenge any issued patent that RMG holds.

RMG relies upon trademark, copyright and trade secret laws and contractual restrictions to protect its proprietary rights, and if these rights are not sufficiently protected, RMG’s ability to compete and generate revenues could be harmed.

RMG relies on a combination of trademark, copyright and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect its proprietary rights. RMG’s ability to compete and expand its business could suffer if these rights are not adequately protected. RMG seeks to protect its source code for its software, design code for its advertising network, documentation and other written materials under trade secret and copyright laws. RMG licenses its software under signed license agreements, which impose restrictions on the licensee’s ability to utilize the



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software. RMG also seeks to avoid disclosure of its intellectual property by requiring employees and consultants with access to its proprietary information to execute confidentiality agreements. The steps taken by RMG to protect its proprietary information may not be adequate to prevent misappropriation of RMG’s technology. RMG’s proprietary rights may not be adequately protected because:


·

laws and contractual restrictions may not prevent misappropriation of RMG’s technologies or deter others from developing similar technologies; and

·

policing unauthorized use of RMG’s products and trademarks is difficult, expensive and time-consuming, and RMG may be unable to determine the extent of any unauthorized use.


The laws of other countries in which RMG may extend the RMG Airline Media Network in the future may offer little or no protection of its proprietary technologies. Reverse engineering, unauthorized copying or other misappropriation of RMG’s proprietary technologies could enable third parties to benefit from RMG’s technologies without paying it for doing so, which would harm RMG’s competitive position and market share.

RMG may face intellectual property infringement claims that could be time-consuming, costly to defend and result in its loss of significant rights.

Other parties may assert intellectual property infringement claims against RMG, and its products may infringe the intellectual property rights of third parties. From time to time, RMG receives letters alleging infringement of intellectual property rights of others. RMG may also initiate claims against third parties to defend its intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from RMG’s core business. If there is a successful claim of infringement against RMG, RMG may be required to pay substantial damages to the party claiming infringement, develop non-infringing technology or enter into royalty or license agreements that may not be available on acceptable terms, if at all. RMG’s failure to develop non-infringing technologies or license the proprietary rights on a timely basis could harm its business. Also, RMG may be unaware of filed patent applications that relate to its products. Parties making infringement claims may be able to obtain an injunction, which could prevent RMG from operating the RMG Airline Media Network or using technology that contains the allegedly infringing intellectual property. Any intellectual property litigation could adversely affect RMG’s business, operating results or financial condition.

RMG depends upon its management team and other key personnel and has recently experienced significant turnover in its finance and accounting team.  RMG’s business may be adversely affected if it cannot retain or replace such management or other key personnel.

RMG’s success depends on the retention of its senior management, as well as other key personnel with specialized industry, sales and technical knowledge and/or industry relationships. Because of the intense competition for these employees, particularly in the San Francisco Bay Area and the New York metro area, RMG may be unable to retain its management team and other key personnel and may be unable to find qualified replacements if their services were no longer available to RMG.  The loss of critical members of RMG’s management team or of key personnel could have a material adverse effect on RMG’s ability to effectively pursue its business strategy, relationships with airlines and advertisers and its growth may be limited as a result. All of RMG’s key employees are employed on an “at will” basis and RMG does not have key-man life insurance covering any of its employees.

RMG has experienced significant turnover in its financial and accounting personnel. During the first half of 2012, RMG lost the services of both its Chief Financial Officer and Controller. In December 2012, RMG appointed a financial consultant from the Avant Advisory Group to serve as Interim Chief Financial Officer while it continued its search for a new chief financial officer. The lack of continuity among RMG’s senior financial and accounting personnel has resulted, and could continue to result, in operational and administrative inefficiencies and added costs. To address these issues, RMG must successfully hire, train and integrate a new chief financial officer and other key financial and accounting personnel, which could be time consuming, may cause additional disruptions to RMG’s operations, and may be unsuccessful, which could negatively impact future revenues.

RMG’s ability to raise capital in the future may be limited and its failure to raise capital when needed could materially impact its business.

RMG believes that its existing cash and equivalents together with cash generated from the consummation of the Transaction, will be sufficient to meet its anticipated cash needs for at least the next 12 months. The timing and amount of its working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:


·

market acceptance of the RMG Airline Media Network;



26






·

the need to adapt to changing advertiser, airline and consumer preferences, as well as changing technologies and customers’ technical requirements;

·

the existence of opportunities for expansion, including investing in technology infrastructure; and

·

access to and availability of sufficient management, technical, marketing and financial personnel.  


If RMG’s capital resources are insufficient to satisfy its liquidity requirements, it may seek to sell equity securities or debt securities or obtain debt financing. The sale of equity securities or convertible debt securities could result in additional dilution to its stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict its operations. RMG has not made arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to it, if at all.

RMG’s operations are primarily located in California and, as a result, could be negatively impacted by earthquakes and other catastrophes.

RMG’s business operations depend on its ability to maintain and protect its facilities, computer systems, and personnel, which are primarily located in San Francisco, California. In addition, RMG creates, compiles and distributes its programming material and manages its networks from its headquarters in San Francisco, California. San Francisco exists on or near known earthquake fault zones. Should an earthquake or other catastrophe, such as fires, floods, power loss, communication failure, terrorist acts or similar events, disable its facilities, its operations would be disrupted because it does not have readily available alternative facilities from which to conduct its business.

Risks Related to the Business of Symon


Symon’s operations are subject to the strength or weakness of its customers’ businesses, and Symon may not be able to mitigate that risk.


A large percentage of Symon’s business is attributable to customers in the financial services, telecommunications and hospitality industries.  During periods of economic slowdown or during periods of weak business results, Symon’s customers often reduce their capital expenditures and defer or cancel pending projects or facilities upgrades. Such developments occur even among customers that are not experiencing financial difficulties.


For example, in 2008, a very large U.S.- based mortgage company, which was at the time one of Symon’s largest customers, did not buy any of Symon’s products as a result of the economic downturn.  Similar slowdowns could affect Symon’s customers in the hospitality industry in the wake of terrorist attacks, economic downturns or material changes in corporate travel habits.


Continued weakness in the industries Symon serves has had, and may in the future have, an adverse effect on sales of Symon’s products and Symon’s results of operations. A long term continued or heightened  economic downturn in one or more of the key industries that Symon serves, or in the worldwide economy, could cause actual results of operations to differ materially from historical and expected results.


A higher percentage  of Symon’s sales and profitability occur in the third and fourth quarters.


Symon sells more of its products in the third and fourth quarters because of traditional technology buying patterns of its customers. Corporate year end budgets, government buying and regional economics will affect the amount of Symon’s products and services that will fit into customers’ budgets late in the year.  Any unanticipated decrease in demand for Symon’s products during the third and fourth quarters could have an adverse effect on Symon’s annual sales and profitability.


The markets for digital signage are competitive and Symon may be unable to compete successfully.


The market for digital signage is very competitive and Symon must compete with other established digital signage providers. Symon also competes with established, larger electronics companies, for whom digital signage is one of many markets served. Symon expects existing competitors and new entrants to the digital signage business to constantly revise and improve their business models in light of challenges from Symon or other companies in the industry. If Symon cannot respond effectively to advances by its competitors, its business may be adversely affected.




27





Increased competition may result in new hardware or software developments that fundamentally change the digital signage industry, price reductions, reduced margins or loss of market share. Symon may be unable to compete successfully against current or future competitors, some of whom may have significantly greater financial, technical, manufacturing, marketing, sales and other resources than Symon does.


The recent and ongoing global economic uncertainty may adversely impact Symon’s business, operating results or financial condition.


As widely reported, financial markets in the U.S., Europe and Asia have experienced extreme disruption since late 2008, and while there has been improvement in recent years, the worldwide economy remains fragile as uncertainty remains regarding when the economy will improve to historical growth levels. Any return to the conditions that existed during the recent recession or other unfavorable changes in economic conditions, including declining consumer confidence, concerns about inflation or deflation, the threat of another recession, increases in the rates of default and bankruptcy and extreme volatility in the credit and equity markets, may lead to decreased demand or delay in payments by Symon’s customers or to slowing of their payments to Symon, and Symon’s results of operations and financial condition could be adversely affected by these actions. These challenging economic conditions also may result in:


·

increased competition for fewer digital signage dollars;

·

pricing pressure that may adversely affect revenue and gross margin;

·

reduced credit availability and/or access to capital markets;

·

difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers; or

·

customer financial difficulty and increased risk of doubtful accounts receivable.


The growth of Symon’s business is dependent in part on successfully implementing its international expansion strategy.


Symon’s growth strategy includes expanding its geographic coverage to include the Asia-Pacific region and Latin America.  Symon has limited experience in these regions, and it may encounter difficulties due to different technology standards, legal considerations, language barriers, distance and cultural differences. Symon may not be able to manage operations in these regions effectively and efficiently or compete effectively in these new markets. If Symon does not generate sufficient revenues from these regions to offset the expense of expansion into these regions, or if Symon does not effectively manage accounts receivable, foreign currency exchange rate fluctuations and taxes, its business and its ability to increase revenues and enhance its operating results could suffer.


If Symon fails to manage its growth effectively, it may not be able to take advantage of market opportunities, execute on expansion strategies or meet the demands of advertisers.


Symon has expanded, and continues to expand its operation into new markets, including employee communications, colleges and universities, retail stores and hospitality.  The growth in Symon’s business and operations has required, and will continue to require, significant attention from management and place a strain on operational systems and resources. To accommodate this growth, Symon will need to upgrade, improve or implement a variety of operational and financial systems, procedures and controls, including the improvement of accounting and other internal management systems, all of which require substantial management efforts.

Symon will also need to continue to expand, train, manage and motivate its workforce, manage its relationships with its customers, and add sales and marketing offices and personnel to service these relationships. All of these endeavors will require substantial managerial efforts and skill, and incur additional expenditures. Symon may not be able to manage its growth effectively, and as a result may not be able to take advantage of market opportunities, execute on expansion strategies or meet the demands of its customers.


Symon may make acquisitions or investments in technologies, products, media networks and businesses, and may not realize the anticipated benefits of these acquisitions or investments.


Symon has grown its business in part through acquisitions. For example, AFS Message-Link and Dacon, Ltd. are companies that Symon successfully purchased in 2006 and 2008, respectively. AFS Message-Link allowed Symon to enter the hospitality digital markets as a key industry participant, and Symon’s acquisition of Dacon, a company based in the United Kingdom, greatly expanded Symon’s contact center market presence and its base of large resellers.  As part of its business strategy, Symon may make future acquisitions of, or investments in, technologies, products and businesses that it believes could complement or expand its business, enhance its technical capabilities or offer growth opportunities. Symon



28





may be unable to identify suitable acquisition candidates in the future or make these acquisitions on a commercially reasonable basis, or at all. In addition, Symon may spend significant management time and resources in analyzing and negotiating acquisitions or investments that do not come to fruition. These resources could otherwise be spent on Symon’s own customer development, marketing and customer sales efforts and research and development.


Any future acquisitions and investments would have several risks, including:


·

failure to transition key customer relationships and sustain or grow sales levels, particularly in the short-term;

·

loss of key employees related to acquisitions;

·

inability to successfully integrate acquired technologies or operations;

·

failure to realize anticipated synergies in sales, marketing and distribution;

·

diversion of management’s attention;

·

adverse effects on Symon’s existing business relationships with its customers;

·

potentially dilutive issuances of equity securities or the incurrence of debt or contingent liabilities;

·

expenses related to amortization of intangible assets and potential write-offs of acquired assets; and

·

the inability to recover the costs of acquisitions.


If Symon is unable to integrate acquired companies, operations or assets successfully or to create new or enhanced services, it might not achieve the anticipated benefits from its acquisitions. The integration of acquired entities into Symon’s operations has required, and will continue to require, significant attention from management. Future acquisitions will also likely present similar challenges. If Symon fails to achieve the anticipated benefits from acquisitions, such as new customer relationships or technology deployments, it might incur increased expenses and experience a shortfall in anticipated revenues and might not obtain a satisfactory return on its investment.


Implementation and integration of new products, such as expanding Symon’s software, media player and services product portfolio could harm Symon’s results of operations.


A key component of Symon’s growth strategy is to develop and market new products, such as InView Mobile, LobbyView and OnTarget Premier content services. Symon may be unable to produce new products and services that meet customers’ needs or specifications. If Symon fails to meet specific product specifications requested by a customer, the customer may have the right to seek an alternate source of digital signage or to terminate the agreement. A failure to successfully meet the specifications of our potential customers could decrease demand or otherwise significantly hinder market adoption of Symon’s products and may have a material adverse effect on Symon’s business, financial condition or results of operations.


The process of introducing a new product to the market is extremely complex, time consuming and expensive, and will become more complex as new platforms and technologies emerge. In the event Symon is not successful in developing a wide range of offerings, such as those noted above, or does not gain wide acceptance in the marketplace, Symon may not recoup its investment costs, and its business, financial condition and results of operations may be materially adversely affected. Symon’s wide variety of mobile offerings working in a tight relationship with its core products may cause Symon to experience unanticipated delays in completing the development and introduction of future mobility products. For example, Symon may be unable to develop and introduce InView Mobile feature enhancements in time to capture market opportunities, satisfy the requirements and specifications of its customers or achieve significant or sustainable acceptance in the marketplaces targeted.


Shortages of components or a loss of, or problems with, a supplier could result in a disruption in the installation or operation of the Symon media player offering.


From time to time, Symon has experienced delays in manufacturing its media player offering for several reasons, including component delivery delays, component shortages and component quality deficiencies. Component shortages, delays in the delivery of components, and supplier product quality deficiencies may occur in the future. These delays or problems have in the past and could in the future result in delivery delays, reduced revenues, strained relations with customers and loss of business. Also, in an effort to avoid actual or perceived component shortages, Symon may purchase more components than it may otherwise require. Excess component inventory resulting from over-purchases, obsolescence, installation cancellations or a decline in the demand for the Symon’s media player offering could result in equipment impairment, which in the past has had and in the future would have a negative effect on Symon’s financial results.




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Symon obtains several of the components used in the Symon media player from limited sources. Symon rarely has guaranteed supply arrangements with its suppliers, and cannot be sure that suppliers will be able to meet its current or future component requirements. If component manufacturers do not allocate a sufficient supply of components to meet Symon’s needs or if current suppliers do not provide components of adequate quality or compatibility, Symon may have to obtain these components at a higher cost from distributors or on the spot market. If Symon is forced to use alternative suppliers of components, it may have to alter its manufacturing process to accommodate these components. Modification of Symon’s manufacturing process to use alternative components could cause significant delays and reduce its ability to generate revenues.


Symon relies significantly on information systems and any failure, inadequacy, interruption or security failure of those systems could harm its ability to effectively operate its business, harm its net sales, increase its expenses and harm its reputation.


Symon’s ability to effectively serve its customers on a timely basis, depends significantly on its information systems. To manage the growth of Symon’s operations, Symon will need to continue to improve and expand its operational and financial systems, internal controls and business processes; in doing so, Symon could encounter implementation issues and incur substantial additional expenses. The failure of Symon’s information systems to operate effectively, problems with transitioning to upgraded or replacement systems or a breach in security of these systems could adversely impact financial accounting and reporting, efficiency of Symon’s operations and Symon’s ability to properly forecast earnings and cash requirements. Symon could be required to make significant additional expenditures to remediate any such failure, problem or breach. Such events may have a material adverse effect on Symon.


Symon’s current or future internet-based operations may be affected by its reliance on third-party hardware and software providers, technology changes, risks related to the failure of computer systems that operate its internet business, telecommunications failures, electronic break-ins and similar disruptions. Furthermore, Symon’s ability to conduct business on the internet may be affected by liability for online content, patent infringement and state and federal privacy laws.


In addition, Symon may now and in the future implement new systems to increase efficiencies and profitability. To manage growth of our operations and personnel, Symon will need to continue to improve and expand its operational and financial systems, internal controls and business processes. When implementing new or changing existing processes, Symon may encounter transitional issues and incur substantial additional expenses.


Experienced computer programmers and hackers, or even internal users, may be able to penetrate Symon’s network security and misappropriate Symon’s confidential information or that of third parties, including Symon’s customers, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other errors in the storage, use or transmission of any such information could result in a disclosure to third parties outside of Symon’s network. As a result, Symon could incur significant expenses addressing problems created by any such inadvertent disclosure or any security breaches of its network. Any compromise of customer information could subject Symon to customer or government litigation and harm its reputation, which could adversely affect our business and growth.


Symon’s products operate on the same network used by Symon’s customers for other aspects of their businesses, and Symon may be held responsible for defects or breakdowns in these networks if it is believed that such defects or breakdowns were caused by Symon’s products.


Symon’s products are operated across Symon’s customers’ proprietary networks, which are used to operate other aspects of these customers’ businesses. In these circumstances, any defect or virus that occurs on Symon’s products may enter a customer’s network, which could impact other aspects of the customer’s business. The impact on a customer’s business could be severe, and if Symon were held responsible, it could have an adverse effect on Symon’s customer relationships and on Symon’s operating results.


Symon may be unable to protect its trademarks or other intellectual property rights, which could harm its business.


Symon relies on certain trademark registrations and common law trademark rights to protect the distinctiveness of its brand. However, there can be no assurance that the actions that Symon has taken to establish and protect its trademarks will be adequate to prevent imitation of its trademarks by others or to prevent others from claiming that sales of its products infringe, dilute or otherwise violate third-party trademarks or other proprietary rights in order to block sales of Symon’s products.




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The laws of certain foreign countries may not protect the use of unregistered trademarks to the same extent as do the laws of the United States. As a result, international protection of Symon’s image may be limited and Symon’s right to use its trademarks outside the United States could be impaired. Other persons or entities may have rights to trademarks that contain portions of Symon’s marks or may have registered similar or competing marks for digital signage in foreign countries. There may also be other prior registrations of trademarks identical or similar to Symon’s trademarks in other foreign countries. Symon’s inability to register its trademarks or purchase or license the right to use the relevant trademarks in these jurisdictions could limit Symon’s ability to penetrate new markets in jurisdictions outside the United States.


Litigation may be necessary to protect Symon’s trademarks and other intellectual property rights, to enforce these rights or to defend against claims by third parties alleging that Symon infringes, dilutes or otherwise violates third-party trademark or other intellectual property rights. Any litigation or claims brought by or against Symon, whether with or without merit, or whether successful or not, could result in substantial costs and diversion of Symon’s resources, which could have a material adverse effect on Symon’s business, financial condition, results of operations or cash flows. Any intellectual property litigation or claims against Symon could result in the loss or compromise of Symon’s intellectual property rights, could subject Symon to significant liabilities, require Symon to seek licenses on unfavorable terms, if available at all or prevent Symon from manufacturing or selling certain products, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.


Symon depends on key executive management and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business.


Symon depends on the leadership and experience of its key executive management. The loss of the services of any of its executive management members could have a material adverse effect on its business and prospects, as Symon may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. Symon believes that its future success will depend greatly on its continued ability to attract and retain highly skilled and qualified personnel. Symon’s inability to meet its staffing requirements in the future could impair our growth and harm our business.


Symon’s headquarters is located in Texas and, as a result, could be negatively impacted by tornadoes and other catastrophes.


Symon’s business operations depend on its ability to maintain and protect its facilities, computer systems, and personnel, which are primarily located in Plano, Texas. In addition, Symon manages its networks from its headquarters in Plano. Plano is located in an area that experiences frequent severe weather, including tornadoes. Should a tornado or other catastrophe, such as fires, floods, power loss, communication failure, terrorist acts or similar events, disable its facilities, its operations would be disrupted. While Symon has developed a backup and recovery plan, including a secondary location in Richardson, Texas, this secondary location could also be damaged.



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INFORMATION ABOUT THE COMPANIES

SCG

SCG was formed on January 5, 2011 as a blank check company for the purpose of effecting a business combination with one or more businesses. SCG is not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination, except that SCG will not effect a business combination with another blank check company or a similar type of company with nominal operations.

On April 18, 2011, SCG consummated the IPO of 8,000,000 Units, each consisting of one SCG Common Share and one SCG Public Warrant, which is exercisable for one SCG Common Share at an exercise price of $11.50 per Warrant, and received proceeds of approximately $77,600,000, net of underwriting discounts and commissions and expenses of approximately $2,400,000, excluding deferred underwriting discounts and commissions placed in the Trust Account pending completion of a business combination. Simultaneously with the consummation of the IPO, SCG consummated the private sale of 4,000,000 Sponsor Warrants to the Sponsor at a price of $0.75 per Warrant for an aggregate purchase price of $3,000,000. $77,000,000 in proceeds from the IPO and the proceeds of this private placement were placed in the Trust Account. The proceeds outside of the Trust Account as well as up to $1,250,000 in interest income (net of franchise and income taxes payable), earned on the Trust Account balance may be released to SCG to be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses; provided, however, that after such release there remains in the Trust Account a sufficient amount of interest income previously earned on the Trust Account balance to pay any taxes on such $1,250,000 of interest income.  

The SCG Charter, prior to the adoption of the SCG Charter Amendment, provided that if SCG did not consummate a business combination by January 12, 2013 (unless extended by 3 months by amendment to the SCG Charter), SCG would cease all operations and commence winding up, as described herein.  On recommendation of the Board, the Stockholders approved and adopted the SCG Charter Amendment on December 19, 2012 to extend the date on which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.  Pursuant to the terms of the SCG Charter, following the adoption of the SCG Charter Amendment, SCG is not permitted to pursue any potential initial business combination other than the Transaction.  

If SCG does not consummate the Transaction by April 12, 2013, SCG expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.

SCG Common Stock is listed on the Nasdaq Capital Market under the symbol “SCGQ”.  The Units and Warrants are listed on the OTCBB under the symbol “SCGQU” and “SCGQW”, respectively.  See “Price Range of Securities and Dividends”.

SCG’s executive offices are located at 615 North Wabash, Chicago, Illinois 60611 and SCG’s telephone number is (312) 784-3960.

RMG

RMG was founded in 2005 as a media network of screens in coffee shops and eateries and has evolved to become a global digital signage company that operates a leading national air travel media advertising network and also provides digital signage solutions.

RMG operates the RMG Airline Media Network, a U.S.-based network focused on selling advertising across air travel digital media assets in executive clubs, on in-flight entertainment, or IFE,  systems, on in-flight Wi-Fi portals and in private airport terminals. The network, which spans all major commercial passenger airlines in the United States, delivers to advertisers an audience of affluent travelers and business decision makers in a captive and distraction-free video environment.  Based on information provided by its airline, airport, IFE and Wi-Fi partners, RMG estimates that the RMG Airline Media



32





Network is comprised of over 120,000 IFE screens, nearly 3,000 aircraft, and 145 airline and private terminal lounges and can reach an audience of over 34 million passengers per month. RMG’s airline network includes: Delta Air Lines, United Airlines, Jet Blue Airways, Virgin America, Air France and KLM. RMG’s airline network also reaches passengers on Southwest Airlines, American Airlines, U.S. Airways, Alaska Airlines, Air Tran and Frontier Airlines via partnerships with third-party Wi-Fi and IFE providers.

RMG’s digital signage solutions group builds and operates digital place-based networks and offers a range of innovative digital signage software solutions to power the digital media assets of both small and medium businesses and enterprise customers. RMG offers custom solutions that leverage the integrated suite of design, content management, content delivery and monetization of digital signage. RMG licenses its media technology platform to leading enterprises in both the United States and China. Representative DSS clients have included: DIRECTV, Blink Fitness, Wanda Group, China Power Company and China Telecom. RMG believes that its combination of advertising management and technology expertise provides partners and customers with advertising-based and traditional digital signage solutions that differentiate RMG from its competitors. In particular, RMG’s consolidated media assets across the domestic air travel industry provide advertisers with access to a highly-valuable and captive audience base. RMG is led by an experienced senior management team with key relationships in advertising, travel and technology arenas.

RMG’s headquarters are located at 250 Montgomery Street, Suite 610, San Francisco, California 94104, and its telephone number is (415) 490-4200.  RMG also operates offices in New York, Detroit, Chicago, Los Angeles and Beijing, China.

Symon

Symon Communications, Inc. was founded in 1980. Symon’s earliest product offerings consisted of software and LED displays that were used by its customers to provide data center performance messaging to IT and help-desk personnel, alerting them to IT problems, current status, and resolutions.  Since its founding, Symon has evolved into a global provider of full-service digital signage solutions and enterprise-class media applications. Symon’s installations power more than one million digital signs and end-points and deliver real-time intelligent visual content that enhance the ways in which organizations communicate with their employees and customers.

Through its suite of products, which includes proprietary software, software-embedded media players, LED displays, maintenance and support services, subscription-based and custom creative content services, installation and training services and third-party displays, Symon offers its clients complete one-stop digital signage solutions.

Symon serves the key cross-industry markets of contact center, employee communications, and supply chain. In addition, Symon also serves the hospitality and gaming markets.  Overall, Symon has large concentrations of customers in the financial services, telecommunications, manufacturing, healthcare, pharmaceuticals, utilities, transportation industries, and in federal, state and local governments.

Symon differentiates itself from its competitors by providing comprehensive end-to-end solutions that integrate seamlessly with its customers’ IT infrastructures and data and security environments. As a result, Symon’s solutions are relied upon by over 70 percent of North American Fortune 100 companies and thousands of overall customers in locations worldwide. Symon believes that it is one of the largest integrated digital signage full-solution providers globally.

Symon’s headquarters are located at 500 North Central Expressway, Suite 175, Plano, Texas 75074, and its telephone number is (800) 827-9666. Symon also has an office located in Hemel Hempstead, United Kingdom, which serves customers in the United Kingdom, Western Europe, India, and the Middle East (“EMEA”). The office in Hemel Hempstead has a branch office in Dubai, United Arab Emirates.



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SELECTED HISTORICAL FINANCIAL INFORMATION

SCG Financial Acquisition Corp.


SCG is providing the following selected financial information to assist you in your analysis of the financial aspects of the Transaction. The statement of operations data for the year ended December 31, 2012 and the period from January 5, 2011 (date of inception) through December 31, 2011 and the balance sheet data as of December 31, 2012 and 2011 have been derived from SCG’s audited financial statements included elsewhere in this Offer to Purchase. The selected financial information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SCG” and SCG’s financial statements and related notes to those financial statements included elsewhere in this Offer to Purchase.


 

 

Year Ended

December 31, 2012

 

For the Period

January 5, 2011

(date of inception) to

December 31, 2011

 

Period from

January 5, 2011

(date of inception) to

December 31, 2012

Statement of Operations Data:

 

 

 

 

 

 

Revenue

$

-

$

-

$

-

Due Diligence/Transaction Costs

 

(1,260,414)

 

 

 

(1,260,414)

General and administrative expenses

 

(601,275)

 

(400,482)

 

(1,001,757)

Loss from operations

 

(1,861,689)

 

(400,482)

 

(2,262,171)

Interest income

 

53,586

 

37,977

 

91,563

Change in fair value of warrant liability

 

600,000

 

600,000

 

1,200,000

Net income (loss)

$

(1,208,103)

$

237,495

$

(970,608)

Net income (loss) per common share attributable to common shareholders, basic and diluted

$

(0.47)

$

0.10

$

(0.40)

Weighted average number of common shares outstanding, excludes shares subject to possible redemption-basic and diluted

 

2,551,764

 

2,265,722

 

2,409,727

Ratio of earnings to fixed charges

 

$(1,208,103) to $0

 

$237,495 to $0

 

$(970,608) to $0

 

 

 

 

 

 

 

Balance Sheet Data:

 

 

 

 

 

 

Cash

$

411,217

$

348,373

$

411,217

Total assets (including investments held in the Trust Account)

$

80,415,324

$

80,404,972

$

80,415,324

Total shareholder’s equity

$

5,000,001

$

5,000,001

$

5,000,001




34





SELECTED UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION


The following selected unaudited condensed combined pro forma balance sheet as of December 31, 2012 and the selected unaudited condensed combined pro forma statements of operations for the year ended December 31, 2012 are based on the separate historical financial statements of SCG, RMG and Symon Holdings included elsewhere in this Offer to Purchase, after giving effect to the Transaction and the Symon Merger (collectively, the “Transactions”).

The unaudited condensed combined pro forma statements of operations for the year ended December 31, 2012 give pro forma effect to the Transactions as if they had occurred on January 1, 2012.  The unaudited condensed combined pro forma balance sheet as of December 31, 2012 gives pro forma effect to the Transactions as if they had occurred on such date.

The historical financial information has been adjusted to give effect to pro forma events that are related and/or directly attributable to the Transactions, are factually supportable and, in the case of the unaudited condensed combined pro forma statement of operations data, are expected to have a continuing impact on the combined results.  The adjustments presented on the unaudited condensed combined pro forma financial information have been identified and presented in “Unaudited Condensed Combined Pro Forma Financial Data” to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Transactions.

This information should be read together with the financial statements of SCG, RMG and Symon Holdings and the respective notes thereto, “Unaudited Condensed Combined Pro Forma Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SCG”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of RMG” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Symon” included elsewhere in this Offer to Purchase.

With respect to the Transaction, the unaudited condensed combined pro forma financial statements have been prepared assuming (a) the issuance of 400,000 SCG Common Shares as Stock Consideration and (b) that SCG will use $21,000,000 of the funds released from the Trust Account after the purchase of the Public Shares in the Offer and issue an additional 250,000 SCG Common Shares to pay off indebtedness owed by RMG and its subsidiaries upon consummation of the Transaction.

With respect to the Symon Merger, the unaudited condensed combined pro forma financial statements have been prepared assuming SCG shall pay Symon Holdings’s stockholders $45,000,000 less (i) any indebtedness on Symon Holdings’s books on the Closing Date and (ii) the excess of Symon Holdings’s expenses incurred in association with the Symon Merger over $2,000,000.  

The unaudited pro forma condensed combined financial statements have been prepared using the assumptions below with respect to the potential redemption of SCG Common Shares:


·

Assuming No Tender of SCG Common Shares:  This presentation assumes that no Stockholders validly tender their SCG Common Shares pursuant to the Offer.

·

Assuming Tender of all Public Shares:  This presentation assumes that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.


The unaudited condensed combined pro forma financial information is presented for informational purposes only and is subject to a number of uncertainties and assumptions and do not purport to represent what the combined companies’ actual performance or financial position would have been had the Transactions occurred on the dates indicated and does not purport to indicate the financial position or results of operations as of any future date or for any future period.




35





SCG Financial Acquisition Corp. Reach Media Group Holdings, Inc. and Symon Holdings Corporation

Unaudited Condensed Combined Pro Forma Balance Sheet Data

As of December 31, 2012


 

 

Combined

Pro Forma

(Assuming No

Tender of

SCG Common Shares)

 

Combined

Pro Forma

(Assuming Tender

of all Public Shares

Other Than the DRW

Public Shares)

 

 

 

 

 

Cash and cash equivalent

$

 16,673,990

$

7,218,490

Total assets

$

 105,682,229

$

96,226,729

Total liabilities

$

 30,562,900

$

77,562,900

Total shareholders’ equity

$

 75,119,329

$

18,663,829

Total liabilities and shareholders’ equity

$

 105,682,229

$

96,226,729


SCG Financial Acquisition Corp., Reach Media Group Holdings, Inc. and Symon Holdings Corporation

Unaudited Condensed Combined Pro Forma Statements of Operations Data

For the Year Ended December 31, 2012


 

 

Combined

Pro Forma

(Assuming No

Tender of

SCG Common Shares)

 

Combined

Pro Forma

(Assuming Tender

of all Public Shares

Other than the DRW

Public Shares)

 

 

 

 

 

Loss from continuing operations

$

 (5,725,844)

$

 (12,775,844)

Weighted average shares outstanding – basic

 

 10,393,810

 

 4,748,260

Weighted average shares outstanding – diluted

 

 10,393,810

 

 4,748,260

Earnings per share attributable to shareholders – basic

$

 (0.55)

$

 (2.69)

Earnings per share attributable to shareholders – diluted

$

 (0.55)

$

 (2.69)




36





COMPARATIVE SHARE INFORMATION


The following table sets forth selected historical equity ownership information for SCG, RMG and Symon Holdingsand unaudited condensed combined pro forma per share ownership information after giving effect to the RMG Merger and the Symon Merger and assumes the following:


·

Assuming No Tender of SCG Common Shares:  This presentation assumes that no Stockholders validly tender their SCG Common Shares pursuant to the Offer.

·

Assuming Tender of all Public Shares:  This presentation assumes that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.


SCG is providing this information to aid you in your analysis of the financial aspects of the Transaction.  The historical information should be read in conjunction with “Selected Historical Financial Information” included elsewhere in this Offer to Purchase and the historical financial statements of SCG, RMG and Symon Holdings and the related notes thereto, each included elsewhere in this Offer to Purchase.  The unaudited pro forma per share information is derived from, and should be read in conjunction with, the unaudited condensed combined pro forma financial data and related notes included elsewhere in this Offer to Purchase.


 

 

SCG

Financial

Acquisition

Corp. (1)(4)

(Historical)

 

Reach Media

Group

Holdings, Inc. (2)

(Historical)

 

Symon Holdings Corporation (3)

(Historical)

 

Combined

Pro Forma

(Assuming No

Tender of

SCG Common Shares)

 

Combined

Pro Forma

(Assuming

Tender of all

Public Shares)

Book value per share at December 31, 2012

$

7.71

$

(2.18)

$

19.65

$

7.23

$

3.93

Basic earnings (loss) per common share

$

(0.13)

$

(1.82)

$

3.49

$

(0.55)

$

(2.69)

Diluted earnings (loss) per common share

$

(0.13)

$

(1.82)

$

3.49

$

(0.55)

$

(2.69)


                           

 

(1)

As of December 31, 2012, SCG had 9,523,810 outstanding shares of common stock (which includes shares subject to possible redemption) that were used to calculate both the book value per share and the basic and diluted earnings per share.

(2)

As of December 31, 2012, RMG had 6,334,095 outstanding shares of common stock that were used to calculate both the book value per share and the basic and diluted earnings per share.

(3)

As of January 31, 2013, Symon Holdings had 1,000,000 outstanding shares of common stock (two classes) that were used to calculate both the book value per share and the basic and diluted earnings per share.  

(4)

Common stock subject to redemption has been included with equity for purposes of calculating book value per share.




37





THE TRANSACTION

General Description of the Transaction

The Offer is being made pursuant to the terms of the Merger Agreement.  Pursuant to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into RMG.  Upon consummation of the Transaction, the separate existence of Merger Sub will thereupon cease, and RMG, as the Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  Pursuant to the terms of the SCG Charter, the DGCL and the Merger Agreement, SCG may consummate its initial business combination with RMG and conduct redemptions of Public Shares without approval of the Stockholders by providing the Stockholders with the opportunity to redeem their Public Shares through a tender offer pursuant to the tender offer rules promulgated by the SEC under the Exchange Act.  The Offer is being made in part to provide the Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Merger to be completed without a vote of the Stockholders.  See “The Offer — Purpose of the Offer; Certain Effects of the Offer” and “The Merger Agreement”.

Stock Consideration

Upon consummation of the Transaction, subject to the terms of the Merger Agreement, RMG’s stockholders will receive an aggregate of 100,000 SCG Common Shares as the Up-Front Purchase Consideration at the time of closing.  An additional 300,000 SCG Common Shares will be deposited in the Escrow Account with the Escrow Agent, which will be disbursed to the Stockholder Representative or to SCG in accordance with the terms and conditions of the Merger Agreement and the Escrow Agreement.       

Upon consummation of the Transaction, (i) the Up-Front Purchase Consideration will represent approximately 1.0% of the issued and outstanding SCG Common Shares, and the Stock Consideration will represent approximately 3.8% of the issued and outstanding SCG Common Shares, in the event that no SCG Common Shares are validly tendered pursuant to the Offer and (ii) the Up-Front Purchase Consideration will represent approximately 2.1% of the issued and outstanding SCG Common Shares, and the Stock Consideration will represent approximately 8.4% of the issued and outstanding SCG Common Shares, in the event that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.

Additionally, SCG will pay, on behalf of RMG and RMG’s subsidiaries, all indebtedness of RMG and its subsidiaries under the RMG Credit Agreement at a discounted amount equal to $23,500,000, of which $21,000,000 will be paid in cash and the balance will be paid by the issuance of the Lender Shares.

Upon consummation of the Transaction, the separate existence of Merger Sub will cease and RMG, as the Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  

The Offer

Under the terms of the Merger Agreement and the SCG Charter, SCG will conduct, prior to the consummation of the Transaction, the Offer to provide the SCG Public Stockholders with the opportunity to tender their Public Shares for cash at a price of $10.00 per share, net to the seller in cash, without interest, upon and subject to the consummation of the Transaction.  See “The Offer”.

Related Agreements

In addition to the Merger Agreement, the RMG Principal Stockholders and RMG’s lenders will enter into Lock-Up Agreements with SCG.  SCG will also enter into a Registration Rights Agreement with certain of RMG’s shareholders and with RMG’s lenders. Additionally, SCG, the Stockholder Representative and the Escrow Agent will enter into the Escrow Agreement.  The proposed terms of such agreements are described in greater detail under the heading “Related Agreements”.

Background of the Transaction

The terms of the Merger Agreement are the result of negotiations between the representatives of SCG and RMG. The following is a brief description of the background of these negotiations and the related transactions.

SCG was formed on January 5, 2011 as a blank check company for the purpose of effecting a business combination with one or more businesses. SCG is not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination, except that SCG will not effect a business combination with another blank check company or a similar type of company with nominal operations.



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On April 18, 2011, SCG consummated the IPO of 8,000,000 Units, each consisting of one SCG Common Share and one SCG Public Warrant, which is exercisable for an additional SCG Common Share at an exercise price of $11.50 per Warrant, and received proceeds of approximately $77,600,000, net of underwriting discounts and commissions and expenses of approximately $2,400,000, excluding deferred underwriting discounts and commissions placed in the Trust Account pending completion of a business combination. Simultaneously with the consummation of the IPO, SCG consummated the private sale of 4,000,000 Sponsor Warrants to the Sponsor at a price of $0.75 per Warrant for an aggregate purchase price of $3,000,000. $77,000,000 in proceeds from the IPO and the proceeds of this private placement were placed in the Trust Account. The proceeds outside of the Trust Account as well as up to $1,250,000 in interest income (net of franchise and income taxes payable) earned on the Trust Account balance may be released to SCG to be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses; provided, however, that after such release there remains in the Trust Account a sufficient amount of interest income previously earned on the Trust Account balance to pay any taxes on such $1,250,000 of interest income.  The Warrants are not exercisable until 30 days after the consummation of our initial business combination, provided that there is an effective registration statement under the Securities Act covering the SCG Common Shares issuable upon exercise of the Warrants and a current prospectus relating to them is available.   

The SCG Charter, prior to the adoption of the SCG Charter Amendment, provided that if SCG did not consummate a business combination by January 12, 2013 (unless extended by 3 months by amendment to the SCG Charter), SCG would cease all operations and commence winding up, as described herein.  On recommendation of the Board, the Stockholders approved and adopted the SCG Charter Amendment on December 19, 2012 to extend the date on which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.  Pursuant to the terms of the SCG Charter, following the adoption of the SCG Charter Amendment, SCG is not permitted to pursue any potential initial business combination other than the Transaction.  

Prior to the consummation of its IPO, neither SCG, nor anyone on its behalf, contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction with RMG.

Subsequent to the consummation of the IPO on April 18, 2011, SCG commenced consideration of potential target businesses with the objective of consummating a business combination. SCG sought out potential target businesses based on internal research and through the networks of relationships of our management, affiliates and the Board, and through intermediary relationships.

SCG reviewed potential acquisition targets based on the opportunity with each company to create Stockholder value from the ability to grow revenues (through organic growth and acquisitions) or improve the efficiency of business operations. In reviewing potential acquisition targets, SCG used the same criteria used in evaluating the Transaction, which included the opportunity for platform growth, the potential for strong free cash flow generation, whether the company was established with a proven track record, the experience and motivation of the management team and the competitive position of the target and its industry’s dynamics. SCG narrowed its focus based on the interest expressed by the potential targets and the suitability of each potential target as a potential acquisition.

Discussions between SCG and targets that expressed interest progressed to a point of sufficient mutual interest that SCG entered into non-disclosure agreements in relation to over 45 of such targets. Based on the criteria described herein, SCG’s analysis of the potential targets progressed to the substantive due diligence phase with respect to approximately 15 companies. SCG continued further due diligence and exchanged draft definitive documentation regarding a transaction with respect to three of such companies, including RMG. The first of these three companies was eliminated in May of 2012 due to concerns uncovered in the due diligence process. The second company was eliminated in October of 2012 due to concerns uncovered in the due diligence process. In late November 2012, SCG elected to pursue a transaction with RMG because of its potential for platform growth, potential for strong free cash flow generation, category leadership, experienced and motivated management team and competitive position and industry dynamics. None of the other potential acquisition targets considered by SCG were comparable to RMG because they did not operate in the same industry as RMG.

As indicated in the Prospectus, SCG primarily sought to capitalize on the global network and financial services industry experience of its management team to acquire a financial services business for the purposes of consummating its initial business combination. However, SCG also indicated that it was not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination, except that SCG will not effect a business combination with another blank check company or a similar type of company with nominal operations. In the course of its review of prospective targets, SCG did not identify a business within the financial services industry that expressed an interest in exploring a potential transaction which met the criteria that SCG used to evaluate prospective targets. SCG evaluated several potential targets in industries other than financial services and following research into the digital-out-of-home advertising segment, SCG decided to explore a transaction with RMG. While none of SCG’s officers or directors have previously managed or invested in a company engaged in RMG’s industry, SCG’s officers, affiliates and directors have substantial combined principal investing, financial advisory and financing experience. SCG believes that this principal



39





investing, financial advisory and financing experience across diverse industry sectors, coupled with its management’s, affiliates’ and directors’ relationships with industry-specific experts, provides SCG with the ability to evaluate and perform due diligence on target businesses across various industries, including companies in the advertising industry such as RMG.

On November 9, 2012 Mark Boidman of Barclays Capital, Inc., RMG’s investment banker, introduced an associate of Donald R. Wilson, Jr., the beneficial owner of DOOH, to Garry McGuire, Chief Executive Officer of RMG, via teleconference. Mr. Wilson had made previous investments in the digital-out-of-home advertising industry, and Mr. Wilson’s associates had previously been introduced to Mr. Boidman as an investment banker in the sector.

On November 10, 2012, Gregory H. Sachs, SCG’s Chief Executive Officer, spoke via teleconference with Mr. Wilson. During the discussion, Mr. Wilson described RMG to Mr. Sachs and the two discussed whether RMG would be an attractive target candidate for SCG.

On November 12, 2012, Mr. Sachs, Michelle Sibley, SCG’s Chief Financial Officer, and certain members of Sachs Capital Group LP, an affiliate of the Sponsor, met with Mr. Wilson and his associates at Mr. Wilson’s offices to discuss RMG. During the meeting Mr. Sachs and his associates provided a detailed overview of SCG and Mr. Wilson and his associates provided an overview of RMG.

On November 13, 2012, Mr. Sachs discussed the possible RMG transaction with Andor Laszlo of Lazard Capital Markets LLC, SCG’s underwriter, via teleconference.

On November 13 and 14, 2012 Messrs. Sachs and Wilson and their respective associates met with Mr. McGuire in Chicago, Illinois to further discuss a combination between SCG and RMG. During the meetings Mr. McGuire provided SCG an overview of RMG, SCG provided Mr. McGuire an overview of SCG and the group discussed possible transaction structures. During the meetings SCG and RMG entered into a mutual non-disclosure agreement and agreed to exchange more detailed information with regard to RMG. Subsequently, RMG granted SCG access to its virtual data room and SCG began conducting a formal due diligence review of RMG.

On November 15, 2012, DLA Piper LLP (US), SCG’s legal counsel, assisted SCG in preparing a draft letter of intent outlining the summary terms at which SCG would consider a combination with RMG. Concurrently, Mr. Sachs began discussions with RMG’s senior lender regarding terms for repayment of RMG’s outstanding indebtedness in connection with a potential business combination between SCG and RMG.

On November 16, 2012, SCG presented an initial draft letter of intent to RMG and reviewed the letter of intent with RMG and its counsel, Fenwick and West LLP. SCG and its counsel negotiated the letter of intent with RMG and its counsel between November 16, 2012 and November 20, 2012.

On November 20, 2012, SCG finalized and entered into an agreement with RMG’s senior lender relating to the repayment of RMG’s indebtedness in connection with the Transaction and concurrently finalized and entered into a letter of intent with RMG. Also on November 20, 2012, SCG consented to the transfer of 50% of the equity interests of the Sponsor to DOOH and SCG further consented to DOOH having the right to vote 50% of the SCG Common Shares owned by Sponsor.

On November 21, 2012, in order to allow SCG more time to evaluate and consummate a potential business combination with RMG, SCG filed a proxy statement with the SEC in which SCG sought Stockholder approval to extend the date by which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013 pursuant to the SCG Charter Amendment.

From November 26 through December 24, 2012, SCG, and its advisors and counsel, in various capacities, conducted an extensive due diligence review of RMG which included, among other items, meetings with RMG’s management and employees, a review of market dynamics and RMG’s competitive positioning, background checks of RMG’s senior management, a review of key customer and partner contracts and relationships, an evaluation of other material contracts and obligations, a review of RMG’s technology, products and infrastructure and legal due diligence. SCG also conducted an in-depth analysis of RMG’s historical financial statements which included the preparation of a financial due diligence report by an advisor containing quality of earnings, balance sheet, income statement, cash flow and working capital analyses. In conducting its due diligence review, SCG and its advisors and counsel, in various capacities, conducted in-person meetings in Chicago, Illinois, San Francisco, California, New York City, New York and Beijing, China.

On December 10, 2012, SCG and its counsel provided to RMG and its counsel an initial draft of the Merger Agreement relating to a potential business combination between SCG and RMG. From December 10, 2012 through January 11, 2013, RMG and its counsel negotiated the terms and conditions of the Merger Agreement with SCG and its counsel. SCG’s ultimate determination regarding the amount and form of the Merger consideration was based upon a financial analysis of RMG which included a review of the relative valuations and operating metrics of publicly traded companies similar to RMG.



40





On December 12, 2012 SCG met with representatives from its underwriter, Lazard Capital Markets LLC, and Lazard Freres & Co. LLC in New York City, New York, to discuss considerations around the proposed business combination between SCG and RMG.

On December 14, 2012, in an effort to provide SCG with the financial resources that are expected to be required to close the proposed business combination with RMG, SCG entered into the Equity Commitment Letter with DOOH, which is designed to provide SCG with sufficient financial resources to consummate the Transaction regardless of the number of Public Shares tendered in the Offer.

On December 19, 2012, the Stockholders approved the Charter Amendment to extend the date by which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.

On December 20, 2012, following substantial completion of SCG’s due diligence review, the Board held a special meeting via teleconference. At this meeting, the Board received a presentation from Messrs. McGuire and Sachs presenting a synopsis of the proposed transaction between SCG and RMG and an overview of RMG. SCG’s counsel attended the meeting and was available to answer legal questions and questions regarding the then current draft of the Merger Agreement from the Board. Representatives from SCG also provided an overview of SCG’s due diligence review. SCG also presented a financial analysis, informed by the work of its advisors, comparing the implied transaction valuation and RMG’s operating metrics to the trading valuations and operating metrics of comparable publicly traded companies.

On January 11, 2013 the Board held a special meeting via teleconference. Following an overview of the final Merger Agreement by SCG’s counsel, after reviewing SCG’s completed due diligence review and after discussions thereof, with only Mr. Sachs abstaining, the Board unanimously approved the Transaction and authorized the officers of SCG to execute the Transaction documents and the Merger Agreement was executed by the parties. Prior to the opening of the financial markets on January 17, 2013, SCG and RMG issued a press release announcing the Transaction.

On March 26, 2013, SCG entered into a side letter with RMG’s senior lender extending the date by which the Transaction must be consummated to April 12, 2013 and revising the composition of the consideration payable to $21,000,000 in cash payable at the time of closing and the issuance of 250,000 SCG Common Shares.

The Board’s Reasons for the Approval of the Transaction

The Board, with only Gregory H. Sachs abstaining, has unanimously (i) approved our making the Offer, (ii) declared the advisability of the Merger and approved the Merger Agreement, and (iii) determined that the Transaction is in the best interests of the Stockholders and, if consummated, would constitute our initial business combination pursuant to the SCG Charter.  If you tender your SCG Common Shares pursuant to the Offer, you will not be participating in the Transaction because you will no longer hold such SCG Common Shares.  SCG will be the public holding company for RMG upon the consummation of the Transaction.  Neither SCG, the Board, the Information Agent nor the Depositary is making any recommendation to you as to whether to tender or refrain from tendering your SCG Common Shares pursuant to the Offer.

The Board considered a wide variety of factors in connection with its evaluation of the Transaction. In light of the complexity of those factors, the Board, as a whole, did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision. Individual members of the Board may have given different weight to different factors.

The Board considered the nature of RMG’s business, its past and projected operating results, the factors outlined below and the various risks discussed in the section entitled “Risk Factors”, in reaching its determination that the Transaction is in the best interests of the Stockholders and to approve the Transaction.

Initial RMG projections were provided to SCG shortly after discussions began with RMG. Following a review of the projections, analysis of the market, progress with its due diligence review of RMG and consultation with its advisors, SCG formed an independent view around RMG’s potential future operations and then conducted a financial analysis to determine an appropriate valuation for RMG. SCG primarily relied on a comparison of implied enterprise value to expected EBITDA multiples (“EBITDA Multiples”) of publicly traded companies that it believes are comparable to RMG. In conducting its financial analysis, SCG took into account the relative characteristics of RMG versus four comparable companies in the out-of-home advertising market including, without limitation or weighting, operating metrics, projected growth rates, market positions and sizes.

In calculating the transaction EBITDA Multiple for the RMG purchase, SCG relied on various assumptions, including RMG’s projected EBITDA for the years ending December 2013 and December 2014, including adjustments for costs associated with the Transaction, of $4.3 million and $10.6 million, respectively. The resulting 2013 and 2014 Transaction EBITDA Multiples of approximately 10.7x and approximately 4.3x, respectively, represented an approximate 5% premium and an approximate 55% discount to the respective median EBITDA Multiples of publicly traded companies comparable to RMG of approximately 10.3x and approximately 9.6x, respectively, at the time of the Board’s review.



41





The Board also reviewed the expected capital resources of RMG after the completion of the Transaction. Based on this analysis, the Board concluded that RMG would have sufficient capital resources to execute its business strategy and to operate its business in a manner that would not adversely affect RMG’s ability to achieve its projected EBITDA targets. Accordingly, the Board determined the consideration to be paid in connection with the Transaction is fair to SCG shareholders.

Subsequent to the Board’s review and approval of the Transaction, SCG revised RMG’s projections of 2013 and 2014 EBITDA to $3.1 million and $8.3 million, respectively, primarily due to the delay in launching certain near-term growth initiatives, including further international expansion and new product launches, given RMG management’s focus on completing the Transaction and the potential need to integrate RMG and Symon. The revised RMG projections result in 2013 and 2014 Transaction EBITDA Multiples of approximately 15.1x and approximately 5.6x, respectively.

In considering the Transaction, the Board gave consideration to the following positive factors (although not weighted or in any order of significance):


·

Opportunities to grow revenues, both organically and from acquisition.  The Board evaluated whether target businesses could support long-term growth in revenues and earnings. The Board believes that RMG’s experience, in-place operations and relationships and market position will facilitate such growth. The primary growth strategy of RMG includes organic growth within the air travel media category in domestic, international and interactive channels as well as growth from the acquisition of networks targeting desirable demographics in other categories. In evaluating RMG’s growth potential, the Board evaluated projections provided by RMG’s management team, as reviewed and adjusted by SCG and its advisors. The Board also considered general industry trends, characteristics and projections as noted in industry publications.

·

Leader in the travel media category in the digital out-of-home advertising sector.  The Board evaluated RMG’s market leadership within the air travel media category of the digital out-of-home advertising sector. The Board considered RMG’s leading market share, blue-chip client base that includes Fortune 100 companies, its relationships with its airline partners and the relative barriers to entry of the sector. Based on RMG’s market position and the historical and projected growth rates within the air travel media category and digital out-of-home advertising sector, the Board determined that RMG offers attractive market positioning for creating Stockholder value over time.

·

Access to a highly desirable audience.  The Board also evaluated the audience that RMG network reaches and the desirability of that audience by advertisers. RMG’s network targets an affluent, executive audience at multiple touch-points and in captive settings. RMG believes that its target audience and reach offer a compelling value proposition to advertisers.

·

RMG’s experienced management team.  The Board evaluated whether RMG had a management team with specialized knowledge of the markets within which it operates. Given that RMG’s senior management team has significant experience in operating and growing advertising, digital media and technology businesses, the Board determined RMG’s management team has requisite knowledge and experience within the digital out-of-home advertising sector to continue to lead the business as it expands.


In addition, the Board also gave consideration to the following negative factors (although not weighted or in any order of significance):


·

Revenues and results of operations may be volatile and difficult to predict.  Any number of factors can impact RMG’s revenues and results of operations causing them to fluctuate from quarter to quarter. While RMG has control over some of these factors, RMG has limited to no control over a majority of the factors identified by the Board (e.g. changes in general market conditions, changes in advertising spending by advertisers and the impact or change of regulations, among others).

·

The cyclicality of advertising expenditures.  Advertising spending can be cyclical and fluctuate with changing economic conditions. Accordingly, certain aspects of the business of RMG could be cyclical in nature and based on the current economic and market conditions. As a result, RMG may be required to adjust its sales and marketing practices and react to different business opportunities and modes of competition based on the economic environment and market opportunities. Further, the digital-out-of-home sector is relatively young compared to other industry sectors (e.g. television and print media) and may experience increased volatility versus the broader advertising industry.

·

Reliance on a small number of airline partners.  Given the relatively few national airlines in the U.S., RMG relies on a relatively small number of airline partners with which to place advertisements. The loss of one of RMG’s material airline partners could adversely affect RMG’s operations and financial results.



42






·

RMG is primarily focused on one relatively less developed category of the digital out-of-home sector.  While RMG believes it is a leader in the air travel media category, the category is relatively small compared to other categories in the digital out-of-home advertising sector and the broader advertising industry in total. In addition, the digital out-of-home sector is relatively less developed than other sectors of advertising media (e.g. print media or television). Firms with greater scale and in more established sectors are generally able to garner larger advertising expenditure allocations.

·

Risks of growing in new markets and integrating acquisitions. A portion of RMG’s projected growth is predicated on RMG entering categories or channels in which it currently does not operate or which are not yet fully developed. RMG’s access to and monetization of such new market opportunities may not materialize as RMG’s management currently believes they will. Further, RMG’s growth strategy contemplates, in part, growth through acquisition. Such acquisition opportunities may not materialize as RMG currently expects or RMG may not be able to integrate such acquisitions in a manner that enhances its operations and profitability.


Interests of the SCG Public Stockholders in the Transaction

Upon consummation of the Transaction and issuance of the Stock Consideration, the SCG Public Stockholders other than DRW will own approximately (i) 54.3% of the SCG Common Shares following consummation of the Transaction in the event no SCG Common Shares are validly tendered pursuant to the Offer and (ii) 0.0% of the SCG Common Shares outstanding following consummation of the Transaction in the event that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer, respectively. See “Beneficial Ownership of SCG Securities”.

Certain Benefits of SCG’s Directors and Officers and Others in the Transaction

SCG’s directors and officers may have interests in the Transaction that are different from your interests as a Stockholder. You should keep in mind the following interests of SCG’s directors and officers:


·

In January 2011, the Sponsor purchased 2,190,477 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.01 per share. On April 12, 2011, SCG effected a 0.8 for one reverse split, the result of which left the Sponsor with 1,752,381 Founder Shares.  The Sponsor returned an aggregate of 228,571 Founder Shares to SCG for no consideration after the underwriters of the IPO determined that they would not exercise their option to purchase additional units to cover any over-allotments. In addition, simultaneously with the consummation of the IPO, SCG consummated the private sale of 4,000,000 Sponsor Warrants to the Sponsor at a price of $0.75 per warrant for an aggregate purchase price of $3,000,000. The membership interests in the Sponsor are owned, directly or indirectly, by certain family estate planning entities of Gregory H. Sachs, SCG’s founder and chairman, chief executive officer and president, DOOH, an entity ultimately controlled by Donald R. Wilson, Jr., Michelle Sibley, Kenneth B. Leonard and by certain employees of an affiliate of the Sponsor. SCG’s directors and officers will likely benefit from the completion of the Transaction even if the Transaction causes the market price of SCG’s securities to significantly decrease. The likely benefit to SCG’s directors and officers may influence their motivation for promoting the Transaction.

·

If SCG does not consummate the Transaction by April 12, 2013, SCG will be required to commence proceedings to dissolve and liquidate and the 1,523,810 Founder Shares held by the Sponsor will be worthless because the Sponsor has agreed to waive its redemption rights with respect to its Founder Shares if SCG fails to consummate a business combination on or before April 12, 2013.  In such event, the Sponsor Warrants will also expire worthless.  On the other hand, in the event the Transaction is consummated, the Sponsor, through its interests in the Founder Shares, would have an economic interest in SCG Common Shares with an aggregate value of $15,207,624, based on the closing sales price of SCG Common Stock of $9.98 on the Nasdaq Capital Market on March 27, 2013.


In addition, the exercise of SCG’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in SCG Public Stockholders’ best interest.

Anticipated Accounting Treatment

SCG management has concluded, based on its evaluation of the facts and circumstances of the Transaction, that SCG is the acquirer for accounting purposes.  SCG will retain effective control of RMG following consummation of the Transaction.  After consummation of the Transaction, a large percentage of the combined entity’s voting rights will be held by current Stockholders, primarily the Sponsor and its affiliates.  Additionally, SCG will elect all but one of the combined



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entity’s Board members.  Although many members of RMG’s senior management will continue to serve as management of the combined entity, this was not considered determinative as all other relevant factors were not aligned with the management composition.  The Transaction constitutes the acquisition of a business for purposes of Financial Accounting Standards Board’s Accounting Standard Codification 805, “Business Combinations,” or ASC 805.  As a result, the basis of the assets and liabilities of RMG will be adjusted to their fair market values and the appropriate amount of intangible assets or goodwill will be recorded for the consideration given in excess of the fair market values. All transaction costs should be expensed as incurred, except those costs associated with equity raising (which should be booked to additional paid-in capital) and debt financing (which should be booked as deferred financing costs).



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THE MERGER AGREEMENT

This section of this Offer to Purchase describes the material provisions of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is annexed hereto as Annex I, which is incorporated herein by reference. The Stockholders and other interested parties are urged to read the Merger Agreement in its entirety because it is the primary legal document that governs the Transaction. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Merger Agreement.

The Merger Agreement has been included to provide information regarding the terms of the Transaction. Except for its status as the contractual document that establishes and governs the legal relations among SCG and RMG with respect to the Transaction, the Merger Agreement is not intended to be a source of factual, business or operational information about the parties.

The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Merger Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Offer to Purchase, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty to the extent material to an investment decision have been included in this Offer to Purchase. The representations, warranties and covenants in the Merger Agreement are also modified in important part by the underlying disclosure schedules which are not filed publicly and which are subject to a contractual standard of materiality different from that generally applicable to the Stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. SCG and RMG do not believe that these schedules contain information that is material to an investment decision.

Structure of the Transaction; Consideration to be Paid

Pursuant to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into RMG.  Upon consummation of the Merger, the separate existence of Merger Sub will thereupon cease, and RMG, as the Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  As a result of the Transaction, RMG’s shareholders will receive the Stock Consideration, and all rights and interests in and to the issued and outstanding shares of capital stock of RMG shall be cancelled, subject to certain terms and conditions set forth in the Merger Agreement. The material aspects of the structure of the Transaction and the Stock Consideration are as follows:


·

RMG’s shareholders, in accordance with the terms and conditions of the Merger Agreement, will receive the Stock Consideration as more fully described herein.

·

SCG will pay a discounted amount equal to $23,500,000 as payment in full under the RMG Credit Agreement. Pursuant to a letter agreement entered into between SCG and the administrative agent for RMG’s lenders on March 26, 2013, $21,000,000 of the discounted amount will be paid in cash and the balance will be paid by the issuance of the 250,000 Lender Shares.

·

A portion of the Stock Consideration, 300,000 SCG Common Shares (to be used as the Escrow Shares as recourse for indemnity obligations and any adjustment to the Stock Consideration), will be deposited in escrow and subject to the Escrow Agreement to be entered into at the closing of the Transaction.

·

Concurrently with the execution of the Merger Agreement, SCG delivered to RMG a financial commitment letter (the “Financing Commitment Letter”), whereby SCG agreed, within seven business days from the date thereof, to enter into a Bridge Loan Agreement, pursuant to which SCG would provide to RMG a bridge loan in the amount of $550,000 (the “Bridge Loan”).  RMG has since waived its rights to receive the Bridge Loan.

·

The Transaction is conditioned upon SCG having completed the Offer pursuant to the terms of the Merger Agreement. Through the Offer, the SCG Public Stockholders will be provided with the opportunity to redeem their Public Shares for cash equal to the Share Purchase Price, which has been calculated as the price per SCG Common Share, subject to lawfully available funds therefor, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account as of two business days prior to the date of the commencement of the Offer plus interest accrued from the date of the commencement of the Offer until two business days prior to the consummation of the initial business combination, less franchise and income taxes payable and less any interest that SCG may withdraw for working capital requirements, by (B) the total number of then outstanding Public Shares. The obligation of SCG to purchase SCG Common Shares validly tendered and not validly withdrawn pursuant to the Offer will be subject to, among others, the Merger Condition.

·

Upon consummation of the Transaction, RMG will continue its corporate existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.



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Upon consummation of the Transaction, subject to the terms of the Merger Agreement, RMG’s shareholders will receive an aggregate of 100,000 SCG Common Shares as the Up-Front Purchase Consideration at the time of closing of the Transaction.  An additional 300,000 SCG Common Shares will be deposited in the Escrow Account with the Escrow Agent, which will be disbursed to either RMG, the Stockholder Representative or to SCG in accordance with the terms and conditions of the Merger Agreement and the Escrow Agreement.  Additionally, SCG will pay, on behalf of RMG and its subsidiaries, all indebtedness of RMG Networks, Inc., at a discounted amount equal to $23,500,000, of which $21,000,000 will be paid in cash and the balance will be paid by the issuance of the Lender Shares.

Upon consummation of the Transaction, (i) the Up-Front Purchase Consideration will represent approximately 1.0% of the issued and outstanding SCG Common Shares, and the Stock Consideration will represent approximately 3.8% of the issued and outstanding SCG Common Shares, in the event that no SCG Common Shares are validly tendered pursuant to the Offer and (ii) the Up-Front Purchase Consideration will represent approximately 2.1% of the issued and outstanding SCG Common Shares, and the Stock Consideration will represent approximately 8.4% of the issued and outstanding SCG Common Shares, in the event that all Public Shares (except for the DRW Public Shares) are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer. See “The Merger Agreement—Structure of the Transaction; Consideration to be Paid” for a further description of the Stock Consideration.

Pursuant to the SCG Charter and the DGCL, SCG is permitted to consummate the Transaction without the approval of the Stockholders by offering to redeem their Public Shares upon the consummation of the initial business combination, pursuant to the tender offer rules promulgated under the Exchange Act.  The Offer is being made in part to provide the SCG Public Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Transaction to be completed without a Stockholder vote.

As the Escrow Shares will be deposited in escrow (to be used as recourse for indemnity obligations), at the closing of the Transaction, SCG, the Stockholder Representative and the Escrow Agent will enter into the Escrow Agreement and the certificates for the Escrow Shares will be deposited with the Escrow Agent and, subject to any indemnification claims, will be released in accordance with the terms of the Merger Agreement and the Escrow Agreement.

Bridge Loan

Concurrently with the execution of the Merger Agreement, SCG delivered to RMG the Financing Commitment Letter whereby SCG agreed, within seven business days from the date thereof, to enter into a Bridge Loan Agreement, pursuant to which SCG would provide the Bridge Loan to RMG.  RMG has since waived its rights to receive the Bridge Loan.

Closing of the Transaction

The Transaction is expected to be consummated promptly following the satisfaction or waiver of the conditions described below under the subsection entitled “Conditions to the Closing of the Transaction” unless SCG and RMG agree in writing to hold the closing at another time, but in no event will such time be later than the third business day following satisfaction of all the conditions to the Transaction.

Conditions to the Closing of the Transaction

The obligations of the parties to the Merger Agreement to consummate the Transaction are subject to the satisfaction (or waiver by each other party) of the following specified conditions set forth in the Merger Agreement before consummation of the Transaction.

SCG’s, Merger Sub’s and RMG’s obligations to consummate the Transaction are contingent on the following:

(i) there are no injunctions or restraints preventing the consummation of the Merger, nor are there any proceedings or actions taken, or any law enacted, that would make the consummation of the Merger illegal; (ii) each party has timely obtained all necessary approvals, waivers and consents from any applicable governmental authority necessary to consummate the Merger and (iii) RMG shall have obtained approval of its shareholders.

SCG’s and Merger Sub’s obligations to consummate the Transaction are contingent on the following:

(i) RMG’s representations and warranties are true and correct in all material respects (unless it would not result in a material adverse effect), (ii) the material compliance by RMG with its covenants, (iii) receipt of a certificate from RMG’s chief executive officer and chief financial officer certifying the foregoing, (iv) receipt of all required third party consents, (v) there is no pending or threatened litigation involving any governmental authority relating to the consummation of the Merger, (vi) there is no other litigation pending or could reasonably be expected to succeed on its merits relating to the consummation of the Merger, (vii) the execution of the escrow agreement described in the Merger Agreement, (viii) RMG has not suffered a



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material effect, (ix) not more than 5% of the total shares of RMG’s common stock and preferred stock constitute dissenting shares, (x) delivery of certified resolutions of RMG’s board of directors and stockholders approving the Merger Agreement and the Merger, (xi) delivery of a certificate of non-foreign status, (xii) delivery of a payoff letter evidencing that all of RMG’s indebtedness, not to exceed $23,500,000 has been paid in full and documents evidencing such indebtedness have been terminated, (xiii) at least 2,400,000 SCG Common Shares are outstanding immediately prior to the consummation of the Merger after taking into account redemptions under the Tender Offer, (xiv) delivery of a good standing certificate in each jurisdiction in which RMG and each subsidiary is required to be qualified as a foreign corporation, (xv) evidence of termination of certain other agreements and (xvi) RMG having consolidated EBITDA for the fiscal year 2012 of not less than $2,500,000.

RMG’s obligation to consummate the Transaction is contingent on the following:

(i) SCG and Merger Sub’s representations and warranties are true and correct in all material respects (unless they would not result in a material adverse effect), (ii) the material compliance by SCG and Merger Sub with their respective covenants, (iii) receipt of a certificate on behalf of SCG and Merger Sub by the chief executive office and chief financial officer of SCG and Merger Sub certifying the foregoing and (iv) the execution of the escrow agreement described in the Merger Agreement.

Termination

The Merger Agreement may be terminated at any time prior to the Effective Time, as follows:


i.

by the mutual written consent of SCG and RMG;

ii.

by either SCG or RMG if the Merger shall not have been consummated by April 13, 2013; provided, that such right to terminate shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date;

iii.

by either SCG or RMG if a court of competent jurisdiction or other governmental authority shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, unless the party relying on such order, decree or ruling or other action has not complied in all material respects with its obligations under the Merger Agreement;

iv.

by SCG or RMG, if there has been a breach of any representation, warranty, covenant or agreement on the part of the other party set forth in the Merger Agreement, which breach (i) causes the conditions set forth in Section 5.1 or 5.2 of the Merger Agreement (in the case of termination by SCG) or Section 5.1 or 5.3 of the Merger Agreement (in the case of termination by RMG) not to be satisfied and (ii) shall not have been cured within 15 business days following receipt by the breaching party of written notice of such breach from the other party;

v.

by SCG if less than 2,400,000 SCG Common Shares are held by the Stockholders immediately prior to the closing of the Merger, after taking into account any redemption of such shares pursuant to the Tender Offer and the SCG Charter;

vi.

by SCG, if RMG has not delivered the financial statements as required pursuant to the Merger Agreement, each presented in accordance with Regulation S-X and in compliance in all material respects with the Exchange Act on or before January 31, 2013;

vii.

by SCG, if RMG has not delivered its 2012 audited financial statements as required pursuant to the Merger Agreement, presented in accordance with Regulation S-X and in compliance in all material respects with the Exchange Act on or before February 15, 2013;

viii.

 by SCG, if RMG has not delivered its stockholder approval approving the Merger by 11:59 p.m. Pacific Time, on the date that is one business day after the date of the Merger Agreement; and

ix.

by SCG, if RMG has not delivered the Lock-Up Agreements, executed by each of the RMG Principal Stockholders, on the date that is one business day after the date of the Merger Agreement.


Effect of Termination

In the event of proper termination by either SCG or RMG under the terms and conditions of the Merger Agreement, there shall be no liability or obligation on the part of SCG, RMG, Merger Sub or their respective officers, directors, or stockholders, except to the extent that such termination results from the intentional breach by a Party of any of its representations, warranties or covenants set forth in the Merger Agreement, in which event the terminating Party will be entitled to exercise any and all remedies available under Law or equity in accordance with the Merger Agreement; provided,



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however, that the provisions of Sections 4.5, 4.10, 6.2 and 6.5 and ARTICLE VIII of the Merger Agreement shall remain in full force and effect and survive any termination of the Merger Agreement, and nothing shall relieve any Party from liability from fraud or willful breach of the Merger Agreement prior to termination.

Fees and Expenses  

Whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the Transaction shall be paid by the party incurring such expense.

Tender Offer

Tender Offer

SCG agreed, as promptly as practicable, and in any event not more than the later of 30 days from the date of the Merger Agreement or seven Business Days following delivery of the Target Historical Financials and the Target September 30 Financials (the “TO Commencement Date”), to commence (under the meaning of Rule 14d-2 under the Exchange Act) the Offer.  SCG agreed that no SCG Common Shares held by SCG or Merger Sub would be tendered in the Offer.  SCG further agreed, unless otherwise agreed to by the Parties, to use its commercially reasonable efforts (subject to market conditions) to conduct the Offer without a vote of the Stockholders pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act (as modified, waived or otherwise agreed to with the SEC) and in compliance with the requirements of the SCG Charter.  The obligation of SCG to accept for payment shares of SCG Common Stock validly tendered and not validly withdrawn pursuant to the Offer shall be subject to the satisfaction of each of the conditions set forth in the Offer.  Unless agreed to by the Parties or required by the SEC, no material change (including changing the Purchase Price) may be made to the Offer which imposes additional conditions to the Offer or is inconsistent with Section 4.3 of the Merger Agreement.  The Parties agreed to negotiate in good faith to amend the conditions set forth in the Tender Offer to reflect any changes that may be reasonably required as a result of discussions with the SEC or its staff.  The Merger Agreement provides that the Offer shall expire on the date that is 20 Business Days following the commencement of the Offer (the “Initial Expiration Date”).  Notwithstanding the foregoing, and subject to the provisions of Section 6.1 of the Merger Agreement, if, at any scheduled expiration of the Offer, the conditions set forth in the Offer, have not been satisfied or waived, SCG may extend the Offer for one or more consecutive periods beyond the Initial Expiration Date (the Initial Expiration Date as extended, the “Expiration Time”).  Notwithstanding the foregoing, SCG, without the consent of Target, may extend the Tender Offer for any period required by any Law of the SEC, or the staff thereof, applicable to the Tender Offer.    

Offer Documents  

The Parties agreed that, as promptly as reasonably practicable on the date of the commencement of the Tender Offer, SCG would file with the SEC a Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto, the “Schedule TO”) with respect to the Offer which shall contain or shall incorporate by reference this Offer to Purchase and forms of the related Letter of Transmittal and any related summary advertisement (such Schedule TOs, Offers to Purchase and such other documents, together with all supplements and amendments thereto, being referred to herein collectively as the “Offer Documents”).  The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and in addition shall contain substantially the same financial and other information about the Merger and the redemption rights as is required under Regulation 14A of the Exchange Act which regulates the solicitation of proxies.  Each Party agreed to correct promptly any information provided by it for use in the Offer Documents that shall have become false or misleading in any material respect, and SCG further agreed to take all steps necessary to cause the Schedule TO, as so corrected, to be filed with the SEC, and the other Offer Documents, as so corrected, to be disseminated to holders of shares of SCG Common Stock, in each case as and to the extent required by applicable federal securities Laws.  No filing of, or amendment or supplement to, the Offer Documents shall be made by SCG without the prior consent (which shall not be unreasonably withheld, delayed or conditioned) of Target.  SCG shall give Target and its counsel a reasonable opportunity to review and comment on the Offer Documents prior to such documents being filed with the SEC or disseminated to holders of the shares of SCG Common Stock and shall give due consideration to all reasonable additions, deletions or changes suggested thereby by Target and its counsel.  SCG shall provide Target and its counsel with any comments (whether written or oral) that SCG or its counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments, shall provide Target and its counsel with a reasonable opportunity to review and comment on the responses of SCG to such comments, shall allow Target and its counsel to participate in any discussions with the SEC or its staff, and shall give due consideration to all reasonable additions, deletions or changes suggested thereby by Target and its counsel.



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RMG Cooperation

RMG acknowledged that a substantial portion of the filings with the SEC and mailings to holders of shares of SCG Common Stock with respect to the Offer shall include disclosure regarding RMG, its subsidiaries and their management, operations and financial condition.  Accordingly, RMG agreed to (i) deliver the Target Historical Financials and Target September 30 Financials not later than January 31, 2013, (ii) deliver the Target 2012 Financials not later than February 15, 2013 and (iii) as promptly as reasonably practicable but in no event later than seven Business Days prior to the TO Commencement Date, provide SCG with such information as shall be reasonably requested by SCG for inclusion in or attachment to the Offer Documents to be filed and/or mailed as of and following the commencement of the Offer, that is accurate in all material respects and complies as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and in addition shall contain substantially the same financial and other information about RMG and its subsidiaries as is required under Regulation 14A promulgated under the Exchange Act regulating the solicitation of proxies even if such information is not required under the tender offer rules.  RMG acknowledged that it understood that such information shall be included in the Offer Documents and/or responses to comments from the SEC or its staff in connection therewith and mailings.  RMG agreed to make its, and shall make its subsidiaries’, officers and employees reasonably available to SCG and its counsel in connection with the drafting of such filings and mailings and responding in a timely manner to comments from the SEC.

Termination of Tender Offer

SCG agreed not to terminate the Tender Offer prior to any scheduled Expiration Time except in the event the Merger Agreement is terminated pursuant to the terms hereof.  

Certain Shares

SCG agreed that no shares of SCG Common Stock that are beneficially owned by Gregory H. Sachs shall be purchased in the Tender Offer.

See “The Offer — Conditions of the Offer”.

Representations and Warranties of SCG, Merger Sub and RMG in the Merger Agreement

The Merger Agreement contains a number of representations that each of SCG, Merger Sub and RMG have made to each other, including due organization and good standing, capitalization, authorization, binding agreement and government approvals, among others. The representations and warranties contained in the Merger Agreement were made for purposes of the Merger Agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Merger Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to the Stockholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts.

Further, the representations and warranties are qualified by information in confidential disclosure schedules delivered by the respective parties together with the Merger Agreement. While SCG and RMG do not believe these schedules contain information for which the securities laws require public disclosure, other than information that has already been so disclosed, the disclosure schedules do contain information that modify, qualify and create exceptions to the representations, warranties and covenants set forth in the Merger Agreement.

This description of the representations and warranties, and their reproduction in the copy of the Merger Agreement attached to this Offer to Purchase as Annex I, are included solely to provide investors with information regarding the terms of the Merger Agreement. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone and should not be relied on as statements of true fact, but instead should only be read together with the information provided elsewhere in this Offer to Purchase and in SCG’s filings with the SEC. See “Where You Can Find More Information”.

Materiality and Material Adverse Effect

Certain of the representations and warranties are qualified by materiality or “Material Adverse Effect”. For the purposes of the Merger Agreement, “Material Adverse Effect” means, with respect to a Party, any occurrence, state of facts, change, event, effect or circumstance that, individually or in the aggregate, has, or would reasonably be expected to have, a material adverse effect on the assets, liabilities, business, results of operations or financial condition of such Party and its subsidiaries, taken as a whole, except in each case for any such effect attributable to (i) changes in Laws, regulations or



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GAAP, or interpretations thereof, (ii) the announcement or pendency of the Merger Agreement, any actions taken in compliance with the Merger Agreement or the consummation of any Transaction, (iii) the failure of a Party or any of its subsidiaries to take any action referred to in Section 4.1 of the Merger Agreement due to another Party’s unreasonable withholding, delaying or conditioning of its consent, (iv) conditions generally affecting the industries in which such Party operates, the global economy or the financial or securities markets in the United States, to the extent that such conditions do not have a materially disproportionate impact on such Party or (v) the outbreak of war or acts of terrorism.

Covenants of the Parties

Each of SCG and RMG have agreed to a variety of customary covenants and agreements, including with respect to confidentiality, cooperation (including with respect to securities matters and obtaining necessary regulatory approvals for the proposed transaction) and similar matters. In addition, each of SCG and RMG have agreed to use their commercially reasonable efforts to promptly take all necessary actions to effect the Transaction. RMG also covenanted to continue to operate its business in the ordinary course prior to the consummation of the Transaction, subject to specified exceptions and unless SCG agrees otherwise.  Further, RMG covenanted (i) to obtain consent of RMG’s stockholders sufficient to approve and adopt the Merger Agreement and approve the Merger, (ii) deliver, within 30 days following the end of each calendar month following the date of the Merger Agreement until the consummation of the Transaction, monthly consolidated financial statements; and (iii) to deliver registration rights agreements executed by its stockholders receiving Stock Consideration to SCG at the closing of the Transaction, among other covenants.

Indemnification

The Merger Agreement provides for indemnification of SCG and the Surviving Corporation and their respective officers, directors, agents, representatives, attorneys and employees, and each person, if any, who controls or may control SCG or the Surviving Corporation within the meaning of the Securities Act from and against any and all losses, costs, damages, liabilities, debts, charge, interest, penalties and expenses arising from claims, demands, actions, causes of action, including, without limitation, legal fees, (collectively, “Damages”) based upon, arising out of, or otherwise in respect of or which may be incurred by virtue of or result from: (i) the inaccuracy in or breach of any representation or warranty made by RMG in the Merger Agreement (including all schedules and exhibits thereto), or in any certificate delivered by RMG thereunder; (ii) any non-fulfillment or breach of any covenant or agreement made by RMG in the Merger Agreement (including all schedules and exhibits thereto), or in any certificate delivered by RMG thereunder; (iii) any claim of any nature by any of RMG’s shareholders, RMG option holders or RMG warrant holders arising out of or in connection with the Merger Agreement, the Merger or the termination of RMG’s option plan or the RMG’s warrants; (iv) any amount payable in respect of any RMG dissenting shares in excess of the Stock Consideration and any cost and expenses defending any claim involving RMG dissenting shares; or (v) any liability for (a) any tax imposed on RMG with respect to any tax period prior to the effective time of the Merger (the “Effective Time”), (b) any tax of any other person for periods ending on or before the Effective Time imposed upon RMG as a result of RMG being included prior to the Effective Time in a combined, consolidated or unitary tax group under Treasury Regulation Section 1.1502-6 (or any similar provision of any other applicable law) or, as a transferee or successor, by agreement or otherwise or (c) any transfer or gains tax, sales tax, use tax, stamp tax, stock transfer tax, or other similar tax imposed on the transactions contemplated by the Merger Agreement.  

The Merger Agreement also provides for indemnification of RMG’s stockholders and their respective successors and assigns against and in respect of any and all Damages based upon, arising out of, or otherwise in respect of, or which may be incurred by virtue of or result from: (i) the inaccuracy in or breach of any representation or warranty made by SCG or Merger Sub in the Merger Agreement (including all schedules and exhibits thereto) or in any certificate delivered by SCG or Merger Sub thereunder; (ii) any non-fulfillment or breach of any covenant or agreement made by SCG or Merger Sub in the Merger Agreement (including all schedules and exhibits thereto); (iii) any claim with respect to taxes imposed on RMG, SCG or Merger Sub for periods starting the day after the closing date of the Merger (the “Closing Date”) (or for the portion of any period following the Closing Date to the extent a period does not close on such date), except to the extent such taxes are attributable to a breach of the representation set forth in Section 2.17 of the Merger Agreement; or (iv) enforcing the indemnification provided for thereunder.  

No claim for any Damages with respect to an inaccuracy in or breach of any representation or warranty shall be made until the aggregate amount of all Damages with respect to such claims exceeds $100,000 (the “Limitation”), in which event such indemnified person shall be permitted to make claims under ARTICLE VII of the Merger Agreement for Damages regardless of the Limitation.  Subject to the last two sentences of Section 7.2(d) of the Merger Agreement, the Indemnifying Parties shall not be liable for Damages in excess of the Escrow Fund (as defined in the Merger Agreement), in the case of RMG, each SCG Common Share in the Escrow Fund will be valued at $10.00 per SCG Common Share for purposes of determining indemnification amounts under the Merger Agreement, or 100,000 shares of SCG Common Stock, in the case of SCG or Merger Sub (the “Cap”).  The Limitation and the Cap shall not apply to (i) any claims related to an inaccuracy or



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breach of any Fundamental Representation (as defined in the Merger Agreement), for which SCG shall be entitled to make a claim against a stockholder of RMG (after SCG has first exhausted its available remedies against the Escrow Fund) only up to the Stock Consideration received by such stockholder of RMG; or (ii) any claims based on a finding of fraud, intentional misrepresentation or intentional misconduct by a stockholder of RMG, for which SCG shall be entitled to make a claim against the stockholder of RMG found to have engaged in fraud, intentional misrepresentation or intentional misconduct without limitation thereunder.

Lock-Up Agreement

See “Related Agreements – Lock-Up Agreement”.

Trust Account Waiver

Each of RMG and the Stockholder Representative agreed that it does not, at the time the Merger Agreement was executed, and shall not at any time thereafter, have any right, title, interest or claim of any kind in or to any monies in the Trust Account or any distributions therefrom (except as set forth in clause (iii) of this paragraph), or make any claim against, the Trust Account, regardless of whether such claim arises as a result of, in connection with or relating in any way to, the Merger Agreement or any other matter, and regardless of whether such claim arises based on contract, tort, equity or any other theory of legal liability (any and all such claims are collectively referred to hereafter as the “Claims”).  Each of RMG and the Stockholder Representative irrevocably waived any Claims it may have against the Trust Account (including any distributions therefrom) at the time the Merger Agreement was executed or in the future as a result of, or arising out of, any negotiations, contracts or agreements with SCG and will not seek recourse against the Trust Account (including any distributions therefrom) for any reason whatsoever (including, without limitation, for an alleged breach of this Agreement).  RMG and the Stockholder Representative each agreed and acknowledged that such irrevocable waiver was material to the Merger Agreement and specifically relied upon by SCG to induce SCG to enter in the Merger Agreement, and RMG and the Stockholder Representative each further intended and understood such waiver to be valid, binding and enforceable under applicable Law.  To the extent RMG or the Stockholder Representative commence any action or proceeding based upon, in connection with, relating to or arising out of any matter relating to SCG, which proceeding seeks, in whole or in part, monetary relief against SCG, RMG and the Stockholder Representative each acknowledged and agreed its sole remedy shall be against funds held outside of the Trust Account (which may include funds that have been disbursed pursuant to clause (iii) of the first sentence of Section 8.1 of the Merger Agreement) and that such claim shall not permit RMG or the Stockholder Representative (or any party claiming on RMG’s or Stockholder Representative’s behalf or in lieu of RMG or the Stockholder Representative) to have any claim against the Trust Account (including any distributions therefrom, other than to SCG) or any amounts contained therein.  In the event that RMG or the Stockholder Representative commence any action or proceeding based upon, in connection with, relating to or arising out of any matter relating to SCG, which proceeding seeks, in whole or in part, relief against the Trust Account (including any distributions therefrom) or the SCG Public Stockholders, whether in the form of money damages or injunctive relief, SCG shall be entitled to recover from RMG and the Stockholder Representative the associated legal fees and costs in connection with any such action, in the event SCG prevails in such action or proceeding.

Access to Information

RMG has agreed to give SCG and its accountants, counsel and other representatives reasonable access during the period prior to the consummation of the Transaction to (i) all of RMG’s properties, personnel, books, contracts, commitments and records and (ii) all other information concerning the business, properties and personnel of RMG as SCG may reasonably request.  Further, the parties shall confer on a regular and frequent basis to report operational matters of materiality and the general status of ongoing operations.

Public Announcements

SCG and RMG agreed to consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure regarding the terms of the Merger Agreement and the Transaction, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other except as may be required by Law or by obligations pursuant to any listing agreement with any national securities exchange.



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RELATED AGREEMENTS

This section of this Offer to Purchase describes the material provisions of the Related Agreements but does not purport to describe all of the terms thereof.  The following summary is qualified in its entirety by reference to the complete text of each of the Related Agreements. The Related Agreements are filed as exhibits to the Merger Agreement, a copy of which is annexed hereto as Annex I, which is incorporated herein by reference. The Stockholders and other interested parties are urged to read such agreements in their entirety.  See “Where You Can Find More Information”.

Lock-Up Agreement

Upon consummation of the Transaction, the RMG Principal Stockholders will enter into Lock-Up Agreements with SCG with respect to the Stock Consideration (and the underlying SCG Common Shares) received by them, pursuant to which such RMG Principal Stockholders agreed, for a period commencing on the date of the consummation of the Transaction and ending on the earlier of (i) the one year anniversary of the issuance to each RMG Principal Stockholder of the Stock Consideration or (ii) the date that SCG consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in the Stockholders having the right to exchange their SCG Common Shares for cash, securities or other property, not to (a) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position (within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the SEC promulgated thereunder), such RMG Principal Stockholder’s SCG Common Shares, (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of such RMG Principal Stockholder’s SCG Common Shares, whether any such transaction is to be settled by delivery of SCG Common Shares or such other securities, in cash or otherwise, or (c) publicly announce any intention to effect any transaction specified in clauses (a) or (b) above.  

Notwithstanding anything to the contrary above, each RMG Principal Stockholder may transfer its SCG Common Shares: (i) by gift to a member of such RMG Principal Stockholder’s immediate family (for the purposes of each Lock-Up Agreement, “immediate family” means any relationship by blood, marriage, domestic partnership or adoption, no more remote than a first cousin) or to a trust, the beneficiary of which is a member of such RMG Principal Stockholder’s immediate family, an affiliate (as such term is defined in Rule 405 promulgated under the Exchange Act) of such RMG Principal Stockholder or to a charitable organization; (ii) if such RMG Principal Stockholder is a natural person, by virtue of the laws of descent and distribution upon death of the undersigned; (iii) if such RMG Principal Stockholder is a natural person, pursuant to a qualified domestic relations order; (iv) if such RMG Principal Stockholder is a corporation, partnership or other business entity, to another corporation, partnership or other business entity that directly or indirectly controls, is controlled by or managed by, or is under common control with, such RMG Principal Stockholder; or (v) if such RMG Principal Stockholder is a trust, to a trustor or beneficiary of the trust; provided, however, that in each case the permitted transferees shall have entered into a written agreement with SCG agreeing to be bound by the transfer restrictions described above.

The Lender Shares will be subject to a substantially similar Lock-Up Agreement.

Registration Rights Agreement

SCG, certain RMG shareholders and RMG’s lenders will enter into a Registration Rights Agreement providing demand and piggy-back registration rights with respect to the SCG Common Shares and the Lender Shares (the “Registrable Securities”).  

Demand Registrations

At any time following the one-year anniversary of the consummation of the Transaction, the holders of a majority of the then-outstanding Registrable Securities may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-3 or any successor form, or if such form is not then available to SCG, Form S-1 (a “Demand Registration”), which may if so requested be a “shelf” registration under Rule 415 under the Securities Act.  The holders of a majority of the then-outstanding Registrable Securities shall be entitled to request (i) one Demand Registration in which SCG shall pay all registration expenses and (ii) an unlimited number of Demand Registrations in which the holders of Registrable Securities shall pay their share of the registration expenses.  SCG shall use commercially reasonable efforts to make Demand Registrations on Form S-3 available for the sale of Registrable Securities.

SCG shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities requesting such registration.  If a Demand Registration is an underwritten offering and the managing underwriters advise SCG in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold in an orderly manner in such offering within the price



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range acceptable to the holders of a majority of the requesting Registrable Securities, without adversely affecting the marketability of the offering, SCG shall include in such registration prior to the inclusion of any securities which are not Registrable Securities, the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the holders of Registrable Securities to be included in such registration on the basis of the amount of Registrable Securities owned by each such holder.  

With respect to a request for registration described herein which is for an underwritten public offering, the managing underwriter shall be chosen by the holders of a majority of the Registrable Securities to be sold in such offering and approved by SCG (which approval will not be unreasonably withheld or delayed).

Piggyback Registrations

Whenever SCG proposes to register any of its securities under the Securities Act, including, without limitation, pursuant to a Demand Registration (other than in connection with registrations on Form S-8 or any successor form) and the registration form to be used may be used for the registration of Registrable Securities (a “Piggyback Registration”), SCG shall give prompt written notice (in any event within three business days after its receipt of notice of any exercise of demand registration rights other than under the Registration Rights Agreement) to all holders of Registrable Securities of its intention to effect such a registration and shall include in such registration all Registrable Securities with respect to which SCG has received written requests for inclusion therein within 20 days after the delivery of SCG’s notice.  The registration expenses of the holders of Registrable Securities shall be paid by SCG in all Piggyback Registrations.

If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise SCG in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to SCG, SCG shall include in such registration (i) first, the securities SCG proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration.

If a Piggyback Registration is an underwritten secondary registration, and the managing underwriters advise such party and SCG in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to such party and SCG, SCG shall include in such registration (i) first, SCG, (ii) second, the Registrable Securities requested to be included in such registration which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration.

If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering shall be approved by SCG.

If SCG has previously filed a registration statement with respect to Registrable Securities under Section 1 or Section 2 of the Registration Rights Agreement, and if such previous registration has not been withdrawn or abandoned, SCG shall not file or cause to be effected any other registration of any of its equity securities or securities convertible exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 90 days has elapsed from the effective date of such previous registration.

Market Standoff Agreement  

No holder of Registrable Securities shall effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of equity securities of SCG, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten initial public offering of SCG’s equity securities (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree.

Each stockholder agrees that, if requested by the managing underwriter in connection with any follow-on public offering of SCG’s equity securities, such stockholder will not effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of equity securities of SCG, or any securities convertible into or exchangeable or exercisable for such securities, during the period of time requested by such managing underwriter (in no event to be in excess of 90 days) following the effective date of such offering (except as part of such underwritten registration), unless the underwriters managing such offering otherwise agree.



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SCG (i) shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten initial public offering of SCG’s equity securities (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, (ii) shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 90-day period beginning on the effective date of any underwritten public offering (other than the initial public offering) of SCG’s equity securities (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (iii) shall cause each holder of SCG Common Shares, or any securities convertible into or exchangeable or exercisable for SCG Common Shares, purchased from SCG at any time after the date of the Registration Rights Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree.

Escrow Agreement

Upon consummation of the Transaction the Escrow Shares will be deposited in the Escrow Account with Wilmington Trust, N.A. as the Escrow Agent.  The Escrow Shares will be disbursed to either the Stockholder Representative or to SCG in accordance with the terms and conditions of the Merger Agreement and the Escrow Agreement.  The parties to the Escrow Agreement will be SCG, the Stockholder Representative and the Escrow Agent.  



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THE SYMON MERGER

General Description of the Symon Merger

Pursuant to the terms and conditions of the Symon Merger Agreement, Symon Merger Sub will be merged with and into Symon Holdings.  Upon consummation of the Symon Merger, the separate existence of Symon Merger Sub will thereupon cease, and Symon Holdings, as the Symon Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  See “The Symon Merger Agreement”. Consummation of the Symon Merger is contingent upon the consummation of the Transaction; accordingly, the Symon Merger will not be completed unless the Transaction is consummated.

Symon Merger Consideration

Upon consummation of the Symon Merger, subject to the terms of the Symon Merger Agreement, Symon Holdings’s stockholders will receive an aggregate of $45 million, minus (i) the amount of any indebtedness of Symon Holdings and its subsidiaries as of the Symon Closing Date, which indebtedness will be repaid in full by SCG on the Symon Closing Date, (ii) the amount, if any, by which the Symon Transaction Expenses exceeds $2 million, and (iii) the Expense Fund in the amount of $250,000, which will be paid by SCG to the Securityholders’ Representative on the Symon Closing Date to be held in trust as a source of reimbursement for costs and expenses incurred by the Securityholders’ Representative in such capacity. Pursuant to the Symon Merger Agreement, SCG is required to pay, on the Symon Closing Date, the Symon Transaction Expenses.

Upon consummation of the Symon Merger, the separate existence of Symon Merger Sub will cease and Symon Holdings, as the Symon Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  

Related Agreement

On March 1, 2013, SCG entered into the Commitment Letter with the Trust, whereby the Trust has agreed to provide a standby credit facility up to the aggregate amount of (i) SCG’s obligations under the Symon Merger Agreement and (ii) all out-of-pocket fees, expenses and other amounts payable by SCG under or in connection with the Symon Merger Agreement. The proceeds of the credit facility will be used solely to finance the acquisition of all the issued and outstanding common stock of Symon Holdings. The fixed rate of interest for the first twelve months is 15% per annum, 5% of which will be payment-in-kind and added each month to the principal balance.

Background of the Symon Merger

The terms of the Symon Merger Agreement are the result of negotiations between the representatives of SCG and Symon Holdings. The following is a brief description of the background of these negotiations and the related transactions.

In late November 2012, Gregory H. Sachs, SCG’s Chief Executive Officer, was introduced telephonically by Garry McGuire, RMG’s Chief Executive Officer, to affiliates of Golden Gate Capital (“Golden Gate”), Symon Holdings’s majority owner. Several conversations between Mr. Sachs and Golden Gate occurred over the following week. On these calls, Golden Gate provided Mr. Sachs an overview of Symon and Mr. Sachs provided Golden Gate an overview of SCG. Preliminary terms and conditions under which Golden Gate might offer to sell and which SCG might purchase Symon were discussed.

On December 1, 2012, Golden Gate provided SCG with a detailed overview presentation of Symon.

On December 4, 2012, SCG and Symon entered into a mutual non-disclosure agreement and agreed to exchange more detailed information with regard to Symon.

On December 5, 2012, DLA Piper LLP (US), SCG’s legal counsel, assisted SCG in preparing a draft letter of intent outlining the preliminary summary terms and conditions under which SCG would consider a combination with Symon and SCG presented the draft letter of intent to Golden Gate. Following negotiations, SCG and Symon entered into the letter of intent on December 10, 2012.

On December 11, 2012, SCG provided a detailed due diligence request list to Symon, was granted access to Symon’s virtual data room and began conducting a formal due diligence review of Symon which lasted until the end of February 2013. During its review, SCG and its advisors and counsel, in various capacities, completed, among other items, meetings with Symon’s management and employees, a review of market dynamics and Symon’s competitive positioning, background checks of Symon’s senior management, a review of key customer and partner contracts and relationships, an evaluation of



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other material contracts and obligations, a review of Symon’s technology, products and infrastructure and legal due diligence. SCG also conducted an in-depth analysis of Symon’s financial statements which included the preparation of a financial due diligence report by an advisor containing quality of earnings, balance sheet, income statement, cash flow and working capital analyses. During its due diligence review, SCG conducted in-person meetings with Symon in Plano, Texas, Las Vegas, Nevada and Hemel Hempsted, England.

On December 12, 2012, SCG met with representatives from its underwriter, Lazard Capital Markets LLC, and its investment banker, Lazard Frères & Co. LLC, in New York City, New York, to discuss considerations around the proposed business combination between SCG, RMG and Symon.

On December 19, 2012, SCG’s shareholders approved SCG’s charter amendment proposal to extend the date by which SCG must either consummate a business combination with RMG or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.

On January 16, 2013, SCG received from Symon’s counsel, Kirkland & Ellis LLP, an initial draft of the Symon Merger Agreement relating to a potential business combination between SCG and Symon and reviewed it with its counsel.

On January 28, 2013 following substantial progress with SCG’s due diligence review, the board of directors of SCG held a special meeting via teleconference. At this meeting, the board of directors received a presentation from Charles Ansley, Chief Executive Officer of Symon, and Mr. Sachs presenting a synopsis of the proposed transaction and an overview of Symon. SCG’s counsel attended the meeting and was available to answer legal questions and questions regarding the then current draft of the Symon Merger Agreement from the board of directors. During the meeting, Representatives from SCG provided an overview of SCG’s due diligence review. SCG also presented a financial analysis, which was informed by the work of its advisors, comparing the implied transaction valuation and Symon’s operating metrics to the trading valuations and operating metrics of comparable publicly traded companies.

On February 12, 2013, in an effort to provide SCG with the financial resources needed to purchase Symon, SCG began discussions with an affiliate of Donald R. Wilson, Jr. to provide the Commitment Letter, to provide a standby financing facility to provide the funds needed to fund SCG’s cash purchase obligations under the Symon Merger Agreement.

On February 21, 2013, SCG received notice that its relationship partner at DLA Piper LLP (US) had voluntarily taken employment with Greenberg Traurig, LLP, at which point SCG decided to change its counsel to Greenberg Traurig, LLP.

On February 26, 2013, the board of directors of SCG held a special meeting via teleconference. Following an overview of the final Symon Merger Agreement by SCG’s counsel, after discussing SCG’s completed due diligence review and after discussions thereof, the SCG board of directors approved the Symon Merger and the Commitment Letter and authorized the officers of SCG to execute the documents.

On March 1, 2013, (i) the Symon Merger Agreement was executed by SCG and Symon, (ii) SCG entered into the Commitment Letter, (iii) SCG and Symon issued a press release announcing the Symon Merger and (iv) SCG filed an Current Report on Form 8-K announcing that it had entered into the Symon Merger Agreement with Symon. SCG’s ultimate determination regarding the amount and form of the consideration payable in the Symon Merger was based upon a financial analysis of Symon which included a review of the relative valuations and operating metrics of publicly traded companies similar to Symon.

The Board’s Reasons for the Approval of the Symon Merger

The Board considered a wide variety of factors in connection with its evaluation of the Symon Merger. In light of the complexity of those factors, the Board, as a whole, did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision. Individual members of the Board may have given different weight to different factors.

The Board considered the nature of Symon’s business, its past and projected operating results, the factors outlined below and the various risks discussed in the section entitled “Risk Factors – Business of Symon”, in reaching its determination that the Symon Merger is in the best interests of the Stockholders and to authorize the execution of the Symon Merger Agreement.

Initial Symon projections were provided to SCG shortly after discussions began with Symon. Following a review of the projections, analysis of the market, progress with its due diligence review of Symon and consultation with its advisors, SCG formed an independent view around Symon’s potential future operations particularly in connection with a combination



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between SCG, Symon and RMG. SCG then conducted a financial analysis to determine an appropriate valuation for Symon. SCG primarily relied on a comparison of EBITDA Multiples of publicly traded companies that it believes are comparable to Symon. In conducting its financial analysis, SCG took into account the relative characteristics of Symon versus seven comparable companies in the digital signage market including, without limitation or weighting, operating metrics, projected growth rates, market positions and sizes.

In calculating the transaction EBITDA Multiple for the Symon Merger, SCG relied on various assumptions, including Symon’s projected EBITDA for the fiscal years ending January 2014 and January 2015, including adjustments for costs associated with the Symon Merger, of $8.2 million and $10.0 million, respectively. The resulting implied estimated fiscal year 2014 and 2015 Symon Merger EBITDA Multiples of approximately 5.1x and approximately 4.1x, respectively, represented an approximate 25% discount and an approximate 39% discount to the 2013 and 2014 median calendar year EBITDA Multiples of publicly traded companies comparable to Symon of approximately 6.7x and approximately 6.8x, respectively, at the time of the Board’s review.

The Board also reviewed the expected capital resources of SCG after the completion of its combinations with RMG and Symon. Based on this analysis, the Board concluded that SCG, following combinations with RMG and Symon, would have sufficient capital resources to execute its combined business strategy and to operate its business in a manner that would not adversely affect the combined entity’s ability to achieve its projected EBITDA targets. Accordingly, the Board determined the consideration to be paid in connection with the Symon Merger is fair to SCG shareholders.

The combined Transaction and Symon Merger EBITDA Multiples of approximately 7.7x and approximately 4.7x based on projected 2013 and 2014 combined EBITDA of approximately $11.5 million and $18.7 million, respectively, represent approximately 10% and approximately 43% discounts to the respective blended median EBITDA Multiples of comparable companies of 8.6x and 8.3x as of March 22, 2013.

In considering the Symon Merger, the Board gave consideration to the following positive factors (although not weighted or in any order of significance):


·

Track Record of Profitability and Future Opportunities for Growth.  The Board evaluated Symon’s long track record of profitability and cash flow generation across market cycles and believes Symon offers a stable platform from which to drive future growth. The Board believes that Symon’s experience, in-place operations and relationships and market position will facilitate such growth, particularly in combination with the business of RMG. Symon’s primary organic growth strategy includes expanding its customer base through increased penetration and expanding its product offerings within key verticals and across emerging geographic markets. Given the fragmented nature of the digital signage market, the Board also believes that Symon is well positioned for growth through the acquisition of complementary businesses. In evaluating Symon’s growth potential, the Board evaluated projections provided by Symon’s management team, as reviewed and adjusted by SCG and its advisors. The board also considered general industry trends, characteristics and projections as noted in industry publications.

·

Leader in Intelligent Visual Communication Solutions.  The Board evaluated Symon’s market leadership in providing end-to-end digital signage solutions to the call center, employee communication, supply chain and hospitality markets, among others, as a strong competitive strength. The Board considered Symon’s diversified and blue-chip client base that Symon believes includes 70% of North American Fortune 100 companies and over 7,500 customers in total across its footprint that spans North America, Europe, Asia and the Middle East. Based on Symon’s market position and expected growth rates within the digital signage industry, the Board determined that Symon offers attractive market positioning for creating Stockholder value over time.

·

Complementary Partner to RMG Networks. The Board also evaluated whether Symon’s business was a complement to the business of RMG, SCG’s proposed initial business combination. The Board determined that the combination of RMG and Symon would create a comprehensive platform able to offer clients a broad array of turnkey visual communication solutions across both traditional and advertising-based digital signage markets. The combined platform will be able to provide solutions comprised of software, hardware, custom content, advertising management, and support and maintenance services across a global footprint.

·

Symon’s experienced management team.  The Board evaluated whether Symon had a management team with specialized industry knowledge. Given that each of Symon’s senior management team has significant experience in managing technology solutions businesses, the Board determined Symon’s management team has requisite knowledge and experience within the digital signage industry to continue to lead the business as it expands. The board further evaluated the management team’s history of stability and believes they will be complementary to the management of RMG.




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In addition, the Board also gave consideration to the following negative factors (although not weighted or in any order of significance):


·

Risks of integrating with RMG. The Board believes that RMG and Symon are complementary businesses that could offer significant cost and revenue synergies in a combination. However, as with any combination between two businesses, a number of factors could make integrating the two businesses difficult and there is no guarantee that any expected combination benefits will be realized.

·

Revenues and results of operations are dependent on factors outside of Symon’s control.  Any number of factors can impact Symon’s revenues and results of operations causing them to fluctuate from quarter to quarter. While Symon has control over some of these factors, Symon has limited to no control over others identified by the Board (e.g. changes in general market conditions, changes in capital spending practices by enterprise customers, evolving technology and the seasonality of sales, among others).

·

The variability of corporate capital expenditures.  Corporate spending on capital expenditures can be cyclical and may fluctuate with changing economic conditions. Accordingly, certain aspects of the business of Symon could be cyclical in nature and based on then current economic and market conditions. As a result, Symon may be required to adjust its sales and marketing practices and react to different business opportunities and modes of competition based on the economic environment and market evolution.

·

Risks of growing in new markets and integrating acquisitions. A portion of Symon’s projected growth is predicated on entering verticals and geographies in which it currently does not operate. Exploitation of such new market opportunities may not materialize as SCG and Symon management currently believes they will. Further, Symon’s growth strategy contemplates, in part, growth through acquisition. Such acquisition opportunities may not materialize as Symon currently expects or Symon may not be able to integrate such acquisitions in a manner that enhances its operations and profitability.


Anticipated Accounting Treatment

SCG management has concluded, based on its evaluation of the facts and circumstances of the Symon Merger, that SCG is the acquirer for accounting purposes.  SCG will retain effective control of Symon Holdings following consummation of the Symon Merger.  After consummation of the Symon Merger, a large percentage of the combined entity’s voting rights will be held by current Stockholders, primarily the Sponsor and its affiliates.  Additionally, SCG will elect all but one of the combined entity’s Board members.  Although many members of Symon’s senior management will continue to serve as management of the combined entity, this was not considered determinative as all other relevant factors were not aligned with the management composition.  The Symon Merger constitutes the acquisition of a business for purposes of Financial Accounting Standards Board’s Accounting Standard Codification 805, “Business Combinations,” or ASC 805.  As a result, the basis of the assets and liabilities of Symon Holdings will be adjusted to their fair values and the appropriate amount of goodwill will be recorded for the consideration given in excess of the fair values and net intangible assets. All transaction costs should be expensed as incurred, except those costs associated with equity raising (which should be recorded to additional paid-in capital) and debt financing (which should be recorded as deferred financing costs).



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THE SYMON MERGER AGREEMENT

This section of this Offer to Purchase describes the material provisions of the Symon Merger Agreement but does not purport to describe all of the terms of the Symon Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Symon Merger Agreement, a copy of which is annexed hereto as Annex IV, which is incorporated herein by reference. The Stockholders and other interested parties are urged to read the Symon Merger Agreement, a copy of which is attached as Annex IV hereto, in its entirety because it is the primary legal document that governs the Symon Merger. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Symon Merger Agreement.

The Symon Merger Agreement has been included to provide information regarding the terms of the Symon Merger. Except for its status as the contractual document that establishes and governs the legal relations among SCG and Symon Holdings with respect to the Symon Merger, the Symon Merger Agreement is not intended to be a source of factual, business or operational information about the parties.

The Symon Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Symon Merger Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Symon Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Offer to Purchase, may have changed since the date of the Symon Merger Agreement and subsequent developments or new information qualifying a representation or warranty to the extent material to an investment decision have been included in this Offer to Purchase. The representations, warranties and covenants in the Symon Merger Agreement are also modified in important part by the underlying disclosure schedules which are not filed publicly and which are subject to a contractual standard of materiality different from that generally applicable to the Stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. SCG and Symon do not believe that these schedules contain information that is material to an investment decision.

Structure of the Symon Merger; Consideration to be Paid

Pursuant to the terms and conditions of the Symon Merger Agreement, Symon Merger Sub will be merged with and into Symon Holdings.  Upon consummation of the Symon Merger, the separate existence of Symon Merger Sub will thereupon cease, and Symon Holdings, as the Symon Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  As a result of the Symon Merger, Symon Holdings’s shareholders will receive the Symon Merger Consideration, and all rights and interests in and to the issued and outstanding shares of capital stock of Symon shall be cancelled, subject to certain terms and conditions set forth in the Symon Merger Agreement.  The material aspects of the structure of the Symon Merger and the Symon Merger Consideration are as follows:


·

Symon Holdings’s shareholders, in accordance with the terms and conditions of the Symon Merger Agreement, will receive the Symon Merger Consideration as more fully described herein.

·

Upon consummation of the Symon Merger, Symon Holdings will continue its corporate existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.


Upon consummation of the Symon Merger, subject to the terms of the Symon Merger Agreement, Symon Holdings’s stockholders will receive an aggregate of $45 million, minus (i) the amount of any indebtedness of Symon Holdings and its subsidiaries as of the Symon Closing Date, which indebtedness will be repaid in full by SCG on the Symon Closing Date, (ii) the amount, if any, by which the Symon Transaction Expenses exceeds $2 million, and (iii) the Expense Fund in the amount of $250,000, which will be paid by SCG to the Securityholders’ Representative on the Closing Date to be held in trust as a source of reimbursement for costs and expenses incurred by the Securityholders’ Representative in such capacity. Pursuant to the Symon Merger Agreement, SCG is required to pay, on the Closing Date, the Symon Transaction Expenses.

Closing of the Symon Merger

The Symon Merger is expected to be consummated promptly following the satisfaction or waiver of the conditions described below under the subsection entitled “Conditions to the Closing of the Symon Merger” unless SCG and Symon agree in writing to hold the closing at another time, but in no event will such time be later than the third business day following satisfaction of all the conditions to the Symon Merger.



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Conditions to the Closing of the Symon Merger

The obligations of SCG and Symon Merger Sub to consummate the Symon Merger are subject to the following closing conditions, any of which may be waived by SCG and Symon Merger Sub: (i) Symon Holdings’s representations and warranties are true and correct in all respects (unless it would not result in a material adverse effect on the assets, liabilities, financial condition or operating results of Symon Holdings and its subsidiaries), (ii) the material compliance by Symon Holdings with its covenants and agreements in the Merger Agreement, (iii) receipt of a certificate from Symon Holdings’s principal executive officer or principal financial officer certifying the foregoing, (iv) there are no injunctions or restraints, nor are the any proceedings or actions taken, or any law enacted after the date of the Merger Agreement, preventing the consummation of the Merger, (v) Symon Holdings obtaining and delivering a written consent of Symon Holdings’s stockholders sufficient to approve and adopt the Symon Merger Agreement and approve the Symon Merger (the “Written Consent”); (vi) there having not occurred a material adverse effect on the assets, liabilities, financial condition or operating results of Symon Holdings and its subsidiaries since March 1, 2013, (vii) not more than 5% of the total shares of Symon Holdings’s capital stock constitute dissenting shares, (viii) delivery of a certificate of non-foreign status regarding Symon Holdings, (ix) delivery of payoff letters evidencing that all of Symon Holdings’s indebtedness will have been paid in full at Closing, (x) delivery of evidence of termination of certain agreements to which Symon Holdings and its affiliates are a party, (xi) delivery of audited financial statements of Symon Holdings and its subsidiaries for the fiscal years ended January 31, 2012 and 2011, and (xii) SCG having consummated the Transaction.

The obligations of Symon Holdings to consummate the Merger are subject to the following closing conditions, any of which may be waived by the Securityholders’ Representative: (i) SCG and Symon Merger Sub’s representations and warranties are true and correct in all respects (unless they would not result in a material adverse effect on the ability of SCG and Symon Merger Sub to consummate the Symon Merger), (ii) the material compliance by SCG and Symon Merger Sub with their respective covenants and agreements in the Merger Agreement, (iii) receipt of a certificate on behalf of SCG and Symon Merger Sub by the principal executive office or principal financial officer of SCG and Symon Merger Sub certifying the foregoing, (iv) no law or order having been enacted or entered into after the date of the Merger Agreement that would prevent the consummation of the Symon Merger, (v) SCG’s delivery of the merger consideration to be paid to Symon Holdings’s securityholders at the Symon Closing, (vi) SCG having paid Symon Holdings’s outstanding indebtedness, the Transaction Expenses and the Expense Fund.

Termination

The Symon Merger Agreement may be terminated at any time prior to the Symon Closing, as follows:


(i)

by the mutual written consent of SCG, Symon Merger Sub and the Securityholders’ Representative;

(ii)

by SCG and Symon Merger Sub if there has been a material misrepresentation or material breach of warranty or covenant by Symon Holdings, which misrepresentation or breach causes SCG and Symon Merger Sub’s corresponding closing conditions not to be satisfied and is not cured within 30 days following delivery of written notice of such misrepresentation or breach (or by April 30, 2013, if earlier);

(iii)

by the Securityholders’ Representative if there has been a material misrepresentation or material breach of warranty or covenant by SCG or Symon Merger Sub, which misrepresentation or breach causes Symon Holdings’s corresponding closing conditions not to be satisfied and is not cured within 30 days following delivery of written notice of such misrepresentation or breach (or by April 30, 2013, if earlier);

(iv)

by either SCG or the Securityholders’ Representative if the Merger shall not have been consummated by April 30, 2013; provided that such right to terminate shall not be available to any party whose breach of the Merger Agreement has prevented the consummation of the Merger on or before such date; or

(v)

by SCG and Symon Merger Sub if the Written Consent has not been obtained within two business days following the date of the Merger Agreement.


Effect of Termination

In the event of termination of the Symon Merger Agreement, there shall be no liability or obligation on the part of any of the parties to the Symon Merger Agreement, except for intentional or willful breaches of the Symon Merger Agreement prior to the time of termination, and except that certain specified provisions of the Symon Merger Agreement shall remain in effect, including those relating to confidentiality and expenses.



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Fees and Expenses  

Whether or not the Symon Merger is consummated, all costs and expenses incurred in connection with the Symon Merger Agreement and the Symon Merger shall be paid by the party incurring such expense, subject to SCG’s obligation to pay the Symon Transaction Expenses on the Symon Closing Date if the Symon Merger is consummated.

Representations and Warranties of SCG, Symon Merger Sub and Symon Holdings in the Symon Merger Agreement

The Merger Agreement contains a number of representations that each of SCG, Merger Sub and Symon Holdings has made to each other, including due organization and good standing, capitalization, authorization, binding agreement and government approvals, among others. The representations and warranties contained in the Symon Merger Agreement were made for purposes of the Symon Merger Agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Symon Merger Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to Stockholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts.

Further, the representations and warranties are qualified by information in confidential disclosure schedules delivered by the respective parties together with the Merger Agreement. While SCG and Symon Holdings do not believe these schedules contain information for which the securities laws require public disclosure, other than information that has already been so disclosed, the disclosure schedules do contain information that modify, qualify and create exceptions to the representations, warranties and covenants set forth in the Merger Agreement.

This description of the representations and warranties, and their reproduction in the copy of the Symon Merger Agreement attached to this Offer to Purchase as Annex IV, are included solely to provide investors with information regarding the terms of the Symon Merger Agreement. Accordingly, the representations and warranties and other provisions of the Symon Merger Agreement should not be read alone and should not be relied on as statements of true fact, but instead should only be read together with the information provided elsewhere in this Offer to Purchase and in SCG’s filings with the SEC. See “Where You Can Find More Information”.

Materiality and Material Adverse Effect

Certain of the representations and warranties are qualified by materiality or “Material Adverse Effect”. For the purposes of the Symon Merger Agreement, “Material Adverse Effect” means, with respect to Symon Holdings or its subsidiaries, any event or occurrence that, individually or in the aggregate, has had a material and adverse effect on the assets, liabilities, financial condition or operating results of Symon Holdings and its subsidiaries, taken as a whole; except that none of the following (either alone or in combination with any other event) shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (a) any event arising from or relating to (i) general business, industry or economic conditions affecting the industry in which Symon operates, (ii) national or international political or social conditions, including the engagement by the United States or any other country or group in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States or any other country or group, or any of their respective territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States or any other country or group, (iii) changes in GAAP, (iv) the financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (v) changes in law, rules, regulations, orders, or other binding directives issued by any governmental authority, (vi) the taking of any action contemplated by the Symon Merger Agreement and the other agreements contemplated thereby (including, without limitation, the taking of any action with the consent of SCG or Symon Merger Sub), (vii) any “act of God,” including, but not limited to, weather, fires, natural disasters and earthquakes, (viii) any matter set forth on Symon Holdings’ disclosure schedules to the Symon Merger Agreement or (ix) changes resulting from the announcement of the execution of the Symon Merger Agreement or the transactions contemplated thereunder or the pendency or consummation of such transactions; provided  in the cases of clauses (i), (ii), (iii), (iv), (v) or (vii), that such event does not have a materially disproportionate impact on Symon Holdings and its subsidiaries relative to other businesses in the same industry, and (b) any adverse event with respect to Symon’s business which is cured by Symon Holdings’ securityholders before the earlier of (A) the Symon Closing Date and (B) the date on which the Symon Merger Agreement is terminated in accordance with its terms.



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Covenants of the Parties

Each of SCG and Symon Holdings have agreed to a variety of customary covenants and agreements, including with respect to confidentiality, cooperation (including with respect to securities matters and obtaining necessary regulatory approvals for the proposed transaction) and similar matters. SCG has also agreed to undertake the Tender Offer in connection with the Merger Agreement with RMG, and to comply in all material respects with the applicable requirements of federal securities laws in connection with the Tender Offer and the transactions contemplated by the Merger Agreement. In addition, each of SCG and Symon Holdings has agreed to use their commercially reasonable efforts to promptly take all necessary actions to effect the proposed transaction. Symon Holdings also covenanted to continue to operate its business in the ordinary course prior to the consummation of the proposed transaction, subject to specified exceptions and unless SCG agrees otherwise. Further, Symon Holdings covenanted (i) to obtain, within two business days following the date of the Symon Merger Agreement, a written consent of Symon Holdings’s stockholders sufficient to approve and adopt the Symon Merger Agreement and approve the Merger (the “Written Consent”), which Written Consent was subsequently obtained in accordance with the terms of the Symon Merger Agreement, and (ii) to deliver, within 30 days following the end of each calendar month following the date of the Symon Merger Agreement until the consummation of the proposed transaction, monthly consolidated financial statements, among other covenants.

Indemnification

The Symon Merger Agreement provides for indemnification of SCG and the Symon Surviving Corporation and their respective officers, directors, employees, shareholders, agents, and representatives from and against any out-of-pocket liabilities, losses, taxes, fines, penalties, damages, costs and expenses (collectively, “Damages”) suffered as a result of: (i) the breach of any representation or warranty made by Symon Holdings in the Symon Merger Agreement with respect to certain fundamental matters, including Symon Holdings’s due organization and authority to consummate the Merger, Symon Holdings’s capitalization, and non-disclosed brokerage or similar fees payable by Symon Holdings in connection with the Symon Merger; (ii) the breach of any covenant or agreement made by Symon Holdings or any of its subsidiaries in the Symon Merger Agreement that is to be satisfied prior to the Symon Closing; (iii) any Symon Transaction Expenses that arise or are payable following the determination of the consideration payable by SCG at the Symon Closing and which, when added to any Symon Transaction Expenses paid by SCG at the Symon Closing, exceed $2 million; and (iv) any amount payable in respect of any Symon Holdings dissenting shares in excess of the merger consideration payable to the holders of such shares pursuant to the terms of the Symon Merger Agreement.

The Symon Merger Agreement also provides for indemnification of the Securityholders’ Representative, Symon Holdings’s shareholders, their respective affiliates, and each of their officers, directors, employees, shareholders, agents and representatives from and against any Damages suffered as a result of: (i) the breach of any representation or warranty made by SCG or Symon Merger Sub in the Symon Merger Agreement; (ii) the breach of any covenant or agreement made by SCG or Symon Merger Sub in the Symon Merger Agreement, or of any covenant or agreement by Symon Holdings or any of its subsidiaries in the Symon Merger Agreement that is to be performed following the Symon Closing; or (iii) SCG’s ownership of Symon Holdings or the conduct of Symon Holdings’s business from and after the Symon Closing Date.

Trust Account Waiver

Each of Symon Holdings and the Securityholders’ Representative agreed that it does not, at the time the Symon Merger Agreement was executed, and shall not at any time thereafter, have any right, title, interest or claim of any kind in or to any monies in the Trust Account or any distributions therefrom (except as set forth in clause (iii) of this paragraph), or make any claim against, the Trust Account, regardless of whether such claim arises as a result of, in connection with or relating in any way to, the Symon Merger Agreement or any other matter, and regardless of whether such claim arises based on contract, tort, equity or any other theory of legal liability (any and all such claims are collectively referred to hereafter as the “Claims”).  Each of Symon Holdings and the Securityholders’ Representative irrevocably waived any Claims it may have against the Trust Account (including any distributions therefrom) at the time the Symon Merger Agreement was executed or in the future as a result of, or arising out of, any negotiations, contracts or agreements with SCG and will not seek recourse against the Trust Account (including any distributions therefrom) for any reason whatsoever (including, without limitation, for an alleged breach of this Agreement).  Symon Holdings and the Securityholders’ Representative each agreed and acknowledged that such irrevocable waiver was material to the Symon Merger Agreement and specifically relied upon by SCG to induce SCG to enter in the Symon Merger Agreement, and Symon Holdings and the Securityholders’ Representative each further intended and understood such waiver to be valid, binding and enforceable under applicable Law.  To the extent Symon Holdings or the Securityholders’ Representative commence any action or proceeding based upon, in connection with, relating to or arising out of any matter relating to SCG, which proceeding seeks, in whole or in part, monetary relief against SCG, Symon Holdings and the Securityholders’ Representative each acknowledged and agreed its sole remedy shall be against funds held outside of the Trust Account (which may include funds that have been disbursed pursuant to clause (iii) of



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the first sentence of Section 8.1 of the Symon Merger Agreement) and that such claim shall not permit Symon Holdings or the Securityholders’ Representative (or any party claiming on Symon Holdings’s or Securityholders’ Representative’s behalf or in lieu of Symon Holdings or the Securityholders’ Representative) to have any claim against the Trust Account (including any distributions therefrom, other than to SCG) or any amounts contained therein.  In the event that RMG or the Securityholders’ Representative commence any action or proceeding based upon, in connection with, relating to or arising out of any matter relating to SCG, which proceeding seeks, in whole or in part, relief against the Trust Account (including any distributions therefrom) or the SCG Public Stockholders, whether in the form of money damages or injunctive relief, SCG shall be entitled to recover from Symon Holdings and the Securityholders’ Representative the associated legal fees and costs in connection with any such action, in the event SCG prevails in such action or proceeding.

Access to Information

Symon Holdings has agreed to give SCG and its accountants, counsel and other representatives reasonable access during the period prior to the consummation of the Symon Merger to (i) all of Symon Holdings’s properties, personnel, books, contracts, commitments and records and (ii) all other information concerning the business, properties and personnel of Symon Holdings as SCG may reasonably request.  Further, the parties shall confer on a regular and frequent basis to report operational matters of materiality and the general status of ongoing operations.

Public Announcements

SCG and Symon Holdings agreed to consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure regarding the terms of the Symon Merger Agreement and the Symon Merger, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other except as may be required by Law or by obligations pursuant to any listing agreement with any national securities exchange.

Assignment

SGC and Symon Merger Sub may assign and delegate all of their rights and obligations under the Symon Merger Agreement to any entity affiliated with or controlled by Donald R. Wilson so long as (i) such assignment and delegation does not relieve SCG or Symon Merger Sub from their respective obligations under the Symon Merger Agreement, (ii) the lender under the Commitment Letter shall have simultaneously irrevocably assigned the Commitment Letter to such entity affiliated with or controlled by Donald R. Wilson, and (iii) upon any such assignment, Symon Holdings, the Securityholders’ Representative and their respective affiliates, counsel, agents and other representatives shall have no further obligation to assist such entity affiliated with or controlled by Donald R. Wilson in the making of any required filings with the SEC.

Financing Commitment Letter

On March 1, 2013, SCG entered into the Commitment Letter with the Trust whereby the Trust has agreed to provide a standby credit facility up to the aggregate amount of (i) SCG’s obligations under the Merger Agreement and (ii) all out-of-pocket fees, expenses and other amounts payable by SCG under or in connection with the Merger Agreement. The proceeds of the credit facility will be used solely to finance the acquisition of all the issued and outstanding common stock of Symon Holdings. The fixed rate of interest for the first twelve months is 15% per annum, 5% of which will be payment-in-kind and added each month to the principal balance. Pursuant to the Symon Merger Agreement, SCG agreed to use its reasonable best efforts to maintain in effect, satisfy all material terms of, and consummate the financing contemplated by, the Commitment Letter. SCG further agreed to use its reasonable best efforts to obtain alternative financing from alternative sources, on terms and conditions no less favorable to SCG than those contained in the Commitment Letter, if any portion of the financing contemplated by the Commitment Letter becomes unavailable.



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THE OFFER

Number of SCG Common Shares; Share Purchase Price

Number of SCG Common Shares

The Offer is not conditioned on any minimum or maximum number of SCG Common Shares being tendered. The Offer is, however, subject to certain other conditions, including the Merger Condition. See “The Offer — Conditions of the Offer”.

Only SCG Common Shares validly tendered and not validly withdrawn will be purchased pursuant to the Offer. All of the issued and outstanding SCG Common Shares tendered and not purchased pursuant to the Offer will be returned to the tendering Stockholders at our expense promptly following the Expiration Date.

Share Purchase Price

The Share Purchase Price is $10.00 per SCG Common Share. The Share Purchase Price has been calculated as the price per SCG Common Share, subject to lawfully available funds therefor, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account as of two business days prior to the date of the commencement of the Offer plus interest accrued from the date of the commencement of the Offer until two business days prior to the consummation of the initial business combination, less franchise and income taxes payable and less any interest that SCG may withdraw for working capital requirements, by (B) the total number of then outstanding Public Shares. The obligation of SCG to purchase SCG Common Shares validly tendered and not validly withdrawn pursuant to the Offer will be subject to, among others, the Merger Condition. We expressly reserve the right, in our sole discretion, to increase the Share Purchase Price, subject to applicable law, the SCG Charter and the terms of the Merger Agreement. We are required to conduct the Offer in accordance with the terms of our Charter. See “The Offer  — Extension of the Offer; Termination; Amendment”.

If we modify the price that may be paid for SCG Common Shares, then the Offer must remain open for at least 10 business days following the date that notice of the modification is first published, sent or given. For the purposes of the Offer, a “business day” means any day other than a Saturday, Sunday or U.S. federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Time. See “The Offer — Extensions of the Offer; Termination; Amendment”.

Purpose of the Offer; Certain Effects of the Offer

SCG and RMG executed the Merger Agreement on January 11, 2013. In connection with the announcement of the Transaction, SCG announced that it would offer to purchase its outstanding SCG Common Shares as contemplated by the Offer. The Offer provides the Stockholders an opportunity to have SCG redeem their SCG Common Shares for a pro-rata portion of our Trust Account as required by the SCG Charter, and as disclosed in the Prospectus.

The Sponsor currently holds 1,523,810 Founder Shares, equal to 16% of the issued and outstanding SCG Common Shares as of December 31, 2012.  The Sponsor is an entity ultimately controlled by Gregory H. Sachs, SCG’s founder and chairman of the board, chief executive officer and president, and Donald R. Wilson, Jr.  The Sponsor has agreed not to tender any of its SCG Common Shares pursuant to the Offer.  Additionally, DRW, an entity ultimately controlled by Donald R. Wilson, Jr., purchased the DRW Public Shares pursuant to the Equity Commitment Letter and the Assignment Agreement and was issued the Additional DRW Shares by SCG as consideration of such purchases, all of which DRW has agreed not to tender pursuant to the Offer and further waived its redemption rights in the event of SCG’s liquidation with respect to the Additional DRW Shares.

The public announcement of the Offer for purposes of Rule 14e-5 of the Exchange Act may have occurred as early as November 21, 2012, when SCG publicly disclosed that it had entered into a letter of intent with RMG. As a result, the transactions contemplated by, and completed pursuant to, the Equity Commitment Letter, the Assignment Agreement and the related agreements constitute arrangements prohibited by Rule 14e-5 to purchase SCG Common Shares outside the Offer, and do not fall within the exception provided by Rule 14e-5(b)(7). This may result in us being subject to monetary or injunctive penalties under Section 14(e) of the Exchange Act.

Our intention is to consummate the Transaction.  The Board, with only Gregory H. Sachs abstaining, has unanimously (i) approved our making the Offer, (ii) declared the advisability of the Merger and approved the Merger Agreement, and (iii) determined that the Transaction is in the best interests of the Stockholders and, if consummated, would constitute our initial business combination pursuant to the SCG Charter.  If you tender your SCG Common Shares pursuant to the Offer, you will not be participating in the Transaction because you will no longer hold such SCG Common Shares.  SCG will be the public holding company for RMG upon the consummation of the Transaction.  Neither SCG, the Board, the Information Agent nor the Depositary is making any recommendation to you as to whether to tender or refrain from tendering your SCG Common Shares pursuant to the Offer.  The members of the Board may directly benefit from the Transaction and have interests in the Transaction that may be different from, or in addition to, the interests of the SCG Public Stockholders.  



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See “Risk Factors — Risks Related to the Transaction” and “The Transaction — Certain Benefits of SCG’s Directors and Officers and Others in the Transaction”.  You must make your own decision as to whether to tender your SCG Common Shares and, if so, how many SCG Common Shares to tender.  In doing so, you should read carefully the information in this Offer to Purchase and in the Letter of Transmittal. You should discuss whether to tender your SCG Common Shares with your broker, if any, or other financial advisor.  See “Risk Factors” for a discussion on risks that you should consider before participating in the Offer and the Transaction.

Certain Effects of the Offer

The approximately $80,000,000 in funds to be released from the Trust Account to SCG upon consummation of the Transaction and SCG’s cash and cash equivalents on hand immediately prior to the consummation of the Transaction will be used to pay (i) the Share Purchase Price to the Stockholders who shall have validly tendered and not validly withdrawn their SCG Common Shares pursuant to the Offer, (ii) indebtedness owed by RMG and its subsidiaries under the RMG Credit Agreement upon consummation of the Transaction at a discounted amount equal to $23,500,000 (of which $21,000,000 will be paid in cash and the balance will be paid by the issuance of the Lender Shares) and (iii) to third parties (e.g., professionals, advisors, printers, etc.) who have rendered services to SCG in connection with the IPO, the Transaction and the Offer.  We expect that, following our purchase of SCG Common Shares tendered in the Offer, the remaining funds from the Trust Account will be at least $23,544,500 assuming that all Public Shares other than the DRW Public Shares are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.  Any remaining funds from the Trust Account following the payments described above will be retained by us to fund our post-Transaction working capital requirements and general corporate purposes.  If the Transaction is consummated and such amount is insufficient to fund our post-Transaction working capital requirements, we would need to sell debt or equity securities or borrow the funds necessary to satisfy such requirements following the consummation of the Transaction. There is no assurance that such funds would be available to us on terms favorable to us or at all.

Our securities are registered under the Exchange Act, which requires, among other things, that we furnish certain information to the Stockholders and the SEC. We believe that our purchase of SCG Common Shares pursuant to the Offer will not result in the SCG Common Shares becoming eligible for termination of registration under the Exchange Act, and we have no intention to terminate such registration following the Offer. The SCG Common Shares are currently listed on the Nasdaq Capital Market in accordance with the requirements of that exchange. There can be no assurance that SCG will be able to maintain such listing. See “Risk Factors —Risks Related to SCG”.

SCG Common Shares acquired pursuant to the Offer will be held as treasury shares, subject to future transfer by SCG unless otherwise retired.  

Except as disclosed in this Offer to Purchase, including without limitation under the headings “The Transaction”, “The Merger Agreement”, “Related Agreements”, “The Symon Merger”, “The Symon Merger Agreement”, “The Offer—Material U.S. Federal Income Tax Considerations—Non-Participation in the Offer and Expected Future Activities” and “Price Range of Securities and Dividends”, SCG currently has no active plans, proposals or negotiations underway that relate to or would result in:


·

any extraordinary transaction, such as a merger, reorganization or liquidation involving SCG;

·

any purchase, sale or transfer of a material amount of assets of SCG;

·

any material change in SCG’s present dividend rate or policy, indebtedness or capitalization;

·

any other material change in SCG’s business;

·

any class of equity securities becoming eligible for termination of registration under Section 12(g)(4) of the Exchange Act;

·

the acquisition by any person of any material amount of additional securities of SCG, or the disposition of any material amount of securities of SCG; or

·

any changes to the SCG Charter.


Notwithstanding the foregoing, we reserve the right to change our plans and intentions at any time, as we deem appropriate.

Procedures for Tendering Shares

Valid Tender of SCG Common Shares

For a Stockholder to make a valid tender of SCG Common Shares pursuant to the Offer, the Depositary must receive, at its address set forth on the back cover of this Offer to Purchase, and prior to the Expiration Date, the certificates for the SCG Common Shares you wish to tender, or confirmation of receipt of the SCG Common Shares pursuant to the procedure for book-entry transfer described below, together with a validly completed and duly executed Letter of Transmittal, including any required signature guarantees, or an Agent’s Message in the case of a book-entry transfer, and any other required documents.



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If a nominee holds your SCG Common Shares, you must contact your nominee to tender your SCG Common Shares. It is likely they have an earlier deadline for you to act to instruct them to tender SCG Common Shares on your behalf. We urge the Stockholders who hold SCG Common Shares through nominees to consult their nominees to determine whether transaction costs may apply if the Stockholders tender SCG Common Shares through the nominees and not directly to the Depositary.

Units and Warrants

The Offer is only for SCG Common Shares. No Units or Warrants tendered will be accepted and will be promptly returned. We have outstanding Units comprised of one SCG Common Share and one Warrant. You may tender SCG Common Shares that are included in Units, but to do so you must separate such SCG Common Shares from the Units prior to tendering them.

To separate your SCG Common Shares from the Units, you must instruct your nominee to do so for Units held by a nominee on your behalf. Your nominee must send written instructions by facsimile to our transfer agent, Continental Stock Transfer & Trust Company, Attention: Joel Kass at (212) 616-7617. Such written instructions must include the number of Units to be split and the nominee holding such Units. Your nominee must also initiate electronically, using Depository Trust Company’s (“DTC”) DWAC (Deposit Withdrawal at Custodian) System, a withdrawal of the relevant Units and a deposit of an equal number of SCG Common Shares and Warrants. This must be completed far enough in advance of the Expiration Date to permit your nominee to tender pursuant to the Offer the SCG Common Shares received upon the split up of the Units. While this is typically done electronically the same business day, you should allow at least one full business day to accomplish the separation.  If you fail to cause your SCG Common Shares to be separated in a timely manner before the Offer expires you will likely not be able to validly tender your SCG Common Shares prior to the Expiration Date.

If you hold Units registered in your own name, you must deliver the certificate for such Units to our transfer agent, Continental Stock Transfer & Trust Company, at 17 Battery Place, 8th Floor, New York, New York 10004, Attention: Joel Kass, with written instructions to separate such Units into SCG Common Shares and Warrants. This must be completed far enough in advance of the Expiration Date to permit the mailing of the certificates for SCG Common Shares back to you so that you may then tender pursuant to the Offer the share certificates received upon the split of the Units.

Signature Guarantees

No signature guarantee will be required on a Letter of Transmittal if:

(i)    the registered holder of the SCG Common Shares (including, for purposes hereof, any participant in DTC whose name appears on a security position listing as the owner of the SCG Common Shares) tendered and the holder has not completed either the box entitled “Special Delivery Instructions” or the box entitled “Special Payment Instructions” on the Letter of Transmittal; or

(ii)   SCG Common Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program or an “eligible guarantor institution,” as the term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing constituting an “eligible institution”). See Instruction 1 to the Letter of Transmittal.

Except as described above, all signatures on any Letter of Transmittal for securities tendered must be guaranteed by an eligible institution. If a certificate is registered in the name of a person other than the person executing a Letter of Transmittal, or if payment is to be made, or SCG Common Shares not purchased or tendered are to be issued and returned, to a person other than the registered holder, then the certificate must be endorsed or accompanied by an appropriate stock power, in either case signed exactly as the name of the registered holder or owner appears on the certificate, with the signatures on the certificate guaranteed by an eligible institution.

In all cases, payment for SCG Common Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for the SCG Common Shares tendered (or a timely confirmation of the book-entry transfer of the securities into the Depositary’s account at DTC, as described above), a properly completed and duly executed Letter of Transmittal, including any required signature guarantees, or an Agent’s Message in the case of a book-entry transfer, and any other documents required by the Letter of Transmittal.

Method of Delivery

The method of delivery of all documents, including certificates for SCG Common Shares, the Letter of Transmittal and any other required documents, is at the sole election and risk of the tendering Stockholder. SCG Common Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a book-entry transfer, by book-



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entry confirmation). If delivery is by mail, we recommend registered mail with return receipt requested, properly insured. In all cases, sufficient time should be allowed to ensure timely delivery prior to the Expiration Date.

Book-Entry Delivery

For purposes of the Offer, the Depositary will establish an account with respect to the SCG Common Shares at DTC within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in DTC’s system may make book-entry delivery of securities by causing DTC to transfer those SCG Common Shares into the Depositary’s account in accordance with DTC’s procedures for that transfer. Although delivery of SCG Common Shares may be effected through a book-entry transfer into the Depositary’s account at DTC, a properly completed and duly executed Letter of Transmittal with any required signature guarantees, or an Agent’s Message, and any other required documents must be transmitted to and received by the Depositary at its address on the back cover of this Offer to Purchase prior to the Expiration Date.

The confirmation of a book-entry transfer of shares into the Depositary’s account at DTC is referred to herein as “book-entry confirmation”. Delivery of documents to DTC in accordance with DTC’s procedures will not constitute delivery to the Depositary.

The term “Agent’s Message” means a message transmitted by DTC to, and received by, the Depositary and forming a part of a book-entry confirmation, stating that DTC has received an express acknowledgement from the DTC participant tendering shares that such DTC participant has received and agrees to be bound by the terms of the Letter of Transmittal and that SCG may enforce such agreement against the DTC participant.

Return of Unpurchased SCG Common Shares

If any tendered SCG Common Shares are not purchased, or if less than all of the issued and outstanding SCG Common Shares evidenced by a Stockholder’s certificate are tendered, certificates for unpurchased SCG Common Shares will be returned promptly after the expiration or termination of the Offer or, in the case of securities tendered by book-entry transfer at DTC, the securities will be credited to the appropriate account maintained by the tendering Stockholder at DTC, in each case without expense to the Stockholder.

Tendering Stockholder’s Representations and Warranties; Tender Constitutes an Agreement

It is a violation of Rule 14e-4 promulgated under the Exchange Act for a person acting alone or in concert with others, directly or indirectly, to tender securities for such person’s own account unless at the time of tender and at the Expiration Date such person has a “net long position” within the meaning of Rule 14e-4 promulgated under the Exchange Act, in the securities or equivalent securities at least equal to the securities being tendered and will deliver or cause to be delivered such securities for the purpose of tendering to us within the period specified in the Offer.  A tender of securities made pursuant to any method of delivery set forth herein will constitute the tendering Stockholder’s acceptance of the terms and conditions of the Offer, as well as the tendering Stockholder’s representation and warranty to us that (i) such Stockholder has a “net long position” in securities or the equivalent securities at least equal to the securities being tendered within the meaning of Rule 14e-4 and (ii) such tender of securities complies with Rule 14e-4.

A tender of securities made pursuant to any method of delivery set forth herein will also constitute a representation and warranty to us that the tendering Stockholder has full power and authority to tender, sell, assign and transfer the securities tendered, and that, when the same are accepted for payment by us, we will acquire good, marketable and unencumbered title thereto, free and clear of all security interests, liens, restrictions, claims, encumbrances and other obligations relating to the sale or transfer of the securities, and the same will not be subject to any adverse claim or right. Any such tendering Stockholder will, on request by the Depositary or us, execute and deliver any additional documents deemed by the Depositary or us to be necessary or desirable to complete the sale, assignment and transfer of the securities tendered, all in accordance with the terms of the Offer.

All authority conferred or agreed to be conferred by delivery of the Letter of Transmittal shall be binding on the successors, assigns, heirs, personal representatives, executors, administrators and other legal representatives of the tendering Stockholder and shall not be affected by, and shall survive, the death or incapacity of such tendering Stockholder.  A tender of securities made pursuant to any method of delivery set forth herein will also constitute an acknowledgement by the tendering Stockholder that: (i) the Offer is discretionary and may be extended, modified, or terminated by us as provided herein; (ii) such Stockholder is voluntarily participating in the Offer; (iii) the future value of our SCG Common Shares is unknown and cannot be predicted with certainty; (iv) such Stockholder has been advised to read this entire Offer to Purchase, including the Annex thereto; (v) such Stockholder has been advised to consult his, her or its tax and financial advisors with regard to how the Offer will impact the tendering Stockholder’s specific situation; (vi) any foreign exchange obligations triggered by



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such Stockholder’s tender of SCG Common Shares or receipt of proceeds are solely his, her or its responsibility; and (vii) regardless of any action that we take with respect to any or all income/capital gains tax, social security or insurance tax, transfer tax or other tax-related items (“Tax Items”) related to the Offer and the disposition of securities, such Stockholder acknowledges that the ultimate liability for all Tax Items is and remains his, her or its sole responsibility. In that regard, a tender of SCG Common Shares shall authorize us to withhold all applicable Tax Items potentially payable by a tendering Stockholder. Our acceptance for payment of securities tendered pursuant to the Offer will constitute a binding agreement between the tendering Stockholder and us upon the terms and subject to certain conditions of the Offer.

Determination of Validity; Rejection of SCG Common Shares; Waiver of Defects; No Obligation to Give Notice of Defects

All questions as to the number of securities to be accepted and the validity, form, eligibility (including time of receipt) and acceptance for payment of SCG Common Shares will be determined by us, in our sole discretion, and our determination will be final and binding on all parties, subject to a Stockholder’ right to challenge our determination in a court of competent jurisdiction. We reserve the absolute right prior to the Expiration Date to reject any or all tenders we determine not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right, subject to applicable law, to waive any waivable conditions of the Offer with respect to all tendered securities or waive any defect or irregularity in any tender with respect to any particular securities or any particular Stockholder whether or not we waive similar defects or irregularities relating thereto in the case of other Stockholders. No tender of securities will be deemed to have been validly made until all defects or irregularities have been cured or waived. We will not be liable for failure to waive any condition of the Offer, or any defect or irregularity in any tender of SCG Common Shares. None of SCG, the Information Agent, the Depositary or any other person will be under any duty to give notification of defects or irregularities in tenders or incur any liability for failure to give any such notification. Our interpretation of the terms of and conditions to the Offer, including each Letter of Transmittal and the instructions thereto, will be final and binding on all parties, subject to a Stockholder’s right to challenge our determination in a court of competent jurisdiction.   By tendering SCG Common Shares, you agree to accept all decisions we make concerning these matters and waive any rights you might otherwise have to challenge those decisions.

Lost or Destroyed Certificates

If any certificate representing SCG Common Shares has been lost, destroyed or stolen, the Stockholder should complete the Letter of Transmittal, indicate the certificate(s) representing SCG Common Shares is lost and return it to the Depositary. The Stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. The Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been completed. Stockholders are requested to contact the Depositary immediately in order to permit timely processing of this documentation.

Withdrawal Rights

You may validly withdraw SCG Common Shares that you have previously tendered pursuant to the Offer at any time prior to the Expiration Date, namely 5:00 p.m. Eastern Time on April 5, 2013 or such later time and date to which we may extend the Offer. Except as this section otherwise provides, tenders of SCG Common Shares are irrevocable.

In addition, pursuant to Rule 13e-4(f)(2)(ii) promulgated under the Securities Exchange Act of 1934, as amended, you are also permitted to withdraw SCG Common Shares that you have previously tendered pursuant to the Offer after midnight, New York City time, on Tuesday, April 9, 2013 (i.e., 40 business days from the Offer commencement date), in the event that we have not yet accepted your SCG Common Shares for payment as of that time for any reason.

For a withdrawal to be effective, you must deliver, on a timely basis, a written notice of your withdrawal to the Depositary at the address appearing on the back cover page of this Offer to Purchase.  Your notice of withdrawal must specify your name, the number of SCG Common Shares to be withdrawn and the name of the registered holder of such SCG Common Shares.  Certain additional requirements apply, as described below, if the certificates for SCG Common Shares to be withdrawn have been delivered to the Depositary or if your SCG Common Shares have been tendered under the procedure for book-entry transfer.  

If a Stockholder has used more than one Letter of Transmittal or has otherwise tendered SCG Common Shares in more than one group of SCG Common Shares, the Stockholder may withdraw SCG Common Shares using either separate notices of withdrawal or a combined notice of withdrawal, so long as the information specified above is included.

If certificates for SCG Common Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of those certificates, the Stockholder must submit the serial numbers shown on those certificates to the Depositary and, unless an eligible institution has tendered those shares, an eligible institution must



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guarantee the signatures on the notice of withdrawal. If SCG Common Shares have been delivered in accordance with the procedures for book-entry transfer described above in “— Procedures for Tendering Shares” above, any notice of withdrawal must also specify the name and number of the account at DTC to be credited with the withdrawn shares and must otherwise comply with DTC’s procedures.

Withdrawals of tenders of SCG Common Shares may not be rescinded, and any SCG Common Shares validly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. Withdrawn securities may be retendered at any time prior to the Expiration Date by again following one of the procedures described in this section.

All questions as to the form and validity, including the time of receipt, of notices of withdrawal, will be determined by us, in our sole discretion, and our determination will be final and binding on all parties. We reserve the absolute right to waive any defect or irregularity in the withdrawal of securities by any Stockholder, whether we waive similar defects or irregularities in the case of other Stockholders. None of SCG, the Information Agent, the Depositary or any other person will be obligated to give notice of any defects or irregularities in any notice of withdrawal, nor will any of them incur liability for failure to give any notice.

If we extend the Offer, are delayed in our purchase of securities or are unable to purchase securities pursuant to the Offer for any reason, then, without prejudice to our rights pursuant to the Offer, the Depositary may, subject to applicable law, retain tendered SCG Common Shares on our behalf. Such SCG Common Shares may not be withdrawn except to the extent tendering Stockholders are entitled to withdrawal rights as described in this section. Our reservation of the right to delay payment for SCG Common Shares which we have accepted for payment is limited by Rule 13e-4(f)(5) and Rule 14e-1(c) promulgated under the Exchange Act, which requires that we must pay the consideration offered or return the securities tendered promptly after termination or withdrawal of a tender offer.

Purchase of Shares and Payment of Purchase Price

Upon the terms and subject to certain conditions of the Offer promptly following the Expiration Date (but in no event later than three business days after the Expiration Date), we will accept for payment and pay for (and thereby purchase) all of the issued and outstanding SCG Common Shares validity tendered and not validly withdrawn prior to the Expiration Date. If the Merger Condition and any other offer condition has not been satisfied, we will either extend the Offer or terminate the Offer and will promptly return all of the issued and outstanding SCG Common Shares tendered at our expense.

For purposes of the Offer, we will be deemed to have accepted for payment (and therefore purchased), subject to the terms and conditions of the Offer, SCG Common Shares that are validly tendered and not validly withdrawn only when, as and if we give oral or written notice to the Depositary of our acceptance of the SCG Common Shares for payment pursuant to the Offer.

In all cases, payment for SCG Common Shares tendered and accepted for payment in the Offer will be made promptly, but only after timely receipt by the Depositary of certificates for SCG Common Shares, or a timely book-entry confirmation of SCG Common Shares into the Depositary’s account at the DTC, a properly completed and duly executed Letter of Transmittal, or an Agent’s Message in the case of a book-entry transfer, and any other required documents. In no event shall payment for SCG Common Shares tendered be made unless the Merger Condition has been satisfied. We will make prompt payment upon satisfaction of the Merger Condition, but in no event later than three business days after the Expiration Date.

SCG will pay for SCG Common Shares purchased in the Offer by depositing the aggregate Purchase Price with the Depositary, which will act as agent for tendering Stockholders for the purpose of receiving payment from us and transmitting payment to tendering Stockholders.

Certificates for all of the issued and outstanding SCG Common Shares tendered and not purchased will be returned or, in the case of SCG Common Shares tendered by book-entry transfer, will be credited to the account maintained with DTC by the nominee participant who delivered the securities, to the tendering Stockholder at our expense promptly after the Expiration Date or termination of the Offer, without expense to the tendering Stockholders.

Under no circumstances will we pay interest on the Purchase Price, including, but not limited to, by reason of any delay in making payment. In addition, if certain events occur, we may not be obligated to purchase SCG Common Shares pursuant to the Offer. See “— Conditions of the Offer” below.

We will not pay any transfer taxes, if any, payable on the transfer to us of SCG Common Shares purchased pursuant to the Offer. If payment of the Purchase Price is to be made to, or (in the circumstances permitted by the Offer) unpurchased SCG Common Shares are to be registered in the name of, any person other than the registered holder, or if tendered



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certificates are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of all transfer taxes, if any (whether imposed on the registered holder or the other person), payable on account of the transfer to the person, will be deducted from the Purchase Price, as applicable, unless satisfactory evidence of the payment of the transfer taxes, or exemption from payment of the transfer taxes, is submitted.

We urge the Stockholders who hold SCG Common Shares through a nominee to consult their nominee to determine whether transaction costs are applicable if they tender SCG Common Shares through their nominee and not directly to the Depositary.

Conditions of the Offer

Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) the rights and obligations of SCG to extend, terminate or modify the Offer (subject to the terms and conditions of the Merger Agreement), SCG (i) shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC (including Rule 13e-4(f)(5) and Rule 14e-1(c) under the Exchange Act (relating to the obligation of SCG to pay for or return tendered SCG Common Shares promptly after termination or withdrawal, respectively, of the Offer)), pay for, or may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered SCG Common Shares and (ii) may terminate or amend the Offer as to SCG Common Shares not then paid for, in the event that at the then-scheduled Expiration Date or immediately prior to such payment the Merger Condition has not been satisfied. For a description of the conditions to the Transaction, see “Merger Agreement — Conditions to the Closing of the Transaction”.

We may not waive the Merger Condition and may not make a material change which imposes additional conditions to the Offer (including changing the Share Purchase Price) inconsistent with those conditions described herein, without the prior written consent of RMG.

Furthermore, we will not accept for payment, purchase or pay for any SCG Common Shares tendered, and may amend the Offer or may postpone, in accordance with Rule 13e-4(f)(5) and Rule 14e-1(c) under the Exchange Act, the acceptance for payment of, or the purchase of and the payment for SCG Common Shares tendered until the SEC has advised us that they have no further comment with respect to the Offer and its related documents unless we have earlier terminated the Offer. We intend to extend the term of the Offer until such time, and intend to provide interim amendments to the Offer electronically via filings with the SEC to the Stockholders. Upon notification from the SEC that it has no further comment regarding the Offer, to the extent the Offer has been materially modified, we will redistribute this Offer to Purchase, as amended or supplemented, or a supplement to a previously distributed Offer to Purchase, and the Letter of Transmittal to the Stockholders, setting forth a final Expiration Date.

The Merger Condition referred to above may be asserted by us regardless of the circumstances (other than any action or omission to act by us) giving rise to any condition, and is not waivable. Our failure at any time to exercise the foregoing rights will not be deemed a waiver of any right, and each such right will be deemed an ongoing right that may be asserted at any time prior to the Expiration Date and from time to time. Once the Offer has expired, then the Merger Condition must have been satisfied prior to the Expiration Date. Any determination concerning the events described above will be final and binding on all parties, subject to a Stockholder’s right to challenge our determination in a court of competent jurisdiction.

You should evaluate current market quotes for our SCG Common Shares, among other factors, before deciding whether or not to accept the Offer. See “Price Range of Securities and Dividends” and “Risk Factors”.

Source and Amount of Funds

The approximately $80,000,000 in funds to be released from the Trust Account to SCG upon consummation of the Transaction and SCG’s cash and cash equivalents on hand immediately prior to the consummation of the Transaction will be used to pay (i) the Share Purchase Price to the SCG Public Stockholders who shall have validly tendered and not validly withdrawn their SCG Common Shares pursuant to the Offer, (ii) indebtedness owed by RMG and its subsidiaries under the RMG Credit Agreement upon consummation of the Transaction at a discounted amount equal to $23,500,000 (of which $21,000,000 will be paid in cash and the balance will be paid by the issuance of the Lender Shares) and (iii) to third parties (e.g., professionals, advisors, printers, etc.) who have rendered services to SCG in connection with the IPO, the Transaction and the Offer.  We expect that, following our purchase of Public Shares tendered in the Offer, the remaining funds from the Trust Account will be at least $23,544,500 assuming that all Public Shares other than the DRW Public Shares are validly tendered, not validly withdrawn and accepted for payment pursuant to the Offer.  Any remaining funds from the Trust Account following the payments described above will be retained by us to fund our post-Transaction working capital requirements and general corporate purposes.  If the Transaction is consummated and such amount is insufficient to fund our post-Transaction working capital requirements, we would need to sell debt or equity securities or borrow the funds necessary to satisfy such requirements following the consummation of the Transaction. There is no assurance that such funds would be available to us on terms favorable to us or at all.



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Certain Information Concerning SCG, RMG, Symon, the Transaction and the Symon Merger

Set forth elsewhere in this Offer to Purchase is information concerning SCG, RMG, Symon, the Transaction and the Symon Merger. Stockholders are urged to review such information, including the information set forth in “Risk Factors”, prior to making a decision whether to tender their SCG Common Shares.

Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the SCG Common Shares

See “The Transaction — Certain Benefits of SCG’s Directors and Officers and Others in the Transaction”, “The Merger Agreement”, “Related Agreements”, “Description of Securities”, “SCG Executive Officers, Directors, Executive Compensation and Corporate Governance Following the Transaction” and “Certain Relationships and Related Transactions” herein for information related to the proposed Transaction, management of SCG following the consummation of the Transaction and certain transactions and arrangement concerning the securities.

Based on our records and on information provided to us by our directors, executive officers, affiliates and subsidiaries, neither we nor any of our directors, executive officers, affiliates or subsidiaries have effected any transactions involving SCG Common Shares during the 60 days prior to February 11, 2013, except that DRW, an entity ultimately controlled by Donald R. Wilson, Jr., purchased 2,354,450 SCG Common Shares pursuant to the terms and conditions of the Equity Commitment Letter and the Assignment Agreement and was issued an additional 120,000 SCG Common Shares as consideration for such purchases by SCG.

Certain Legal Matters; Regulatory Approvals

Except as otherwise discussed herein, we are not aware of any license or regulatory permit that is material to our business that might be adversely affected by our acquisition of SCG Common Shares pursuant to the Offer or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic, foreign or supranational, that would be required for our acquisition or ownership of SCG Common Shares pursuant to the Offer. Should any approval or other action be required, we presently contemplate that we will seek that approval or other action. We are unable to predict whether we will be required to delay the acceptance for payment of or payment for SCG Common Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any approval or other action, if needed, would be obtained or would be obtained without substantial cost or conditions or that the failure to obtain the approval or other action might not result in adverse consequences to our business and financial condition.

Material U.S. Federal Income Tax Considerations

The U.S. federal income tax discussion set forth below is a summary included for general information purposes only. In view of the individual nature of tax consequences, each SCG Public Stockholder is advised to consult its own tax adviser with respect to the specific individual tax consequences of participation in the Offer, including, without limitation, the effect and applicability of state, local, foreign and other tax laws and the possible effects of changes in federal or other tax laws.

The sale of SCG Common Shares pursuant to the Offer will be a taxable transaction for U.S. federal income tax purposes, either as a “sale or exchange”, or under certain circumstances, as a “dividend”. Under Section 302(b) of the Internal Revenue Code of 1986, as amended (the “Code”), a sale of SCG Common Shares pursuant to the Offer generally will be treated as a “sale or exchange” if the receipt of cash by the SCG Public Stockholder: (a) results in a “complete termination” of such SCG Public Stockholder's interest in us, (b) is “substantially disproportionate” with respect to the SCG Public Stockholder or (c) is “not essentially equivalent to a dividend” with respect to the SCG Public Stockholder. In determining whether any of these tests has been met, SCG Common Shares actually owned, as well as SCG Common Shares considered to be owned by the SCG Public Stockholder by reason of certain constructive ownership rules set forth in Section 318 of the Code, generally must be taken into account. If any of these three tests for “sale or exchange” treatment is met, a SCG Public Stockholder will recognize gain or loss equal to the difference between the Share Purchase Price for the SCG Common Shares purchased in the Offer and the SCG Public Stockholder's adjusted basis in such SCG Common Shares. If such SCG Common Shares are held as a capital asset, the gain or loss will generally be capital gain or loss. The maximum tax rate applicable to net capital gains recognized by individuals and other non-corporate taxpayers is generally (i) the same as the applicable ordinary income rate for capital assets held for one year or less or (ii) 20% for capital assets held for more than one year.

If the requirements of Section 302(b) of the Code are not met, amounts received by a SCG Public Stockholder who sells SCG Common Shares pursuant to the Offer will be taxable to the SCG Public Stockholder as a “dividend” to the extent of such SCG Public Stockholder's allocable share of our current or accumulated earnings and profits. To the extent that amounts received exceed such SCG Public Stockholder's allocable share of our current and accumulated earnings and profits, such excess will constitute a non-taxable return of capital (to the extent of the SCG Public Stockholder's adjusted basis in its SCG Common Shares), and any amounts in excess of the SCG Public Stockholder's adjusted basis will constitute taxable gain. In case any portion of the Share Purchase Price received by a SCG Public Stockholder is treated as a dividend, any



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remaining basis in the SCG Common Shares purchased will be transferred to any remaining SCG Common Shares held by such SCG Public Stockholder. In addition, if a tender of SCG Common Shares is treated as a “dividend” to a tendering SCG Public Stockholder, a constructive dividend under Section 305(c) of the Code may result to a non-tendering SCG Public Stockholder whose proportionate interest in our earnings and assets has been increased by such tender. We believe that the nature of the repurchase will be such that the sale of SCG Common Shares pursuant to the Offer will normally satisfy one or more of the tests for “sale or exchange” treatment and therefore will qualify for “sale or exchange” treatment (as opposed to “dividend” treatment).

Foreign SCG Public Stockholders

Any payments to a tendering SCG Public Stockholder who is a nonresident alien individual, a foreign trust or estate or a foreign corporation that does not hold his, her or its SCG Common Shares in connection with a trade or business conducted in the United States (a “Foreign SCG Public Stockholder”) that are treated as dividends for U.S. federal income tax purposes under the rules set forth above, will be subject to U.S. withholding tax at the rate of 30% (unless a reduced rate applies under an applicable tax treaty). A tendering Foreign SCG Public Stockholder who realizes a capital gain on a tender of SCG Common Shares will not be subject to U.S. federal income tax on such gain, unless the SCG Public Stockholder is an individual who is physically present in the United States for 183 days or more and certain other conditions exist. Such persons are advised to consult their own tax adviser. Special rules may apply in the case of Foreign SCG Public Stockholders (i) that are engaged in a U.S. trade or business, (ii) that are former citizens or residents of the U.S. or (iii) that have a special status for U.S. federal tax purposes, such as “controlled foreign corporations”.  Such persons are advised to consult their own tax adviser. We may withhold 30% of the proceeds otherwise payable to a Foreign SCG Public Stockholder. A Foreign SCG Public Stockholder may be eligible to obtain a refund from the Internal Revenue Service of all or a portion of any tax withheld if such Foreign SCG Public Stockholder satisfies certain requirements or is otherwise able to establish that no tax or a reduced amount of tax is due. Foreign SCG Public Stockholders are urged to consult their own tax advisors regarding the application of federal income tax withholding, including eligibility for a withholding tax reduction or exemption, and the refund procedure.

Backup Withholding

We will be required to withhold tax at the rate of 28% (“backup withholding”) from any payment to a tendering SCG Public Stockholder that is an individual (or certain other non-corporate persons) if the SCG Public Stockholder fails to provide to us its correct taxpayer identification number or otherwise establish an exemption from the backup withholding tax rules. A Foreign SCG Public Stockholder generally will be able to avoid backup withholding with respect to payments by us that are treated as made in exchange for tendered SCG Common Shares only if it furnishes to us a duly completed Form W-8BEN, signed under penalty of perjury, stating that it (1) is a nonresident alien individual or a foreign corporation, partnership, estate or trust, (2) has not been and does not plan to be present in the United States for a total of 183 days or more during the calendar year, and (3) is neither engaged, nor plans to be engaged during the year, in a United States trade or business that has effectively connected gains from transactions with a broker or barter exchange. Backup withholding is not an additional tax, and any amounts withheld may be credited against a SCG Public Stockholder's U.S. federal income tax liability.

Non-Participation in the Offer and Expected Future Activities

Holders of SCG Common Shares who do not tender any of their SCG Common Shares in the Offer will not recognize any gain or loss for U.S. federal income tax purposes as a result of the consummation of the Offer.  



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WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE OWNERSHIP AND SALE OF THE SCG SHARES, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH OWNERSHIP AND SALE, AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

Extension of the Offer; Termination; Amendment

We expressly reserve the right, at any time and from time to time prior to the scheduled Expiration Date, and regardless of whether any of the events set forth in “— Conditions of the Offer” shall have occurred or are deemed by us to have occurred, to extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and payment for, any SCG Common Shares. We will effect any such extension by giving oral or written notice of such extension to the Depositary and making a public announcement of the extension. We also expressly reserve the right, in our sole discretion, to terminate the Offer and reject for payment and not pay for any SCG Common Shares not theretofore accepted for payment or paid for or, subject to applicable law, to postpone payment for SCG Common Shares upon the occurrence of any of the conditions specified in “Conditions of the Offer” by giving oral or written notice of the termination or postponement to the Depositary and making a public announcement of the termination or postponement. Our reservation of the right to delay payment for SCG Common Shares which we have accepted for payment is limited by Rule 13e-4(f)(5) and Rule 14e-1(c) under the Exchange Act, which requires that we must pay the consideration offered or return the SCG Common Shares tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law (including Rule 13e-4 and Rule 14e-1(c) under the Exchange Act), we further reserve the right, in our sole discretion, and regardless of whether any of the events set forth in “Conditions of the Offer” have occurred or are deemed by us to have occurred, to amend the Offer prior to the Expiration Date to increase the Share Purchase Price, or otherwise if we determine such other amendments are required by applicable law or regulation. Amendments to the Offer may be made at any time and from time to time by public announcement. In the case of an extension of the Offer, such announcement must be issued no later than 9:00 a.m., Eastern Time, on the next business day after the last previously scheduled or announced Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to the Stockholders in a manner reasonably designed to inform the Stockholders of the change. Without limiting the manner in which we may choose to make a public announcement, except as required by applicable law or regulation (including Rule 13e-4 and Rule 14e-1(c) under the Exchange Act), we shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release through PR Newswire or another comparable service. Our rights set forth in the foregoing paragraph are subject to the terms and conditions of the Merger Agreement, which provides that we may, without the consent of RMG, extend or amend the Offer for any period required by any rule, regulation or interpretation of the SEC, or the staff thereof, applicable to the Offer.

If we materially change the terms of the Offer or the information concerning the Offer, including the terms of the Merger Agreement, we will extend the Offer to the extent required by Rules 13e-4(d)(2), 13e-4(e)(3), and 13e-4(f)(1) promulgated under the Exchange Act. These rules and certain related releases and interpretations of the SEC provide that the minimum period during which a tender offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price or a change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of the terms or information; however, the Offer will remain open for at least five business days following the date that a notice concerning a material change in the terms of, or information concerning, the Offer is first published, sent or given to Stockholders. If (i) we make any change to increase the Share Purchase Price for SCG Common Shares, and (ii) the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that notice of an increase is first published, sent or given to Stockholders in the manner specified in this section, the Offer will be extended until the expiration of such period of 10 business days.

Fees and Expenses

We have retained Morrow & Co., LLC to act as Information Agent and Continental Stock Transfer & Trust Company to act as Depositary in connection with the Offer. The Information Agent may contact holders of securities by mail, facsimile and personal interviews and may request nominee Stockholders to forward materials relating to the Offer to beneficial owners. The Information Agent and Depositary will receive reasonable and customary compensation for their respective services, will be reimbursed by SCG for reasonable out-of-pocket expenses and will be indemnified against certain liabilities in connection with the Offer, including certain liabilities under the federal securities laws.



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We will not pay any fees or commissions to any nominees (other than fees to the Information Agent as described above) for soliciting tenders of SCG Common Shares pursuant to the Offer. Stockholders holding securities through nominees are urged to consult such nominee to determine whether transaction costs may apply if any such Stockholder tenders SCG Common Shares through such nominee and not directly to the Depositary. We will, however, upon request, reimburse nominees for customary mailing and handling expenses incurred by them in forwarding the Offer and related materials to the beneficial owners of SCG Common Shares held by them as a nominee or in a fiduciary capacity. No nominee has been authorized to act as our agent or the agent of the Information Agent or the Depositary for purposes of the Offer. We will not pay or cause to be paid any stock transfer taxes, if any, on our purchase of securities.

In addition, we will incur and pay reasonable and customary fees and expenses for financial printing services.

Miscellaneous

We are not aware of any jurisdiction where the making of the Offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the Offer or the acceptance of SCG Common Shares pursuant to the Offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with the applicable law. If, after such good faith effort, we cannot comply with the applicable law, the Offer will not be made to, nor will tenders be accepted from or on behalf of, the holders of SCG Common Shares residing in such jurisdiction.

You should only rely on the information contained in this document or to which we have referred you. We have not authorized any person to provide you with information or make any representation in connection with the Offer other than those contained in this Offer to Purchase, the Letter of Transmittal or in the other documents that constitute a part of the Offer. If given or made, any recommendation or any such information or representation must not be relied upon as having been authorized by us, the Board, the Depositary or the Information Agent.



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DESCRIPTION OF SECURITIES

The following is a summary of the rights and preferences of our securities and related provisions of the SCG Charter and the DGCL.  While we believe that the following description covers the material terms of our securities, the description may not contain all the information that is important to you.  We encourage you to read carefully this entire Offer to Purchase, the SCG Charter and the other documents we refer to for a more complete understanding of our securities.  See “Where You Can Find More Information”.

General

The SCG Charter authorizes the issuance of up to 250,000,000 SCG Common Shares and 1,000,000 shares of preferred stock, par value $0.0001 per share of SCG (“SCG Preferred Stock”, and each share of SCG Preferred Stock, a “SCG Preferred Share”). As of December 31, 2012, SCG had 9,523,810 outstanding SCG Common Shares and outstanding Warrants to acquire 12,000,000 SCG Common Shares at an exercise price of $11.50 per share that will become exercisable 30 days after the consummation of the Transaction provided that there is an effective registration statement under the Securities Act covering the shares of SCG Common Stock issuable upon exercise of the warrants and a current prospectus relating to them is available. No SCG Preferred Shares are currently outstanding.

Units

SCG issued an aggregate of 8,000,000 Units in the IPO. Each Unit consists of one SCG Common Share and one Warrant. Each Warrant entitles its holder to purchase one SCG Common Share. Any securityholder may elect to separate a Unit and trade the SCG Common Share and Warrant separately or as a Unit.

Common Stock

Stockholders of record are entitled to one vote for each SCG Common Share held on all matters to be voted on by the Stockholders. The Offer is being made in part to provide the SCG Public Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Transaction to be completed without a Stockholder vote.  See “The Merger Agreement”.  However, if a Stockholder vote is required to approve the Transaction, the Sponsor has agreed to vote the Founder Shares in accordance with the majority of the votes cast by the SCG Public Stockholders and to vote any Public Shares purchased during or after the offering in favor of the initial business combination. In addition, the Sponsor has agreed to waive its redemption rights with respect to their Founder Shares and Public Shares in connection with the consummation of a business combination, although it will be entitled to redemption and liquidation rights with respect to any Public Shares it holds if SCG fails to consummate a business combination within the required time period.

The Stockholders are entitled to receive ratable dividends when, as and if declared by the Board out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of SCG after a business combination, the Stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the SCG Common Stock. The Stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the SCG Common Stock, except that SCG will provide the Stockholders with the opportunity to redeem their SCG Common Shares for cash equal to their pro rata share of the aggregate amount including interest then on deposit in the Trust Account, but net of any accrued and unpaid taxes and deferred underwriting commissions, upon the consummation of SCG’s initial business combination, subject to the limitations described herein.

Preferred Stock

The SCG Charter authorizes the issuance of 1,000,000 shares of blank check SCG Preferred Stock with such designation, rights and preferences as may be determined from time to time by the Board. Accordingly, the Board is able to, without Stockholder approval, issue SCG Preferred Stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the SCG Common Stock and could have anti-takeover effects. The ability of the Board to issue SCG Preferred Stock without Stockholder approval could have the effect of delaying, deferring or preventing a change of control of SCG or the removal of existing management. However, the SCG Charter prohibits SCG from issuing shares of SCG Preferred Stock prior to its initial business combination, except in connection with the consummation of the initial business combination that has been approved by a majority of the votes cast by SCG Public Stockholders. No shares of SCG Preferred Stock are currently issued or outstanding.



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Warrants

SCG Public Warrants

Each Warrant entitles the registered holder to purchase one SCG Common Share at a price of $11.50 per share, subject to adjustment as discussed below, and are not exercisable until 30 days after the consummation of our initial business combination, provided that there is an effective registration statement under the Securities Act covering the SCG Common Shares issuable upon exercise of the Warrants and a current prospectus relating to them is available  at any time commencing on the later of:

The SCG Public Warrants will expire five years after the completion of SCG’s initial business combination, at 5:00 p.m., Eastern Time, or earlier upon redemption or liquidation.

Once the SCG Public Warrants become exercisable, SCG may call the Warrants for redemption:


·

in whole and not in part;

·

at a price of $0.01 per warrant;

·

upon not less than 30 days’ prior written notice of redemption, or the 30-day redemption period, to each Warrant holder; and

·

if, and only if, the last sale price of SCG Common Stock equals or exceeds $17.50 per share for any 20 trading days within a 30 trading day period ending on the third business day before SCG sends to the notice of redemption to the Warrant holders.


If SCG calls the SCG Public Warrants for redemption as described above, SCG’s management will have the option to require any holder of Warrants that wishes to exercise his, her or its Warrant to do so on a “cashless basis”. If SCG’s management takes advantage of this option, all holders of SCG Public Warrants would pay the exercise price by surrendering his, her or its Warrants for that number of SCG Common Shares equal to, but in no case less than $10.00, the quotient obtained by dividing (x) the product of the number of SCG Common Shares underlying the Warrants, multiplied by the difference between the exercise price of the Warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of SCG Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of Warrants. If SCG’s management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of SCG Common Shares to be received upon exercise of the Warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a Warrant redemption. If SCG calls the Warrants for redemption and SCG’s management does not take advantage of this option, the Sponsor and its permitted transferees would still be entitled to exercise their Sponsor Warrants for cash or on a cashless basis using the same formula described above that holders of SCG Public Warrants would have been required to use had all Warrant holders been required to exercise their Warrants on a cashless basis, as described in more detail below.

The exercise price, the redemption price and number of SCG Common Shares issuable on exercise of the SCG Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, stock split, extraordinary dividend, or SCG’s recapitalization, reorganization, merger or consolidation. However, the exercise price and number of SCG Common Shares issuable on exercise of the Warrants will not be adjusted for issuances of SCG Common Stock at a price below the Warrant exercise price.

The SCG Public Warrants were issued in registered form under a Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agent”), and SCG (the “Warrant Agreement”). The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to SCG, for the number of Warrants being exercised. The Warrant holders do not have the rights or privileges of holders of SCG Common Stock and any voting rights until they exercise their Warrants and receive SCG Common Shares. After the issuance of SCG Common Shares upon exercise of the Warrants, each holder will be entitled to one vote for each SCG Common Share held of record on all matters to be voted on by the Stockholders.

No SCG Public Warrants will be exercisable unless at the time of exercise a prospectus relating to the SCG Common Stock issuable upon exercise of the Warrants is current and available throughout the 30-day redemption period and the SCG Common Stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants.



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SCG has not yet registered the SCG Common Shares issuable upon exercise of the SCG Public Warrants although under the terms of the Warrant Agreement, SCG agreed to meet these conditions and use its best efforts to file a registration statement covering such SCG Common Shares and maintain a current prospectus relating to SCG Common Stock issuable upon exercise of the SCG Public Warrants until the expiration of the Warrants. However, SCG cannot assure the holders of Warrants that it will be able to do so, and if it does not maintain a current prospectus related to the SCG Common Stock issuable upon exercise of the SCG Public Warrants, holders will be unable to exercise their Warrants and SCG will not be required to settle any such Warrant exercise. If the prospectus relating to the SCG Common Stock issuable upon the exercise of the SCG Public Warrants is not current or if the SCG Common Stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants reside, SCG will not be required to net cash settle or cash settle the Warrant exercise, the SCG Public Warrants may have no value, the market for the SCG Public Warrants may be limited and the SCG Public Warrants may expire worthless.

No fractional SCG Common Shares will be issued upon exercise of the SCG Public Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a SCG Common Share, we will, upon exercise, round up to the nearest whole number the number of SCG Common Shares to be issued to the Warrant holder.

There will be no redemption rights or liquidating distributions with respect to SCG Public Warrants, which will expire worthless in the event SCG does not consummate a business combination before April 12, 2013.

Sponsor Warrants

The Sponsor purchased an aggregate of 4,000,000 Sponsor Warrants from SCG at a price of $0.75 per warrant in a private placement completed on April 12, 2011. The Sponsor Warrants (including the SCG Common Stock issuable upon exercise of the Sponsor Warrants) will not be transferable, assignable or salable (other than to SCG’s officers and directors and other persons or entities affiliated with the Sponsor) until 30 days after the completion of SCG’s initial business combination and they will not be redeemable by SCG so long as they are held by the Sponsor or its permitted transferees. Otherwise, the Sponsor Warrants have terms and provisions that are identical to the SCG Public Warrants, except that such Sponsor Warrants may be exercised by the holders on a cashless basis. If the Sponsor Warrants are held by holders other than the Sponsor or its permitted transferees, the Sponsor Warrants will be redeemable by SCG and exercisable by the holders on the same basis as the SCG Public Warrants.

Delaware Anti-Takeover Law

SCG is subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:


·

a Stockholder who owns 15% or more of SCG’s outstanding voting stock (otherwise known as an “interested stockholder”);

·

an affiliate of an interested stockholder; or

·

an associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder.


A “business combination” includes a merger or sale of more than 10% of SCG’s assets. However, the above provisions of Section 203 do not apply if:


·

the Board approves the transaction that made the Stockholder an “interested stockholder,” prior to the date of the transaction;

·

after the completion of the transaction that resulted in the Stockholder becoming an interested stockholder, that Stockholder owned at least 85% of SCG’s voting stock outstanding at the time the transaction commenced, other than statutorily excluded SCG Common Shares; or

·

on or subsequent to the date of the transaction, the business combination is approved by the Board and authorized at a meeting of the Stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.


The Board has considered the above criteria, approved the Transaction and determined that Section 203 does not prevent the consummation of the Transaction.



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Transfer Agent

The transfer agent for SCG Common Stock and Units is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.

Information Agent

The Information Agent for the Offer is:

[exh99a1p_otp002.gif]

470 West Avenue

Stamford, CT 06902

(203) 658-9400


U.S. Banks and Brokerage Firms, Please Call: (203) 658-9400

U.S. Stockholders Call Toll Free: (800) 607-0088

E-mail: scg.info@morrowco.com




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MATERIAL DIFFERENCES IN THE RIGHTS OF SCG STOCKHOLDERS
FOLLOWING THE TRANSACTION

Following the consummation of the Transaction, the Stockholders who hold our SCG Common Shares will have the same rights set forth in the SCG Charter as the Stockholders prior to the Transaction, except that provisions of Article IX of the SCG Charter will terminate upon the consummation of SCG’s initial business combination.  Article IX of the SCG Charter provides for:


·

The establishment of the Trust Account for deposit of the proceeds of our IPO which may not be disbursed until the earlier of a an initial business combination or, as amended by the SCG Charter Amendment, April 12, 2013 in the event SCG does not consummate an initial business combination by such date.

·

The redemption of the Public Shares held by the SCG Public Stockholders, effective upon consummation of an initial business combination, for cash equal to the redemption price (as noted below) either through a tender offer or in conjunction with a Stockholder vote and the solicitation of proxies.

·

If the redemption is conducted through a tender offer, SCG shall file tender offer documents with the SEC containing 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.

·

If SCG offers to redeem the Public Shares in conjunction with a Stockholder vote on the initial business combination pursuant to a proxy solicitation, a SCG 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(d)(3) of the Exchange Act) is restricted from seeking redemption rights with respect to more than an aggregate of 10% of the Public Shares.

·

SCG shall not redeem the Public Shares to the extent that such redemption would result in SCG’s failure to have net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) in excess of $5,000,000 (the “redemption limitation”).

·

If SCG offers to redeem the Public Shares in conjunction with a Stockholder vote on an initial business combination, SCG will consummate the proposed initial business combination only if such initial business combination is approved by the affirmative vote of the holders of a majority of the SCG Common Shares that are voted at a Stockholder meeting held to consider such initial business combination.

·

If SCG does not consummate the Transaction by April 12, 2013, SCG expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.  A holder of our SCG Common Shares shall receive funds from the Trust Account only in the event of a liquidation or distribution, the holder exercises its redemption rights or we redeem the shares in connection with a business combination as noted above.

·

Subject to the redemption limitation discussed above, if SCG seeks Stockholder approval of an initial business combination, prior to the consummation thereof, SCG or its designee may instruct the trustee of the Trust Account that amounts necessary to purchase up to 15% of the Public Shares at any time commencing after the filing of the preliminary proxy statement for the initial business combination and ending on the date of the Stockholder meeting to approve such initial business combination (“open market purchases”) be released to SCG from the Trust Account.  Such open market purchases may be made only at per share prices (inclusive of commissions) that do not exceed an amount equal to (A) the aggregate amount then on deposit in the Trust Account divided by (B) the total number of Public Shares then outstanding.  Any Public Shares so purchased shall be immediately canceled.  

·

However, as a condition to listing the SCG Common Stock on the NASDAQ Capital Market, SCG waived its right to use funds from the Trust Account to purchase up to 15% of the Public Shares (1,200,000 shares) in connection with an initial business combination.



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·

Prior to the consummation of a business combination, we may not issue any additional stock that participates in the proceeds of the Trust Account or that votes as a class with the SCG Common Shares if we seek Stockholder approval of an initial business combination.

·

If the RMG business is affiliated with the Sponsor, or our directors or officers, we must obtain an opinion from an independent investment banking firm that the business combination is fair to the Stockholders from a financial point of view.

·

We may not enter an initial business combination with another blank check company or a similar company with nominal operations.

·

If we hold a vote of the Stockholders on an initial business combination, a SCG 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(d)(3) of the Exchange Act), shall be restricted from voting with respect to more than an aggregate of 10% of the Public Shares.

·

We may not borrow more than an aggregate of $800,000 from the Sponsor, the Sponsor’s affiliates and/or our officers and directors that would be convertible into our equity securities.  Any such permitted borrowing shall not be convertible into any equity securities of SCG other than Warrants identical to the Sponsor Warrants, at a conversion price of $0.75 per Warrant.




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PRICE RANGE OF SECURITIES AND DIVIDENDS

SCG

Price Range of SCG Securities

The SCG Common Shares are quoted on the Nasdaq Capital Market, and the Warrants and Units are quoted on the OTCBB, under the symbols “SCGQ”, “SCGQW” and “SCGQU”, respectively. The Units commenced public trading on April 13, 2011 and unitholders may elect to separately trade the SCG Common Stock and Warrants underlying the Units.

The following table sets forth the high and low bid prices as quoted on the Nasdaq Capital Market (with respect to the SCG Common Stock) and OTCBB (with respect to the Warrants and the Units) for the period from April 18, 2011 through December 31, 2012.


 

SCGQ-US

 

SCGQU-US

 

SCGQW-US

 

Common Shares

 

Units

 

Warrants

Quarter Ended

High

Low

 

High

Low

 

High

Low

 

 

 

 

 

 

 

 

 

12/31/12

9.96

9.81

 

9.92

9.92

 

0.18

0.11

09/30/12

9.92

9.63

 

9.96

9.75

 

0.16

0.15

06/30/12

9.72

9.65

 

9.90

9.74

 

0.21

0.21

03/31/12

9.71

9.54

 

10.00

9.90

 

0.27

0.22

12/31/11

9.60

9.46

 

9.90

9.82

 

0.35

0.30

09/30/11

9.60

9.44

 

10.00

9.75

 

0.40

0.35

06/30/11

9.53

9.53

 

10.10

9.90

 

N/A

N/A


On March 27, 2013, the last reported closing prices of the SCG Common Shares, the Units and Warrants were $9.98, $10.05 and $0.30, respectively, with none of the SCG Common Shares or Units trading on that date. On February 4, 2013, the last date on which there was trading of the SCG Common Shares before the public announcement of the Transaction, the closing price on the Nasdaq Capital Market for the SCG Common Shares was $9.91.  

Holders

As of December 31, 2012, there were two holders of record of the SCG Common Shares, two holders of record of the Warrants and one holder of record of the Units.

Dividends

To date, SCG has not paid any dividends on the SCG Common Stock. The payment of any cash dividend after the Transaction will be dependent upon revenue and earnings, if any, capital requirements and general financial condition. As a holding company without any direct operations, the ability of SCG to pay cash dividends to the Stockholders after the Transaction may be limited to availability of cash provided to SCG by RMG through a distribution, loan or other transaction, and will be within the discretion of the then-Board.  See “— Dividend Policy of SCG Following the Transaction”.

Dividend Policy of SCG Following the Transaction

Any distributions that we make to the Stockholders will be authorized by and at the discretion of the Board and declared by us based upon a variety of factors deemed relevant by our directors, which may include among other things, our actual results of operations, restrictions under applicable law, or our capital requirements. We have not established a minimum payment distribution level, and we cannot assure you of our ability to make distributions to the Stockholders in the future.

Distributions to the Stockholders generally will be taxable to our Stockholders as ordinary income, although a portion of such distributions may be designated by us as long-term capital gain or qualified dividend income or may constitute a return of capital. We will furnish annually to each of Stockholders a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment. For a discussion of the U.S. federal income tax treatment of our distributions if, see “The Offer — Material U.S. Federal Income Tax Considerations – Non-Participation in the Offer and Expected Future Activities”.



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RMG

Price Range of Securities of RMG

Historical market price information regarding RMG’s common stock, and each series of RMG’s preferred stock is not provided because there is no public market for such securities.

As of January 4, 2013, there were 24 holders of RMG’s common stock, 18 holders of RMG’s Series A preferred stock, 12 holders of RMG’s Series B preferred stock and 10 holders of RMG’s Series C preferred stock.

Dividend Policy of RMG

RMG has not declared or paid any cash dividends on its securities to date and does not intend to pay cash dividends prior to the consummation of the Transaction.

Symon Holdings

Price Range of Securities of Symon Holdings

Historical market price information regarding each series of Symon Holdings’s common stock is not provided because there is no public market for such securities.

As of March 1, 2013, there were eight holders of Symon Holdings’s Class L common stock and four holders of Symon Holdings’s Class A non-voting common stock.

Dividend Policy of Symon Holdings

Symon Holdings has not declared or paid any cash dividends on its securities to date and does not intend to pay cash dividends prior to the consummation of the Symon Merger.



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BUSINESS OF SCG

Overview

SCG was incorporated in Delaware on January 5, 2011 as a blank check company for the purpose of effecting a business combination with one or more businesses. SCG is not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination, except that SCG will not effect a business combination with another blank check company or a similar type of company with nominal operations.

All activity through December 31, 2012 relates to SCG’s formation, IPO and identification and investigation of prospective target businesses with which to consummate an initial business combination.

The SCG Charter, prior to the adoption of the SCG Charter Amendment, provided that if SCG did not consummate a business combination by January 12, 2013 (unless extended by 3 months by amendment to the SCG Charter), SCG would cease all operations and commence winding up, as described herein.  On recommendation of the Board, the Stockholders approved and adopted the SCG Charter Amendment on December 19, 2012 to extend the date on which SCG must either consummate a business combination or commence proceedings to dissolve and liquidate from January 12, 2013 to April 12, 2013.  Pursuant to the terms of the SCG Charter, following the adoption of the SCG Charter Amendment, SCG is not permitted to pursue any potential initial business combination other than the Transaction.

Accordingly, if SCG does not consummate the Transaction by April 12, 2013, SCG expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to  the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.

SCG’s executive offices are located at 615 N. Wabash, Chicago, IL 60611 and our telephone number at that location is (312) 784-3960.

SCG is considered to be in the development stage as defined in FASB Accounting Standards Codification (“ASC”), or FASB ASC 915, “Development Stage Entities”, and is subject to the risks associated with activities of development stage companies.  We have neither engaged in any operations nor generated any revenues to date.

Significant Activities Since Inception

The registration statement for the IPO was declared effective April 8, 2011. SCG consummated the IPO on April 18, 2011 and received net proceeds of approximately $82,566,000, before deducting underwriting compensation of $4,000,000 (which includes $2,000,000 of deferred contingent underwriting compensation payable upon consummation of an initial business combination) and includes $3,000,000 received for the purchase of 4,000,000 Sponsor Warrants by the Sponsor. Total IPO costs (excluding $2,000,000 in underwriting fees) were $433,808.

On April 12, 2011, the Sponsor purchased 4,000,000 Sponsor Warrants from SCG for an aggregate purchase price of $3,000,000. The Sponsor Warrants are identical to the Warrants sold in the IPO, except that if held by the original holder or its permitted assigns, they (i) may be exercised for cash or on a cashless basis and (ii) are not subject to being called for redemption.

Total gross proceeds to SCG from the 8,000,000 Units sold in the offering was $80,000,000. SCG’s management has broad discretion with respect to the specific application of the net proceeds of the offering, although substantially all of the net proceeds of the IPO are intended to be generally applied toward consummating the Transaction.

On April 27, 2011, $80,000,000 from the IPO and Sponsor Warrants that was placed in the Trust Account was invested in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment company Act of 1940 (the “1940 Act”) with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act. The Trust Account assets will be maintained until the earlier of (i) the consummation of an initial business combination or (ii) the distribution of the Trust Account as described above.



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On April 12, 2011, the Units commenced trading on the OTCBB under the symbol “SCGQU”. Holders of the Units were able to separately trade the SCG Common Stock and Warrants included in such Units commencing on June 3, 2011 and the trading in the Units has continued under the symbol SCGQU. The SCG Common Shares are listed on the Nasdaq Capital Market under the symbol “SCGQ”.  The Warrants are quoted on the OTCBB under the symbols SCGW.

No Stockholder Approval of Business Combination

Pursuant to the terms of the SCG Charter, the DGCL and the Merger Agreement, SCG may consummate the Transaction with RMG and conduct redemptions of SCG Common Shares without approval of Stockholders by providing all Stockholders with the opportunity to redeem their SCG Common Shares through a tender offer pursuant to the tender offer rules promulgated by the SEC under the Exchange Act.  The Offer is being made in part to provide the Stockholders with such opportunity to redeem their SCG Common Shares and to allow the Transaction to be completed without a vote of the Stockholders.

Redemption of SCG Common Shares and Liquidation if No Business Combination

The Sponsor and SCG’s officers and directors have agreed that SCG will only have until April 12, 2013 to consummate the Transaction. If SCG is unable to consummate the Transaction on or before April 12, 2013, SCG will (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to  the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law.

Pursuant to the terms of the SCG Charter, its powers following the expiration of the permitted time period for consummating a business combination will automatically thereafter be limited to acts and activities relating to dissolving and winding up SCG’s affairs.

The Sponsor has agreed to waive its redemption rights with respect to their Founder Shares if SCG fails to consummate a business combination on or before April 12, 2013. However, if the Sponsor or any of SCG’s officers, directors or affiliates acquired Public Shares in the IPO or at any time after the IPO, they will be entitled to redemption rights with respect to such Public Shares if SCG fails to consummate a business combination within the required time period. There will be no liquidating distributions with respect to the Warrants, which will expire worthless in the event SCG does not consummate a business combination on or before April 12, 2013. SCG expects that all costs and expenses associated with implementing any plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the proceeds held outside the Trust Account ($411,217 as of December 31, 2012) and up to $1,250,000 in interest income on the balance of the Trust Account (net of franchise and income taxes payable) which SCG is permitted to withdraw from the Trust Account, although SCG cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing its plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay franchise and income taxes on interest income earned on the Trust Account balance, SCG may request the trustee of the Trust Account to release to it an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.

If SCG were to expend all of the net proceeds of the IPO, 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 the Stockholders upon SCG’s dissolution would be approximately $10.00. The proceeds deposited in the Trust Account could, however, become subject to the claims of SCG’s creditors, which would have higher priority than the claims of the SCG Public Stockholders. SCG cannot assure you that the actual per-share redemption amount received by the Stockholders will not be less than approximately $10.00, plus interest (net of any franchise and income taxes payable). Under Section 281(b) of the DGCL, SCG’s plan of dissolution must provide for all claims against it 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 SCG makes any distribution of its remaining assets to the Stockholders. While SCG intends to pay such amounts, if any, it cannot assure you that it will have funds sufficient to pay or provide for all creditors’ claims.



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Although SCG seeks to have all vendors, service providers, prospective RMG businesses or other entities with which it does business execute agreements with it waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of the SCG 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 other claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against SCG’s 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, SCG’s 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 it than any alternative. Examples of possible instances where SCG 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 SCG and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, Mr. Sachs, SCG’s Chairman, Chief Executive Officer and President, has agreed that upon its liquidation, he will be liable to SCG if and to the extent any claims by a vendor for services rendered or products sold to it, or a prospective RMG business with which it has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $10.00 per share, 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 SCG’s indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Sachs will not be responsible to the extent of any liability for such third party claims. SCG cannot assure the Stockholders, however, that Mr. Sachs would be able to satisfy those obligations. In the event that the proceeds in the Trust Account are reduced below $10.00 per share by claims that are covered by the indemnification obligations of Mr. Sachs upon SCG’s liquidation, and Mr. Sachs asserts that he is unable to satisfy any applicable obligations or that he has no indemnification obligations related to a particular claim, SCG’s independent directors would determine whether to take legal action against Mr. Sachs to enforce his indemnification obligations. While SCG currently expects that its independent directors would take legal action on its behalf against Mr. Sachs to enforce his indemnification obligations to it, it is possible that SCG’s independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, SCG cannot assure the Stockholders that due to such claims the actual value of the per-share redemption price will not be less than $10.00 per SCG Common Share.

Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of the Trust Account distributed to the SCG Public Stockholders upon the redemption of 100% of the Public Shares in the event it does not consummate the initial business combination on or before April 12, 2013 may be considered a liquidation distribution under Delaware law. If the 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 the Stockholders, any liability of the 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 the Trust Account distributed to the SCG Public Stockholders upon the redemption of 100% of the Public Shares in the event SCG does not consummate the initial business combination on or before April 12, 2013 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 SCG files a bankruptcy petition or an involuntary bankruptcy petition is filed against it that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in SCG’s bankruptcy estate and subject to the claims of third parties with priority over the claims of the Stockholders. To the extent any bankruptcy claims deplete the Trust Account, SCG cannot assure the Stockholders that it will be able to return $10.00 per share to the SCG Public Stockholders. Additionally, if it files a bankruptcy petition or an involuntary bankruptcy petition is filed against it that is not dismissed, any distributions received by the 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 the Stockholders. Furthermore, because SCG intends to distribute the proceeds held in the Trust Account to the SCG Public Stockholders promptly after the termination of its corporate existence, this may be viewed or interpreted as giving preference to the SCG Public Stockholders over any potential creditors with respect to access to or distributions from its assets. Furthermore, the Board may be viewed as having breached its fiduciary duty to SCG’s creditors



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and/or may have acted in bad faith, and thereby exposing itself and SCG to claims of punitive damages, by paying SCG Public Stockholders from the Trust Account prior to addressing the claims of creditors. SCG cannot assure you that claims will not be brought against it for these reasons.

The SCG Public Stockholders will be entitled to receive funds from the Trust Account only in the event of the redemption of 100% of the Public Shares if it does not consummate Transaction on or before April 12, 2013 or if they redeem their respective shares for cash upon the consummation of Transaction. In no other circumstances will a Stockholder have any right or interest of any kind to or in the Trust Account.

Facilities

SCG currently maintains its executive offices at 615 N. Wabash Avenue, Chicago, Illinois 60611. The cost of this space is included in the $7,500 per month fee that Sachs Capital Group L.P. charges SCG for general and administrative services. SCG believes, based on rents and fees for similar services in the Chicago metropolitan area that the fee charged by Sachs Capital Group L.P. is at least as favorable as SCG could have obtained from an unaffiliated person. SCG considers its current office space adequate for its current operations.

Employees

SCG currently has two executive officers. These individuals are not obligated to devote any specific number of hours to SCG’s matters but they intend to devote as much of their time as they deem necessary to SCG’s affairs until SCG has consummated the Transaction. SCG does not intend to have any full-time employees prior to the consummation of its initial business combination.

Legal Proceedings

SCG is not currently subject to any material legal proceedings, nor, to its knowledge, is any material legal proceeding threatened against it. From time to time, SCG may be a party to certain legal proceedings incidental to the normal course of its business. While the outcome of these legal proceedings cannot be predicted with certainty, SCG does not expect that these proceedings will have a material effect upon its financial condition or results of operations.



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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF SCG

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with SCG’s financial statements and related notes and schedules thereto, and in conjunction with our other filings with the SEC.  See “Where You Can Find More Information”.  Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

SCG was formed on January 5, 2011 as a blank check company for the purpose of effecting a business combination with one or more businesses. SCG is not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating an initial business combination, except that SCG will not effect a business combination with another blank check company or a similar type of company with nominal operations.

We intend to effectuate our initial business combination using cash from the proceeds of our IPO and the private placement of the sponsor warrants, our capital stock, debt or a combination of cash, stock and debt. Although substantially all of the net proceeds of the IPO and private placement are intended to be applied generally toward consummating the Transaction, the proceeds are not otherwise being designated for any more specific purposes. The issuance of additional SCG Common Shares in a business combination:


·

may significantly dilute the equity interests of the Stockholders;

·

may subordinate the rights of the Stockholders if we issue SCG Preferred Shares with rights senior to those afforded to the SCG Common Shares;

·

may cause a change in control if a substantial number of SCG Common Shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and

·

may adversely affect prevailing market prices for SCG Common Shares.

·

Similarly, any issuance of debt securities could result in:

·

default and foreclosure on our assets if our operating cash flow after a business combination is insufficient to pay our debt obligations;

·

acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant;

·

our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; covenants that limit our ability to acquire capital assets or make additional acquisitions;

·

our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding;

·

our inability to pay dividends on the SCG Common Shares;

·

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 the SCG Common Shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;

·

limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;

·

increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and

·

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.


The Proposed Transactions


SCG believes that RMG and Symon offer primarily distinct yet complementary products and services and target primarily distinct yet complimentary customer and partner purchasing executives within the digital signage solutions market. Accordingly, SCG anticipates that the legacy companies will primarily be operated as separate business units following completion of the Transactions. However, SCG believes that the combined company will be able to offer its combined partners and customers turn-key, end-to-end intelligent visual communications solutions incorporating hardware, software, services and monetization products across a global geographic footprint that will include legacy operations in North America,



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Europe, the Middle East, India and Asia. The post-combination company will seek to cross-sell its combined product and service portfolio between the existing customer relationships and geographies of each legacy company and to attract new customers globally that seek comprehensive digital signage solutions. Accordingly, SCG expects that the combination of RMG and Symon will provide a robust platform from which to drive revenue growth and future cash flows.


SCG, in cooperation with the existing RMG and Symon management teams, has defined a process to integrate and consolidate the businesses that includes both near- and long-term objectives. Although this process is ongoing, SCG expects that, in addition to the benefits described above, certain business efficiencies and cost reductions can be achieved from, among other items, the integration or consolidation of corporate functions, corporate marketing, corporate service providers, technology infrastructures, operating procedures, locations and staff. Following the completion of the Transactions, it is anticipated that the combined company will be headquartered in Dallas, Texas and will do business as RMG Networks. Garry McGuire, the current CEO of RMG will be the combined entity CEO, and Charles Ansley, the current CEO of Symon, will be president of the legacy Symon business unit.


As is the case with any similar transaction, the integration and consolidation of RMG and Symon presents many challenges relating to, among others, differing personnel and staffing considerations, company cultures, technology infrastructures and operating procedures. There can be no assurances that the expected benefits of completing the Transactions will be fully achieved or achieved at all.


Results of Operations

SCG for the year ended December 31, 2012 and the period from January 9, 2011 (date of inception) through December 31, 2011 neither engaged in any operations nor generated any revenues to date. SCG’s entire activity since inception up to the closing of the IPO has been in preparation of the IPO. Since the completion and closing of the IPO, SCG’s activity has been limited to evaluating business combination candidates.  SCG will not generate any operating revenues until after consummation of the Transaction. SCG expects to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest rates on risk-free investments (i.e. United States Treasury Bills.)

For the year ended December 31, 2012, SCG had net loss of $1,208,103 ($1,861,689 of expenses, $600,000 of income attributable to change in fair value of warrant liability and $53,586 of accrued interest). For the period from January 5, 2011 (date of inception) through December 31, 2011, SCG had net income of $237,495 ($400,482 of expenses, $600,000 of income attributable to change in fair value of warrant liability and 37,977 of accrued interest), respectively. As a result of being a public company, SCG expects to incur increased expenses in the future for legal, financial reporting, accounting and due diligence.

Liquidity and Capital Resources

As of December 31, 2012, SCG had $411,217 in a bank account which is available for use by management to cover the costs associated with identifying a target business and negotiating an acquisition or merger. Out of the proceeds of the IPO which remained available outside of the Trust Account, SCG obtained officers and directors insurance covering a 12 month period from April 12, 2011 through April 12, 2012 for a cost of $65,000. The officers and directors insurance policy was renewed for nine months, providing coverage through January 12, 2013 and then for an additional three months, providing coverage through April 12, 2013. The premiums for coverage during the periods April 13, 2012 through January 12, 2013 and January 13, 2013 through April 12, 2013 are $48,839 and $15,984, respectively.  The prepaid balance as of December 31, 2012 was $1,990.

The cash balance as of December 31, 2012 is $411,217 held outside of the Trust Account, which includes 1) receipt of $81,025,000 from the public and private sale of securities, net of underwriter fees, 2) payment of $433,808 of expenses associated with the IPO, 3) payment of $839,975 in operating expenditures, 4) investment of $80,000,000 in the Trust Account and 5) loan from the Sponsor and affiliates of $660,000.

SCG intends to use substantially all of the funds held in the Trust Account (net of taxes) to consummate the Transaction. To the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate the Transaction, the remaining proceeds held in the Trust Account will be used as working capital, to finance the operations of the RMG, make other acquisitions and pursue our growth strategies.



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The Sponsor may, but is not obligated to, loan SCG funds, from time to time, or at any time, in whatever amount it deems reasonable in its sole discretion, which may be convertible into Warrants of the post business combination entity at a price of $0.75 per Warrant at the option of the holder. There is currently a $100,000 promissory note held by the Sponsor, issued by SCG, which may be convertible into Warrants of the post business combination entity at a price of $0.75 per Warrant at the option of the holder. The Warrants would be identical to the Sponsor Warrants. The holders of a majority of such Warrants (or underlying SCG Common Shares) will be entitled to demand that SCG register these securities pursuant to an agreement to be entered into at the time of the loan. The holders of a majority of these securities would have certain “piggy-back” registration rights with respect to registration statements filed subsequent to such date. SCG will bear the expense incurred with the filing of any such registration statements. SCG believes that the $411,217 not held in trust as of December 31, 2012, supplemented with loans from the Sponsor, will be sufficient to allow us to operate until April 12, 2013, the date by which SCG must consummate the Transaction. Over this time period, SCG will be using these funds for identifying and evaluating prospective acquisition candidates, performing business due diligence on RMG, traveling to and from the property and asset locations of RMG, reviewing corporate, title, environmental, financial documents and material agreements regarding RMG, audit fees and structuring, negotiating and consummating the Transaction.  However, if the Transaction is consummated and such amount is insufficient to fund our post-Transaction working capital requirements, we would need to sell debt or equity securities or borrow the funds necessary to satisfy such requirements following the consummation of the Transaction. There is no assurance that such funds would be available to us on terms favorable to us or at all. See “Risk Factors – Risks Related to the Transaction”.

Restatement of Previously Issued Financial Statements


SCG has restated its financial statements  as of December 31, 2011 to correct its accounting for an adjustment related to the warrants issued in connection with the IPO. SCG’s original accounting treatment did not recognize a derivative liability and did not recognize any changes in the fair value of that derivative liability in its statements of operations.


In March 2013, SCG concluded it should correct its accounting related to SCG’s outstanding warrants. SCG had initially accounted for the warrants as a component  of equity but upon further evaluation of the terms of the warrant, concluded that the warrants should be accounted for as a derivative liability. The warrants issued contain a restructuring price adjustment provision in the event of any merger or consolidation of SCG with or into another corporation,  subsequent to the initial business combination,  where the surviving  entity is not SCG and whose stock is not listed for trading on a national securities exchange or on the OTC Bulletin Board, or is not to be so listed for trading immediately following such event (the “Applicable Event”). The exercise price of the warrant is decreased immediately following an Applicable Event by a formula  that causes the warrants to not be indexed to SCG's own stock. As a result of this provision,  SCG has restated its financial statements to reflect SCG’s  warrants as a derivative  liability with changes in the fair value recorded in the current period earnings.


The following tables summarize the adjustments made to the previously  reported December 31, 2011 balance sheet, statement of operations and statement of cash flows:


December 31, 2011


Selected audited balance sheet information


 

 

(as previously
reported)

 

 

Effect of
Restatement

 

 

(as restated)

 

 

 

 

 

 

 

 

 

Warrant liability

$

-

 

$

3,600,000

 

$

3,600,000

Total Liabilities

 

2,176,285

 

 

3,600,000

 

 

5,776,285

 

 

 

 

 

 

 

 

 

Common Stock, subject to

possible redemption

 

73,228,686

 

 

(3,600,000

)

 

69,628,686

 

 

 

 

 

 

 

 

 

Common Stock

 

952

 

 

(696

)

 

256

Additional Paid-in Capital

 

5,361,554

 

 

(361,809

)

 

4,999,745

Deficit Accumulated during

the Development Stage

 

(362,505

)

 

362,505

 

 

-

Total Stockholders' Equity

 

5,000,001

 

 

-

 

 

5,000,001

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

$

80,404,972

 

$

-

 

$

80,404,972




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From the period from January 5, 2011 (date of inception) to December 31, 2011


Selected audited statement of operations


 

 

(as previously
reported)

 

 

Effect of
Restatement

 

(as restated)

Expenses:

 

 

 

 

 

 

 

Change in fair value of warrant liability

$

-

 

$

600,000

$

600,000

 

 

 

 

 

 

 

 

Income (Loss) Attributable to

 

 

 

 

 

 

 

Common Stockholders

$

(362,505

)

$

600,000

$

237,495

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss per common share, excludes shares subject to possible redemption - basic and diluted

$

(0.05

)

$

0.15

$

0.10


Going Concern Consideration

The SCG Charter provides that SCG will have until April 12, 2013 to consummate the Transaction. If SCG does not consummate the Transaction within this period of time, it expects to (i) cease all operations except for the purpose of winding up under the terms of a plan of liquidation adopted by the Board, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem the Public Shares in consideration of a per-share price, payable in cash, equal to, but in no case less than $10.00, the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest but net of franchise and income taxes payable and less any interest SCG may withdraw for working capital requirements (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding Public Shares, which redemption will completely extinguish the rights of the SCG Public Stockholders (including the right to receive further liquidation distributions if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemptions, subject to the approval of the remaining Stockholders and the Board in accordance with applicable law, dissolve and liquidate, subject in each case to SCG’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law. This mandatory liquidation and subsequent dissolution raises doubt about SCG’s ability to continue as a going concern.

If the Transaction is consummated and such amount is insufficient to fund SCG’s post-Transaction working capital requirements, SCG would need to sell debt or equity securities or borrow the funds necessary to satisfy such requirements following the consummation of the Transaction. There is no assurance that such funds would be available to SCG on terms favorable to SCG or at all.

SCG has evaluated the appropriate accounting treatment for the Sponsor Warrants and SCG Public Warrants. As SCG is not required to net-cash settle such Warrants under any circumstances, including when SCG is unable to maintain sufficient registered shares to settle such Warrants, the terms of the Warrants satisfy the applicable requirements of FASB ASC 815, which provides guidance on identifying those contracts that should not be accounted for as derivative instruments, in accordance with FASB ASC 815. Accordingly, SCG intends to classify such instruments within permanent equity as additional paid-in capital.

SCG believes the purchase price of the Sponsor Warrants was greater than the fair value of such Warrants when purchased.  Therefore, SCG will not be required to incur a compensation expense in connection with the purchase by the Sponsor of the Sponsor Warrants.

Off-balance sheet arrangements

SCG has no obligations, assets or liabilities which would be considered off-balance sheet arrangements. SCG does not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. SCG has not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial assets.



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Contractual obligations

SCG does not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than a monthly fee of $7,500 payable to Sachs Capital Group, LP, an affiliate of the Sponsor, for office space and secretarial and administrative expenses, with up to an additional $7,500 for other operating expenses incurred by the Sponsor on behalf of SCG. SCG began incurring these fees on April 18, 2011 (the date SCG’s securities were first quoted on the OTCBB). This agreement will expire upon the earlier of: (a) the successful completion of an initial business combination, (b) April 12, 2013 or (c) the date on which SCG is dissolved and liquidated.

Critical Accounting Policies

The preparation of interim financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the interim financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. SCG has identified the following as our critical accounting policies:

Loss per common share:

Loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period.

Recent accounting pronouncements:

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on SCG’s interim financial statements.

Quantitative and Qualitative Disclosures about Market Risk

The net proceeds of the IPO that were put in the Trust Account have been invested, as provided in SCG’s registration statement.  SCG is permitted to invest the proceeds of the Trust Account in U.S. “government securities”, within the meaning of Section 2(a)(16) of the 1940 Act with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act.  The Trust Account assets will be maintained until the earlier of (i) the consummation of the initial business combination or (ii) the distribution of the Trust Account. Due to the short-term nature of these investments, SCG believe there will be no associated material exposure to interest rate risk.



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MANAGEMENT OF SCG

SCG Executive Officers and Directors

Set forth in the table below are the names, ages and positions of each of SCG’s directors and executive officers as of December 31, 2012:


Name

 

Age

 

Title

Gregory H. Sachs

 

47

 

Chairman, Chief Executive Officer, President

Michelle Sibley

 

42

 

Chief Financial Officer, Treasurer and Secretary

Kenneth B. Leonard

 

49

 

Director

Donna Parlapiano

 

48

 

Director

Marvin Shrear

 

69

 

Director

Frederick L. White

 

68

 

Director


Gregory H. Sachs has been SCG’s Chairman, Chief Executive Officer and President since inception. Since 2008, he has been Chairman and Chief Executive officer of Sachs Capital Group LP. From 1993 to 2008 he was Chairman and Chief Executive Officer of Deerfield Capital Management which he founded and oversaw its growth from a fixed income hedge fund with $15 million in assets under management to a global diversified fixed income investment manager with approximately $15 billion in assets under management. While at Deerfield, Mr. Sachs oversaw the management of Deerfield Capital Corp, a publicly traded (NYSE: DFR) specialty finance company that invested in various credit related asset classes. Deerfield Capital Corp. had gross assets in excess of $8 billion at the time Mr. Sachs sold his interest in Deerfield. Prior to founding Deerfield, Mr. Sachs was Vice President and Trading Manager for Harris Trust and Savings Bank’s Global Fixed Income Trading Division. Mr. Sachs graduated from the University of Wisconsin at Madison in 1988 with both an M.S. degree in Quantitative Analysis and Finance and a B.B.A. degree in Actuarial Science and Quantitative Analysis. He is a former board member of the Triarc Companies (NYSE: TRY) from 2004 to 2007, Deerfield Capital Corp. (NYSE: DFR) from 2005 to 2007 and the Futures Industry Association. Mr. Sachs also has extensive experience investing in real estate properties for his own account. Mr. Sachs’ designation as a director and Chairman of our board of directors was based upon his extensive background in the financial services industry, his substantial experience in growing businesses and his prior public company experience.

Michelle Sibley has been SCG’s Chief Financial Officer, Treasurer and Secretary since inception. Ms. Sibley is currently the Chief Financial Officer at Sachs Capital Group LP and at Redleaf Management company, LLC, an entity beneficially owned and controlled by Mr. Sachs, where her responsibilities include oversight of all financial aspects of the businesses. Prior to joining Redleaf Management Company, LLC in 2004 and Sachs Capital Group at its founding in 2008, Ms. Sibley was a senior tax manager in Deloitte & Touche’s tax practice. She has over 10 years of experience in public accounting, working in Arthur Andersen and Deloitte & Touche’s Financial Services practices. Ms. Sibley received a B.S. in accounting from Northern Illinois University in 1993 and is a Certified Public Accountant.

Kenneth B. Leonard became a SCG director in April 2012. Mr. Leonard has nearly 27 years of experience in the Private Equity lending space and has relationships with dozens of private equity firms, investments banks, business brokers, lenders and other service providers and intermediaries.  Mr. Leonard is a managing partner for Kayne Anderson Capital Advisors secured credit activities.  Prior to joining Kayne Anderson, Mr. Leonard was with Cerberus Capital where he was a Co-Founder of Dymas Capital Management and helped lead the development of a middle market, private equity focused lending business.  While at Dymas, Mr. Leonard played a leadership role in completing over 130 transactions with underwritten commitments in excess of $4.5 billion. Prior to joining Cerberus, Mr. Leonard was a Senior Vice President in the Merchant Banking Syndications Team at GE Capital from 2001 to 2002, where he headed up the syndications effort.  From 1998 to 2001 he was in charge of the Corporate Finance Syndications Team of Heller Financial.  From 1995 to 1998, he served as an investment professional in the Turnaround Private Equity Group of Heller Investments, Inc.  From 1986 to 1995, he served in a variety of lending positions at Heller Financial, including real estate, asset-based lending and cash flow lending.  Mr. Leonard is a graduate of the University of Iowa and received an M.B.A. from Northwestern University’s Kellogg School of Management in 1993. Mr. Leonard’s designation as a director was based upon his nearly 25 years of experience in evaluating and financing private equity transactions.

Donna Parlapiano became a SCG director in April 2012. Ms. Parlapiano is Senior Vice President for Regional Operations and Industry Relations at AutoNation (NYSE: AN), America’s largest automotive retailer employing approximately 19,000 people at 206 dealership locations representing 244 franchises, where she joined in 1998. A nearly 25-year veteran of the automobile industry, Ms. Parlapiano’s responsibilities include dealership operations and managing relationships with automobile manufacturers. Prior to joining AutoNation, Ms. Parlapiano held finance, marketing and



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strategic management positions with Ford Motor company from 1986 to 1998. In September 2010, Ms. Parlapiano was named one of the 100 most influential women in US auto industry by Automotive News. Ms. Parlapiano received a B.S. in Business Administration from Southern Colorado University in 1986 and an M.B.A. from the University of Denver in 1991. Ms. Parlapiano’s designation as a director was based upon her senior-level management experience.

Marvin Shrear became a SCG director in April 2012. Mr. Shrear was a Senior Managing Director at Deerfield Capital Management (a financial services company) from 1993 until his retirement in 2008 where he also served as Chief Financial Officer. Prior to joining Deerfield, Mr. Shrear was a partner in the Chicago office of Arthur Andersen & Co., Chief Financial Officer at GNP Commodities, Inc., and Vice President Finance for FCT Group, Inc. GNP and FCT were registered futures commission merchants. Mr. Shrear received a B.S.C. in Accountancy from DePaul University in 1965 and a J.D. from Stanford University in 1968. He is licensed as a Certified Public Accountant and attorney. Mr. Shrear’s designation as a director was based upon his senior-level management and a financial services industry experience.

Frederick L. White became a SCG director in April 2012. Mr. White is the Chief Compliance Officer at Deerborn Partners, overseeing all of the legal and regulatory work.  From 2002 to 2008, Mr. White was Managing Director, Deputy General Counsel and Chief Compliance Officer of Deerfield Capital Management. From 2004 to 2008, concurrent with his time at Deerfield, Mr. White was also General Counsel, Senior Vice President and Secretary of Deerfield Capital Corp., a publicly-traded real estate investment trust (NYSE: DFR) organized and managed by Deerfield. Before joining Deerfield, Mr. White practiced securities law for more than 30 years and was a partner at the firms of Drinker, Biddle, Gardner & Carton (1989 - 2002); Much, Shelist & Freed (1987 - 1989); and Kirkland & Ellis (1979 - 1987). Before private practice, Mr. White was an attorney with the Commodity Futures Trading Commission (1975 - 1979) and the Securities and Exchange Commission (1970 - 1975). Mr. White received his undergraduate degree from Cornell University in 1966 and his J.D. degree from the University of Michigan Law School in 1969. Mr. White’s designation as a director was based upon his over 40 years of financial services industry experience.

SCG Board of Directors and Committees

The Board is divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of stockholders) serving a three-year term. The term of office of the first class of directors, consisting of Mr. Leonard will expire at SCG’s first annual meeting of the Stockholders. The term of office of the second class of directors, consisting of Ms. Parlapiano and Mr. White, will expire at the second annual meeting of the Stockholders. The term of office of the third class of directors, consisting of Mr. Sachs and Mr. Shrear, will expire at the third annual meeting of the Stockholders.

The Board presently has one regular committee, the audit committee.  The audit committee charter is available free of charge to any Stockholder from SCG’s corporate secretary upon written request.  Requests should be addressed to Michelle Sibley, Secretary, SCG Financial Acquisition Corp., 615 North Wabash, Chicago, Illinois 60611.

During each of the years 2011 and 2012, the Board held three telephonic meetings.  SCG did not have an audit committee in 2011.  Each of the directors attended at least 75% of the meetings of the Board.  SCG does not have a policy regarding director attendance at annual meetings of the Stockholders, but encourages the directors to attend if possible.

Officer and Director Qualifications

SCG has not established a nominating committee and have not formally established any specific, minimum qualifications that must be met by officers or directors or specific qualities or skills that are necessary for one or more of our officers or members of the Board to possess. However, SCG generally evaluate the following qualities: educational background, diversity of professional experience, including whether the person is a current or was a former CEO or CFO of a public company or the head of a division of a prominent international organization, knowledge of our business, integrity, professional reputation, independence, wisdom, and ability to represent the best interests of the Stockholders.

SCG’s officers and Board are composed of a diverse group of leaders in their respective fields. Many of the current officers or directors have senior leadership experience at domestic and international companies. In these positions, they have also gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. All of SCG’s officers and directors also have experience serving on boards of directors and/or board committees of other public companies and private companies, and have an understanding of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies. Further, our officers and directors also have other experience that makes them valuable, such as managing and investing assets or facilitating the consummation of business combinations.



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SCG, along with SCG’s officers and directors, believe that the above-mentioned attributes, along with the leadership skills and other experiences of our officers and board members described below, provide us with a diverse range of perspectives and judgment necessary to facilitate our goals of consummating an initial business combination.

The independent members of the Board will consider director candidates recommended by the Stockholders, provided they meet the requirements of the SCG bylaws. If a Stockholder would like the Board to consider specific candidates for nomination at the special meeting to the Board, a Stockholder should deliver written notice to SCG’s secretary at SCG Acquisition Financial Corp., 615 North Wabash, Chicago, Illinois 60611. Written notice of such proposed candidates for director should be delivered no later than the 10th day following public announcement of the date of the meeting. The written notice should include, among other things, the candidates’ full name, age, address, biographical background, occupation, and qualifications, as well as the number of shares of capital stock owned by such person. The Stockholder providing notice must follow all requirements set forth in SCG’s bylaws. A copy of SCG’s bylaws may be requested from SCG’s secretary at SCG Acquisition Financial Corp., 615 North Wabash, Chicago, Illinois 60611. In addition, a copy of SCG’s bylaws was furnished to the SEC as Exhibit 3.2 to SCG’s Form 8-K, filed on October 15, 2010.

The independent members of the Board will evaluate each candidate for election to the Board based upon whether the candidate:


·

is independent pursuant to the requirements of the Nasdaq Capital Market;

·

is accomplished in his or her field and has a reputation, both personally and professionally, that is consistent with SCG’s image and reputation;

·

has the ability to read and understand basic financial statements, and, if applicable, satisfies the criteria for being an “audit committee financial expert” as defined by the SEC;

·

has relevant experience and expertise and would be able to provide insights and practical wisdom based upon that experience and expertise;

·

has knowledge of SCG’s business and the issues affecting SCG’s business;

·

is committed to enhancing Stockholder value;

·

fully understands, or has the capacity to fully understand, the legal responsibilities of a director and the governance processes of a public company;

·

is of high moral and ethical character and would be willing to apply sound, objective and independent business judgment, and to assume broad fiduciary responsibility;

·

has, or would be willing to commit, the required hours necessary to discharge the duties of membership on the Board;

·

has any prohibitive interlocking relationships or conflicts of interest;

·

is able to develop a good working relationship with other members of the Board and contribute to their working with the senior management; and

·

is able to suggest business opportunities.


Communications with SCG Board of Directors

The Board provides a process for Stockholders and interested parties to send communications to the Board or any individual director. The Stockholders and interested parties may forward communications to the Board or any individual director through SCG’s secretary. Communications should be addressed to the corporate secretary, SCG Financial Acquisition Corp., 615 North Wabash, Chicago, Illinois 60611. All communications will be compiled by SCG’s secretary and submitted to the Board or the individual directors on a periodic basis.

SCG Director Independence

The Board undertook a review of director independence and considered transactions and relationships between each of the nominees and directors determined that each of Kenneth B. Leonard, Donna Parlapiano, Marvin Shrear and Frederick L. White are independent directors, as defined by the applicable Nasdaq and SEC standards.

SCG Code of Ethics

SCG adopted a code of ethics that applies to its officers, the Board and its employees. The code of ethics is available free of charge to any Stockholder from SCG’s corporate secretary upon written request. Requests should be addressed to:



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Michelle Sibley, secretary, SCG Financial Acquisition Corp., 615 North Wabash, Chicago, Illinois 60611. SCG intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to or waiver from a provision of the code of ethics, if any, by posting such information on its website.

Compensation Discussion and Analysis

Since inception, none of our executive officers or directors received any compensation (cash or non-cash) for services rendered. Commencing on the date that our securities were first quoted on the OTCBB and continuing through the earlier of consummation of the Transaction or our liquidation, we will pay Sachs Capital Group LP, an entity beneficially owned and controlled by Mr. Sachs, a total of $7,500 per month for office space and administrative services, including secretarial support. This arrangement is being agreed to by Sachs Capital Group LP for our benefit and is not intended to provide Sachs Capital Group LP (or Mr. Sachs) compensation in lieu of a salary. We believe that such fees are at least as favorable as we could have obtained from an unaffiliated third party for such services. Other than this $7,500 per month fee and up to an additional $7,500 per month which may be paid to Sachs Capital Group LP or the Sponsor for additional overhead expenses incurred on our behalf, no compensation of any kind, including finder’s and consulting fees, will be paid to the Sponsor, our executive officers and directors, or any of their respective affiliates, for services rendered prior to or in connection with the consummation of the Transaction. Through the date of this Offer to Purchase, the additional $7,500 has not been paid to Sachs Capital Group LP. However, these individuals 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. Our independent directors review on a quarterly basis all payments that have been made to the Sponsor, our officers, directors or their affiliates.

After the completion of the Transaction, our directors or members of our management team who remain with us, may be paid consulting, management or other fees from SCG.  See “SCG Executive Officers, Directors, Executive Compensation and Corporate Governance Following the Transaction”. Any compensation to be paid to our officers will be determined, or recommended to the Board for determination, either by a compensation committee of the Board constituted solely by independent directors or by a majority of the independent directors on the Board.

We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of the Transaction, although it is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with us after the Transaction. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation for promoting the Transaction but we do not believe that the ability of our management to remain with us after the consummation of the Transaction was a determining factor in our decision to proceed with the Transaction. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment.

Compensation Committee Interlocks and Insider Participation and Compensation Committee Report

We do not currently have a compensation committee of the Board but intend to establish such a committee following consummation of the Transaction.  See “SCG Executive Officers, Directors, Executive Compensation and Corporate Governance Following the Transaction – Committees of the Board of Directors – Compensation Committee” We do not feel a compensation committee is necessary prior to a business combination as there was no salary, fees or other compensation being paid to our officers or directors prior to consummation of the Transaction other than as disclosed in this Offer to Purchase. All members of the Board reviewed the Compensation Discussion and Analysis above and agreed that it should be included in this Offer to Purchase.

Audit Committee

Effective upon the listing of SCG’s securities on the Nasdaq Capital Market, SCG established an audit committee of the Board, which consists of Messrs. Kenneth Leonard, Frederick L. White and Marvin Shrear, each of whom has been determined to be “independent” as defined in Rule 10A-3 under the Exchange Act and relevant Nasdaq rules. The audit committee’s duties, which are specified in SCG’s Audit Committee Charter, include, but are not limited to:


·

reviewing and discussing with management and the independent auditor SCG’s annual and quarterly financial statements;

·

discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of SCG’s financial statements;

·

discussing with management major risk assessment and risk management policies;

·

monitoring the independence of the independent auditor;



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·

verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

·

reviewing and approving all transactions between SCG and related persons;

·

inquiring and discussing with management SCG’s compliance with applicable laws and regulations and SCG’s code of ethics;

·

pre-approving all audit services and permitted non-audit services to be performed by SCG’s independent auditor, including the fees and terms of the services to be performed;

·

appointing or replacing the independent auditor;

·

determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

·

establishing procedures for the receipt, retention and treatment of complaints received by SCG regarding accounting, internal accounting controls or reports which raise material issues regarding SCG’s financial statements or accounting policies; and

·

monitoring compliance, on a quarterly basis, with the terms of all agreements between SCG and its officers and directors entered into in connection with the IPO and, if any noncompliance is identified, taking action necessary to rectify the noncompliance.


Financial Expert on Audit Committee

The audit committee will at all times be composed exclusively of “independent directors” who, as required by Nasdaq rules, have not participated in the preparation of SCG’s financial statements at any time during the past three years and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.

In addition, SCG must certify to Nasdaq that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in such member’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. The board of directors has determined that Mr. Shrear satisfies the Nasdaq definition of financial sophistication and also qualifies as an “audit committee financial expert”, as defined under SEC rules.

Board Leadership Structure and Role in Risk Oversight

The Board does not have a policy as to whether the same person should serve as both the chief executive officer and chairman of the Board or, if the roles are separate, whether the chairman should be selected from the non-employee directors or should be an employee. The Board believes that it should have the flexibility to make these determinations at any given point in time in the way that it believes best to provide appropriate leadership for SCG at that time. Gregory H. Sachs serves as chairman, president and chief executive officer of SCG.

Although the Board is ultimately responsible for risk oversight of SCG, the audit committee assists the Board in fulfilling its oversight responsibilities in certain areas of risk. In particular, the audit committee focuses on financial and enterprise risk exposures and discusses with management and the independent registered public accountants SCG’s policies with respect to risk assessment and risk management, including risks related to financial reporting, tax, accounting, disclosure, internal control over financial reporting, financial policies and credit and liquidity matters. The audit committee also assists the Board in fulfilling its duties and oversight responsibilities relating to SCG’s compliance and ethics programs, including compliance with legal and regulatory requirements.

Compensation Committee Report

The Board does not maintain a standing compensation committee since it does not compensate its officers or directors.

The Board and management have reviewed and discussed the Compensation Discussion and Analysis above required by Item 402(b) of Regulation S-K. Based on that review and discussion, the Board has recommended that the Compensation Discussion and Analysis be included in this Offer to Purchase; however, because SCG does not compensate its officers and directors, there is no relevant disclosure for this section.



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Fees and Services

The billed fees for services provided by Rothstein Kass, SCG’s principal account, for the fiscal year ended December 31, 2011 and 2012 are set forth below:


·

Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by Rothstein Kass in connection with regulatory filings. SCG paid Rothstein Kass $50,000 in connection with our audited financials for the period ended April 18, 2011 and for the period from January 5, 2011 (inception) to January 28, 2011 and $24,000 for reviews of interim financial statements through September 30, 2011. SCG paid $17,500 in connection with our December 31, 2011 fiscal year-end audit  SCG paid Rothstein Kass $24,000 for reviews of interim financial statements through September 30, 2012 and expects to be billed $27,500 in connection with our December 31, 2012 fiscal year-end audit of the financials and internal control over financial reporting;

·

Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees”. These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. There were no fees billed for audit-related services rendered by Rothstein Kass during the last two fiscal years;

·

Tax Fees. SCG expects to be billed $5,000 by Rothstein Kass for tax planning and tax advice for each of the years ended December 31, 2011 and 2012; and

·

All other fees. SCG paid no fees to Rothstein Kass for consulting services for our due diligence review in connection with the investigation of an acquisition RMG.


Since SCG’s Audit Committee was not formed until the listing of SCG’s securities on the Nasdaq Capital Market, all services rendered prior to the formation of the Audit Committee were approved by the Board. Since the formation of the Audit Committee, and on a going-forward basis, the Audit Committee has pre-approved, and will pre-approve, all audit and permissible non-audit services to be performed for us by SCG’s independent accountant, Rothstein Kass.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires SCG’s directors and executive officers, and persons who beneficially own more than 10% of SCG Common Stock, to file reports of ownership and changes in ownership of SCG Common Stock with the SEC. SCG’s directors, executive officers, and greater than 10% beneficial owners are required by SEC regulations to furnish SCG with copies of all Section 16(a) forms they file. Based solely on a review of the copies furnished to SCG and representations from SCG’s directors and executive officers, SCG believes that all Section 16(a) filing requirements for the year ended December 31, 2011 and the year ended December 31, 2012 applicable to SCG’s directors, executive officers and greater than 10% beneficial owners were satisfied.



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BUSINESS OF RMG

Overview

RMG is a global digital signage company that operates a targeted national advertising network and also provides digital signage solutions (“DSS”), software, hardware and services. Founded in 2005 as Danouv Inc., RMG began its operations by developing a digital signage technology platform for ad serving and content distribution. RMG launched an initial media network with 650 screens in coffee shops and eateries in August 2006. In September 2006, Danouv Inc. changed its name to Danoo Inc. In July 2009, Danoo purchased certain assets of IdeaCast Inc., which operated a digital signage network in gyms and fitness centers and in the airline in-flight entertainment space. In August 2009, Danoo was renamed RMG Networks, Inc.

RMG acquired certain assets and cash from Pharmacy TV Network, LLC in March 2010 in an all-stock transaction. Pharmacy TV was a retail point of sale network in pharmacies across the United States. RMG subsequently shut this network down during the fourth quarter of 2011 due to lack of scale and advertiser demand. RMG acquired Executive Media Network Worldwide and its wholly-owned subsidiaries Corporate Image Media, Inc. and Prophet Media, LLC (collectively the Executive Media Network) in April 2011 to extend its airline media offering from airport business lounges to in-flight media. The Executive Media Network acquisition introduced a proprietary planning and inventory system called Charlie into the RMG technology portfolio. The Executive Media Network was subsequently transitioned to the RMG technology platform for content delivery and network management. This acquisition also consolidated the number of companies in the United States working with airlines to sell media. During the first quarter of 2012, RMG divested the café network and NYTimes.com Today network, through a sale to Brite Media Group and sold the Fitness Network to Orion Equity Partners.

RMG took steps to align resources behind the airline media properties because RMG was a category leader in that space in 2012.

RMG operates the RMG Airline Media Network, a U.S.-based network focused on selling advertising across air travel digital media assets in executive clubs, on in-flight entertainment (“IFE”) systems, on in-flight Wi-Fi portals and in private airport terminals. The network, which spans all major commercial passenger airlines in the United States, delivers to advertisers an audience of affluent travelers and business decision makers in a captive and distraction-free video environment.  Based on information provided by its airline, airport, IFE and Wi-Fi partners, RMG estimates that the RMG Airline Media Network is comprised of over 120,000 IFE screens, nearly 3,000 aircraft, 145 airline and private terminal lounges and can reach an audience of over 34 million passengers per month. As of January 1, 2013, RMG has partner relationships with twelve unique airlines to sell their media assets.  In many cases RMG maintains multiple relationships with the same airline.  RMG works with six airlines to sell their IFE system assets.  RMG works with seven airlines to sell their media assets in their executive clubs.  RMG works with nine airlines to sell their onboard Wi-Fi media assets. All the partner relationships are exclusive with the exception of one airline partnership agreement to sell IFE system assets, providing RMG with what it believes will be a growing revenue opportunity as airlines continue to install additional digital media assets.

RMG’s DSS group builds and operates digital place-based networks and offers a range of innovative digital signage software solutions to power the digital media assets of both small and medium businesses and enterprise customers. RMG offers custom solutions that leverage the integrated suite of design, content management, content delivery and monetization of digital signage. RMG licenses its media technology platform to leading enterprises in both the United States and China. Representative DSS clients have included: DIRECTV, Blink Fitness, Wanda Group, China Power Company and China Telecom.  

RMG believes that its combination of advertising management and technology expertise provides partners and customers with advertising-based and traditional digital signage solutions that differentiates RMG from its competitors. In particular, RMG’s consolidated media asset access across the domestic air travel industry provides advertisers access to a highly-valuable audience base in captive settings. RMG is led by an experienced senior management team with key relationships in advertising, travel and technology arenas.

Competitive Strengths

RMG believes that the following factors differentiate it from its competitors and position it for continuing growth:

Targeted National Advertising Network. RMG’s captive and engaged audience of business decision makers and affluent consumers is highly sought-after by advertisers because of their media consumption habits. According to the 2011 Fall GfK MRI weighted to Population, RMG’s IFE network audience has a median age of 47 and is more than twice as likely to have a household income of over $200,000 per year, 66% more likely to have a professional or related occupation and almost twice as likely to have an occupation in management, business or financial operations.



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Scalable, State-of-the-Art Content Distribution Technology. RMG’s proprietary media technology platform provides customers with the ability to electronically change advertisements from RMG’s network operations center as needed, which shortens lead times, provides increased flexibility to change messages or target specific audiences, and significantly reduces distribution costs. This flexibility is limited to the airport clubs, as RMG does not service the IFE media assets.

Consolidated Media Assets across the Majority of Domestic Airline Carriers.   RMG’s ability to bring together ten U.S. commercial passenger airlines into a single network with broad scale and reach with similar in-flight media assets has made the RMG Airline Media Network attractive and in demand with advertisers.

Limited Capital Requirements for IFE Media Assets.  Due to the scalable nature of RMG’s business model and because its airline partners install, own and maintain their own IFE screens, RMG does not expect to make significant capital investments to grow its operations as the IFE portion of the RMG Airline Media Network expands.

Experienced Management Team. RMG’s management team has significant experience in launching emerging digital media platforms, advertising sales, and digital network design and operations.

Growth Strategy

Increase RMG’s Airline Media Cost Per Impression. In 2012, demand for many of RMG’s premium media assets outpaced supply, creating a shortage during prime advertising months. RMG’s national on-screen advertising cost per impression, or CPM, for in-flight Roadblock units was approximately 59% higher than the average U.S. primetime network television CPM reported by the Outdoor Advertising Association of America in their CPM Comparisons of Major Media. RMG believes that, based on the 2012 demand levels, this premium does not yet fully reflect the highly targeted nature of RMG’s impressions, higher recall rates, ability to provide informative audience data to RMG’s advertising customers and, most importantly, the inability to turn off or skip RMG’s advertising messages. RMG believes that there is an opportunity for continued CPM growth, especially as its inventory utilization increases, providing a more favorable supply-demand dynamic.

Expand Geographic Coverage and Reach of the Airline Media Network. RMG intends to expand the reach and geographic coverage of the RMG Airline Media Network to China and Europe by connecting additional airlines, airplanes and airline executive clubs to the network through additional partner agreements or the international operations of current airline partners. RMG’s strategy for attracting new airline partners is to focus primarily on the largest international carriers by passenger count and the most trafficked international airports.

Increase Market Awareness of RMG’s Business to Expand Customer Base and Increase Revenue. RMG believes that its products and services offer strong value propositions that will allow it to expand its advertiser customer base and therefore increase its revenue. RMG intends to increase its presence in the industry by sponsoring and having management attend and speak at industry events and conventions.  RMG also intends to expand into additional markets such as retail media. RMG is exploring various partnership arrangements such as joint ventures, value-added resellers and others to increase market awareness and expand its advertiser client base.

Expand the Digital Signage Solutions Business. RMG is exploring ways to build upon its technical portfolio and business processes. RMG is also considering ways to leverage its presence in China and to build on its relationships there to offer technology products and professional services to companies in China.

Develop New Marketing and Distribution Platforms that Leverage RMG’s Existing Assets.  RMG is exploring several initiatives that are meant to leverage its existing technology, distribution platform and sales and marketing infrastructure, including the following:

New Out-of-Home Networks.  RMG believes that its scalable infrastructure offers it a competitive advantage to expand into new digital out-of-home media networks. RMG is currently reviewing other captive digital place-based media networks that deliver valuable media audience segments such as retail businesses including malls, department stores and convenience stores, all of which have begun to deploy advertising networks consisting of in-store televisions and plasma screens. RMG believes that targeted advertising will continue to grow in importance as a percentage of advertising spending and that networks in other retail environments will continue to develop. Importantly, RMG believes that its distribution technology, sales force, other existing operating infrastructure and client relationships could create growth opportunities for it in these other retail environments.

New Product Development.  Small retail businesses deploy makeshift in-store signage solutions to communicate with their customers. Enterprise-scale signage solutions do not make economic sense for a small business owner with only a handful of locations. RMG has created ChalkboxTV, an in-store signage solution that is easy to install and which provides a cost-effective option for small business owners to communicate promotional messages to their customers using their existing screen hardware. ChalkboxTV consists of a media player connected to cloud-based software that enables single- or multi-unit



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businesses to display synchronized custom marketing messages on existing television screens.  ChalkboxTV is compatible with any cable or satellite service, so no service changes are required to deploy the system. Multiple locations can be controlled from a single interface, including custom content scheduling and playlists, so that any business can benefit from in-store digital signage. RMG plans to make ChalkboxTV available in April 2013 through a network of dealers and resellers.

RMG Solutions

The RMG Airline Media Network. RMG helps airline partners unlock economic value from their existing assets while providing advertisers access to targeted, high-value and captive audiences. RMG believes that the reach, scope and digital delivery capability of its network of digital place-based media provides an effective platform for advertisers to reach an affluent and engaged audience on a highly targeted and measurable basis. RMG estimates that an airplane with RMG media screens installed takes off every 20 seconds and that its media network can reach over 34 million people per month.  The RMG Airline Media Network is currently located in some of the busiest domestic airports and covers travelers to and from the top designated market areas in the United States. As of January 2013, RMG estimates that the RMG Airline Media Network includes over 120,000 IFE screens, 3,000 aircraft and 145 airline executive clubs and private airport terminals in the U.S.

RMG’s Airline Media Network advertising inventory includes digital signage in airline executive clubs displaying static and video messaging and also includes static and video IFE and Wi-Fi advertising units shown on commercial airlines in the United States. Short and long form IFE video content can be shown simultaneously on every digital media asset on a given aircraft, or inserted into or around other individual video programming. Static IFE banner units and static and animated online and interactive advertising units are also supported by the network. RMG’s media technology platform powers the screens located inside airline executive clubs and RMG relies on airline partners and technology partners to supply content to in-aircraft IFE screens and Wi-Fi portals.

Digital Signage Solutions.  RMG offers its digital out-of-home media digital signage solutions to SMB and enterprise customers.  With its experience in technology, operations and media sales, RMG has established a comprehensive set of managed media services for its customers, including:


·

Design: RMG works with customers to design physical screen placement, screen layout, content and user experience.

·

Content: RMG works with customers and content partners to select, acquire and customize contents.

·

Technology: RMG repackages its media technology platform and offers the technology in a cloud-based mode with full virtualization of services.

·

Deployment: RMG utilizes a network of third party service providers to deploy endpoint devices and last mile network access equipment.

·

Operations: As part of the cloud-based services, RMG offers customers operational services such as network monitoring and media campaign management.

·

Monetization: RMG’s digital out-of-home media sales experts provide business consultation to customers with revenue generation as part of their business objectives.


Technology

Media Technology Platform.  RMG utilizes a proprietary media technology platform to support end-to-end media business operations and to power its media network inside airline executive clubs.  RMG has developed an open and scalable media technology platform that is highly extensible through application integration.  This approach enables RMG to provide new media services or the ability to enter new markets in a cost effective and timely manner. The key technology components of RMG’s media technology platform include a web-based user interface, web services, IP networking, endpoint devices and displays.   

Proprietary Planning and Inventory System. RMG’s proprietary planning and inventory system supports key advertising and partner management business processes such as customer acquisition, advertising inventory, customer management and revenue recognition by providing the following functions:


·

Customer Relationship Management  

·

Presales and Proposal Management

·

Media Asset Inventory Management

·

Content Management and Distribution

·

Proof of Play and Billing




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Global Sales Model

Advertising. RMG sells and markets its advertising through its direct sales and marketing group. Its sales staff of 10 people (as of December 31, 2012), is located in sales offices in New York, Los Angeles, Chicago and Detroit. A significant percentage of the compensation for the sales staff is variable and commission-based, with commissions shared across the team in order to enhance coordination and teamwork. RMG’s national sales organization is highly scalable.  RMG meets directly with clients and advertising agencies to consult with them on the merits of digital out-of-home advertising. RMG also has a marketing department with public relations and research capabilities and has commissioned third-party market research on the effectiveness of digital out-of-home advertising. This research has provided customers with evidence of the strong performance of its product relative to other broadcast advertising based on metrics such as brand recognition, message recall and likeability.

Digital Signage Solutions. RMG is in the process of recruiting a channel sales force of third party dealers to resell the ChalkboxTV product to potential customers. These dealers will typically be paid an initial sign-up fee along with a portion of the monthly service revenue. RMG currently relies on a direct sales model to sell the professional services engagements in the China market.

Customers

Airline Media Network Partners.  RMG partners with airlines, airports and aircraft IFE and Wi-Fi providers to sell advertising on digital media assets located in executive clubs, private airport terminals and on aircraft. As of January 1, 2013, RMG had partner relationships with twelve unique airlines to sell their media assets.  In many cases RMG maintains multiple relationships with the same airline.  RMG works with six airlines to sell their IFE system assets.  RMG works with seven airlines to sell their media assets in their executive clubs.  RMG works with nine airlines to sell their onboard Wi-Fi media assets. All the partner relationships are exclusive with the exception of one airline partnership agreement to sell IFE system assets. RMG typically serves as the exclusive third-party agent for advertising sales for specified digital media assets in its partners’ air travel networks, but the scope of RMG’s exclusivity rights varies from contract to contract. For example, RMG has exclusive rights to sell advertising for digital assets that it provides and manages as part of Delta’s IFE systems and in its executive clubs. Other partners, however, grant RMG exclusivity over certain formats like video advertisements but not over other formats like print. RMG shares advertising revenues with its partners. The portion of revenue that RMG shares with its partners ranges from 25% to 80% depending on the partner and the media asset.  RMG makes minimum annual payments to three partners and revenue sharing payments to all other partners (including payments in excess of minimum annual payments, if any). RMG’s partnership agreements have terms ranging from one to five years. Four partnership agreements renew automatically unless terminated prior to renewal and the remainder have no obligation to renew. Three partnership contracts were subject to renewal in 2013, two of which were renewed at comparable rates and terms. RMG has been given notice that one contract will not be renewed.

Advertising Customers. RMG’s advertising business has a diverse customer base, consisting of more than 70 international, national and regional advertisers. The revenues obtained from advertisers varies greatly, from less than $100 to more than $4 million annually, with an average annual revenue per advertiser over $275,000. RMG has business relationships with many national advertisers across a wide variety of industries, such as automotive, computers, consumer products, credit card, financial services, insurance, tourism, and telecommunications.  For the year ended December 31, 2012, Ford Motor Company represented approximately 16% of total revenue.  

Digital Signage Solutions Customers.  DSS services are offered to a range of businesses from enterprise customers seeking digital signage expertise or software licensing to mid-sized digital signage networks in need of operational assistance. Venue owners looking to deploy end-to-end digital signage solutions work with RMG to develop complete network solutions including network design and deployment through content sourcing, strategy and monetization. For the year ended December 31, 2012, DIRECTV represented approximately 15.7% of total revenue. RMG completed delivery of the contracted DIRECTV software service product in July 2012 and began providing maintenance and support services. In October  2012, DIRECTV cancelled its maintenance and support service contract.

Industry

Digital Signage. Digital signage is one of the most prolific communications media channels for companies. RMG believes the proliferation of digital signage in business and out-of-home environments allows advertisers and companies to engage consumers, employees and targeted audiences more effectively than traditional means. The digital signage industry is comprised of hardware, software and professional services that create solutions for advertising and business to business networks. The deployment of digital signage networks has continued to increase through the recent economic downturn.

As digital signage systems have evolved, they have become more cost effective and able to provide richer media content. The initial costs of planning and deploying digital signage infrastructure have dropped, reducing a significant barrier to growth. Today's solutions support remote manageability, energy efficiency and the ability to process and blend rich media content. Advertisers are recognizing the flexibility and cost-effectiveness digital signage can provide compared to traditional media.



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RMG believes few other marketing media channels can match the value proposition that digital signage delivers: the ability to reach a mass audience with a high level of flexibility to distribute content, change messages and target specific audiences at a lower cost per impression than traditional media. According to PQ Media’s Global Digital Out-of-Home Media Forecast 2012-2016, the digital out-of-home media market in the United States is one of the fastest growth segments of the out-of-home advertising industry with revenues of over $2 billion in 2011 and forecasted double digit growth figures projected into the foreseeable future.

Digital Out-of-Home Advertising. Digital out-of-home advertising is a relatively new form of advertising, but is becoming an effective way for advertisers to reach their target audience in captive locations for long periods of time. According to Magna Global, Global Advertising Revenue Forecast and Historical Data, December, 2012, the digital out-of-home advertising market accounted for a small but rapidly growing portion of the $146 billion U.S. advertising market in 2011. U.S. digital out-of-home advertising revenue grew to $1.3 billion in 2011, representing a 10-year compound annual growth rate of 20.9%, and is expected to grow to approximately $2.5 billion by 2017. RMG believes the increase in advertising spending in this medium is largely a result of better research and overall visibility of the medium and digital technology, which have enhanced the reach and the overall value proposition of digital out-of-home advertising for local, regional, national and international advertisers.

Competition

RMG competes in the digital signage industry as well as the global advertising industry with a current focus on the domestic advertising industry in the United States. RMG’s digital out-of-home media assets compete with many other forms of marketing media, including television, radio, print media, Internet and outdoor display advertising. DSS competes with digital signage hardware vendors, software companies and digital signage service organizations. While digital out-of-home advertising represents a small portion of the advertising industry today, RMG believes it is well positioned to capitalize on what it believes will be an increasing shift of advertising spending away from mass media to more targeted forms of media, like digital out-of-home advertising. As the number of media platforms continues to increase, the ability to target narrow consumer demographics and to provide measurable third-party marketing information has become increasingly important. RMG believes that proliferation of digital technology enabling improved data collection and return on investment measurement will increase advertisers’ demand for digital advertising platforms and that the RMG Airline Media Network is well positioned to address these trends.

RMG also competes with other providers of digital out-of-home and out-of-home advertising, which vary substantially in size, such as Captivate Network, IZ ON Media LLC, National CineMedia Inc., JCDecaux SA, Titan Outdoor LLC and Clear Channel Outdoor Holdings, Inc. RMG believes that it is able to generate economies of scale, operating efficiencies and enhanced opportunities for its customers to access a national and regional audience, giving it a competitive advantage over many of its advertising competitors. Given the scale and technical capabilities of RMG’s digital network, RMG believes it is able to tailor its advertising programs with more flexibility and to a broader audience than other digital out-of-home advertising companies, providing a more entertaining consumer experience and a more effective platform for advertisers.

RMG’s DSS group competes with a variety of companies in the hardware, software and services arena of the digital signage industry including: Broadsign International Inc., Dynasign, Ronin, ComQi, Scala Inc. and Stratacache.  

Employees

As of December 31, 2012, RMG had 38 full-time employees in the U.S. and 19 in China. None of RMG’s employees is represented by a labor union with respect to his or her employment. RMG has never experienced work stoppage and believes its relationship with its employees is good.

Intellectual Property

RMG relies on a combination of patent, trademark, copyright, unfair competition and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain and protect its proprietary rights. These laws, procedures and restrictions provide only limited protection and any of its intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, RMG may be unable to protect its proprietary technology. RMG generally require employees, consultants, customers, suppliers and partners to execute confidentiality agreements with it that restrict the disclosure of its intellectual property. RMG also generally requires its employees and consultants to execute invention assignment agreements with it that protect its intellectual property rights. Despite these precautions, third parties may obtain and use without RMG’s consent intellectual property that it owns or licenses. Any unauthorized use of its intellectual property by third parties, and the expenses incurred in protecting its intellectual property rights, may adversely affect its business.



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As of December 31, 2012, RMG had three issued patents and four patent applications pending in the United States. RMG’s patents are material to its business because they relate to innovations embedded in the software that underlies RMG’s media networks.  These patents expire at various times between 2025 and 2027. RMG cannot ensure that any of its pending patent applications will be granted or that any of its issued patents will adequately protect its intellectual property. In addition, third parties could claim invalidity or co-inventorship, or make similar claims with respect to any of its currently issued patents or any patents that may be issued to it in the future. Any such claims, whether or not successful, could be extremely costly to defend; divert management’s time, attention, and resources; damage its reputation and brand; and substantially harm its business.

RMG expects that it and others in its industry may be subject to third-party infringement claims as the number of competitors grows and the functionality of products and services overlaps. RMG’s competitors could make a claim of infringement against it with respect to its products and underlying technology. Third parties may currently have, or may eventually be issued, patents upon which RMG’s current solution or future technology infringe. Any of these third parties might make a claim of infringement against RMG at any time.

Facilities

RMG has a five-year lease for approximately 4,000 square feet of principal office space in San Francisco, California. RMG also maintains sales offices in New York City, Chicago, Detroit and Los Angeles, as well as a technology support office in Beijing. The San Francisco, New York and Beijing offices are leased over varying fixed terms, and generally require RMG to pay a proportionate share of real estate taxes, insurance, common area and other operating costs. The Chicago, Detroit and Los Angeles offices are one or two person full service offices in executive suite locations with flexible lease terms. RMG believes its existing facilities are adequate to meet its current needs, and intends to add or change facilities as needs require.

Legal Proceedings

From time to time, RMG may become involved in proceedings, including with respect to immaterial collection proceedings, arising in the ordinary course of its business. RMG is not presently a party to any legal proceedings that it believes, if determined adversely to RMG, would individually or taken together have a material adverse effect on its business, operating results, financial condition or cash flows.



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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RMG

You should read the following discussion in conjunction with the sections of this Offer to Purchase entitled “Risk Factors — Risks Related to the Business of RMG”, “Forward-Looking Statements”, “Business of RMG” and RMG’s financial statements and the related notes thereto included elsewhere in this Offer to Purchase. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Offer to Purchase.

Overview


Founded in 2005 as a media network of screens in coffee shops and eateries, the acquisition of EMN in 2011 provided RMG with airline partner relationships and contracts that allowed it to evolve into a global digital signage company that operates the RMG Airline Media Network, a U.S.-based air travel media network covering digital media assets in airline executive clubs, in-flight entertainment systems, in-flight Wi-Fi portals and private airport terminals. The network, which spans all major commercial passenger airlines in the United States, delivers to advertisers an audience of affluent travelers and business decision makers in a captive and distraction-free video environment. As of January 1, 2013, RMG had partner relationships with twelve unique airlines to sell their media assets.  In many cases RMG maintains multiple relationships with the same airline.  RMG works with six airlines to sell their IFE system assets.  RMG works with seven airlines to sell their media assets in their executive clubs.  RMG works with nine airlines to sell their onboard Wi-Fi media assets. All the partner relationships are exclusive with the exception of one airline partnership agreement to sell IFE system assets.


RMG sells advertising through agencies and directly to a variety of customers under contracts ranging from one month to one year. Contracts usually specify the network placement, the expected number of impressions (determined by passenger or visitor counts) and the cost per thousand impressions (“CPM”) over the contract period to arrive at a contract amount. RMG bills for these advertising services as required by the customer, but most frequently on a monthly basis following delivery of the contracted ad insertions. Revenue is recognized at the end of the month in which fulfillment of the advertising order occurred. Payments to airline and other partners for revenue sharing are paid on a monthly basis either under minimum annual guarantees, or as a percentage of the advertising revenues following collection from customers. The portion of revenue that RMG shares with its partners ranges from 25% to 80% depending on the partner and the media asset. RMG makes minimum annual payments to three partners and revenue sharing payments to all other partners (including payments in excess of minimum annual payments, if any). RMG’s partnership agreements have terms ranging from one to five years. Four partnership agreements renew automatically unless terminated prior to renewal and the remaining agreements have no obligation to renew. Three partnership contracts were subject to renewal in 2013, two of which were renewed at comparable rates and terms. RMG has been given notice that one contract will not be renewed.


RMG’s digital signage solutions group builds and operates digital place-based networks and offers a range of innovative digital signage software, hardware and services to small and medium businesses and enterprise customers. In 2011 RMG entered into a contract with DIRECTV to provide a digital service solution/product, which solution was delivered and accepted in the third quarter of 2012. This contract was the primary source of software services revenue. For the year ended December 31, 2012 advertising revenue was $21.6 million primarily from the RMG Airline Media Network and software services revenue from the digital signage solutions group was $4.0 million.  


RMG may face increased competition within the U.S. airline market as IFE matures. International expansion to Europe and China represents an untapped market for IFE and airline lounge media. Although RMG believes it can expand its airline relationships to international locations and more international carriers, it faces the challenge of operating in international markets that it is unfamiliar with. In the third quarter of 2012 RMG completed its digital signage service contract with DIRECTV but continued to provide maintenance and support services. After DIRECTV cancelled the maintenance and support contract in the fourth quarter of 2012, RMG continued development of the technology and formulated the ChalkboxTV in-store signage solution service. RMG continues to promote the sale of software services, but expects there will be a significant decrease in software services revenue as a result of the DIRECTV cancellation. The ChalkboxTV hardware unit is currently in beta testing and there is expressed demand for the service; however, RMG may face competition in this service arena and has not previously provided this type of subscription service that includes a hardware component. There are no existing orders or sales of the planned subscription service, which RMG plans to initiate in April 2013. RMG plans to obtain subscription sales by marketing the service through existing satellite TV business sales channels on a commissioned basis. RMG’s executive team continues to seek out partners and acquisition opportunities that can expand its footprint within the digital out-of-home media marketplace, provide vertical technology or hardware solutions and complement RMG’s strengths in sales and media solution delivery.


On January 11, 2013, SCG and representatives of RMG entered into a Merger Agreement pursuant to which SCG will acquire RMG.  Pursuant to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into RMG. Upon consummation of the Merger, the separate existence of Merger Sub will thereupon cease, and RMG, as the



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Surviving Corporation, will continue its existence under the laws of the State of Delaware as an indirect and wholly-owned subsidiary of SCG.  Because SCG will have no other operating business following the Merger, RMG will effectively become a public company at the conclusion of the Transaction.


RMG monitors monthly performance by comparing actual operating results and cash flows to budgeted operating results and cash flows, and reviewing available funds from existing and potential credit lines to ensure there are sufficient funds to meet partner commitments and fund capital expenditures. Operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors-Risks Related to the Business of RMG”.


Revenues


Advertising revenues represented 84.3% of RMG’s revenues for the year ended December 31, 2012. Software services represented the other 15.7% of revenues during the same period. Advertising revenues were derived from a variety of digital and static out-of-home networks, with the majority derived from in-flight entertainment and airport lounge networks. Software services revenue was primarily derived from a software development contract.


Cost of Revenues


Revenue sharing payments to airline partners represented 92.9% of RMG’s cost of advertising revenues for the year ended December 31, 2012. The balance of cost of advertising revenues was comprised of network operation costs. The majority of cost of sales for software services consisted of payments to outside service providers for subcontracted software services, technology salaries, wages and benefit costs.


General and Administrative Expenses


General and administrative expenses primarily consisted of salaries, wages and related employment benefit costs, contract services, occupancy expenses, and other corporate expenses such as legal and other professional service fees, insurance and travel.


Sales and Marketing Expenses


Sales and marketing expenses primarily consisted of salaries, wages, commissions and related employment benefit costs, contract services, occupancy expenses, and travel.


Research and Development Expenses


Research and development expenses primarily consisted of salaries, wages and related employment benefit costs, contract services and travel for RMG network operations and technology personnel.


Results of Operations


Comparison of the Year Ended December 31, 2012 and the Year Ended December 31, 2011


The following table summarizes RMG’s operating results for the year ended December 31, 2012 compared to year ended December 31, 2011.


 

 

Year Ended December 31,

 

Changes from Previous Year

 

 

2012

 

2011

 

Dollars

 

%

Revenues

$

25,670,073

$

20,841,251

$

4,828,822

 

25.3%

Cost of Revenues

 

14,133,009

 

14,659,339

 

(526,330)

 

-3.6%

Gross Margin

 

11,537,064

 

6,181,912

 

5,715,152

 

98.2%

 

 

44.9%

 

28.4%

 

 

 

16.5%

Operating expenses

 

 

 

 

 

 

 

 

General and administrative

 

7,602,048

 

9,315,649

 

(1,713,601)

 

-18.4%

Sales and marketing

 

4,988,457

 

5,299,698

 

(311,241)

 

-5.9%

Research and development

 

1,626,870

 

1,465,705

 

161,165

 

11.0%

Impairment of goodwill and intangible assets

 

2,915,420

 

637,138

 

2,278,282

 

357.6%

 

 

17,132,795

 

16,718,190

 

414,605

 

2.5%

Loss from operations

 

(5,595,731)

 

10,896,278)

 

5,300,547

 

-48.6%

Interest and other expense, n

 

(5,940,461)

 

(4,019,256)

 

(1,921,205)

 

47.8%

Net Loss

$

(11,536,192)

$

(14,915,534)

$

3,379,342

 

-22.7%




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Revenues


Revenues were $25.7 million and $20.5 million for the years ended December 31, 2012 and 2011, respectively, an increase of $5.2 million, or 25.3%. RMG sold its NYTimes.com Today Network (original digital signage technology platform) and Fitness Entertainment Network (part of the 2009 IdeaCast acquisition) in 2012. These sales resulted in a $3.7 million revenue decrease between 2012 and 2011, so the actual increase in revenues without these networks was approximately $8.9 million, or 43.4%, of which $7.2 million, or 35.1%, was an increase in advertising revenues. This increase is primarily due to an increase in net advertising rates and an increase in average revenue per advertiser resulting from packaging of network offerings between IFE and airline clubs. The software services revenues increased $1.7 million, or 8.3% due to additions to the base contract on the DIRECTV contract for maintenance, support and other service.


As indicated above, the year-over-year increase in advertising revenues for IFE and club revenues was approximately 35.1%, of which 18% was attributable to net rate increases and the remainder was due to an increase in the average revenue per advertiser of approximately $50,000. The loss of any one significant customer would cause revenue to decrease year-to-year. There was a change of advertisers (shift from advertisers seeking fitness network to airline networks) with the sale of NYTimes.com and Fitness networks, but no noticeable change in the number of advertisers from 2011 to 2012. The wide disparity in airline partner size or relative client size does not allow for strict mathematical comparison of partner or client numbers. Expansion of our network could and often does involve increasing media exposure within existing airline partners through WiFi internet access that was not previously provided, or other related network service. That said, RMG did add two new airline partners in late 2012, effective for advertising sales beginning in 2013.


DIRECTV was the primary source of DSS revenue for both 2012 and 2011. Upon cancellation of the maintenance and support portion of the DIRECTV contract, RMG continued to develop the technology which will be marketed as ChalkboxTV. As described above, this is an in-store advertising solution that is currently in beta testing and expected to begin delivery and subscription service in April 2013. Revenue is expected to be generated from monthly subscriptions paid by users of satellite TV services that purchase a ChalkboxTV hardware unit to create and deliver their own in-store ads. RMG has no prior experience in offering a subscription service and there is no guarantee that such subscription sales will occur.


Cost of Revenues


Cost of revenues were $14.1 million and $14.6 million for the years ended December 31, 2012 and 2011, respectively, a decrease of $0.5 million, or 3.6%.   Cost of revenue, as a percentage of revenue, fell approximately 16.5%. This decrease was due to an improved mix of advertising revenues from lower margin networks to higher margin networks as a percentage of total advertising revenues. Minimum annual guarantee amounts and revenue share agreement percentages may vary by airline partner. Minimum annual guarantee (“MAG”) amounts are usually paid on a monthly basis, and are based upon estimated advertising revenues from the airline partner’s IFE or club system. If revenues exceed the estimate (and related MAG payment), a revenue share is paid on the excess. However, if revenues are below the estimates upon which the MAG is based, RMG remains obligated to make the MAG payment to the airline partner, advertising cost of revenues as a percentage of advertising revenues increases, and RMG could suffer a loss under the particular airline partner agreement. There were no significant changes or modifications in the airline partner agreements from 2011 to 2012, except that RMG was relieved of one airline partner MAG after it became evident that estimated revenues were in excess of actual revenues. RMG has agreements with 12 partners, covering 12 unique airlines. Three of these airlines have MAG agreements (one airline has a MAG for both IFE and club systems).  All airline partners have a revenue sharing agreement ranging from 25 to 80% of advertising revenue net of agency fees and venue commissions. All but one of the agreements described above are exclusive. RMG directs the efforts of its sales staff in meeting individual as well as overall revenue goals, including a general effort to direct client advertising dollars to more profitable network or partner airlines.




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The following table summarizes RMG’s margins for the year ended December 31, 2012 compared to the year ended December 31, 2011.


 

 

Year Ended December 31,

 

Year

 

 

2012

 

2011

 

Dollars

 

 %

Revenues

 

 

 

 

 

 

 

 

Advertising

$

21,635,113

$

18,126,251

$

3,508,862

 

19.4%

Software Services

 

4,034,960

 

2,355,000

 

1,679,960

 

71.3%

 

$

25,670,073

$

20,481,251

$

5,188,822

 

25.3%

Cost of Revenues

 

 

 

 

 

 

 

 

Advertising

$

13,135,715

$

13,935,704

$

(799,989)

 

-5.7%

Software Services

 

997,294

 

723,635

 

273,659

 

37.8%

 

$

14,133,009

$

14,659,339

$

(526,330)

 

-3.6%

 

 

55.1%

 

71.6%

 

 

 

 

Gross margin

 

 

 

 

 

 

 

 

Advertising

$

8,499,398

$

4,190,547

 

 

 

 

 

 

39.3%

 

23.1%

 

 

 

 

Software Services

$

3,037,666

$

1,631,365

 

 

 

 

 

 

75.3%

 

69.3%

 

 

 

 


Operating Expenses


Operating expenses were $17.1 million and $16.7 million for the years ended December 31, 2012 and 2011, respectively, an increase of $0.4 million, or 2.5%. Increased operating expenses were primarily attributable to an increase in impairment of goodwill and intangible assets of $2.3 million, offset by decreases in general and administrative and sales and marketing expenses. Prior to the sale of the Fitness network, the goodwill and unamortized balance of intangible assets from the former IdeaCast acquisition were determined to be impaired.


General and administrative expenses were $7.6 million and $9.3 million for the years ended December 31, 2012 and 2011, respectively, a decrease of $1.7 million, or 18.4%.  The decrease was primarily due to a decrease in legal fees of $1.4 million. The year ended December 31, 2011 had significant legal fees for both the credit agreement transaction costs, plus litigation that was settled in 2012.


Sales and marketing expenses were $5.0 million and $5.3 million for the years ended December 31, 2012 and 2011, respectively, a decrease of $0.3 million, or 5.9%. The decrease was primarily due to decreases in market research costs and conferences, plus a lower allocation of rent expense.


Research and development expenses were $1.6 million and $1.5 million for the years ended December 31, 2012 and 2011, respectively, an increase of $0.1 million or 11.0% primarily due to increased salaries and related benefit costs.


Interest and other expense, net


Interest and other expense, net were $5.9 million and $4.0 million for the years ended December 31, 2012 and 2011, respectively, an increase of $1.9 million, or 47.8%. The increase was due to the fact the Company ceased making interest payments under the credit agreement in October 2011. The unpaid interest was applied to the principal according to the agreement.




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Comparison of 2011 to 2010

The following table summarizes RMG’s operating results for 2011 compared to 2010.


 

 

 Year Ended December 31,

 

Changes from

Previous Year

 

 

 2011

 

 2010

 

 Dollars

 

 %

 

 

 

 

 

 

 

 

 

Revenue

$

20,481,251

$

11,969,228

$

8,512,023

 

71.1%

Cost of revenue

 

14,659,339

 

9,955,711

 

4,703,628

 

47.2%

Gross margin

 

5,821,912

 

2,013,517

 

3,808,395

 

189.1%

 

 

28.4%

 

16.8%

 

 

 

11.6%

Operating expenses

 

 

 

 

 

 

 

 

General and administrative

 

9,315,649

 

6,319,915

 

2,995,734

 

47.4%

Sales and marketing

 

5,299,698

 

5,473,178

 

(173,480)

 

-19.2%

Research and development

 

1,465,705

 

1,814,591

 

(348,886)

 

-3.2%

Impairment of goodwill and intangible assets

 

637,138

 

-

 

637,138

 

100.0%

 

 

16,718,190

 

13,607,684

 

3,110,506

 

22.9%

Loss from operations

 

(10,896,278)

 

(11,594,167)

 

697,889

 

-6.0%

Interest and other expense, net

 

(4,019,256)

 

(215,746)

 

(3,803,510)

 

1763.0%

Net Income (Loss)

$

(14,915,534)

$

(11,809,913)

$

(3,105,621)

 

26.3%


Revenues

Revenue was $20.5 million and $12.0 million for the years 2011 and 2010, respectively, an increase of $8.5 million, or 71.1%. This increase was due primarily to the acquisition of EMN and its airline lounge network, which contributed $6.2 million of revenue. The remaining $2.3 million, or 19.2%, of revenue increase was due to the expansion of RMG’s advertising networks with existing airline partners, increases in advertising rates and additions to sales staff. Digital software service revenue increased by $2.35 million due to a software development contract secured in 2011 and sale of software license agreements that did not exist in 2010.

Cost of Revenues

Cost of revenue was $14.7 million and $10.0 million for the years 2011 and 2010, respectively, an increase of $4.7 million, or 47.2%. Cost of revenue for advertising, as a percentage of advertising revenue, fell approximately 6.3%. This decrease was due to an improved mix of advertising revenues from lower margin networks to higher margin networks as a percentage of total advertising revenues. MAG and revenue share agreement percentages may vary by airline partner. MAG amounts are usually paid on a monthly basis, and are based upon estimated advertising revenues from the airline partner’s IFE or club system. If revenues exceed the estimate, a revenue share is paid on the excess. However, if revenues are below the estimates upon which the MAG is based, RMG’s advertising cost of revenues as a percentage of advertising revenues increases, and RMG could suffer a loss under the particular airline partner agreement. There were no significant changes or modifications in the airline partner agreements from 2010 to 2011. Software service cost of revenue increased by $0.72 million with the inception of a software development contract that did not exist in 2010.



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The following table summarizes RMG’s margins for the year ended December 31, 2011 compared to the year ended December 31, 2010 by category.


 

 

Year Ended December 31,

 

 

Changes from

Previous Year

 

 

2011

%

 

2010

%

 

 Dollars

 

 %

Revenue

 

 

 

 

 

 

 

 

 

 

Advertising

$

18,126,251

88.5%

$

11,969,228

100.0%

$

6,157,023

 

51.4%

Software Services

 

2,355,000

11.5%

 

-

0.0%

 

2,355,000

 

100.0%

 

$

20,481,251

100.0%

$

11,969,228

100.0%

$

8,512,023

 

71.1%

Cost of Revenue

 

 

 

 

 

 

 

 

 

 

Advertising

$

13,935,704

95.1%

$

9,955,711

100.0%

$

3,979,993

 

40.0%

Software Services

 

723,635

4.9%

 

-

0.0%

 

723,635

 

100.0%

 

$

14,659,339

100.0%

$

9,955,711

100.0%

$

4,703,628

 

47.2%

Gross margin

 

 

 

 

 

 

 

 

 

 

Advertising

$

4,190,547

 

$

2,013,517

 

 

 

 

 

 

 

23.1%

 

 

16.8%

 

 

 

 

 

Software Services

$

1,631,365

 

 

-

 

 

 

 

 

 

 

69.3%

 

 

-

 

 

 

 

 


Operating Expenses

Operating expenses were $16,718,190 and $13,607,684 for the years 2011 and 2010, respectively, an increase of $3,110,506 or 22.9%. Increased operating expenses were primarily attributable to an increase in general and administrative expenses, especially legal costs and the impairment of goodwill.

General and administrative expenses were $9,315,649 and $6,319,915 for the years 2011 and 2010, respectively, an increase of $2,995,734 or 47.4%. Increased general and administrative expenses were primarily attributable to the increase in legal costs for the EMN acquisition and certain litigation matters.

Sales and marketing expenses were $5,299,698 and $5,473,178 for the years 2011 and 2010, respectively, a decrease of $348,886 or 19.2%. This decrease was primarily due to lower salaries and wages between the periods.

Research and development expenses were $1,465,705 and $1,814,591 for the years 2011 and 2010, respectively, a decrease of $173,480 or 3.2%, largely due to decreases in salaries and related benefit costs.

Interest and other expense, net

Interest and other expense, net were $4,019,256 and $215,746 for the years 2011 and 2010, respectively, an increase of $3,803,510 or 1,763%. This increase was due to the interest expense on the credit agreement for the acquisition of EMN signed April 11, 2011 and expansion of the RMG networks.

Liquidity and Capital Resources


RMG’s primary source of liquidity is cash generated from the sale of advertising and software services and  debt financing, while primary uses of cash are revenue share and other cost of revenue payments, operating expenses, and capital expenditures for network expansion.  As of December 31, 2012, RMG’s cash and cash equivalents balance was $1,334,290, an increase of $32,763 compared to the balance of $1,301,527 as of December 31, 2011.


As of December 31, 2012, RMG’s notes payable balance was $32,554,356 (before reduction for debt discount), an increase of $5,785,412 compared to the balance of $26,768,944 as of December 31, 2011. RMG received additional funding of $1,594,273 through April 25, 2012. After September 30, 2011 RMG discontinued making optional quarterly interest payments on the $25 million borrowed under the credit agreement. Unpaid interest of $4,159,236 was applied to the principal balance during the year ended December 31, 2012. As of December 31, 2012, the debt under this credit agreement was callable by the lender, and as a result, there is a cause for doubt about RMG’s going concern should the Transaction not be consummated as planned.


As of December 31, 2012 RMG’s bank line of credit balance was zero, a decrease of $1,399,723 compared to the balance of $1,399,723 as of December 31, 2011. This credit facility, collateralized by accounts receivable, was terminated in June 2012.




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RMG has generated and used cash as follows:


 

 

Year Ended December 31,

 

 

2012

 

2011

Operating cash flow

$

(148,406)

$

(3,519,167)

Investing cash flow

 

6,989

 

(311,595)

Financing cash flow

 

174,780

 

4,542,590


Operating Activities


The decrease in cash used in operating activities for the year ended December 31, 2012 versus the year ended December 31, 2011 was primarily due to a decrease in operating loss. Significant adjustments to reconcile net loss to net cash used in operating activities consisted of increased impairment of goodwill and intangible assets and increased accrued interest on notes payable offset by a decrease in (recognition of) deferred revenue.


Investing Activities


The increase in cash provided by investing activities for the year ended December 31, 2012 versus the year ended December 31, 2011 was due to lower purchases of fixed assets in the period as well as proceeds from the sale of network fixed assets.


Financing Activities


The decrease in cash provided by financing activities for the year ended December 31, 2012 versus the year ended December 31, 2011 was due to lower proceeds from notes payable offset by payoff of the line of credit.


Sources of Capital and Capital Requirements


RMG’s primary source of liquidity and capital resources is existing cash balances, proceeds from collections on accounts receivable, and proceeds from debt and past equity financings. The cash and accounts receivable balances at December 31, 2012 were $1,334,390 and $6,253,260, respectively. Although management believes that future funds generated from RMG’s operations and cash on hand should be sufficient to fund working capital requirements and capital lease payment obligations through the next twelve months, RMG’s international expansion and planned capital expenditures coupled with the longer collection cycle experienced within the media industry may cause a need for additional short term funding. After the completion of the Transaction, RMG should be readily able to access accounts receivable factoring or other bank lines of credit absent the first lien position of the primary creditor.


Capital Expenditures of RMG have typically consisted of software upgrades and replacement of network digital screens and media players used in airline lounges, office furniture and equipment and leasehold improvements. Future capital expenditures may include the cost of large panel digital display screens not previously used in existing networks. Capital expenditures for the year ended December 31, 2012 were less than what is expected in the year 2013. RMG expects capital expenditures in the year ending December 31, 2013 to exceed $500,000 and be funded by cash flows from operations. Due to the protracted accounts receivable collection times  within the media business (noted above), RMG may require some short term factoring of accounts receivable or other suitable financing under a bank line of credit in the future to fund capital expenditures.


Financings


Notes payable to the institutional investor/lender are expected to be extinguished upon closing of the Transaction and short term accounts receivable factoring or other bank line of credit are expected to be available at rates and terms suitable for the business.


Revenue Share Commitments


From 2006 through 2012, the Company entered into revenue sharing agreements with four customers, requiring the Company to make minimum yearly revenue sharing payments. Revenue sharing payments to airline partners represented 86.5% of RMG’s cost of advertising revenue for the year ended December 31, 2012. Future minimum payments under these agreements consist of the following at December 31, 2012:


Years ending December 31:

 

 

2013

$

9,661,000

2014

 

10,189,000

2015

 

12,757,000

Total minimum revenue share commitments

$

32,607,000




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Critical Accounting Policies


The significant accounting policies of RMG are described in Note 2 of RMG’s consolidated financial statements included elsewhere in the Offer to Purchase. Certain accounting policies involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities. The judgments, assumptions and estimates used by management are based on historical experience, knowledge of the accounts and other factors, which are believed to be reasonable under the circumstances and are evaluated on an ongoing basis. Because of the nature of the judgments and assumption made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations of RMG.


Revenue recognition. RMG sells advertising through agencies and directly to a variety of customers under contracts ranging from one month to one year. Contracts usually specify the network placement, the expected number of impressions (determined by passenger or visitor counts) and the cost per thousand impressions (“CPM”) over the contract period to arrive at a contract amount. RMG bills for these advertising services as requested by the customer, generally on a monthly basis following delivery of the contracted number of impressions for the particular ad insertion. Revenue is recognized at the end of the month in which fulfillment of the advertising order occurred. Although RMG typically presents invoices to an advertising agency, collection is reasonably assured based upon the customer placing the order. Under Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 605-45 Principal Agent Considerations (Reporting Revenue Gross as a Principal versus Net as an Agent) the Company has recorded its advertising revenues on a gross basis. RMG is the primary obligor under the airline partner agreements and responsible to the advertisers for delivery of the advertising insertions. RMG also recognizes revenue from professional services for development of software and sale of software license agreements.


Professional service revenue is recognized ratably over the life of the contract. Software license revenue is recognized after persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is reasonably assured.  In software arrangements that include rights to multiple software products, support and/or other services, RMG allocates the total arrangement fee among each deliverable based on vendor-specific objective evidence of fair value.  If vendor-specific objective evidence for the undelivered elements cannot be ascertained, and the arrangement cannot be unbundled, then revenue is deferred until the delivery of the undelivered elements or, if the only undelivered element is customer support, recognized ratably over the service period.


Allowance for doubtful accounts represents management’s best estimate of probable credit losses inherent in its trade receivables, which represent a significant asset on the balance sheet. Estimating the amount of the allowance for doubtful accounts requires significant judgment and the use of estimates related to the amount and timing of estimated losses based on historical loss experience, consideration of current economic trends and conditions, and debtor-specific factors, all of which may be susceptible to significant change. Accounts receivable balances deemed uncollectible are charged against the allowance and recoveries of accounts previously charged off are credited to the allowance. A provision for bad debt is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. To the extent actual outcomes differ from management estimates, additional provision for bad debt could be required, adversely affecting future earnings or financial position.


Share-based compensation expense has been recorded in RMG’s consolidated financial statements in accordance with the provisions of Accounting Standards Codification (“ASC”) 718 Compensation – Stock Compensation, and the determination of fair value of stock options for accounting purposes requires that management make complex estimates and judgments. RMG utilized the Black-Scholes option pricing model to estimate the fair value of RMG’s stock options. Further detail on the assumptions used for option pricing can be found in Note 10 or RMG’s consolidated financial statements included elsewhere in the Offer to Purchase. RMG expects that following completion of the Transaction, options in the new public entity will be issued and recorded on a basis consistent with RMG’s past policy, but with differing assumptions based upon the new public company.


Income taxes are accounted for in accordance with ASC 740 – Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the differences between the tax basis of an asset or liability and the amounts in the consolidated financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. RMG’s deferred tax assets have been fully offset by a valuation allowance due to historical losses. Additional detail is available in Note 8 of RMG’s consolidated financial statements included elsewhere in the Offer to Purchase.


Off-Balance Sheet Arrangements


RMG’s operating lease obligations, primarily office leases, are not reflected on its balance sheet. Additional detail is available in Note 7 of RMG’s consolidated financial statements included elsewhere in this Offer to Purchase for further detail.



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Recent Accounting Pronouncements


In October 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-4, Technical Corrections and Improvements. This ASU clarifies the FASB’s ASC or corrects unintended application of guidance and includes amendments identifying when the use of fair value should be linked to the definition of fair value in ASC Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance for both public and nonpublic entities. For public entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2013. RMG expects that this pronouncement will not have a material effect on its consolidated financial statements.


In August 2012 the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22. ASU 2012-03 clarifies the Codification or corrects unintended application of guidance and includes amendments identifying when the use of fair value should be linked to the definition of fair value in ASC Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance for both public and nonpublic entities. For public entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2013. RMG expects that this pronouncement will not have a material effect on its consolidated financial statements.


In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this ASU will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. ASU 2012-2 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. RMG adopted ASU 2012-02 in its financial statements for the year ended December 31, 2012.


In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2012-12 defers only those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments. The paragraphs in ASU No. 2011-12 supersede certain pending paragraphs in ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (June 2011). ASU 2011-12 is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011 and is effective for nonpublic entities for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.  RMG adopted this ASU during the year ended December 31, 2012. Adoption did not have a material effect on RMG’s consolidated financial statements.


In December 2011, the FASB issued ASU 2011-11. Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to provide enhanced disclosures that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45.  ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure required for all comparative periods presented. RMG expects that this pronouncement will not have a material effect on its consolidated financial statements.


In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The amendments in this ASU allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and



112





circumstances for an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  RMG adopted ASU 2011-08 in its financial statements for the year ended December 31, 2012.


In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. For public entities, ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. See ASU 2011-12 above for amendments to the effective date. RMG adopted this ASU during the year ended December 31, 2012. Adoption did not have a material effect on RMG’s consolidated financial statements.


In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASC 2011-04”).  The amendments in this ASU generally represent clarifications of FASB’s ASC Topic 820 (“ASC 820”), but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This Update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”) issued by the International Auditing Standards Board. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. RMG adopted this ASU during the year ended December 31, 2012. Adoption did not have a material effect on RMG’s consolidated financial statements.




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MANAGEMENT OF RMG

Executive Officers


Set forth in the table below are the names, ages and positions of each of RMG’s executive officers as of December 31, 2012:


Name

 

Age

 

Title

Garry K. McGuire, Jr.

 

42

 

Chief Executive Officer

Allen Zielinski

 

58

 

Chief Financial Officer (Interim)

Paul Shyposh

 

45

 

Executive Vice President, Head of Sales

Daniel Kwong

 

52

 

Executive Vice President, Technology

Jim Bell

 

65

 

Executive Vice President, Sales Operations and Partnerships


Garry McGuire has been the Chief Executive Officer of RMG since June 2009 and is also the acting Chief Revenue Officer. Prior to joining RMG, Mr. McGuire was the Founder and Chairman of Icon Internet Ventures from May 2007 to July 2009, which owns and publishes affinity websites that aggregate target audiences. From January 2004 to May 2007, Mr. McGuire served as President of Gyro HSR, a leading independent, London based, digital marketing agency. Mr. McGuire received a B.A. from The University of Dayton. Mr. McGuire is on the board of directors of RMG Networks and the Digital Place-Based Advertising Association.

Allen Zielinski provided ad-hoc consulting services to RMG from May 2012 to December 2012, and joined RMG on a full-time basis as the Interim Chief Financial Officer of RMG in December 2012. He is also a principal consultant with the Avant Advisory Group, a management consulting firm, which he joined January 2009. Prior to joining the Avant Advisory Group, Mr. Zielinski was a senior manager at PricewaterhouseCoopers LLP from September 2005 to June 2008.  Mr. Zielinski has 40 years of experience in public accounting and industry, most notably at PricewaterhouseCoopers LLP from 1982 to 1989 and 2005 to 2008, Ernst & Young LLP from 1996 to 1998, KPMG LLP from 1978 to 1980 and Arthur Anderson & Co. from 1975 to 1978.  From 2000 to 2001 Mr. Zielinski served as Chief Financial Officer of Website Results Inc. (acquired by Twenty-Four Seven Media, Inc.) and from 1998 to 2000 he served as Chief Financial Officer of DFD Enterprises. Mr. Zielinski holds an M.S. in taxation from Golden Gate University and B.B.A. from Loyola University of Chicago.

Paul Shyposh has been the Executive Vice President, Head of Sales of RMG since October 2012. Prior to joining RMG, Mr. Shyposh was the Vice President of Airport Sales in North America for JCDecaux SA, the largest outdoor advertising company in the world from February 2006 to October 2012. Mr. Shyposh began his sales career as an account manager at The New York Times Company from 2000 until 2006.  Prior to that he held media strategy and advertising management positions at AT&T from 1996 to 2000 and media planning and account service roles at Bates USA from 1993 to 1996 and McCann Erickson from 1990 to 1993. Mr. Shyposh holds a B.A. from Susquehanna University.

Daniel Kwong has been the Executive Vice President of Technology of RMG since June 2010. Prior to joining RMG, Mr. Kwong was Vice President of Business Operations at Bada Technology, a video processing and collaboration platform company, from August 2008 to May 2010. Mr. Kwong was a Vice President at Juniper Networks from 2004 to 2007 and managed a global organization delivering security products. Prior to Juniper Networks, Mr. Kwong led a product management organization at Cisco Systems from 1999 to 2004. Mr. Kwong holds an M.S. in computer science from the University of Louisiana at Lafayette.

Jim Bell has been Executive Vice President of Sales Operations and Partnerships of RMG since January 2012. Prior to joining RMG, Mr. Bell was Chief Operating Officer for Megaphone Labs, a mobile technology company, from January 2009 to February 2012. From October 2008 to January 2009 he was the President and Chief Operating Officer of Insights & Solutions, LLC, a management consulting firm.  From June 2007 to October 2008 he was Senior Vice President of Ad Sales and Operations at Reactrix Systems an interactive gesture-driven interface technology company.  From 1998 to 2002, Mr. Bell held senior management positions with global media agencies including Initiative Media, MediaCom and Grey Entertainment where he provided marketing and media services to Fortune 500 companies.   Mr. Bell holds a B.S. in Marketing from Monmouth University.



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Executive Compensation

Introduction

The following provides an overview of RMG’s compensation policies and programs, generally explains RMG’s compensation objectives, policies and practices with respect to its executive officers, and identifies the elements of compensation for its Chief Executive Officer and two most highly compensated executive officers other than the Chief Executive Officer for fiscal 2012, whom RMG refers to in this overview and the tabular disclosure that follow as RMG’s executive officers (excluding Allen Zielinski, who is serving as Interim CFO).

Compensation and Benefits Philosophy

RMG has designed its compensation and benefits as part of its overall human capital management strategy to facilitate its ability to attract, retain, reward and motivate a high performing executive team. RMG’s compensation philosophy is based on a motivational plan to provide pay-for-performance, to enable the executive team to achieve RMG’s objectives successfully. RMG’s motivational plan is designed to achieve the following goals:


·

To reward principles that effect the success and accomplishment of RMG’s mission and goals;

·

To attract, motivate and retain a high performing executive team;

·

To recognize and reward individuals whose performance adds significant value to RMG; and

·

To support and encourage executive team performance.


Compensation Elements

In 2012, RMG’s compensation program consisted of the following elements:


·

Base salary; and

·

Performance bonuses.


To emphasize the relationship between executive pay and RMG’s performance, RMG established performance-based pay and bonuses tied to budgeted Earnings Before Income Taxes, Depreciation and Amortization (“EBITDA”) and successful closing of new airline partner contracts as presented to its Board of Directors. RMG’s plan was to grow the organization by investing in performance-based compensation, and to ensure that RMG has the leadership and talent necessary to successfully meet its future challenges. Ultimately, RMG strives to be an “employer of choice” in its market and industry. To accomplish this, RMG recognizes that it must be competitive in the marketplace.

Summary Compensation Table

The following table sets forth the total compensation for RMG’s Chief Executive Officer and two other most highly-compensated executive officers for the year ended December 31, 2012(1):


Name and Position

 

Salary ($)

 

Non-Equity

Incentive Plan

Compensation ($)

 

Total ($)(3)

Garry McGuire, Chief Executive Officer and Chief Revenue Officer

 

420,000

 

314,167

 

734,167

Daniel Kwong, Executive Vice President of Technology

 

230,833

 

-

 

230,833

Jim Bell, Executive Vice President of Sales Operations and Partnerships(2)

 

181,988

 

-

 

181,988


(1)

Because RMG is not a reporting company, RMG has reported compensation information for 2012 only.

(2)

RMG granted 500,000 option awards to Jim Bell in 2012, however the value of those awards calculated in accordance with FASB ASC Topic 718 was not material and is not included in the table above.

(3)

Because the Merger transaction value is less than the aggregate liquidation preference for RMG preferred shares outstanding, common stock and common stock options had zero value at December 31, 2012. No outstanding stock option awards are indicated in the table above since they have no value. Likewise, the change-in-control provision requiring immediate vesting of employee stock options provides no additional compensation requiring disclosure.



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2012 Outstanding Equity Awards at Fiscal-Year End Table


The following table provides information regarding each unexercised stock option held by RMG’s named executive officers as of December 31, 2012.


 

 

Option Awards

Name

 

Vesting Commencement Date

 

Number of Securities Underlying Unexercised Options (#) Exercisable

 

Number of Securities Underlying Unexercised Options (#) Unexercisable

 

Option Exercise Price ($)

 

Option Expiration Date

Garry McGuire

 

7/6/09

 

2,240,333

 

320,048

 

$0.43

 

9/2/19

 

 

4/11/11

 

1,788,226

 

2,503,518

 

$0.31

 

6/27/21

Daniel Kwong

 

6/1/10

 

161,458

 

88,542

 

$0.34

 

6/15/20

 

 

4/11/11

 

291,666

 

408,334

 

$0.31

 

6/27/21

Jim Bell

 

3/5/12

 

0

 

500,000

 

$0.31

 

3/15/22


(1)

All stock options referenced in the table vest over a four-year period, with 25% of the shares subject to the stock option vesting on the one-year anniversary of the vesting commencement date and the remainder of the shares vesting monthly for each of the 36 months thereafter.  Vesting is contingent on the optionee’s continued service with RMG.


Director Compensation


Two Board of Director members received payments for attendance at Board meetings for the year ended December 31, 2012:  Elisa Anne Steele $80,000 and Jeffrey Hazlett $37,500.


Beneficial Ownership of RMG Securities


The following table sets forth information as of December 31, 2012 regarding the beneficial ownership of RMG’s capital stock by:


·

each person or group who is known by RMG to own beneficially more than 5% of the outstanding shares of each class of RMG’s capital stock;

·

each of RMG’s named executive officers;

·

each of RMG’s directors; and

·

all of RMG’s executive officers and directors as a group.


Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote, direct the voting of, dispose or direct the disposition of such securities, or has the right to acquire such powers within 60 days.  


Pursuant to RMG’s certificate of incorporation, each holder of shares of common stock is entitled to one vote for each share of common stock held and each holder of preferred stock is entitled to the number of votes equal to the number of shares of common stock into which the shares of preferred stock held by such holder could be converted. Shares of RMG’s preferred stock are convertible into shares of RMG’s common stock on a one-for-one basis. Accordingly, a holder of preferred stock is deemed to be a beneficial owner of an equal number of shares of RMG’s common stock.  Although the holders of preferred stock and the holders of common stock generally vote together and not as separate classes, and no series of preferred stock can vote separately as a series, the holders of preferred stock vote together as a separate class to approve certain corporate actions, including the consummation of any event that would result in a change of control of RMG.  As a result, the holders of preferred stock have been presented for purposes of the following table as a separate class of voting securities.  


Percentage ownership of each class of RMG’s capital stock is based on 6,334,095 shares of common stock outstanding as of December 31, 2012 and 41,709,135 shares of preferred stock outstanding as of December 31, 2012.  Shares of RMG’s capital stock subject to options or warrants that are currently exercisable or exercisable within 60 days of December 31, 2012 are deemed to be outstanding and to be beneficially owned by the person holding the option or warrant for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the ownership of any other person.




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Except as disclosed in the footnotes to this table and subject to applicable community property laws, RMG believes that each stockholder identified in the table possesses sole voting and investment power over all shares of capital stock shown as beneficially owned by the stockholder. Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o RMG Networks, Inc., 250 Montgomery Street, Suite 610, San Francisco, California 94104.


 

 

Common Stock

 

Preferred Stock

 

 

 

 

Name

 

Shares

 

Options

 

Warrants

 

%

 

Shares

 

Warrants

 

%

 

Total

Shares (1)

 

% of Total Voting Power

5% Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DAG Ventures (2)

 

-

 

-

 

4,064,405

 

39%

 

8,346,887

 

-

 

20%

 

12,411,292

 

24%

KPBC Holdings, Inc. (3)

 

-

 

-

 

6,774,009

 

52%

 

18,475,675

 

28,921

 

44%

 

25,278,605

 

46%

National Cinemedia, LLC (4)

 

370,000

 

-

 

-

 

6%

 

8,709,889

 

-

 

21%

 

9,079,889

 

19%

Pharmacy TV Networks, LLC (5)

 

2,001,583

 

-

 

-

 

32%

 

-

 

-

 

*

 

2,001,583

 

4%

Saudi Venture Development Company (6)

 

-

 

-

 

-

 

*

 

2,490,225

 

-

 

6%

 

2,490,225

 

5%

Tennenbaum Funds (7)

 

-

 

-

 

12,257,897

 

66%

 

-

 

10,530,780

 

20%

 

22,788,677

 

32%

Anoop Sinha

 

1,145,833

 

-

 

-

 

18%

 

-

 

-

 

*

 

1,145,833

 

2%

Luke Zaientz

 

-

 

829,166

 

-

 

12%

 

-

 

-

 

*

 

829,166

 

2%

Named Executive Officers and Directors:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Garry McGuire

 

-

 

4,260,723

 

-

 

40%

 

-

 

-

 

*

 

4,260,723

 

8%

Jim Bell

 

-

 

-

 

-

 

*

 

-

 

-

 

*

 

-

 

*

Daniel Kwong

 

-

 

492,708

 

-

 

7%

 

-

 

-

 

*

 

492,708

 

1%

John Caddedu (2)

 

-

 

-

 

4,064,405

 

39%

 

8,346,887

 

-

 

20%

 

12,411,292

 

24%

Kurt C. Hall (4)

 

370,000

 

-

 

-

 

6%

 

8,709,889

 

-

 

21%

 

9,079,889

 

19%

Jeff Hazlet

 

-

 

-

 

-

 

*

 

-

 

-

 

*

 

-

 

*

Aileen Lee (3)

 

-

 

1,816,667

 

6,774,009

 

58%

 

18,475,675

 

28,921

 

44%

 

27,095,272

 

48%

David Liu

 

2,330,000

 

-

 

-

 

37%

 

-

 

-

 

*

 

2,330,000

 

5%

Elisa Steele

 

-

 

500,000

 

-

 

7%

 

-

 

-

 

*

 

500,000

 

1%

All Executive Officers and Directors

as a Group (11 Persons)

 

2,700,000

 

7,070,098

 

10,838,414

 

85%

 

26,822,562

 

28,921

 

64%

 

47,459,995

 

72%

 

              


*       Less than 1%

(1)

Total shares represents all shares of RMG capital stock beneficially owned on an as-converted to common stock basis and includes all shares of common stock and preferred stock subject to options or warrants held by each person that are currently exercisable or are exercisable within 60 days of December 31, 2012. Such options and warrants are deemed to be beneficially owned by the person holding the option or warrant but are not treated as outstanding for the purpose of computing the ownership of any other person. Percentage of total voting power represents voting power with respect to all shares of RMG capital stock outstanding as of December 31, 2012, on an as-converted to common stock basis, and assumes the conversion of all 41,709,135 shares of preferred stock outstanding into common stock on a one-for-one basis.

(2)

Shares of common stock beneficially owned represent 3,658 shares of common stock subject to warrants held by DAG Ventures GP Fund III, LLC, 349,132 shares of common stock subject to warrants held by DAG Ventures III, L.P. and 3,711,615 shares of common stock subject to warrants held by DAG Ventures III-QP, L.P., all of which are exercisable within 60 days of December 31, 2012.  Shares of preferred stock beneficially owned represent 6,470 shares of preferred stock owned by DAG Ventures GP Fund III, LLC; 617,623 shares of preferred stock held by DAG Ventures II, L.P.; 6,565,922 shares of preferred stock held by DAG Ventures II-QP, L.P. and 1,156,872 shares of preferred stock held by DAG Ventures I-N, LLC. DAG Ventures Management III, LLC is the general partner of DAG Ventures GP Fund III, LLC, DAG Ventures III, L.P., DAG Ventures III-QP, L.P. and DAG Ventures 1-N, LLC (collectively, the “DAG Ventures Funds”). John Caddedu, one of our directors, is a managing director of DAG Ventures Management III, LLC and may be deemed to have shared voting and investment power over the shares held by the DAG Ventures Funds.  Mr. Caddedu disclaims beneficial ownership of those shares except to the extent of his pecuniary interest therein. The address for Mr. Caddedu, DAG Ventures Management III and each of the DAG Ventures Funds is 251 Lytton Avenue, Suite 200, Palo Alto, California 94301.

(3)

Aileen Lee, one of our directors, is an investment partner at KPBC Holdings, Inc. and may be deemed to have shared voting and investment power over the shares held by KPBC Holdings, Inc.  Ms. Lee disclaims beneficial ownership of those shares except to the extent of her pecuniary interest therein.  The address for Ms. Lee and KPBC Holdings, Inc. is 2750 Sand Hill Road, Menlo Park, California 94025.  

(4)

National Cinemedia, Inc. is the manager of National Cinemedia, LLC. Kurt Hall, one of our directors, is the President, Chief Executive Officer and Chairman of National Cinemedia, Inc. and may be deemed to have shared voting and investment power over the shares held by National CineMedia, LLC.  Mr. Hall disclaims beneficial ownership of those shares except to the extent of his pecuniary interest therein.  The address for Mr. Hall and National Cinemedia, LLC is c/o National Cinemedia, Inc. 9110 E. Nichols Avenue, Suite 200, Centennial, CO 80112.

(5)

The address for Pharmacy TV Networks, LLC is 770 27th Avenue, San Mateo, CA 94403.

(6)

The address for Saudi Venture Development Company is Al Hejailan Building, Sitteen Street nr. Jareer Street, Malaz, P.O. Box 9175, Riyadh, Saudi Arabia 11413.

(7)

Shares of common stock beneficially owned represent 1,503,575 shares of common stock subject to warrants held by Special Value Expansion Fund, LLC, 3,574,750 shares of common stock subject to warrants held by Special Value Opportunities Fund, LLC and 7,179,572 shares of common stock subject to warrants held by Tennenbaum Opportunities Partners V, LP, all of which are exercisable within 60 days of December 31, 2012.  Shares of preferred stock beneficially owned represent 1,291,724 shares of preferred stock subject to warrants held by Special Value Expansion Fund, LLC, 3,071,074 shares of preferred stock subject to warrants held by Special Value Opportunities Fund, LLC and 6,167,982 shares of preferred stock subject to warrants held by Tennenbaum Opportunities Partners V, LP, all of which are exercisable within 60 days of December 31, 2012. Tennenbaum Capital Partners, LLC is the investment manager of Special Value Opportunities Fund, LLC, Special Value Expansion Fund, LLC and Tennenbaum Opportunities Partners V, LP (the “Tennenbaum Funds”).  The address for the Tennenbaum Funds is 2951 28th Street, Suite 1000, Santa Monica, California, 90405.



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BUSINESS OF SYMON

Overview


Symon is a global provider of full-service digital signage solutions and enterprise-class media applications. Symon’s installations power more than one million digital signs and end-points and deliver real-time intelligent visual content that enhance the ways in which organizations communicate with employees and customers. Through its suite of products, including proprietary software, software-embedded hardware, maintenance and support services, content and creative services, installation services and third-party displays, Symon offers its clients complete one-stop digital signage solutions. Symon serves the key cross-industry markets of contact center, employee communication, and supply chain. In addition, Symon also serves the hospitality and gaming markets.  Overall, Symon has a large concentration of customers in the financial services, telecommunications, manufacturing, healthcare, pharmaceuticals, utilities, transportation industries, and in federal, state and local governments.


Symon differentiates itself from its competitors by providing comprehensive end-to-end solutions that integrate seamlessly with its customers’ IT infrastructures and data and security environments. As a result, Symon believes its solutions are relied upon by over 70% of the North American Fortune 100 companies and thousands of overall customers in locations worldwide. Symon believes that it is one of the largest integrated digital signage full-solution providers globally.


Symon is a Delaware corporation that was founded in 1980. Symon has recognized a profit from operations every year since its founding. Symon is led by an experienced management team with a proven track record of building and successfully running enterprise-focused technology businesses, many of whom have held senior leadership positions with some of the largest companies in the industry.


Competitive Strengths


Symon believes that the following factors differentiate it from its competitors and position it to continue to grow its digital signage solutions business.  


Complete and customizable end-to-end solutions.  Symon crafts end-to-end visual communication solutions for its customers. To accomplish this, Symon approaches the market with a full complement of integrated ready-to-use technologies, including its proprietary software and software-embedded appliances, Symon-designed LED display boards, and a wide variety of third-party flat screen displays, kiosks, and video walls.  Symon provides a wide range of professional services to its customers, including installation and training, software and hardware maintenance and support, and creative content.  With installation personnel on three continents, Symon is typically the prime source for technical resources for implementations that feature Symon’s proprietary software and software-embedded appliances. Symon maintains strong customer support groups in the United States and internationally offering around-the-clock client support.  In addition, Symon has a full-time global team of creative artists, graphic designers, and editors who develop both original and subscription content as required by customers.  


Symon’s technology solution is scalable, extensible and security certified to meet enterprise requirements.  One key to Symon’s market leadership is its robust software suite that offers scalability for essentially any client application. This includes installations ranging from only one display to many hundreds or even thousands of end-points. The Symon Enterprise Software suite incorporates leading network security features and has the flexibility to handle millions of data points and gigabytes of managed content. Symon’s Digital Appliances, its InView desktop application, and its InView Mobile-Data applications for smart phones and tablets meet the requirements of many of the largest financial services and telecommunications companies in the United States. Symon’s data-integration components ensure that any external source can be leveraged in a solution, including databases, telephony, POS, RSS, web content, and many more.


Symon’s products can be easily adapted to satisfy a wide array of customer applications.  Symon believes its products add significant value for all types of enterprise business needs, such as real-time reporting and alerting for contact centers, supply chain warehousing, and manufacturing. Other enterprise uses include company news and information for employee or corporate communications. Symon’s products are also commonly used in public-facing environments, such as hotels, convention centers, hospitals, universities, casinos, retail operations, and government facilities.


Customized customer content has been key to Symon’s success.  Symon’s content development team works closely with customers to design a content strategy that fits their goals while bringing a clear understanding of best content practices for flat panel displays, interactive touchscreens, desktops, and mobile devices. Delivering new and engaging content to screens is one of the greatest challenges in the digital signage industry. For example, the Symon North American Newsroom delivers current business news, weather, stock quotes and edited content to keep customers’ audiences engaged throughout the



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day, every day. Symon’s OnTarget subscription-based content service provides 20 customizable topical categories and more than 150-170 customized and edited stories daily. Symon also offers custom content programs for customers who wish to outsource the creation of their own content.


Symon is used by some of the largest organizations in the world.  Some of the largest and most demanding organizations, including over 70% of the North American Fortune 100 companies and a large percentage of the Fortune 500 companies, count on Symon’s solutions every day to inform, educate and motivate their employees and customers and to build their brands. Symon’s solutions seamlessly interface with these organizations’ complex IT infrastructure in a secure manner, often as one of the few solution providers authorized “behind the firewall”, which means that Symon’s internal operations are sufficiently secure that these major customers permit Symon to operate inside their IT environment behind these customers’ security firewalls.  Symon has worked with these major customers to ensure a very high level of security in its internal operations and behind its own security firewalls, as dictated by its information technology security protocols. Symon has made its server software harder to breach over time with various tools and is now adding secure socket layer (“SSL”) to its server software to ensure that this software works properly and complies with newly enacted regulatory requirements. Symon Digital Appliances are each certified by a third-party security firm to ensure they provide robust security measures in accordance with the regulatory requirements and the common practices of Symon’s large customers. Symon has experienced considerable growth with these large customers because of its proven security capabilities inside the customer’s environment. Symon has found that add-on sales opportunities and customer longevity are very high when its hardware and software have been authorized by customers to work behind these customers’ firewalls.


Symon serves customers through a global footprint.  Symon has offices and personnel located in North America, Europe, the Middle East and Asia. Symon services thousands of customers worldwide and estimates that millions of people globally view its content each day at its customers’ installations. Symon’s global presence enables it to satisfy the worldwide requirements of its multi-national customers and to pursue market opportunities in high-growth geographies outside of North America. To facilitate its global footprint, Symon has well-established relationships with leading business partners and resellers around the world.


Growth Strategy


Symon’s growth strategy is to leverage and continue to build upon the advantages developed by Symon for more than 30 years.


Expanding the Customer Base.  Symon has identified and is currently pursuing numerous paths to expand its existing base of business, including:


·

Growing its presence in segments that have shown a high propensity to deploy visual communications like Employee Transformation, Higher Education, Health Care and customer facing Retail applications.

·

Building upon current successes in emerging geographic markets, such as the Middle East and India and expanding further into Southeast Asia to address the large and fast growing call center marketplace in the region.  Symon also believes there are rapid growth opportunities in both Latin and South America for its core offerings particularly in Mexico and Brazil, where known opportunities exist through resellers seeking partnerships with global solutions providers like Symon.

·

Expanding the portfolio of offerings related to interactive kiosks to include new software capabilities to link closely with social media and mobile devices.

·

Evolving and expanding its content management platform into a cloud-based offering as an additional option for current and potential new clients.

·

Continuing development of InView Mobile applications for use by contact center and supply chain managers, giving them the ability to view data driven, real-time operational alerts on their iOS or Android devices.  


Pursuing Targeted Acquisitions.  Symon continually evaluates companies with products and services that can help it expand its presence in its current markets and penetrate new industry segments and believes that the relatively fragmented nature of the traditional digital signage industry offers a significant number of such acquisition opportunities. These acquisition targets include:


·

Companies that utilize a premises-based solutions model and have a presence in industries that Symon currently serves and has targeted for growth. Symon seeks out companies that have an established customer base and revenue stream, a complementary technology platform, and a set of deep industry competencies that Symon does not currently possess.



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·

Companies that utilize a hosted solutions model that targets industry segments with a higher propensity to utilize hosted visual solutions over premises-based solutions. These segments do not have an onsite IT staff, do not have skilled on-site content managers, are price sensitive, and prefer a subscription-based offering.


In combination with access to the public capital markets, Symon believes that it is well positioned to pursue such an acquisition strategy.


Products


Symon deploys digital signage solutions in highly efficient global networks with both the features and functions required for rich media solutions.  Symon’s proprietary software-based platform seamlessly integrates within its customers’ existing IT networks. Symon provides both a premises-based content management system for fixed in-building installations and a hosted system for content subscription services and mobility solutions. Symon incorporates state-of-the-art functionality and capabilities by working closely with leading global technology partners.  These relationships result in access to proprietary interfaces, and testing and lab environments.


Symon Enterprise Software (“SES”) is a robust software engine used to collect content from various sources, re-purpose the content according to pre-defined business rule, and distribute the re-purposed content to visual solution end-points. Data Collector interfaces link SES with customers’ enterprise operations systems.  Symon has built and maintains standard and vendor proprietary data collectors for all major enterprise operations systems and believes that these data collectors give Symon a distinct advantage by being able to deliver solutions that are operational more quickly, less expensively and with higher quality than the competition.  


Symon Media Players (“SMP”) are software-embedded appliances that function as the intelligent interface between Symon’s SES content engine and the visual display end-points. SMPs “pull” content and content rules and parameters from SES and then display the content on the screens according to established rules and parameters.


Symon Design Studio (“SDS”) and Symon Design Studio Lite (“SDSL”) are two offerings that are either a full-function application installed on the client’s PC (SDS) or web-based  (SDSL) software suites used to design the look, feel, function and timing of how content will appear and be used on end-point displays. The software features a set of pre-designed templates that can be combined with external content feeds that are provided by Symon or other external content providers.


InView Mobile-Data (Mobility Solutions) is a real-time on-demand technology that seamlessly integrates with the SES real-time data. InView Mobile-Data enables managers to use their iOS and Android mobile devices to access real-time dashboards containing key performance indicators and data alerts them to any issues that can affect customer service, operations, and product quality, thereby allowing them to quickly respond with appropriate actions to meet established company goals.


Subscription Content Services provides “business-appropriate” news and current information, created by Symon editors. In addition, weather, stock information, airport flight data, and 101 ticker feeds allow clients to customize the desired output in almost any manner they require. This service is hosted by Symon, and it complements customers’ messaging by keeping their audience engaged with fresh news and information throughout the day.  


Symon Electronic Displays (“SED”) include a line of displays designed by Symon, such as SmartScreens, door displays, and LED wallboards that are architected to work seamlessly with Symon’s content management software. Symon also offers a large portfolio of third-party displays from some of the most recognizable brands in screen and electronic display technology.


Global Sales Model


Symon sells its products and services through its worldwide professional sales force, as well as through a select group of resellers and local partners. In North America, approximately 90% or more of sales are generated solely by Symon’s sales team, with 10% or less through resellers in 2012. In the United Kingdom, Western Europe, the Middle East and India, the situation is reversed, with around 85% of sales coming from the reseller channel. Overall, approximately 67% of Symon's global revenues are derived from direct sales, with the remaining 33% generated through indirect partner channels.


Symon’s global sales team includes six sales leaders and 36 sales representatives, as well as five subject matter experts (one each for large accounts, alliances and channels, supply chain, employee communications, and retail opportunities) to assist the global team. Symon’s sales team members each have at least five years of specific experience in selling complex enterprise technology solutions. The sales team is supported in the pre-sales process by a team of highly



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skilled sales engineers, who help to present Symon solutions that meet each customer’s specific needs. In general, the sales compensation structure for the sales staff is approximately half base salary and half commissions. The amount of payment of commissions is dependent on representatives reaching their monthly and annual sales objectives. In addition, commissions are modified by the overall profitability of the mix of contracts representatives receive. Symon’s resellers globally are supported by one or more of its sales team members to assist them with proposing unique solutions for their clients and prospects.


Customers


Customers around the world purchase Symon’s software, hardware and services primarily under Symon’s standard agreements; for larger customers, a master services agreement is individually negotiated when necessary. Upon approval of the customer’s or reseller’s credit, customers purchase a mix of licensed software, hardware, installation services, training services, maintenance services and/or content services. Maintenance and content services are sold on an annualized basis, creating an annuity income and a close business relationship for Symon. It is common that a down payment is required from hospitality customers and occasionally from other customers as needed. Symon’s resellers purchase products and services from Symon to resell to their clients. In general, Symon assists resellers with installation, training services, and on-going support in partnership with its resellers.


During the calendar year 2012, Symon's largest end user clients included Abbott Labs, Allstate, American Express, AT&T, Carlson Wagonlit, Computer Sciences Corporation, Department of Veterans Affairs, Federal Reserve Banks, Hilton Properties, JPMorgan Chase, Kaiser Permanente, King Saud University, Marriott Properties, Mosaic Company, Prudential Insurance, Qatar University, Roche AG, State Farm Insurance, Thomson Reuters, United Utilities, and Verizon Wireless. Among Symon’s largest reseller business partners around the world last year were Alpha Data, Altetia, Baud Telecom, BT, Cable & Wireless, Carousel, Dynamic Systems, Inc., iBAHN, NACR, Techno Q, Verizon Business, and many others.


The digital signage display market has experienced rapid growth in recent years and is expected to continue this strong growth over the next several years.  There are two different ways in which analysts segment the digital signage market. Specific to Symon, the digital signage industry is segmented by business models: ad-based and non-ad-based. Symon is poised to continue to effectively compete and grow in the traditional or non-ad based markets.


The second segmentation is by digital signage platform. PQ Media, LLC (“PQ Media”) divides the ad-supported digital out-of-home media industry into digital billboards (“DBBs”) and digital place-based ad networks (“DPNs”). DBBs include only advertising content that changes within set time limits, such as roadside billboards that switch ad messages every minute. Meanwhile, DPNs include advertising as well as entertainment and/or information content, such as television program and/or news feed from a specific TV network. Although Symon will concentrate on non-ad based DPNs, to put the industry growth into perspective, PQ Media estimates a 19.2 percent compound annual growth rate from 2011 to 2016 for Global Digital Place-based Networks. Annual industry revenues forecast growth from $5.9 billion in 2012 to $6.9 billion in 2013 and $12.3 billion for 2016 according to PQ Media’s Global Digital Out-of-Home Media Forecast 2012-2016, 5th Edition, 2012. PQ Media states that DPN growth is being driven by a number of factors, including consumers spending more time consuming media outside the home, DPNs are close to the point of purchase, the media buying process and the corresponding audience metrics are continually improving, and DPNs are resistant to the ad-skipping technology that is impacts the television market.


In the traditional non-ad-supported model where Symon concentrates, the venue owner purchases the visual communications system to address a specific need, such as informing, persuading and/or entertaining their customers or employees. The venue owner then takes fiscal and operational responsibility for the system and the content shown thereon. The traditional model is typically used by, among others, large corporations, hotels, casinos, universities, hospitals, banks, and governments. Many large enterprises use visual technologies to optimize operational performance and personnel productivity.  The vendor is paid for the design and deployment of the system and may also provide outsourced services for parts of the system’s operation on an ongoing basis. There are several market drivers that are dramatically impacting the traditional digital signage industry and driving increased utilization of digital signage solutions:


Demand for real-time information. Because of increased technology enablement, both organizations and individual consumers expect information to be more available and timely. Digital signage solutions are increasingly providing organizations with multiple ways of distributing content and data instantly and can provide a richer experience if the operator’s screens include interactive touch-screen functionality.


Social/Localized/Mobile or “SoLoMo.” Social media, the need for localized information, and the proliferation and capabilities of mobile smart phones and tablets are increasingly driving social and professional interactions and present an expanded opportunity for growth in the digital signage industry. Digital signage has the ability to leverage social media feeds and present them in an eye-catching manner, delivering a sense of immediacy and engaging viewers on a timely, highly



121





focused basis through constantly refreshed content. When coupled with mobile and proximity technology, digital signage can deliver content to a relevant and specific location at moments of maximum influence and in a timely and personalized experience. While SoLoMo offers great opportunities, PQ Media estimates that only 25% of ad-supported and non-ad-supported screens have mobile functionality, although that share is expected to grow at double digit rates annually for the next few years as more cost-efficient mobile solutions are introduced to the digital signage industry and smartphone penetration increases.


Big Data. Big Data is the collection and re-purposing of disparate data sources from enterprise systems and the cloud, enabling new, emerging capabilities around trend spotting, real-time decision making, performance management, sentiment analysis and customer service. Organizations around the world are making significant investments in Big Data to identify business, marketing, sales and service opportunities that will differentiate them competitively. Deploying digital signage projects using Big Data offers organizations to drive greater content relevance for its constituents.


Symon believes that the solutions it provides are strongly positioned to capitalize on these growing trends, and that it is at the forefront of providing the necessary solutions to the non-ad-supported digital signage industry.


Competition


Holding a strong, competitive position in the market for digital signage requires maintaining a diverse product portfolio that addresses a wide variety of customer needs.  Symon believes it has been a leading global provider of products and services to the contact center and employee communications markets for more than 30 years. Symon’s customers include many of the largest organizations in the world and, as a result, Symon’s brand is well established in these markets. Symon has also developed a strong customer base in the supply chain, hospitality, gaming, higher education, and retail markets, both in North America and internationally.


The worldwide digital signage market is vast and diverse.  In addition to the product and service portfolio, Symon competes based upon commercial availability, price, visual performance, brand reputation, power usage and customer service.  Customer requirements vary as to products and services, and as to the size and geographic location of the solutions. Symon competes with a broad range of companies, including local, national and international organizations. In addition, competitors’ offerings differ widely. Some competitors offer a range of products and services; others offer only a single part of the overall digital signage solution.


Symon’s competitive strategy is built around its ability to provide end-to-end solutions; extensive software and hardware options; a consultative sales approach that delivers the optimum customer solution; a highly qualified staff of installation and integration professionals; seamless integration with customers’ IT infrastructure, data, and security environments; custom screen and content design; and post-sale customer service and global technical support. Symon believes that its relative size and competitive strategy gives it an advantage in the markets it serves.


Though Symon’s direct competitors are numerous and diverse.  Symon views its principal competitors as Scala, Stratacache, Four Winds Interactive, Inova, Janus Displays, Cisco, Visix, X2O Media, ComQi, John Ryan & Associates, Broadsign International, Nanonation, Reflect Systems, and Navori, S.A.


Employees


As of January 31, 2013, Symon had 180 global employees with 139 in Symon’s North American operations, including 42 in sales, 19 in research and development, 23 in professional services, 12 in technical support/help desk, nine in content services, seven in assembly, and 27 in general and administration. Internationally, 41 employees support Symon’s global operations, including nine in sales, 12 in professional services, five in technical support/help desk, four in content services, and 11 in general and administration. Symon’s U.S. employees are not covered by any collective bargaining units and Symon has never experienced a work stoppage in the U.S. Symon’s international employees are also not covered by any  national union contracts.


Intellectual Property and Trademarks


Symon relies on a combination of patent, trademark, copyright, unfair competition and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain and protect its proprietary rights. These laws, procedures and restrictions provide only limited protection and any of its intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, Symon may be unable to



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protect its proprietary technology. Symon generally requires employees, consultants, customers, suppliers and partners to execute confidentiality agreements with it that restrict the disclosure of its intellectual property. Symon also generally requires its employees and consultants to execute invention assignment agreements with it that protect its intellectual property rights. Despite these precautions, third parties may obtain and use without Symon’s consent intellectual property that it owns or licenses. Any unauthorized use of its intellectual property by third parties, and the expenses incurred in protecting its intellectual property rights, may adversely affect its business.


As of January 31, 2013, Symon had four issued patents in the United States related to technology contained in LED displays, which each expire on February 10, 2019.  None of these patents are material to Symon’s business. Symon cannot ensure that any of its issued patents will adequately protect its intellectual property. In addition, third parties could claim invalidity or co-inventorship, or make similar claims with respect to any of its currently issued patents. Any such claims, whether or not successful, could be extremely costly to defend; divert management’s time, attention, and resources; damage its reputation and brand; and substantially harm its business.


Symon expects that it and others in its industry may be subject to third-party infringement claims as the number of competitors grows and the functionality of products and services overlaps. Symon’s competitors could make a claim of infringement against it with respect to its products and underlying technology. Third parties may currently have, or may eventually be issued, patents upon which Symon’s current solution or future technology infringe. Any of these third parties might make a claim of infringement against Symon at any time.


Government Regulation


Symon is subject to varied federal, state and local government regulation in the jurisdictions in which it conducts business, including tax laws and regulations relating to its relationships with its employees, public health and safety, zoning, and fire codes. Symon operates each of its offices, and distribution and assembly facilities in accordance with standards and procedures designed to comply with applicable laws, codes and regulations.


Symon imports and exports products into and from the United States. These activities are subject to laws and regulations, including those issued and/or enforced by U.S. Customs and Border Protection. Symon works closely with its suppliers to ensure compliance with the applicable laws and regulations in these areas.


Properties


Symon’s corporate headquarters is located in a 20,000 square foot facility in Plano, Texas. Symon also leases secondary offices in St. Peters, Missouri, supporting the hospitality market; in Pittsford, New York, where its inside sales group is located; and in Las Vegas, Nevada, supporting the casino gaming industry.   


Symon’s international operations are based in its leased office located in Hemel Hempstead, England, A sub-office serving the Middle East is located in Dubai, United Arab Emirates. There are also three employees located in India who support local resellers and customers.


Each of Symon’s office and manufacturing locations are subject to long-term leases, which expire between the second half of 2013 and 2016.  Symon expects to extend its leases that are expiring in 2013 and believes its facilities are adequate to meet its current needs and intends to add or change facilities as its needs require.


Legal Proceedings


From time to time, Symon has been and may become involved in legal proceedings arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, Symon is not presently involved in any legal proceeding in which the outcome, if determined adversely to Symon, would be expected to have a material adverse effect on its business, operating results, or financial condition. Regardless of the outcome, litigation can have an adverse impact on Symon because of defense and settlement costs, diversion of management resources, and other factors.



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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SYMON

You should read the following discussion in conjunction with the sections of this Offer to Purchase entitled “Risk Factors — Risks Related to the Business of Symon”, “Forward-Looking Statements”, “Business of Symon” and Symon Holdings’s financial statements and the related notes thereto included elsewhere in this Offer to Purchase. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Offer to Purchase.

Overview


Symon Communications, Inc. is a Delaware corporation that was founded in 1980. Symon’s earliest product offerings consisted of software and LED displays that were used by its customers to provide data center performance messaging to IT and help-desk personnel, alerting them to IT problems, current status, and resolutions.  Since its founding, Symon has evolved into a global provider of full-service digital signage solutions and enterprise-class media applications. Symon’s installations power more than one million digital signs and end-points and deliver real-time intelligent visual content that enhance the ways in which organizations communicate with their employees and customers.


Through its suite of products, which includes proprietary software, software-embedded media players, LED displays, maintenance and support services, subscription-based and custom creative content services, installation and training services and third-party displays, Symon offers its clients complete one-stop digital signage solutions.


Symon serves the key cross-industry markets of contact center, employee communications, and supply chain. In addition, Symon also serves the hospitality and gaming markets.  Overall, Symon has large concentrations of customers in the financial services, telecommunications, manufacturing, healthcare, pharmaceuticals, utilities, transportation industries, and in federal, state and local governments.


Symon differentiates itself from its competitors by providing comprehensive end-to-end solutions that integrate seamlessly with its customers’ IT infrastructures and data and security environments. As a result, Symon’s solutions are relied upon by over 70 percent of North American Fortune 100 companies and thousands of overall customers in locations worldwide. Symon believes that it is one of the largest integrated digital signage full-solution providers globally.


Symon’s management team monitors its performance by comparing actual operating results (including revenue, gross margin, profitability and cash flows) to budgeted operating results.


Symon’s headquarters are in Plano, Texas from which it conducts business with its customers located in North America. Symon also has an office located in Hemel Hempstead, United Kingdom, which serves customers in the United Kingdom, Western Europe, India, and the Middle East (“EMEA”). The office in Hemel Hempstead has a branch office in Dubai, United Arab Emirates.


Symon’s operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors – Risks Related to the Business of Symon.”


On March 1, 2013, SCG and representatives of Symon entered into a Merger Agreement pursuant to which SCG will acquire Symon.


Revenue


Symon derives its revenue as follows:


Product sales:


·

Licenses to use its proprietary software products;

·

Proprietary software-embedded media players;

·

Proprietary LED displays; and

·

Third-party flat screen displays and other third-party hardware.




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Professional installation and training services


Customer support services:


·

Product maintenance services; and

·

Subscription-based and custom creative content services.


Revenue is recognized as outlined in “Critical Accounting Policies - Revenue Recognition” below.


Symon sells its products and services through its global sales force and through a select group of resellers and business partners. In North America, approximately 90% or more of sales are generated solely by Symon’s sales team, with 10% or less through resellers in 2013. In the United Kingdom, Western Europe, the Middle East and India, the situation is reversed, with around 85% of sales coming from the reseller channel. Overall, approximately 67% of Symon's global revenues are derived from direct sales, with the remaining 33% generated through indirect partner channels.


Symon has formal contracts with its resellers that set the terms and conditions under which the parties conduct business. The resellers purchase products and services from Symon, generally with agreed-upon discounts, and resell the products and services to their customers, who are the end-users of the products and services. Symon does not offer contractual rights of return other than under standard product warranties and product returns from resellers have been insignificant to date. Symon therefore sells directly to its resellers and recognizes revenue on sales to resellers upon delivery, consistent with its recognition policies. Symon bills the resellers directly for the products and services they purchase. Software licenses and product warranties pass directly from Symon to the end-users.


Cost of Revenue


The cost of revenue associated with product sales consist primarily of the costs of media players, the costs of third-party flat screen displays, and the operating costs of Symon’s assembly and distribution center. The cost of revenue of professional services is the salary and related benefit costs of Symon’s employees and travel costs of Symon’s personnel providing installation and training services.  The cost of revenue of maintenance and content services consists of the salary and related benefit costs of personnel engaged in providing maintenance and content services and the annual costs associated with acquiring data from third-party content providers.


Operating Expenses


Symon’s operating expenses are comprised of the following components:


·

Research and development (“R&D”) costs consist of salaries and related benefit costs of R&D personnel and expenditures to outside third-party contractors. To date, all R&D expenses are expensed as incurred.

·

Sales and marketing expenses include salaries and related benefit costs of sales personnel, sales commissions, travel by sales and sales support personnel, and marketing and advertising costs.

·

General and administrative expenses consist primarily of salaries and related benefit costs of executives, accounting, finance, administrative, and IT personnel. Also included in this category are other corporate expenses such as rent, utilities, insurance, professional service fees, office expenses, travel by general and administrative personnel, and meeting expenses.

·

Depreciation and amortization costs include depreciation of Symon’s office furniture, fixtures, and equipment and amortization of intangible assets.


Sales and marketing expenses and general and administrative expenses comprise the majority of Symon’s Operating Expenses.  For the fiscal years ended January 31, 2013 and 2012, sales and marketing expenses comprised 41.5% and 42.5%, respectively, and general and administrative expenses comprised 41.2% and 38.3%, respectively, of total operating expenses. During the fiscal years ended January 31, 2013 and 2012, research and development expenses were 11.3% and 11.4%, respectively, of total operating expenses and depreciation and amortization expenses were 6.0% and 7.8%, respectively, of total operating expenses.




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Results of Operations


Comparison of the Fiscal Year ended January 31, 2013 to the Fiscal Year ended January 31, 2012


The following table summarizes Symon’s operating results for the fiscal year ended January 31, 2013 compared to the fiscal year ended January 31, 2012.


 

 

Fiscal Year Ended January 31,

 

Changes from Previous Year

 

 

2013

 

2012

 

Dollars

 

%

Revenue

$

42,528,391

$

40,826,490

$

1,701,901

 

4.2%

Cost Of Revenue

 

18,441,521

 

17,195,168

 

1,246,353

 

7.2%

Gross Profit

 

24,086,870

 

23,631,322

 

455,548

 

1.9%

 

 

 

 

 

 

 

 

 

Operating Expenses -

 

 

 

 

 

 

 

 

Research and development

 

2,103,078

 

1,994,581

 

108,497

 

5.4%

Sales and marketing

 

7,760,739

 

7,474,354

 

286,385

 

3.8%

General and administrative

 

7,693,398

 

6,740,205

 

953,193

 

14.1%

Depreciation and amortization

 

1,111,948

 

1,369,747

 

(257,799)

 

-18.8%

    Total Operating Expenses

 

18,669,163

 

17,578,887

 

1,090,276

 

6.2%

Operating Income

 

5,417,707

 

6,052,435

 

(634,728)

 

-10.5%

Interest and Other - Net

 

(66,467)

 

(212,262)

 

145,795

 

68.7%

Income Before Income Taxes

 

5,351,240

 

5,840,173

 

(488,933)

 

-8.4%

Income Tax Expense

 

1,860,190

 

1,913,881

 

(53,691)

 

-2.8%

Net Income

$

3,491,050

$

3,926,292

$

(435,242)

 

-11.1%


Revenue


Revenue was $42,528,391 and $40,826,490 for the fiscal year ended January 31, 2013 and 2012, respectively. This represents a $1,701,901 or 4.2% increase in revenues for the fiscal year ended January 31, 2013. This increase in sales was primarily due to increased sales by Symon’s office in Dubai, United Arab Emirates.


Symon experienced a $821,826 or 6.4% decrease in sales of its proprietary software, software-embedded media players and LED displays. Symon’s sales pipeline remained strong throughout the year; however, several large sales orders that were expected to be received by year-end were not received. Symon had an increase of $2,956,900 or 69.7% in sales of third-party products. This was primarily due to a major order from a customer in Saudi Arabia that was generated by the Dubai office. Symon also had a $710,764 or 10.2% decrease in professional services during the fiscal year ended January 31, 2013. This decrease was caused by customer delays in installation projects and the fact that Symon had less revenues associated with services provided by third-party contractors. Revenue from maintenance and content services increased $277,591 or 1.7% during the fiscal ended January 31, 2013. Symon continued to sell maintenance and content services with the majority of its new orders and renewed a large percentage of its customers’ maintenance and content services contracts.


During the fiscal years ended January 31, 2013 and 2012, Symon’s revenues were derived as follows.


 

 

Fiscal Year Ended January 31,

 

 

2013

 

2012

Revenue -

 

 

 

 

Products

 

45.1%

 

41.8%

Professional services

 

14.8%

 

17.1%

Maintenance and content

 

40.1%

 

41.1%

Total

 

100.0%

 

100.0%


The following table reflects Symon’s sales on a geographic basis.


 

 

Fiscal Year Ended January 31,

 

 

2013

 

2012

North America

$

29,750,058

 

70.0%

$

29,610,611

 

72.5%

EMEA

 

12,778,333

 

30.0%

 

11,215,879

 

27.5%

Total

$

42,528,391

 

100.0%

$

40,826,490

 

100.0%




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North America and EMEA sales were $139,447 and $1,562,454 higher, respectively, in the fiscal year ended January 31, 2013 than in the fiscal year ended January 31, 2012. The primary reason for the increase in EMEA sales was the large increase in sales volume generated by the Dubai office.


Cost of Revenue


Cost of revenue totaled $18,441,521 and $17,195,168 for the fiscal years ended January 31, 2013 and 2012, respectively. This increase in the total cost of revenue is primarily attributable to the increase in product sales volume for the fiscal year ended January 31, 2013. Symon’s overall gross margin on sales in the fiscal year ended January 21, 2013 decreased to 56.6% from 57.9%. This lower gross margin on sales was primarily attributable to the fact that sales of third-party products, on which Symon realizes a lower gross margin, comprised a higher percentage of Symon’s sales than in the previous year.


The following table summarizes Symon’s gross margins for the fiscal years ended January 31, 2013 and 2012.


 

 

Fiscal Year Ended January 31,

 

Changes from Previous Year

 

 

2013

 

%

 

2012

 

%