PRER14A 1 tv490377_prer14a.htm PRER14A

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

(Rule 14a-101)
Information Required in Proxy Statement

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Amendment No. 1)

 

Filed by the Registrant x Filed by a Party other than the Registrant ¨  

 

Check the appropriate box:

x Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-2

 

EASTERLY ACQUISITION CORP.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

¨No fee required.

 

x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:  Class A Common Stock, $0.0001 par value per share

 

  (2) Aggregate number of securities to which transaction applies:  18,700,000 Shares

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $10.125 based on the average of the high and low prices of Easterly Acquisition Corp. common stock reported on the Nasdaq stock market on February 12, 2018

 

  (4) Proposed maximum aggregate value of transaction:  $189,337,500(1)

 

  (5) Total fee paid: $23,572.52

 

x Fee paid previously with preliminary materials.

 

x Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid: $34,558

 

  (2) Form, Schedule or Registration Statement No.: 333-212590

 

  (3) Filing Party: Easterly Acquisition Corp.

 

  (4) Date Filed: July 20, 2016

 

(1)The estimate of the transaction value is based on the following estimated values: 18.7 million shares of Easterly Class A Common Stock valued at $10.125 per share.

 

 

 

 

 

 

REVISED PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION DATED April 13, 2018

 

 

PROPOSED BUSINESS COMBINATION
YOUR VOTE IS VERY IMPORTANT

 

To the Stockholders of Easterly Acquisition Corp.:

 

On behalf of the board of directors of Easterly Acquisition Corp. (“Easterly”), we are pleased to deliver to you the accompanying proxy statement relating to, among other matters, a proposed business combination transaction (the “Business Combination”) between Easterly and JH Capital Group Holdings, LLC (“JH Capital”). Following the completion of the Business Combination, Easterly will own a controlling interest in JH Capital and Easterly is expected to change its name to JH Capital Group Holdings, Inc. (“JH Capital Inc.”).

 

At the special meeting, our stockholders will be asked to consider and vote upon, among other matters, a proposal, which we refer to as the “Business Combination Proposal,” to approve the Investment Agreement, dated as of June 28, 2017 (as it may be amended from time to time, the “Investment Agreement”), by and among JH Capital, Jacobsen Credit Holdings, LLC (“Jacobsen Holdings”), Kravetz Capital Funding LLC (“KCF” and, together with Jacobsen Holdings, the “Principal Members”) and NJK Holding LLC (“NJK Holding” and, together with KCF and Jacobsen Holdings, the “Founding Members”) and Easterly. A copy of the Investment Agreement is attached to the accompanying proxy statement as Annex A.

 

Prior to the closing of the Business Combination, JH Capital and the Founding Members will effect an internal reorganization (the “Reorganization”) after which (i) 100% of the following companies and their respective direct and indirect subsidiaries are contemplated to be owned directly or indirectly by JH Capital: Credit Control, LLC, Century DS, LLC, New Credit America, LLC and CreditMax Holdings, LLC and (ii) without duplication of the companies referenced in clause (i), 100% of the direct and indirect subsidiaries of Next Level Finance Partners, LLC are contemplated to be owned, directly or indirectly, by JH Capital. If the Reorganization is completed on the terms contemplated by the Investment Agreement, then, as of the closing, JH Capital will, directly or indirectly, own 100% of Credit Control, LLC, 100% of Century DS, LLC and 100% of New Credit America. However, as of the date of this filing, the Reorganization has not been completed. Therefore, Easterly cannot assure you that JH Capital will complete the aspects of the Reorganization that would result in JH Capital holding 100% of Credit Control, LLC, 100% of Century DS, LLC and 100% of New Credit America. While it is currently expected that, following the Reorganization, JH Capital will, directly or indirectly, own 100% of Credit Control, LLC, it is possible that, following the Reorganization, JH Capital may only own 60% of Credit Control, LLC. While it is currently expected that, following the Reorganization, JH Capital will indirectly own 100% of Century DS, LLC and 100% of New Credit America, LLC, it is possible that, following the Reorganization, JH Capital may only indirectly own 80% of Century DS, LLC and 80% of New Credit America, LLC. To the extent that any of Credit Control LLC, Century DS, LLC or New Credit America, LLC are not, directly or indirectly, wholly owned by JH Capital following the Reorganization, the number of Class B Units of JH Capital and the number of shares of Easterly Class B common stock issued to the JH Capital Class B Members (as defined below) will be reduced pursuant to the terms of the Investment Agreement (as described below).

 

On the terms and subject to the conditions set forth in the Investment Agreement, at the closing of the Business Combination, Easterly will contribute cash to JH Capital in exchange for newly issued voting Class A Units of JH Capital. Easterly will receive JH Capital Class A Units at the closing of the Business Combination, which will represent a minority economic interest in JH Capital. The number of JH Capital Class A Units so received will equal the aggregate number of shares of Easterly Class A common stock outstanding at the closing of the Business Combination, after giving effect to the redemption of shares of Easterly common stock by our public stockholders at the closing of the Business Combination and the issuance, if any, of Easterly Class A common stock in exchange for mezzanine loans of certain companies, which, together with their respective direct and indirect subsidiaries, comprise the business of JH Capital (the “JH Group Companies”). At the closing of the Business Combination, Easterly will file an amended and restated certificate of incorporation, which will, among other things, reclassify all of the outstanding Easterly common stock as Class A common stock and create a new class of Easterly Class B common stock.

 

 

 

 

Pursuant to the Investment Agreement, the aggregate consideration to be paid to JH Capital for the Class A Units of JH Capital will consist of an amount in cash equal to the cash and cash equivalents held by Easterly outside of Easterly’s trust account (the “Trust Account”), plus the amount of funds contained in the Trust Account, after giving effect to redemptions by Easterly’s public stockholders, less deferred underwriting fees of $7 million payable to Citigroup Global Markets Inc. and fees of $5 million payable to Cantor Fitzgerald & Co. and Jefferies LLC, less any reasonable (with respect to expenses incurred since April 27, 2017) and documented out-of-pocket transaction expenses of Easterly that are accrued and unpaid as of the closing that are estimated to be approximately $3.6 million, less any outstanding amount under the Convertible Promissory Note, dated as of March 17, 2016, issued by Easterly to Easterly Acquisition Sponsor, LLC (the “Sponsor”), which is currently equal to $895,000, that has not been converted into warrants to purchase Easterly Class A common stock. In addition, 18,700,000 shares of newly-issued Easterly Class B common stock will be issued by Easterly to the Principal Members and the other Class B members of JH Capital (the Principal Members, together with such other Class B members, the “JH Capital Class B Members”). In addition, it is expected that, following completion of the Reorganization and immediately prior to the closing of the Business Combination, the JH Capital Class B Members will consist of the Principal Members, Credit Control Holdings Inc., an entity controlled by Douglas Jacobsen, and Next Level Finance Partners, LLC, an entity controlled by Norman Kravetz. The JH Capital Class B Members will also be issued 18,700,000 non-voting Class B Units of JH Capital, provided that such number of JH Capital Class B Units and the equal number of shares of Easterly Class B common stock to be issued to the JH Capital Class B Members are subject to an equal reduction to the extent that certain of the JH Group Companies are not directly or indirectly wholly owned by JH Capital after the Reorganization. The Easterly Class B common stock will have one vote per share but will not be entitled to any economic interest in Easterly. The JH Capital Class B Units are entitled to distributions from JH Capital, but are not entitled to any voting or control rights over JH Capital, other than certain customary consent rights with respect to distributions, amendments to JH Capital’s limited liability company agreement and certain other matters affecting the JH Capital Class B Members. In addition, on the date of the closing of the Business Combination, JH Capital or one or more JH Group Companies will, or will cause a subsidiary of JH Capital or any JH Group Company to, make a cash distribution to Jacobsen Holdings and KCF in an aggregate amount equal to $1,000,000.

 

Easterly is expected to hold approximately 48.4% of the outstanding equity in JH Capital and the JH Capital Class B Members are expected to hold the remaining 51.6%. These ownership interests assume that no shares of Easterly common stock are elected to be redeemed in connection with the Business Combination Proposal and also assume that there are no reductions to the JH Capital Class B Units pursuant to the Investment Agreement. Further, the ownership percentage with respect to the post-combination company does not take into account (i) the issuance of any shares (or options to acquire shares) under the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ and their respective subsidiaries’ mezzanine loans. You should read “Unaudited Pro Forma Consolidated Financial Information” for further information.

 

The JH Capital Class B Units may be exchanged for shares of Easterly Class A common stock on a one-for-one basis (subject to certain adjustments to the exchange ratio) or, at JH Capital’s option, cash, pursuant to the Exchange Agreement that Easterly will enter into with JH Capital and the JH Capital Class B Members, the form of which is attached to the accompanying proxy statement as Annex D. Upon any exchange of a JH Capital Class B Unit by a JH Capital Class B Member, one share of Easterly Class B common stock held by such JH Capital Class B Member will be cancelled by Easterly.

 

In connection with the Investment Agreement and the Exchange Agreement, we also will enter into the following agreements, each of which is discussed in the accompanying proxy statement: (i) a Third Amended and Restated Limited Liability Company Agreement of JH Capital, the form of which is attached to the accompanying proxy statement as Annex C, (ii) a Tax Receivable Agreement relating to the payment to the JH Capital Class B Members of a portion of specified tax savings, the form of which is attached to the accompanying proxy statement as Annex E, and (iii) a Registration Rights Agreement providing registration rights for shares of Easterly Class A common stock issued upon the exchange of JH Capital Class B Units, the form of which is attached to the accompanying proxy statement as Annex F.

 

Pursuant to a letter agreement among Easterly, the Sponsor, JH Capital and the Founding Members, at the closing of the Business Combination, (i) the Founding Members will have the option to purchase from the Sponsor at a price of $0.005 per share up to 500,000 shares of Easterly Class A common stock owned by the Sponsor and (ii) the Sponsor will surrender to Easterly 2,500,000 shares of Easterly Class A common stock issued to the Sponsor prior to Easterly’s initial public offering in exchange for a warrant (the “New Warrant”) to purchase 2,500,000 shares of Easterly Class A common stock. The New Warrant will be exercisable at a price of $0.01 per share, have a term of 5 years and may only be exercisable upon certain terms, and subject to certain conditions, described in the accompanying proxy statement.

 

Completion of the transactions contemplated by the Investment Agreement requires, among other things, the approval of Easterly’s stockholders. To obtain this approval, Easterly will hold a special meeting of Easterly stockholders on [        ], 2018. The board of directors of Easterly and the equity holders of JH Capital have already approved the Investment Agreement. Therefore, no meeting of the equity holders of JH Capital to approve the Investment Agreement will be held.

 

 

 

 

Easterly’s common stock, units and warrants are currently listed on the Nasdaq Capital Market under the symbols “EACQ,” “EACQU” and “EACQW,” respectively. At the closing of the Business Combination, Easterly units will separate into their components of one share of Easterly common stock and one-half of a warrant to purchase one share of Easterly common stock. We anticipate that the Easterly Class A common stock and public warrants will be listed on the Nasdaq Capital Market under the symbols “JHCG” and “JHCGW,” respectively, following the closing of the Business Combination.

 

The Easterly board of directors has set [      ], 2018, as the record date for determining the holders of Easterly common stock entitled to vote on the matters set forth in the accompanying proxy statement.

 

EASTERLY’S BOARD OF DIRECTORS RECOMMENDS THAT EASTERLY STOCKHOLDERS VOTE “FOR” ALL OF THE PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING OF EASTERLY STOCKHOLDERS.

 

This document is a proxy statement for Easterly and provides you with detailed information about the Investment Agreement, the special meeting of Easterly stockholders and other matters contemplated by the Investment Agreement. We encourage you to read carefully the entire proxy statement, including all its annexes, including the section entitled “Risk Factors” beginning on page 45 of the enclosed proxy statement.

 

Your vote is very important. Whether or not Easterly stockholders plan to attend the Easterly special meeting, we ask Easterly stockholders to please submit a proxy to vote their shares as soon as possible to make sure that their shares are represented and voted at the Easterly special meeting.

 

On behalf of the Easterly board of directors, we thank you for your support and look forward to the successful completion of the Business Combination.

 

Sincerely,

 

Darrell W. Crate
Chairman of the Board
Easterly Acquisition Corp.

 

[        ], 2018

 

The enclosed proxy statement is dated [        ], 2018, and is first being mailed to stockholders of Easterly on or about [        ], 2018.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN The accompanying PROXY STATEMENT, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN The ACCOMPANYING PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

 

 

 

 

REVISED PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION DATED APRIL 13, 2018

 

 

EASTERLY ACQUISITION CORP.
375 Park Avenue, 21st Floor
New York, New York 10152

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held at 10:00 a.m. Eastern time on [        ], [        ], 2018

 

TO THE STOCKHOLDERS OF EASTERLY ACQUISITION CORP.:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “special meeting”) of Easterly Acquisition Corp., a Delaware corporation (“Easterly,” “we,” “us” or “our”), will be held at 10:00 a.m. Eastern time on [        ], [        ], 2018, at the offices of Easterly at 375 Park Avenue, 21st Floor, New York, New York 10152, or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed.

 

You are cordially invited to attend the Easterly special meeting to vote on the following proposals:

 

(a)    Proposal No. 1 — The Business Combination Proposal — to consider and vote upon a proposal to approve and adopt the Investment Agreement, dated as of June 28, 2017, as amended on November 8, 2017 and February 14, 2018 (as amended, the “Investment Agreement”), pursuant to which we expect that Easterly will acquire all of the voting interest of JH Capital Group Holdings, LLC (“JH Capital”), but only a minority economic interest in JH Capital. We also expect that individuals and entities affiliated with JH Capital will acquire majority voting control of Easterly following the closing pursuant to Easterly’s issuance of Easterly Class B common stock to such individuals and entities at the closing of the Business Combination, as discussed in more detail in the accompanying proxy statement. We refer to the transactions contemplated by the Investment Agreement hereafter as the “Business Combination.”

 

(b)    The Certificate Proposals — to consider and vote upon the following separate proposals to amend Easterly’s amended and restated certificate of incorporation (which we refer to collectively as the “Certificate Proposals”):

 

  · Proposal No. 2 — to change our name to JH Capital Group Holdings, Inc., reclassify our existing common stock as Class A common stock, designate a new class of our common stock as Class B common stock, and remove certain provisions related to our status as a blank check company;

 

  · Proposal No. 3 — to adopt Delaware as the exclusive forum for certain litigation;

 

  · Proposal No. 4 — to effect a two-for-three reverse stock split of all of the outstanding shares of Easterly common stock; and

 

  · Proposal No. 5 — to authorize an automatic increase in the number of directors serving on the board of directors during any period when holders of any series of preferred stock have the right to elect additional directors pursuant to Article IV of the certificate of incorporation and to provide for other terms applicable to directors elected by holders of preferred stock.

 

(c)    Proposal No. 6 — The Nasdaq Proposal — to consider and vote upon a proposal to approve, for purposes of complying with applicable Nasdaq Listing Rules, the issuance of newly issued shares of Easterly Class B common stock representing more than 20% of the voting power of Easterly’s common stock that is issued and outstanding immediately prior to the completion of the Business Combination.

 

(d)    Proposal No. 7 — The Incentive Plan Proposal — to consider and vote upon a proposal to approve and adopt the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan.

 

(e)    Proposal No. 8 — The Adjournment Proposal — to consider and vote upon a proposal to adjourn the Easterly special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if, based upon the tabulated vote at the time of the Easterly special meeting, one or more proposals presented to the stockholders would not be duly approved and adopted by our stockholders at the Easterly special meeting.

 

 

 

 

These proposals are described further in the accompanying proxy statement. Only holders of record of Easterly common stock at the close of business on [        ], 2018, the record date for the special meeting, are entitled to notice of the Easterly special meeting and to vote at the Easterly special meeting and any adjournments or postponements of the Easterly special meeting. A complete list of Easterly stockholders of record entitled to vote at the Easterly special meeting will be available for ten days before the Easterly special meeting at Easterly’s principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the Easterly special meeting.

 

We are providing the accompanying proxy statement and proxy card to our stockholders in connection with the solicitation of proxies to be voted at the Easterly special meeting and at any adjournments or postponements of the Easterly special meeting. Whether or not you plan to attend the Easterly special meeting, we urge you to read the accompanying proxy statement carefully and submit your proxy to us. Please pay particular attention to the section entitled “Risk Factors” commencing on page 45.

 

After careful consideration, our board of directors has approved and adopted the Investment Agreement and recommends that our stockholders vote “FOR” the Business Combination Proposal and “FOR” all other proposals presented to our stockholders in the accompanying proxy statement. When you consider the board recommendation of these proposals, you should keep in mind that our directors and officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “Proposal No. 1 — The Business Combination Proposal — Certain Interests of Easterly’s Directors and Officers and Others in the Business Combination.”

 

We encourage you to read the accompanying proxy statement carefully and in its entirety. If you have any questions or need assistance voting your shares, please call our proxy solicitor, Morrow Sodali at (800) 662-5200 (banks and brokers call collect at (203) 658-9400).

 

Your vote is very important. If you are a registered stockholder, please submit your proxy to have your shares voted as soon as possible by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the Easterly special meeting. The transactions contemplated by the Investment Agreement will be consummated only if the Business Combination Proposal, and Proposal Nos. 2, 3, 4, 5, 6 and 7 are approved at the Easterly special meeting. All proposals (other than the Business Combination Proposal and the Adjournment Proposal), are conditioned upon the approval of the Business Combination Proposal. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth in the proxy statement. Except as specifically set forth in the section entitled “Proposal No. 4 — Approval of Amendment to Easterly’s Amended and Restated Certificate of Incorporation to Effect a Two-for-Three Reverse Stock Split of All of the Outstanding Shares of Easterly Common Stock,” beginning on page 143 of the accompanying proxy statement, the share amounts in the accompanying proxy statement do not account for the two-for-three reverse stock split.

 

If you fail to return your proxy card, and do not attend the special meeting in person, if you abstain from voting or if you hold your shares in “street name” and fail to instruct your bank, broker or other nominee how to vote, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Easterly special meeting and, if a quorum is present, will have no effect on the Business Combination Proposal, the Nasdaq Proposal, the Incentive Plan Proposal or the Adjournment Proposal, but will have the same effect as voting “AGAINST” all of the Certificate Proposals. If you are a stockholder of record and you attend the Easterly special meeting and wish to vote in person, you may vote in person, which will have the effect of revoking your proxy.

 

Pursuant to our existing charter, Easterly public stockholders may redeem shares of Easterly common stock for cash upon the closing of the Business Combination. The redemption amount would equal the pro rata share of the aggregate amount on deposit (as of two business days prior to the closing of the Business Combination) in the trust account that holds the proceeds (less taxes payable and any interest that we may withdraw to pay taxes) of our initial public offering (the “IPO”) that closed on August 4, 2015. For illustrative purposes, based on funds in the trust account of approximately $153.0 million on March 31, 2018, the estimated per share redemption price would have been $10.18 per share. We have no specified maximum redemption threshold under our charter. In no event, however, will we redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001.

 

 

 

 

EASTERLY PUBLIC STOCKHOLDERS MAY ELECT TO REDEEM THEIR SHARES EVEN IF THEY VOTE FOR THE BUSINESS COMBINATION PROPOSAL.

 

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST (I) IF YOU HOLD EASTERLY UNITS, ELECT TO SEPARATE YOUR EASTERLY UNITS INTO THE UNDERLYING PUBLIC SHARES AND PUBLIC WARRANTS PRIOR TO EXERCISING YOUR REDEMPTION RIGHTS WITH RESPECT TO THE PUBLIC SHARES, (II) SUBMIT A WRITTEN REQUEST TO EASTERLY’S TRANSFER AGENT TO REDEEM YOUR EASTERLY PUBLIC SHARES FOR CASH, AND (III) DELIVER YOUR PUBLIC SHARES TO EASTERLY’S TRANSFER AGENT, PHYSICALLY OR ELECTRONICALLY USING DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM, IN EACH CASE IN ACCORDANCE WITH THE PROCEDURES AND DEADLINES DESCRIBED IN The ACCOMPANYING PROXY STATEMENT. IF THE BUSINESS COMBINATION IS NOT CONSUMMATED, THEN THE EASTERLY PUBLIC SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK, BROKER OR OTHER NOMINEE TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS. SEE “REDEMPTION RIGHTS” IN The ACCOMPANYING PROXY STATEMENT FOR MORE SPECIFIC INSTRUCTIONS.

 

An Easterly public stockholder, together with any of his, her or its affiliates or any other person with whom it is acting in concert or as a “group” (as defined under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), will be restricted from redeeming in the aggregate his, her or its shares or, if part of such a group, the group’s shares, in excess of 15% of public shares of Easterly common stock. Holders of Easterly outstanding public warrants and units do not have redemption rights in connection with the Business Combination. Holders of outstanding units must separate the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. The holders of shares of Easterly common stock issued prior to the IPO, which we refer to as “Founder Shares” have agreed to waive their redemption rights with respect to any shares of our capital stock they may hold in connection with the consummation of the Business Combination, and the Founder Shares will be excluded from the pro rata calculation used to determine the per-share redemption price. Currently, our initial stockholders, which includes Easterly Acquisition Sponsor, LLC, which we refer to as the Sponsor, and our independent directors, own 25.0% of our issued and outstanding shares of common stock, including all of the Founder Shares.

 

In addition, pursuant to a letter agreement signed by the Sponsor, at the closing of the Business Combination, 2,500,000 shares of our common stock, half of the common stock issued to the Sponsor prior to the IPO, will be cancelled and exchanged for a warrant to purchase 2,500,000 of our Class A common stock exercisable in the event that our common stock trades above certain prices and other conditions are met. The warrant will be exercisable at a price of $0.01 per share, have a term of 5 years and may only be exercisable upon certain terms, and subject to certain conditions, described in the accompanying proxy statement.

 

On behalf of the Easterly board of directors, we thank you for your support and look forward to the successful completion of the Business Combination.

 

Sincerely,

 

Darrell W. Crate
Chairman of the Board, Easterly Acquisition Corp.
[        ], 2018

 

The enclosed proxy statement is dated [        ], 2018, and is first being mailed to stockholders of Easterly on or about [        ], 2018.

 

 

 

 

TABLE OF CONTENTS

 

SUMMARY TERM SHEET 1
FREQUENTLY USED TERMS 8
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR STOCKHOLDERS 11
SUMMARY OF THE PROXY STATEMENT 25
SELECTED HISTORICAL FINANCIAL INFORMATION OF JH CAPITAL 37
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION 40
COMPARATIVE PER SHARE DATA 42
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 43
RISK FACTORS 45
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 84
JH CAPITAL GROUP HOLDINGS, INC. Unaudited Pro Forma Consolidated Balance Sheet As of December 31, 2017 86
JH CAPITAL GROUP HOLDINGS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017 87
NOTES TO THE UNAUDITED PRO FORMA Consolidated FINANCIAL INFORMATION 88
SPECIAL MEETING OF EASTERLY STOCKHOLDERS 97
PROPOSAL NO. 1 — THE BUSINESS COMBINATION PROPOSAL 103
PROPOSAL NO. 2 — APPROVAL OF THE AMENDMENTS TO EASTERLY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO CHANGE THE NAME of Easterly, RECLASSIFY THE EXISTING EASTERLY COMMON STOCK AS CLASS A COMMON STOCK, DESIGNATE THE CLASS B COMMON STOCK AND TO REMOVE CERTAIN PROVISIONS RELATING TO ITS STATUS AS A BLANK CHECK COMPANY 137
PROPOSAL NO. 3 — APPROVAL OF AMENDMENT TO EASTERLY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO ADOPT DELAWARE AS THE EXCLUSIVE FORUM FOR CERTAIN LEGAL ACTIONS 141
PROPOSAL NO. 4 — APPROVAL OF AMENDMENT TO EASTERLY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A TWO-FOR-THREE REVERSE STOCK SPLIT OF ALL OF THE OUTSTANDING SHARES OF EASTERLY COMMON STOCK 143
PROPOSAL NO. 5 — APPROVAL OF AMENDMENT TO EASTERLY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO AUTHORIZE AN AUTOMATIC INCREASE IN THE NUMBER OF DIRECTORS SERVING ON THE BOARD OF DIRECTORS DURING ANY PERIOD WHEN HOLDERS OF ANY SERIES OF PREFERRED STOCK HAVE THE RIGHT TO ELECT ADDITIONAL DIRECTORS 147
PROPOSAL NO. 6 – APPROVAL OF THE ISSUANCE OF MORE THAN 20% OF EASTERLY’S ISSUED AND OUTSTANDING COMMON STOCK IN CONNECTION WITH THE BUSINESS COMBINATION 149
PROPOSAL NO. 7 — APPROVAL AND ADOPTION OF THE JH CAPITAL GROUP HOLDINGS, INC. 2018 OMNIBUS EQUITY INCENTIVE PLAN 150
PROPOSAL NO. 8 — THE ADJOURNMENT PROPOSAL 155
INFORMATION ABOUT EASTERLY 156
MANAGEMENT OF EASTERLY 162
INFORMATION ABOUT JH CAPITAL 170
MANAGEMENT OF JH CAPITAL 187
JH CAPITAL MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 190
MANAGEMENT OF JH CAPITAL INC. AFTER THE BUSINESS COMBINATION 224
EXECUTIVE COMPENSATION AFTER THE BUSINESS COMBINATION 228
DESCRIPTION OF THE POST-BUSINESS COMBINATION COMPANY’S SECURITIES 230
BENEFICIAL OWNERSHIP OF SECURITIES 241
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS CONCERNING EASTERLY 244
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS CONCERNING JH CAPITAL 246
PRICE RANGE OF SECURITIES AND DIVIDENDS 248
APPRAISAL RIGHTS 250
DELIVERY OF DOCUMENTS TO STOCKHOLDERS 250
TRANSFER AGENT AND REGISTRAR 250
SUBMISSION OF STOCKHOLDER PROPOSALS 250
FUTURE STOCKHOLDER PROPOSALS 250
WHERE YOU CAN FIND MORE INFORMATION 251
INDEX TO FINANCIAL STATEMENTS F-1

  

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SUMMARY TERM SHEET

 

This Summary Term Sheet, together with the sections entitled “Questions and Answers About the Proposals for Stockholders” and “Summary of the Proxy Statement,” summarizes certain information contained in this proxy statement, but does not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the attached annexes, for a more complete understanding of the matters to be considered at the special meeting. In addition, for definitions of terms commonly used throughout this proxy statement, including this Summary Term Sheet, see the section entitled “Frequently Used Terms.”

 

  · Easterly Acquisition Corp. (“Easterly”) is a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving Easterly and one or more businesses.

 

  · There currently are 20,015,577 shares of Easterly common stock issued and outstanding, consisting of 15,015,577 shares held by public stockholders originally sold as part of the units issued in Easterly’s initial public offering, consummated on August 4, 2015, and 5,000,000 shares of Easterly common stock issued prior to Easterly’s IPO (the “Founder Shares”) held by Easterly Acquisition Sponsor, LLC, which is referred to as the “Sponsor,” and Easterly’s independent directors.

 

  · In addition, there currently are 17,638,000 warrants for Easterly common stock outstanding, consisting of 10,000,000 public warrants, 888,000 warrants that were issued to Fortress Credit Corp. (“Fortress”) in connection with a loan provided by Fortress to JHPDE Finance I, LLC, a subsidiary of JH Capital (the “Fortress Warrants”), and 6,750,000 private placement warrants that were issued to the Sponsor, at a price of $1.00 per warrant, in a private placement that occurred simultaneously with the completion of the IPO (the “Private Placement Warrants”). Each warrant will entitle the holder thereof to purchase one share of Easterly Class A common stock at a price of $11.50 per share. The warrants will become exercisable 30 days after the completion of Easterly’s initial business combination and expire at 5:00 p.m., New York City time, five years after the completion of Easterly’s initial business combination or earlier upon redemption or liquidation. Once the warrants become exercisable, Easterly may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants, the Fortress Warrants, warrants issued in exchange for repayment of the Convertible Promissory Note and the New Warrant described below) in whole and not in part at a price of $0.01 per warrant, if the last sale price of Easterly’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period. The Private Placement Warrants and the warrants issued in exchange for repayment of the Convertible Promissory Note are non-redeemable so long as they are held by the Sponsor or its permitted transferees. The Fortress Warrants and the New Warrant are non-redeemable. There are a substantial number of warrants to purchase Easterly common stock issued and outstanding. To the extent such warrants are exercised or any mezzanine lenders exchange their mezzanine loans for shares of Easterly Class A common stock, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Easterly public stockholders will be diluted by these issuances unless they elect to redeem their shares in connection with the Business Combination. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely impact the market price of Easterly Class A common stock. All share and warrant numbers set forth in this proxy statement assume that all Easterly units are separated into their components of one share of Easterly common stock and one-half of a warrant to purchase one share of Easterly common stock, which will occur upon the closing of the Business Combination.

 

  · On March 17, 2016, Easterly issued the Convertible Promissory Note to the Sponsor that provides for the Sponsor to loan it up to $1,000,000 for ongoing expenses. On March 17, 2016, February 2, 2017, June 29, 2017, July 12, 2017, October 2, 2017, December 4, 2017, February 1, 2018 and April 9, 2018, Easterly borrowed $15,000, $250,000, $75,000, $150,000, $30,000, $75,000, $100,000 and $200,000, respectively, under the Convertible Promissory Note. The Sponsor is not obligated to loan Easterly additional amounts under the Convertible Promissory Note. The Convertible Promissory Note is interest bearing at 5% per annum and is due and payable on June 30, 2018. At the option of the Sponsor, any amounts outstanding under the Convertible Promissory Note may be converted into warrants to purchase shares of Easterly Class A common stock at any time on or prior to the maturity date at a conversion price of $1.00 per warrant. Each warrant will entitle the Sponsor to purchase one share of Easterly Class A common stock at an exercise price of $11.50 per share. Each warrant will contain other terms identical to the terms contained in the Private Placement Warrants.

 

  · JH Capital, a diversified specialty finance company with operations spanning across seven states, provides a wide array of solutions for consumers and businesses across a broad range of assets. It is a national leader in purchasing charged off consumer debt from major financial institutions with a national debt settlement service, consumer and commercial loan origination platforms as well as a collection agency, which collectively work with individuals as they repay their obligations by offering several solutions to help individuals work towards financial recovery.

 

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  · Pursuant to the Investment Agreement, dated as of June 28, 2017 (as amended on November 8, 2017 and February 14, 2018), a copy of which is attached to this proxy statement as Annex A, which is referred to as the “Investment Agreement,” by and among JH Capital, the Founding Members and Easterly, it is proposed that Easterly’s stockholders approve the Business Combination pursuant to which Easterly will (i) acquire a number of Class A Units of JH Capital (“Class A Units”) equal to the aggregate number of shares of Easterly Class A common stock outstanding at the closing of the Business Combination—after giving effect to the redemption of shares of Easterly common stock by Easterly’s public stockholders at the closing of the Business Combination and the issuance, if any, of Easterly Class A common stock in exchange for mezzanine loans of certain of the following entities and their respective subsidiaries, if any: JH Portfolio Debt Equities, LLC, Credit Control, LLC, Next Level Finance Partners, LLC, Century DS, LLC, New Credit America, LLC and CreditMax Holdings, LLC, which are collectively referred to as the “JH Group Companies” and, together with their respective direct and indirect subsidiaries, constitute all of the businesses of JH Capital—in exchange for a capital contribution by Easterly to JH Capital of an amount in cash equal to the cash and cash equivalents held by Easterly outside of the Trust Account, plus the amount of funds contained in the Trust Account, after giving effect to redemptions by Easterly’s public stockholders, less deferred underwriting fees of $7 million payable to Citigroup Global Markets Inc. and fees of $5 million payable to Cantor Fitzgerald & Co. and Jefferies LLC, less any reasonable (with respect to expenses incurred since April 27, 2017) and documented out-of-pocket transaction expenses of Easterly that are accrued and unpaid as of the closing that are estimated to be approximately $3.6 million, less any outstanding amount under the Convertible Promissory Note, which is currently equal to $895,000, that has not been converted into warrants to purchase Easterly Class A common stock, (ii) issue 18,700,000 shares of its Class B common stock to the JH Capital Class B Members, and (iii) change its name to JH Capital Group Holdings, Inc. The JH Capital Class B Members will also be issued 18,700,000 non-voting Class B Units of JH Capital, provided that such number of JH Capital Class B Units and the equal number of shares of Easterly Class B common stock to be issued to the JH Capital Class B Members are subject to an equal reduction to the extent that certain of the JH Group Companies  are not directly or indirectly wholly owned by JH Capital. In addition, on the date of the closing of the Business Combination, JH Capital or one or more JH Group Companies will, or will cause a subsidiary of JH Capital or any JH Group Company to, make a cash distribution to Jacobsen Holdings and KCF in an aggregate amount equal to $1,000,000. We expect that Easterly will acquire all of the voting interest of JH Capital, but only a minority economic interest in JH Capital. As discussed in more detail elsewhere in the proxy statement, we also expect that individuals and entities affiliated with JH Capital, namely the JH Capital Class B Members (as defined below), will acquire majority voting control of Easterly following the closing pursuant to Easterly’s issuance of Easterly Class B common stock to such individuals and entities at the closing of the Business Combination. For the fiscal years 2017, 2016 and 2015, JH Capital had net losses of approximately $54.0 million, $59.6 million and $51.5 million, respectively. Net losses are inclusive of approximately $34.5 million, $25.9 million and $14.9 million in interest expenses in 2017, 2016 and 2015, respectively. As of December 31, 2017, JH Capital’s total long-term indebtedness outstanding was approximately $395.5 million, including $346.8 million in senior secured debt and $48.7 million in mezzanine debt. For more information about the Business Combination and the other transactions contemplated by the Investment Agreement, see the section entitled “Proposal No. 1 — The Business Combination Proposal.”

 

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  · Prior to the closing of the Business Combination, JH Capital and the Founding Members will effect an internal reorganization (the “Reorganization”) after which (i) 100% of the following companies and their respective direct and indirect subsidiaries are contemplated to be owned, directly or indirectly, by JH Capital: Credit Control, LLC, Century DS, LLC, New Credit America, LLC and CreditMax Holdings, LLC and (ii) without duplication of the companies referenced in clause (i), 100% of the direct and indirect subsidiaries of Next Level Finance Partners, LLC are contemplated to be owned, directly or indirectly, by JH Capital. If the Reorganization is completed on the terms contemplated by the Investment Agreement, then, as of the closing, JH Capital will, directly or indirectly, own 100% of Credit Control, LLC, 100% of Century DS, LLC and 100% of New Credit America. However, as of the date of this filing, the Reorganization has not been completed. Therefore, Easterly cannot assure you that JH Capital will complete the aspects of the Reorganization that would result in JH Capital holding 100% of Credit Control, LLC, 100% of Century DS, LLC and 100% of New Credit America. While it is currently expected that, following the Reorganization, JH Capital will, directly or indirectly, own 100% of Credit Control, LLC, it is possible that, following the Reorganization, JH Capital may only own 60% of Credit Control, LLC. While it is currently expected that, following the Reorganization, JH Capital will indirectly own 100% of Century DS, LLC and 100% of New Credit America, LLC, it is possible that, following the Reorganization, JH Capital may only indirectly own 80% of Century DS, LLC and 80% of New Credit America, LLC. To the extent that any of Credit Control LLC, Century DS, LLC or New Credit America, LLC are not, directly or indirectly, wholly owned by JH Capital following the Reorganization, the number of Class B Units of JH Capital and the number of shares of Easterly Class B common stock issued to the JH Capital Class B Members will be reduced pursuant to the terms of the Investment Agreement.

 

  · The Class B Units may be exchanged for shares of Easterly Class A common stock on a one-for-one basis (subject to certain customary anti-dilutive adjustments to the exchange ratio) or, at JH Capital’s option, cash, pursuant to an Exchange Agreement that Easterly will enter into with JH Capital and the JH Capital Class B Members. The exchange ratio is subject to certain customary anti-dilutive adjustments if there is any subdivision or combination of the shares of Easterly Class B common stock or Class B Units that is not accompanied by an equivalent subdivision or combination of the Class A common stock or any subdivision or combination of the Easterly Class A common stock that is not accompanied by an equivalent subdivision or combination of the shares of Easterly Class B common stock and Class B Units. Upon any exchange of a Class B Unit by a JH Capital Class B Member, one share of Easterly Class B common stock held by such JH Capital Class B Member will be cancelled by Easterly. For more information about the Exchange Agreement, see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Exchange Agreement” and the form of the Exchange Agreement attached to this proxy statement as Annex D.

 

  · In connection with the Investment Agreement, Easterly will also enter into the following agreements, each of which is discussed in this proxy statement: (i) a Third Amended and Restated Limited Liability Company Agreement of JH Capital, the form of which is attached to this proxy statement as Annex C, (ii) the Exchange Agreement relating to the exchange of Class B Units into shares of Easterly Class A common stock, the form of which is attached to this proxy statement as Annex D, (iii) a Tax Receivable Agreement relating to the payment to the JH Capital Class B Members of a portion of specified tax savings, the form of which is attached to this proxy statement as Annex E, and (iv) a Registration Rights Agreement providing registration rights for shares of Easterly Class A common stock issued upon the exchange of Class B Units, the form of which is attached to this proxy statement as Annex F. For more information about each of these agreements, see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements.”

 

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  · On the terms and subject to the conditions set forth in the Investment Agreement, the estimated aggregate value of the Business Combination and related transactions is approximately $187 million, which is the implied value of the 18.7 million newly issued shares of Easterly Class A common stock issuable to the JH Capital Class B Members upon the exchange of their Class B Units of JH Capital in accordance with the terms of the Exchange Agreement, assuming a value of $10.00 per share of Easterly Class A common stock.

 

  · Concurrently with the execution of the Investment Agreement, Easterly entered into a letter agreement (the “Letter Agreement”) with the Sponsor, JH Capital and the Founding Members. Under the Letter Agreement, the Sponsor has agreed with the Founding Members, for the purpose of incentivizing purchases of Easterly Class A common stock and/or obtaining agreements from stockholders not to redeem such stockholders’ shares of Easterly common stock in connection with the Business Combination, that the Sponsor may offer up to 1,000,000 shares of its Easterly Class A common stock to such potential purchasers or current stockholders at a purchase price equal to $0.005 per share, with the consummation of any such purchase of shares being effective only as of and contingent upon the closing of the Business Combination.  At the closing of the Business Combination, the Founding Members will have the option to purchase from the Sponsor at a price of $0.005 per share up to half of the portion, if any, of the 1,000,000 shares (for up to a total of 500,000 shares) of Easterly Class A common stock owned by the Sponsor and not sold by the Sponsor as described in the preceding sentence.  Any shares of Easterly Class A common stock transferred to certain of the Founding Members in connection with the Letter Agreement will be subject to the conditions and restrictions set forth in the letter agreement, dated July 29, 2015, as it may be amended from time to time, by and among Easterly, the Sponsor and the other signatories thereto.

 

  · Pursuant to the Letter Agreement, the Sponsor will surrender to Easterly 2,500,000 shares of Easterly common stock issued to the Sponsor prior to the IPO in exchange for a warrant (the “New Warrant”), which is exercisable in tranches for up to 2,500,000 shares of Easterly Class A common stock, with the ability to exercise each tranche being subject to the satisfaction of certain conditions, including a requirement that the Easterly Class A common stock trades above certain prices. The New Warrant will be exercisable at a price of $0.01 per share, have a term of 5 years and may only be exercisable as follows: (x) 1,000,000 shares will be exercisable if the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $12.00, (y) an additional 1,000,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of the Easterly Class A common stock for 10 consecutive trading days is higher than $13.00 and (z) the final 500,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $14.00. To the extent such warrants are exercised, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely impact the market price of Easterly Class A common stock. For more information about the Letter Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Letter Agreement.”

 

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  · It is anticipated that, upon completion of the Business Combination, (i) Easterly’s public stockholders will retain an ownership interest of approximately 41.5% in the post-combination company, (ii) the Sponsor and Easterly’s current independent directors will retain an ownership interest of approximately 6.9% in the post-combination company and (iii) the JH Capital Class B Members will own approximately 51.6% of the post-combination company. These ownership interests assume that no shares of Easterly common stock are elected to be redeemed in connection with the Business Combination Proposal and also assume that there are no reductions to the JH Capital Class B Units pursuant to the Investment Agreement. Further, the ownership percentage with respect to the post-combination company does not take into account (i) the issuance of any shares (or options to acquire shares) under the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ and their respective subsidiaries’ mezzanine loans. If the actual facts differ from these assumptions, Easterly’s stockholders will experience dilution of their ownership interest unless they elect to have their shares of Easterly common stock redeemed in connection with the Business Combination Proposal. See the sections entitled “Summary of the Proxy Statement — Consideration to the JH Capital Class B Members in the Business Combination” and “Unaudited Pro Forma Consolidated Financial Information” for further information.

 

  · Easterly’s management and board of directors considered various factors in determining whether to approve the Investment Agreement and the transactions contemplated thereby. For more information about Easterly’s decision-making process, see the section entitled “Proposal No. 1 — The Business Combination Proposal — Easterly’s Board of Directors’ Reasons for the Approval of the Business Combination.”

 

  · Pursuant to Easterly’s amended and restated certificate of incorporation, holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with its amended and restated certificate of incorporation. As of March 31, 2018, this would have amounted to approximately $10.18 per share. If a holder exercises its redemption rights, then such holder will be exchanging its shares of Easterly common stock for cash and will no longer own shares of Easterly common stock. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to Easterly’s transfer agent in accordance with the procedures described herein. Easterly has no specified maximum redemption threshold under its charter. In no event, however, will Easterly redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001. See the section entitled “Special Meeting of Easterly Stockholders — Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

 

  · In addition to voting on the proposal to approve and adopt the Investment Agreement at the special meeting (Proposal No. 1), Easterly stockholders will be asked to vote on:

 

  · four (4) separate proposals to approve and adopt amendments to Easterly’s current certificate of incorporation to (i) change Easterly’s name to JH Capital Group Holdings, Inc., reclassify the existing Easterly common stock as Class A common stock, designate the Class B common stock and remove certain provisions related to its status as a blank check company (Proposal No. 2); (ii) adopt Delaware as the exclusive forum for certain litigation (Proposal No. 3); (iii) effect a two-for-three reverse stock split of all of the outstanding shares of Easterly common stock (Proposal No. 4); and (iv) authorize an automatic increase in the number of directors serving on the board of directors during any period when holders of any series of preferred stock have the right to elect additional directors pursuant to Article IV of the certificate of incorporation and to provide for other terms applicable to directors elected by holders of preferred stock (Proposal No. 5) (each of Proposal Nos. 2 through 5 are referred to as a “Certificate Proposal” and collectively as the “Certificate Proposals”);

 

  · a proposal to approve, for purposes of complying with applicable Nasdaq Listing Rules, the issuance of newly issued shares of Easterly Class B common stock representing more than 20% of the voting power of Easterly’s common stock that is issued and outstanding immediately prior to the completion of the Business Combination (the “Nasdaq Proposal”) (Proposal No. 6);

 

  · a proposal to approve the Omnibus Incentive Plan and the material terms thereunder (the “Incentive Plan Proposal”) (Proposal No. 7); and

 

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  · a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that one or more proposals presented to the Easterly stockholders would not be duly approved and adopted at the Easterly special meeting (Proposal No. 8).

 

  · The transactions contemplated by the Investment Agreement will be consummated only if the Business Combination Proposal, the Certificate Proposals, the Nasdaq Proposal and the Incentive Plan Proposal are approved at the Easterly special meeting. All proposals (other than the Business Combination Proposal and the Adjournment Proposal) are conditioned upon the approval of the Business Combination Proposal. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth in the proxy statement.

 

  · Unless waived by the parties to the Investment Agreement, and subject to applicable law, the closing of the Business Combination is subject to a number of conditions set forth in the Investment Agreement including, among others, approval of the Business Combination by required regulatory authorities and receipt of the Easterly stockholder approval contemplated by this proxy statement. For more information about the closing conditions to the Business Combination, see the section entitled “Proposal No. 1 — The Business Combination Proposal — The Investment Agreement — Conditions to Closing of the Business Combination.”

 

  · The Investment Agreement may be terminated at any time prior to the consummation of the Business Combination upon agreement of the parties thereto, or by Easterly or JH Capital acting alone, in specified circumstances. For more information about the termination rights under the Investment Agreement, see the section entitled “Proposal No. 1 — The Business Combination Proposal — The Investment Agreement — Termination.”

 

  · The proposed Business Combination involves numerous risks. For more information about these risks, see the section entitled “Risk Factors.”

 

  · In considering the recommendation of Easterly’s board of directors to vote for the proposals presented at the special meeting, you should be aware that the Sponsor, executive officers and members of Easterly’s board of directors have interests in the Business Combination that are different from, in addition to or in conflict with, the interests of Easterly stockholders generally. The members of Easterly’s board of directors were aware of these differing interests and considered them, among other matters, in evaluating and negotiating the transaction agreements and in recommending to Easterly stockholders that they vote in favor of the proposals presented at the special meeting. These interests include, among other things:

 

  · the approximately 2.4 million total Founder Shares that the Sponsor (or its members) will hold following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $24.9 million based on the closing price of Easterly common stock on April 12, 2018 as reported by Nasdaq (the “Stock Price”);

 

  · the 72,000 total Founder Shares that Easterly’s current independent directors will continue to own following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $738,000 based on the Stock Price;

 

  · the 6.75 million total Private Placement Warrants to purchase shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $5.4 million based on the closing price of Easterly public warrants on April 12, 2018 as reported by Nasdaq (the “Warrant Price”);

 

  · the New Warrant to purchase 2,500,000 shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $25.6 million based on the Stock Price and assuming all the conditions to exercise were satisfied;

 

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  · if Easterly is unable to complete a business combination within the required time period, the Convertible Promissory Note issued to the Sponsor, currently in the amount of $895,000, will not be repaid and all amounts owed thereunder will be forgiven except to the extent that Easterly has funds available to it outside of the Trust Account to repay such amounts and the Sponsor also will lose the opportunity to acquire up to an additional 895,000 warrants to purchase shares of Easterly Class A common stock at a conversion price of $1.00 per warrant, which would have a value at April 12, 2018 of $715,732 based on the Warrant Price;

 

  · if Easterly is unable to complete a business combination within the required time period, Easterly’s Chairman, its Chief Executive Officer and David Cody will be personally liable to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Easterly for services rendered or contracted for or products sold to Easterly, but only if such a vendor or target business has not executed a waiver of claims against the Trust Account and except as to any claims under Easterly’s indemnity of the underwriters;

 

  · the continuation of one of Easterly’s officers and directors as a director (but not an officer) of JH Capital Inc. following the closing; and

 

  · the continued indemnification of current directors and officers of Easterly and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

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FREQUENTLY USED TERMS

 

Unless otherwise stated or unless the context otherwise requires, the terms “Easterly” refers to Easterly Acquisition Corp., “JH Capital” refers to JH Capital Group Holdings, LLC and the terms “JH Capital Inc.” “combined company” and “post-Business Combination company” refer to JH Capital Group Holdings, Inc., which will be Easterly and JH Capital together following the consummation of the Business Combination.

 

In this document:

 

“Adjournment Proposal” means a proposal to adjourn the special meeting of the Easterly stockholders to a later date or dates, if necessary, to permit further solicitation of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented to stockholders for vote at such special meeting.

 

“Business Combination” means the transactions contemplated by the Investment Agreement whereby, among other things, Easterly will (i) acquire a number of Class A Units equal to the aggregate number of shares of Easterly Class A common stock outstanding at the closing of the business combination— after giving effect to the redemption of shares of Easterly common stock by Easterly’s public stockholders at the closing of the business combination and the issuance, if any, of Easterly Class A common stock in exchange for mezzanine loans of certain of the JH Group Companies and their respective subsidiaries, if any—in exchange for a capital contribution by Easterly to JH Capital of an amount in cash equal to the cash and cash equivalents held by Easterly outside of the Trust Account, plus the amount of funds contained in the Trust Account, after giving effect to redemptions by Easterly’s public stockholders, less deferred underwriting fees of $7 million payable to Citigroup Global Markets Inc. and fees of $5 million payable to Cantor Fitzgerald & Co. and Jefferies LLC, less any reasonable (with respect to expenses incurred since April 27, 2017) and documented out-of-pocket transaction expenses of Easterly that are accrued and unpaid as of the closing that are estimated to be approximately $3.6 million, less any outstanding amount under the Convertible Promissory Note, which is currently equal to $895,000, that has not been converted into warrants to purchase Easterly Class A common stock, (ii) issue 18,700,000 shares of its Class B common stock to the JH Capital Class B Members, and (iii) change its name to JH Capital Group Holdings, Inc. In the Business Combination, the JH Capital Class B Members will also be issued 18,700,000 non-voting Class B Units of JH Capital, provided that such number of JH Capital Class B Units and the equal number of shares of Easterly Class B common stock to be issued to the JH Capital Class B Members are subject to an equal reduction to the extent that certain of the JH Group Companies are not directly or indirectly wholly owned by JH Capital. In addition, on the date of the closing of the Business Combination, JH Capital or one or more JH Group Companies will, or will cause a subsidiary of JH Capital or any JH Group Company to, make a cash distribution to Jacobsen Holdings and KCF in an aggregate amount equal to $1,000,000.

 

“Business Combination Proposal” means the proposal to approve and adopt the Investment Agreement.

 

“Class A Units” means the Class A Units of JH Capital.

 

“Class B Units” means the Class B Units of JH Capital, which will be subdivided into Class B-1 Units and Class B-2 Units.

 

“Convertible Promissory Note” means the convertible promissory note, dated as of March 17, 2016, issued by Easterly to the Sponsor.

 

“Easterly” refers to Easterly Acquisition Corp., a Delaware corporation.

 

“Easterly Class A common stock” means the Class A common stock, par value $0.0001 per share, of Easterly, which the existing Easterly common stock will automatically be reclassified into at the closing of the Business Combination.

 

“Easterly Class B common stock” means the Class B common stock, par value $0.0001 per share, of Easterly, which will be issued to the JH Capital Class B Members at the closing of the Business Combination.

 

“Easterly common stock” means the common stock, par value $0.0001 per share, of Easterly.

 

“Easterly special meeting” means the special meeting of stockholders of Easterly that is the subject of this proxy statement.

 

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“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Exchange Agreement” means the Exchange Agreement that Easterly will enter into with JH Capital and the JH Capital Class B Members at the closing of the Business Combination, the form of which is attached to this proxy statement as Annex D.

 

“Extension Amendments” means the amendments to Easterly’s amended and restated certificate of incorporation and the agreement governing the Trust Account to extend the deadline by which Easterly has to complete its initial business combination from August 4, 2017 to December 15, 2017, which were approved at Easterly’s annual meeting of stockholders on August 1, 2017.

 

“Fortress Loan” means the loan provided by Fortress to a subsidiary of JH Capital pursuant to a credit agreement in an amount up to $100 million.

 

“Fortress Warrants” means the 888,000 warrants issued to Fortress in connection with the Fortress Loan, which will be exercisable for Easterly Class A common stock following the closing of the Business Combination, subject to vesting.

 

“Founder Shares” means the 5,000,000 shares of Easterly common stock (after giving effect to (i) a stock dividend of 0.2 shares for each outstanding share of Easterly common stock on July 29, 2015 and (ii) the forfeiture of 175,000 shares in August 2015) that were issued to the Sponsor prior to the IPO (72,000 Founder Shares of which were subsequently transferred to Easterly’s independent directors).

 

“Founding Members” means Jacobsen Credit Holdings, LLC (“Jacobsen Holdings”), Kravetz Capital Funding LLC and NJK Holding LLC (“NJK Holding”).

 

“initial stockholders” means the Sponsor, Easterly’s independent directors and their permitted transferees that hold Founder Shares and Private Placement Warrants.

 

“Investment Agreement” means the Investment Agreement, dated as of June 28, 2017, as amended on November 8, 2017 and February 14, 2018, by and among JH Capital, the Founding Members and Easterly.

 

“IPO” means Easterly’s initial public offering, consummated on August 4, 2015 through the sale of 20,000,000 public units at $10.00 per share.

 

“JH Capital Class B Members” means the Principal Members and the other holders of the Class B Units of JH Capital at the closing of the Business Combination.

 

“JH Capital” means JH Capital Group Holdings, LLC, a Delaware limited liability company.

 

“JH Capital Inc.” means JH Capital Group Holdings, Inc., which will be Easterly and JH Capital together following the consummation of the Business Combination.

 

“JH Group Companies” means JH Portfolio Debt Equities, LLC, Credit Control, LLC, Next Level Finance Partners, LLC, Century DS, LLC, New Credit America, LLC and CreditMax Holdings, LLC, which, together with their respective direct and indirect subsidiaries, constitute all of the businesses of JH Capital.

 

“Letter Agreement” means the letter agreement, dated as of June 28, 2017, by and among Easterly, the Sponsor, JH Capital and the Founding Members.

 

“New LLC Agreement” means the Third Amended and Restated Limited Liability Company Agreement of JH Capital that JH Capital, Easterly and the JH Capital Class B Members will enter into at the closing of the Business Combination, the form of which is attached to this proxy statement as Annex C.

 

“New Warrant” means the warrant to purchase 2,500,000 shares of Easterly Class A common stock, subject to the terms and conditions of the New Warrant, which will be issued to the Sponsor pursuant to the Letter Agreement in exchange for 2,500,000 Founder Shares at the closing of the Business Combination.

 

“Omnibus Incentive Plan” means the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan.

 

“Principal Members” means Jacobsen Holdings together with KCF.

 

“Private Placement Warrants” means the 6,750,000 private placement warrants issued to the Sponsor, at a price of $1.00 per warrant, in a private placement that occurred simultaneously with the completion of the IPO.

 

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“proposed certificate” means the amended and restated certificate of incorporation of Easterly being proposed for approval by Easterly’s stockholders, the form of which is attached as Annex B to this proxy statement.

 

“public shares” means shares of Easterly common stock issued in the IPO.

 

“public warrants” means the warrants issued in the IPO, each of which is exercisable for one share of Easterly common stock, in accordance with its terms.

 

“Registration Rights Agreement” means the Registration Rights Agreement that Easterly will enter into with the JH Capital Class B Members at the closing of the Business Combination, the form of which is attached to this proxy statement as Annex F.

 

“Reorganization” means the internal reorganization that JH Capital and the Founding Members will undertake prior to the closing of the Business Combination after which (a) 100% of the following JH Group Companies and each of their direct and indirect subsidiaries are contemplated to be owned, directly or indirectly, by JH Capital: Credit Control, LLC, Century DS, LLC, New Credit America, LLC and CreditMax Holdings, LLC and (b) without duplication of the companies referenced in clause (a), 100% of the direct and indirect subsidiaries of Next Level Finance Partners, LLC are contemplated to be owned, directly or indirectly, by JH Capital.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Sponsor” means Easterly Acquisition Sponsor, LLC, a Delaware limited liability company.

 

“Tax Receivable Agreement” means the Tax Receivable Agreement that Easterly will enter into with JH Capital and the JH Capital Class B Members at the closing of the Business Combination, the form of which is attached to this proxy statement as Annex E.

 

“Trust Account” means the segregated trust account located in the United States with Continental Stock Transfer & Trust Company acting as trustee into which the proceeds of the IPO and the sale of the Private Placement Warrants were placed at the closing of the IPO.

 

“Units” means the Class A Units and Class B Units of JH Capital.

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR STOCKHOLDERS

 

The following questions and answers briefly address some commonly asked questions about the proposals to be presented at the special meeting, including with respect to the proposed Business Combination. The following questions and answers do not include all the information that is important to Easterly stockholders. We urge stockholders to read carefully this entire proxy statement, including the annexes and the other documents referred to herein. The following questions and answers do not include all the information that may be important to you as an Easterly stockholder. We urge you to read this entire proxy statement, including the annexes and the other documents referred to herein. See the section entitled “Where You Can Find More Information” beginning on page 251.

 

All share and warrant numbers set forth in this proxy statement assume that all Easterly units are separated into their components of one share of Easterly common stock and one-half of a warrant to purchase one share of Easterly common stock, which will occur upon the closing of the Business Combination. Except as specifically set forth in the section entitled “Proposal No. 4 — Approval of Amendment to Easterly’s Amended and Restated Certificate of Incorporation to Effect a Two-for-Three Reverse Stock Split of All of the Outstanding Shares of Easterly Common Stock,” beginning on page 143 of this proxy statement, the share amounts set forth in this proxy statement do not account for the two-for-three reverse stock split, which will occur after the closing of the Business Combination, if approved by Easterly’s stockholders.

 

About the Business Combination

 

Q: Why am I receiving this proxy statement?

 

A:    Easterly, the Founding Members and JH Capital entered into an Investment Agreement on June 28, 2017, as amended on November 8, 2017 and February 14, 2018, providing for a business combination of Easterly and JH Capital, whereby Easterly will acquire Class A Units of JH Capital in exchange for a capital contribution by Easterly to JH Capital. This agreement is referred to as the Investment Agreement. A copy of the Investment Agreement is attached to this proxy statement as Annex A. Easterly’s stockholders are being asked to consider and vote upon a proposal to approve and adopt the Investment Agreement and the Business Combination, among other proposals described in this proxy statement. In connection with the Investment Agreement, Easterly has entered into the Letter Agreement and, at the closing of the Business Combination, also will enter into the following agreements, each of which is discussed in this proxy statement: (i) the New LLC Agreement, (ii) the Exchange Agreement, (iii) the Registration Rights Agreement and (iv) the Tax Receivable Agreement.

 

This proxy statement and its Annexes contain important information about the proposed Business Combination and the other matters to be acted upon at the Easterly special meeting. You should read this proxy statement and its Annexes carefully and in their entirety.

 

Q: What will happen in the Business Combination?

 

A:    Pursuant to the Business Combination, among other things, Easterly will (i) acquire a number of Class A Units equal to the aggregate number of shares of Easterly Class A common stock outstanding at the closing of the business combination—after giving effect to the redemption of shares of Easterly common stock by Easterly’s public stockholders at the closing of the Business Combination and the issuance, if any, of Easterly Class A common stock in exchange for mezzanine loans of certain of the JH Group Companies and their respective subsidiaries, if any— in exchange for a capital contribution by Easterly to JH Capital of an amount in cash equal to the cash and cash equivalents held by Easterly outside of the Trust Account, plus the amount of funds contained in the Trust Account, after giving effect to redemptions by Easterly’s public stockholders, less deferred underwriting fees of $7 million payable to Citigroup Global Markets Inc. and fees of $5 million payable to Cantor Fitzgerald & Co. and Jefferies LLC, less any reasonable (with respect to expenses incurred since April 27, 2017) and documented out-of-pocket transaction expenses of Easterly that are accrued and unpaid as of the closing that are estimated to be approximately $3.6 million, less any outstanding amount under the Convertible Promissory Note, which is currently equal to $895,000, that has not been converted into warrants to purchase Easterly Class A common stock, (ii) issue 18,700,000 shares of its Class B common stock to the JH Capital Class B Members, and (iii) change its name to JH Capital Group Holdings, Inc. In the Business Combination, the JH Capital Class B Members will also be issued 18,700,000 non-voting Class B Units of JH Capital, provided that such number of JH Capital Class B Units and the equal number of shares of Easterly Class B common stock to be issued to the JH Capital Class B Members are subject to an equal reduction to the extent that certain of the JH Group Companies are not directly or indirectly wholly owned by JH Capital. In addition, on the date of the closing of the Business Combination, JH Capital or one or more JH Group Companies will, or will cause a subsidiary of JH Capital or any JH Group Company to, make a cash distribution to Jacobsen Holdings and KCF in an aggregate amount equal to $1,000,000. We expect that Easterly will acquire all of the voting interest of JH Capital, but only a minority economic interest in JH Capital. As discussed in more detail elsewhere in the proxy statement, we also expect that individuals and entities affiliated with JH Capital, namely the JH Capital Class B Members, will acquire majority voting control of Easterly following the closing pursuant to Easterly’s issuance of Easterly Class B common stock to such individuals and entities at the closing of the Business Combination. For the fiscal years 2017, 2016 and 2015, JH Capital had net losses of approximately $54.0 million, $59.6 million and $51.5 million, respectively. Net losses are inclusive of approximately $34.5 million, $25.9 million and $14.9 million in interest expenses in 2017, 2016 and 2015, respectively. As of December 31, 2017, JH Capital’s total long-term indebtedness outstanding was approximately $395.5 million, including $346.8 million in senior secured debt and $48.7 million in mezzanine debt.

 

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Q: Following the Business Combination, will Easterly’s securities continue to trade on a stock exchange?

 

A:    Yes, Easterly’s Class A common stock, including the shares of Easterly A common stock issuable to the JH Capital Class B Members upon the exchange of their Class B Units in accordance with the terms of the Exchange Agreement, and warrants will continue to be listed on the Nasdaq Capital Market, or Nasdaq, under the symbols “JHCG” and “JHCGW,” respectively. Prior to the closing, Easterly’s units, which currently are traded under the symbol “EACQU” will separate into their components of one share of Easterly common stock and one half of a warrant to purchase one share of Easterly common stock.

 

Q: Who will manage the combined company following the Business Combination?

 

A:    We anticipate that the executive officers of JH Capital will manage the combined company upon the completion of the Business Combination. In particular, it is anticipated that Douglas Jacobsen will serve as Chief Executive Officer of the combined company and that Glenn Corey will serve as Chief Financial Officer.

 

Additionally, it is anticipated that the board of directors of the combined company will consist of a combination of certain of JH Capital’s current management, one of Easterly’s current directors and two new directors. In particular, it is anticipated that Avshalom Kalichstein (who is currently a director of Easterly) will continue as a director of the combined company and that Norman Kravetz and Douglas Jacobsen (who is currently the Chief Executive Officer of JH Capital), and two individuals (who are independent of Easterly and JH Capital) jointly selected in good faith by the Founding Members and Easterly, with one such individual being an individual that qualifies as an “audit committee financial expert” under the Sarbanes-Oxley Act and with the other such individual being an individual with regulatory expertise in the industries in which JH Capital, the JH Group Companies and each of their respective subsidiaries operate will be appointed to serve as directors of the combined company upon completion of the Business Combination, with Norman Kravetz serving as Chairman of the combined company’s board of directors. The Founding Members and Easterly have jointly selected, as the two new directors, Don De Amicis, who has regulatory experience in JH Capital’s, the JH Group Companies’ and their respective subsidiaries’ industries, and Christopher Halmy, who has financial and operational experience in JH Capital’s, the JH Group Companies’ and their respective subsidiaries’ industries and qualifies as an “audit committee financial expert” under the Sarbanes-Oxley Act.

 

Q: How has the announcement of the Business Combination affected the trading price of the Easterly common stock?

 

A:    On June 29, 2017, the date immediately prior to the announcement of the Business Combination, the closing trading price of Easterly common stock on the Nasdaq Capital Market was $10.05 per share. On [      ], 2018, the date immediately prior to the date of this proxy statement, the closing trading price of Easterly common stock on the Nasdaq Capital Market was $[      ] per share.

 

Q: How will the Business Combination impact the Easterly shares outstanding after the Business Combination?

 

A:    Easterly will issue 18,700,000 shares of Easterly Class B common stock (which, together with Class B Units, are exchangeable for shares of Easterly Class A common stock), or 93.4% of the 20,015,577 currently outstanding shares of Easterly common stock, to the JH Capital Class B Members pursuant to the Business Combination (assuming no redemptions of Easterly’s public shares and no additional issuances of Easterly common stock). Further, additional shares of Easterly Class A common stock may be issuable at the closing of the Business Combination in exchange for mezzanine loans of JH Group Companies and their respective subsidiaries and may be issuable in the future as follows: (i) the issuance of any shares (or options to acquire shares) under the Omnibus Incentive Plan, and (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly Class A common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000). The issuance of these shares will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely impact the market price of Easterly Class A common stock.

 

Q: What happens to the capital stock of Easterly in the Business Combination?

 

A:    There currently are 20,015,577 shares of Easterly common stock issued and outstanding, consisting of:

 

  · 15,015,577 shares held by public stockholders; and

 

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  · 5,000,000 Founder Shares held by the Sponsor and Easterly’s independent directors.

 

In addition, there currently are 17,638,000 warrants for Easterly common stock outstanding, consisting of 10,000,000 public warrants, 6,750,000 Private Placement Warrants held by the Sponsor and 888,000 Fortress Warrants. Easterly may issue additional warrants (with terms and conditions identical to the Private Placement Warrants) to the Sponsor to satisfy outstanding working capital loans owed to the Sponsor by Easterly, currently in the amount of $895,000. The Sponsor has the right to elect to receive cash or warrants (valued at $1 per warrant) to satisfy such loans up to a maximum of 1,000,000 warrants. Each warrant entitles the holder thereof to purchase one share of Easterly common stock at a price of $11.50 per share. The warrants will become exercisable 30 days after the completion of Easterly’s initial business combination and expire at 5:00 p.m., New York City time, five years after the completion of Easterly’s initial business combination or earlier upon redemption or liquidation. Once the warrants become exercisable, Easterly may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants, the Fortress Warrants, warrants issued in exchange for repayment of the Convertible Promissory Note and the New Warrant) in whole and not in part at a price of $0.01 per warrant, if the last sale price of Easterly’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period. The Private Placement Warrants and the warrants issued in exchange for repayment of the Convertible Promissory Note are non-redeemable so long as they are held by the Sponsor or its permitted transferees. The Fortress Warrants and the New Warrant are non-redeemable. There are a substantial number of warrants to purchase Easterly common stock issued and outstanding. To the extent such warrants are exercised or any mezzanine lenders exchange their mezzanine loans for shares of Easterly Class A common stock, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Easterly public stockholders will be diluted by these issuances unless they elect to redeem their shares in connection with the Business Combination. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely impact the market price of Easterly Class A common stock. All share and warrant numbers set forth in this proxy statement assume that all Easterly units are separated into their components of one share of Easterly common stock and one-half of a warrant to purchase one share of Easterly common stock, which will occur upon the closing of the Business Combination.

 

Upon the closing of the Business Combination, Easterly will issue 18,700,000 shares of its Class B common stock to the JH Capital Class B Members, which together with the Class B Units are exchangeable for shares of Easterly Class A common stock upon the exchange by any JH Capital Class B Member of such member’s Class B Units, resulting in a corresponding increase in the number of shares of Easterly Class A common stock outstanding. Under the Letter Agreement, the Sponsor has agreed with the Founding Members, for the purpose of incentivizing purchases of Easterly Class A common stock and/or obtaining agreements from stockholders not to redeem such stockholders’ shares of Easterly common stock in connection with the Business Combination, that the Sponsor may offer up to 1,000,000 shares of its Easterly Class A common stock to such potential purchasers or current stockholders at a purchase price equal to $0.005 per share, with the consummation of any such purchase of shares being effective only as of and contingent upon the closing of the Business Combination. At the closing of the Business Combination, the Founding Members will have the option to purchase from the Sponsor at a price of $0.005 per share up to half of the portion, if any, of the 1,000,000 shares (for up to a total of 500,000 shares) of Easterly Class A common stock owned by the Sponsor and not sold by the Sponsor as described in the preceding sentence.  Any shares of Easterly Class A common stock transferred to certain of the Founding Members in connection with the Letter Agreement will be subject to the conditions and restrictions set forth in the letter agreement, dated July 29, 2015, as it may be amended from time to time, by and among Easterly, the Sponsor and the other signatories thereto. In addition, pursuant to the Letter Agreement, the Sponsor will surrender to Easterly 2,500,000 shares of Easterly Class A common stock issued to the Sponsor prior to the IPO in exchange for the New Warrant, which is exercisable for 2,500,000 shares of Easterly Class A common stock exercisable in the event that Easterly Class A common stock trades above certain prices and other conditions are met. The New Warrant will be exercisable at a price of $0.01 per share, have a term of 5 years and may only be exercisable as follows: (x) 1,000,000 shares will be exercisable if the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $12.00, (y) an additional 1,000,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of the Easterly Class A common stock for 10 consecutive trading days is higher than $13.00 and (z) the final 500,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $14.00. To the extent such warrants are exercised, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely impact the market price of Easterly Class A common stock. For more information about the Letter Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Letter Agreement.”

 

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Q: What revenue and profits/losses has JH Capital generated in 2017, 2016 and 2015?

 

A:   For the fiscal years 2017, 2016 and 2015, JH Capital had total revenues after provision for losses of approximately $129.7 million, $78.0 million and $45.1 million, respectively, with net losses of approximately $54.0 million, $59.6 million and $51.5 million, respectively. Net losses are inclusive of approximately $34.5 million in interest expense in 2017, $25.9 million in interest expense in 2016 and $14.9 million in interest expense in 2015. As of the end of fiscal year 2017, JH Capital’s total assets were approximately $308.0 million and its total liabilities were approximately $448.9 million. As of December 31, 2017, JH Capital’s total long-term indebtedness outstanding was approximately $395.5 million, including $346.8 million in senior secured debt and $48.7 million in mezzanine debt. See “Selected Historical Financial Information of JH Capital” on page 37 and “JH Capital Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information located on page 190.

 

Q: What is the nature of JH Capital’s business and operations?

 

A:    JH Capital is a diversified specialty finance company that provides a wide array of distressed debt and credit rehabilitation solutions for consumers and businesses across a broad range of assets. It is a national leader in purchasing charged off consumer debt from major financial institutions with a national debt settlement service, consumer and commercial loan origination platforms as well as a collection agency, which collectively work with individuals as they repay their obligations by offering several solutions to help individuals work towards financial recovery. For more information about JH Capital, see the sections entitled “Information About JH Capital,” “JH Capital Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Management of JH Capital” beginning on pages 170, 190 and 187, respectively.

 

Q: What will the JH Capital Class B Members receive in return for the acquisition of JH Capital by Easterly?

 

A:    At the closing of the Business Combination, the JH Capital Class B Members will be issued 18,700,000 shares of Easterly’s newly designated Class B common stock and the JH Capital Class B Members will also be issued 18,700,000 non-voting Class B Units of JH Capital, provided that such number of JH Capital Class B Units and the equal number of shares of Easterly Class B common stock to be issued to the JH Capital Class B Members are subject to an equal reduction to the extent that certain of the JH Group Companies are not directly or indirectly wholly owned by JH Capital after the Reorganization. The Easterly Class B common stock will have one vote per share but not be entitled to any economic interest in Easterly. The Class B Units are entitled to distributions from JH Capital, but are not entitled to any voting or control rights over JH Capital, other than certain customary consent rights with respect to distributions, amendments to JH Capital’s limited liability company agreement and certain other matters affecting the JH Capital Class B Members. In addition, on the date of the closing of the Business Combination, JH Capital or one or more JH Group Companies will, or will cause a subsidiary of JH Capital or any JH Group Company to, make a cash distribution to Jacobsen Holdings and KCF in an aggregate amount equal to $1,000,000.

 

Q:   What equity stake will current Easterly stockholders have in Easterly after the closing and in JH Capital after the closing?

 

A:    It is anticipated that, upon completion of the Business Combination, (i) Easterly’s public stockholders will retain an ownership interest of approximately 41.5% in the post-combination company, (ii) the Sponsor and Easterly’s current independent directors will retain an ownership interest of approximately 6.9% in the post-combination company and (iii) the JH Capital Class B Members will own approximately 51.6% of the post-combination company. These ownership interests assume that no shares of Easterly common stock are elected to be redeemed in connection with the Business Combination Proposal and also assume that there are no reductions to the JH Capital Class B Units pursuant to the Investment Agreement. Further, the ownership percentage with respect to the post-combination company following the Business Combination does not take into account (i) the issuance of any shares (or options to acquire shares) under the Omnibus Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans. If the actual facts differ from these assumptions, Easterly’s stockholders will experience dilution of their ownership interest unless they elect to have their shares of Easterly common stock redeemed in connection with the Business Combination Proposal. See the section entitled “Summary of the Proxy Statement — Consideration to the JH Capital Class B Members in the Business Combination” and “Unaudited Pro Forma Consolidated Financial Information” for further information.

  

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Q: Is the Business Combination the first step in a “going-private” transaction?

 

A:    Easterly does not intend for the Business Combination to be the first step in a “going-private” transaction. One of the primary purposes of the Business Combination is to provide a platform for JH Capital to access the U.S. public markets.

 

Q: What conditions must be satisfied to complete the Business Combination?

 

A:    There are a number of closing conditions in the Investment Agreement, including, but not limited to, the following:

 

  · There must not be in effect any order by a governmental entity of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by the Investment Agreement;

 

  · Easterly’s stockholders must adopt the Investment Agreement, as well as Proposal Nos. 2-7;

 

  · Completion of the Reorganization, provided that, if, as of the closing of the Business Combination, certain of the JH Group Companies are not directly or indirectly wholly owned by JH Capital and such circumstance results in a reduction to the number of Class B Units issuable to the JH Capital Class B Members, then such circumstance will not constitute a failure of the closing condition; and

 

  · There must not have been any event or circumstance which resulted in a material adverse effect with respect to JH Capital, and no change or event shall have occurred that would reasonably be expected to result in such a material adverse effect.

 

In addition, under its amended and restated certificate of incorporation, Easterly may not redeem or repurchase Easterly common stock to the extent that such redemption would result in Easterly’s failure to have net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) in excess of approximately $5 million.

 

For a summary of all of the conditions that must be satisfied or waived prior to completion of the Business Combination, see the section entitled “The Investment Agreement.”

 

Q:    What interests do Easterly’s current officers and directors have in the Business Combination that could conflict with a public stockholder?

 

A:    Easterly’s directors and executive officers may have interests in the Business Combination that are different from, in addition to or in conflict with, yours. These interests include:

 

  · the approximately 2.4 million total Founder Shares that the Sponsor (or its members) will hold following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $24.9 million based on the Stock Price;

 

  · the 72,000 total Founder Shares that Easterly’s current independent directors will continue to own following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $738,000 based on the Stock Price;

 

  · the 6.75 million total Private Placement Warrants to purchase shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $5.4 million based on the Warrant Price;

 

  · the New Warrant to purchase 2.5 million total shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $25.6 million based on the Stock Price and assuming all the conditions to exercise were satisfied;

 

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  · if Easterly is unable to complete a business combination within the required time period, the Convertible Promissory Note issued to the Sponsor, currently in the amount of $895,000, will not be repaid and all amounts owed thereunder will be forgiven except to the extent that Easterly has funds available to it outside of the Trust Account to repay such amounts and the Sponsor also will lose the opportunity to acquire up to an additional 895,000 warrants to purchase shares of Easterly Class A common stock at a conversion price of $1.00 per warrant, which would have a value at April 12, 2018 of $715,732 based on the Warrant Price;

 

  · if Easterly is unable to complete a business combination within the required time period, Easterly’s Chairman, its Chief Executive Officer and David Cody will be personally liable to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Easterly for services rendered or contracted for or products sold to Easterly, but only if such a vendor or target business has not executed a waiver of claims against the Trust Account and except as to any claims under Easterly’s indemnity of the underwriters;

 

  · the continuation of one of Easterly’s officers and directors as a director (but not an officer) of JH Capital Inc. following the closing; and

 

  · the continued indemnification of current directors and officers of Easterly and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

Further, each of Easterly’s directors, directly or indirectly, holds Founder Shares that are not subject to redemption and certain of Easterly’s directors indirectly hold Private Placement Warrants that would retire worthless if a Business Combination is not consummated; as a result, Easterly’s directors have a financial incentive to see a Business Combination consummated rather than lose whatever value is attributable to the Founder Shares and Private Placement Warrants. These interests may influence Easterly’s directors in making their recommendation that you vote in favor of the Business Combination Proposal, and the transactions contemplated thereby.

 

Q: What interests do JH Capital’s directors and executive officers have in the Business Combination?

 

A:    Upon completion of the Business Combination, the executive officers of JH Capital will collectively beneficially own [         ] Class B Units and [    ] shares of Easterly Class B common stock. As of [     ], 2018, if converted into Easterly Class A common stock these shares and units, would have a value of approximately $[       ] million based on the Stock Price. The above calculations of share amounts and value do not take into account (i) the issuance of up to 6,000,000 shares (or options to acquire shares) under the Omnibus Incentive Plan, (ii) the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly Class A common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans. If the actual facts differ from these assumptions, Easterly’s stockholders will experience dilution of their ownership interest unless they elect to have their shares of Easterly common stock redeemed in connection with the Business Combination Proposal.

 

Q:    What happens to Easterly if the Business Combination is not consummated?

 

A:    There are certain circumstances under which the Investment Agreement may be terminated. See the section entitled “The Investment Agreement” for information regarding the parties’ specific termination rights.

 

If, as a result of the termination of the Investment Agreement or otherwise, Easterly is unable to complete the Business Combination or another business combination transaction by June 30, 2018, Easterly’s amended and restated certificate of incorporation provides that Easterly will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to Easterly to pay its franchise and income taxes (less $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of Easterly’s remaining stockholders and Easterly’s board of directors, dissolve and liquidate, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. See the section entitled “Risk Factors — If Easterly is unable to effect a business combination by June 30, 2018, Easterly will be forced to liquidate and the warrants will expire worthless and — If Easterly is forced to liquidate, Easterly’s stockholders may be held liable for claims by third parties against Easterly to the extent of distributions received by them.” Holders of the Founder Shares have waived any right to any liquidation distribution with respect to those shares.

 

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In the event of liquidation, there will be no distribution with respect to Easterly’s outstanding warrants. Accordingly, the warrants will expire worthless.

 

Q: What happens to the funds held in the Trust Account upon consummation of the Business Combination?

 

A:    If the Business Combination is consummated, the funds held in the Trust Account (after payments to Easterly’s public stockholders who properly exercise their redemption rights), less any outstanding amount under the Convertible Promissory Note that has not been converted into warrants to purchase Easterly Class A common stock and less an estimated $15.6 million of certain fees, costs and expenses (including $7 million of deferred underwriting compensation to the underwriters of the IPO, regulatory fees, legal fees, accounting fees, printer fees, and other professional fees) that were incurred by Easterly will be invested in JH Capital in exchange for the Class A Units and used by JH Capital to pay:

 

  · approximately $77.0 million of short-term debt at the Closing, along with approximately $3.5 million of prepayment and other loan costs;

 

  · to potentially repurchase warrants; and

 

  · general corporate purposes of the combined company following the Business Combination.

 

Q: When is the Business Combination expected to be completed?

 

A:    It is currently anticipated that the Business Combination will be consummated promptly following the Easterly special meeting of stockholders, provided that all other conditions to the consummation of the Business Combination have been satisfied or waived.

 

For a description of the conditions to the completion of the Business Combination, see the section entitled “The Investment Agreement — Conditions to Closing of the Business Combination.”

 

Q: Do Easterly stockholders have appraisal rights if they object to the proposed Business Combination?

 

A:    No. There are no appraisal rights available to holders of Easterly common stock in connection with the Business Combination.

 

About the Redemption Rights of Easterly Public Stockholders

 

Q: Do I have redemption rights?

 

A:    If you are a holder of Easterly public shares, you may have your public shares redeemed for cash equal to their pro rata share of the aggregate amount on deposit in the Trust Account, which holds the proceeds of the IPO, as of two business days prior to the consummation of the Business Combination, including interest earned on the funds held in the Trust Account and not previously released to Easterly to pay its franchise and income taxes, upon the consummation of the Business Combination. For illustrative purposes, based on funds in the Trust Account of approximately $153.0 million on March 31, 2018, the estimated per share redemption price would have been approximately $10.18. This is slightly more than the $10.00 initial public offering price of Easterly’s units. Additionally, shares properly tendered for redemption will only be redeemed if the Business Combination is consummated; otherwise, holders of such shares will only be entitled to a pro rata portion of the Trust Account including interest earned on the funds held in the Trust Account and not previously released to Easterly to pay franchise and income taxes (less $100,000 of interest to pay dissolution expenses) in connection with the liquidation of the Trust Account.

  

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Q: Can the Sponsor or the Easterly independent directors redeem their Easterly common stock?

 

A:    All of the holders of Founder Shares, which includes the Sponsor and Easterly’s independent directors, have agreed to waive their redemption rights with respect to their Founder Shares and have agreed to waive their redemption rights with respect to any public shares that they may have acquired during or after the IPO in connection with the completion of the Business Combination. The Founder Shares will be excluded from the pro rata calculation used to determine the per-share redemption price.

 

Q: Can the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates purchase public shares?

 

A:    In connection with the stockholder vote to approve the proposed Business Combination, the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed for a per-share pro rata portion of the Trust Account in conjunction with their consideration of a proposal to approve the Business Combination. None of the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates will make any such purchases when they are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. It is expected that such a purchase would include a contractual acknowledgement that such stockholder, although still the record holder of Easterly’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. To the extent required to comply with applicable securities laws, we expect that any purchase by the Sponsor would be reported promptly on an amendment to the Sponsor’s Schedule 13D. In the event that the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are in excess of the per-share pro rata portion of the Trust Account. There is no limit to the number of public shares that the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates could purchase. The purpose of any such purchases would be to increase the likelihood of obtaining stockholder approval of the Business Combination.

 

Q: Is there a limit on the number of shares I may redeem?

 

A:    A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption rights with respect to 15% or more of public shares of Easterly common stock. Accordingly, all shares in excess of 15% owned by a holder will not be redeemed for cash. On the other hand, a public stockholder who holds less than 15% of the public shares of common stock may redeem all of the public shares held by him for cash.

 

Q: How will the level of redemptions affect the post-Business Combination company?

 

A:    The number of redemptions requested by Easterly stockholders would affect the amount of Class A Units that Easterly will acquire at the closing of the Business Combination, the amount of cash from the Trust Account available to pay Easterly’s expenses and the amount of cash from the Trust Account available for general corporate purposes following the Business Combination. Each redemption of public shares by Easterly’s public stockholders will decrease the amount in the Trust Account, which was approximately $153.0 million as of March 31, 2018. Easterly has no specified maximum redemption threshold under its charter. In no event, however, will Easterly redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001.

 

Q: Will how I vote affect my ability to exercise redemption rights?

 

A:   No. You may exercise your redemption rights whether you vote your shares of Easterly common stock for or against the Business Combination Proposal. As a result, the Business Combination Proposal can be approved by stockholders who will redeem their shares and no longer remain stockholders, leaving stockholders who choose not to redeem their shares holding shares in a company with a less liquid trading market, fewer stockholders, less cash and the potential inability to meet the listing standards of Nasdaq.

 

Q: How do I exercise my redemption rights?

 

A:    In order to exercise your redemption rights, you must, prior to 5:00 p.m. Eastern time on [ ], 2018 (two business days before the Easterly special meeting), (i) if you hold Easterly units, elect to separate your Easterly units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to your public shares, (ii) submit a written request to Easterly’s transfer agent that it redeem your public shares for cash, and (iii) deliver your stock to Easterly’s transfer agent physically or electronically through Depository Trust Company, or DTC. The address of Continental Stock Transfer & Trust Company, its transfer agent, is listed under the question “Who can help answer my questions?” below. Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with Easterly’s consent, until the vote is taken with respect to the Business Combination. If you delivered your shares for redemption to Easterly’s transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that its transfer agent return the shares (physically or electronically). You may make such request by contacting Easterly’s transfer agent at the phone number or address listed under the question “Who can help answer my questions?”

 

Q: What are the federal income tax considerations of exercising my redemption rights?

 

A:    Easterly stockholders who exercise their redemption rights to receive cash from the Trust Account in exchange for their shares of Easterly common stock generally will be required to treat the transaction as either a sale of such shares or a distribution with respect to such holder’s shares of Easterly common stock. See the section entitled “U.S. Federal Income Tax Considerations of Redeeming Easterly Common Stock.”

 

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Q: If I am an Easterly warrant holder, can I exercise redemption rights with respect to my warrants?

 

A:    No. There are no redemption rights with respect to Easterly’s warrants.

 

Q:    How will the level of redemptions affect the Business Combination Consideration?

 

A:    The total consideration payable to JH Capital Class B Members would not be impacted by the level of redemptions. However, the number of redemptions requested by Easterly stockholders would affect the number of Class A Units issued to Easterly and the amount of cash available to the post-Business Combination company. Each redemption of public shares by Easterly’s public stockholders will decrease the amount in the Trust Account, which was approximately $153.0 million as of March 31, 2018.

 

About the Easterly Special Meeting

 

Q: What is being voted on at the Easterly special meeting?

 

A:    Below are the proposals on which Easterly’s stockholders are being asked to consider and vote upon at the Easterly special meeting.

 

  1. Proposal No. 1 — To approve and adopt the Investment Agreement (this proposal is referred to herein as the “Business Combination Proposal”);

 

  2. Proposal No. 2 — To approve amendments to Easterly’s amended and restated certificate of incorporation to change its name to JH Capital Group Holdings, Inc., reclassify the existing Easterly common stock as Class A common stock, designate the Class B common stock and to remove certain provisions related to Easterly’s status as a blank check company;

 

  3. Proposal No. 3 — To approve amendments to Easterly’s amended and restated certificate of incorporation to adopt Delaware as the exclusive forum for certain litigation;

 

  4. Proposal No. 4 — To approve amendments to Easterly’s amended and restated certificate of incorporation to effect a two-for-three reverse stock split of all of the outstanding shares of Easterly common stock;

 

  5. Proposal No. 5 — To approve amendments to Easterly’s amended and restated certificate of incorporation to authorize an automatic increase in the number of directors serving on the board of directors during any period when holders of any series of preferred stock have the right to elect additional directors pursuant to Easterly’s amended and restated certificate of incorporation and to provide for the other terms applicable to the directors elected by holders of preferred stock (Proposals 2 through 5 are collectively referred to as the “Certificate Proposals”);

 

  6. Proposal No. 6 — To approve, for purposes of complying with applicable Nasdaq Listing Rules, the issuance of newly issued shares of Easterly Class B common stock representing more than 20% of the voting power of Easterly’s common stock that is issued and outstanding immediately prior to the completion of the Business Combination (this proposal is referred to herein as the Nasdaq Proposal);

 

  7. Proposal No. 7 —  To approve the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan (this proposal is referred to herein as the “Incentive Plan Proposal”); and

 

  8. Proposal No. 8 — To approve the adjournment of the Easterly special meeting of stockholders to a later date or dates, if necessary, to permit further solicitation of proxies in the event that, based upon the tabulated vote at the time of the Easterly special meeting, there are not sufficient votes to approve one or more proposals presented at the Easterly special meeting of stockholders (this proposal is referred to herein as the “Adjournment Proposal”). This proposal will only be presented at the Easterly special meeting if there are not sufficient votes to approve one or more of the other proposals presented to stockholders for vote.

 

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Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its annexes.

 

Q: Are the Easterly proposals conditioned on one another?

 

A: Yes.

 

  · All Proposals (other than the Business Combination Proposal and the Adjournment Proposal), are conditioned upon the approval of the Business Combination Proposal; and

 

  · The Adjournment Proposal does not require the approval of any other proposal to be effective and will only be presented at the Easterly special meeting if there are not sufficient votes to approve one or more of the other proposals.

 

It is important for you to note that approval of the Business Combination Proposal, the Certificate Proposals, the Nasdaq Proposal and the Incentive Plan Proposal is a closing condition under the Investment Agreement. Accordingly, if the Business Combination Proposal, the Certificate Proposals or the Nasdaq Proposal are not approved by Easterly’s stockholders and Easterly and JH Capital do not waive the applicable closing condition, then the Business Combination will not be consummated.

 

Q:    What happens to Easterly if Easterly stockholders do not approve the Business Combination Proposal and, Proposals No. 2, 3, 4, 5, 6 and 7?

 

A:    If Easterly stockholders do not approve the Business Combination Proposal and Proposal No. 2, 3, 4, 5, 6 and 7, then Easterly cannot consummate the Business Combination unless Easterly and JH Capital waive the applicable closing condition. If Easterly does not consummate the Business Combination and fails to complete an initial business combination by June 30, 2018, Easterly will be required to dissolve and liquidate the Trust Account.

 

Q:    Why is Easterly providing its stockholders with the opportunity to vote on the Business Combination Proposal?

 

A:    The Business Combination Proposal provides for the approval and adoption by Easterly stockholders of the Investment Agreement. Pursuant to the Business Combination, among other things:

 

  · Easterly will acquire a number of Class A Units equal to the aggregate number of shares of Easterly Class A common stock outstanding at the closing of the Business Combination—after giving effect to the redemption of shares of Easterly common stock by Easterly’s public stockholders at the closing of the Business Combination and the issuance, if any, of Easterly Class A common stock in exchange for mezzanine loans of certain of the JH Group Companies and their respective subsidiaries, if any—in exchange for a capital contribution by Easterly to JH Capital of an amount in cash equal to the cash and cash equivalents held by Easterly outside of the Trust Account, plus the amount of funds contained in the Trust Account, after giving effect to redemptions by Easterly’s public stockholders, less deferred underwriting fees of $7 million payable to Citigroup Global Markets Inc. and fees of $5 million payable to Cantor Fitzgerald & Co. and Jefferies LLC, less any reasonable (with respect to expenses incurred since April 27, 2017) and documented out-of-pocket transaction expenses of Easterly that are accrued and unpaid as of the closing that are estimated to be approximately $3.6 million, less any outstanding amount under the Convertible Promissory Note, which is currently equal to $895,000, that has not been converted into warrants to purchase Easterly Class A common stock;

 

  · Easterly will issue 18,700,000 shares of its Class B common stock to the JH Capital Class B Members;

 

  · Easterly will change its name to JH Capital Group Holdings, Inc.; and

 

  · the Business Combination may result in a change in control of Easterly.

 

Easterly’s amended and restated certificate of incorporation requires that it provide all holders of its public shares with the opportunity to have their public shares redeemed upon the consummation of its initial business combination in conjunction with either a tender offer or a stockholder vote. For business and other reasons, Easterly has elected to provide Easterly stockholders with the opportunity to have their public shares redeemed in connection with a stockholder vote rather than pursuant to a tender offer. As a result, Easterly public stockholders will have the opportunity to redeem their public shares in connection with the closing of the Business Combination.

 

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Additionally, Nasdaq Listing Rule 5635(a) requires stockholder approval where, among other things, the issuance of securities in a transaction exceeds 20% of the number of shares of common stock or the voting power outstanding before the transaction, and Nasdaq Listing Rule 5635(b) requires stockholder approval where the issuance of securities will result in a change of control. Easterly will issue 18,700,000 shares of Easterly Class B common stock (which, together with Class B Units, are exchangeable for 18,700,000 shares of Easterly Class A common stock), or 93.4% of the 20,015,577 currently outstanding shares of Easterly common stock, to the JH Capital Class B Members pursuant to the Business Combination (assuming no redemptions of Easterly’s public shares and no additional issuances of Easterly common stock). Therefore, Easterly is required to obtain the approval of its stockholders under Nasdaq Listing Rule 5635(a) and potentially Nasdaq Listing Rule 5635(b) depending on the level of redemptions of Easterly common stock.

 

Accordingly, the Business Combination Proposal is being proposed to satisfy the approval requirements for the Business Combination under Easterly’s charter and Nasdaq Listing Rules 5635(a) and 5635(b).

 

Q: Why is Easterly proposing the Certificate Proposals?

 

A:    The Certificate Proposals that Easterly is asking its stockholders to approve in connection with the Business Combination consist of (i) Proposal No. 2 — amendments to Easterly’s amended and restated certificate of incorporation to change its name to JH Capital Group Holdings, Inc., reclassify the existing Easterly common stock as Class A common stock, designate the Class B common stock and remove provisions related to its status as a blank check company, (ii) Proposal No. 3 — to adopt Delaware as the exclusive forum for certain litigation, (iii) Proposal No. 4 — to effect a two-for-three reverse stock split of all of the outstanding shares of Easterly common stock, and (iv) Proposal No. 5 — to authorize an automatic increase in the number of directors serving on the board of directors during any period when holders of any series of preferred stock have the right to elect additional directors pursuant to Article IV of the amended and restated certificate of incorporation and to provide for the other terms applicable to the directors elected by holders of preferred stock.

 

Easterly stockholders are being asked to approve the Certificate Proposals in connection with the Business Combination in order to, among other things, change Easterly’s name to JH Capital Group Holdings, Inc. to better reflect the operating business, to create the Class A and Class B common stock, to remove provisions related to Easterly’s status as a blank check company and to make other changes that the Board of Directors deems appropriate for the public operating company after the Business Combination.

 

Q:    Why is Easterly proposing the Incentive Plan Proposal?

 

A:    The purpose of the Omnibus Incentive Plan is to enable JH Capital to offer eligible employees, directors and consultants cash and stock-based incentive awards in order to attract, retain and reward these individuals and strengthen the mutuality of interests between them and Easterly’s stockholders.

 

Q:    What happens if I sell my shares of Easterly common stock before the Easterly special meeting of stockholders?

 

A:    The record date for the Easterly special meeting of stockholders will be earlier than the date of the special meeting. If you transfer your shares of Easterly common stock after the record date, but before the Easterly special meeting of stockholders, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the Easterly special meeting of stockholders.

 

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Q: What vote is required to approve the proposals presented at the Easterly special meeting of stockholders?

 

A:    The approval of the Business Combination Proposal, the Nasdaq Proposal, the Incentive Plan Proposal and the Adjournment Proposal require the affirmative vote of holders of a majority of the shares of Easterly common stock that are voted on each respective proposal at the Easterly special meeting of stockholders. Accordingly, an Easterly stockholder’s failure to vote by proxy or to vote in person at the Easterly special meeting of stockholders, an abstention from voting, or, with respect to the Business Combination Proposal, the Nasdaq Proposal and the Incentive Plan Proposal, the failure of an Easterly stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee (any failure to give instructions, a “broker non-vote”) will have no effect on the outcome of any vote on these proposals.

 

The approval of certain Certificate Proposals requires the affirmative vote of the holders of a majority of the outstanding shares of Easterly common stock. However, the approval of the proposal to remove certain provisions related to Easterly’s status as a blank check company requires the affirmative vote of the holders of at least 65% of the outstanding shares of Easterly common stock. Accordingly, an Easterly stockholder’s failure to vote by proxy or to vote in person at the Easterly special meeting of stockholders, an abstention from voting or a broker non-vote will have the same effect as a vote “AGAINST” a Certificate Proposal.

 

Q: How many votes do I have at the Easterly special meeting of stockholders?

 

A:    For each proposal, Easterly’s stockholders are entitled to one vote at the Easterly special meeting for each share of Easterly common stock held of record as of the record date. As of the close of business on the record date, there were [·] outstanding shares of Easterly common stock.

 

Q: What constitutes a quorum at the Easterly special meeting of stockholders?

 

A:    Holders of a majority in voting power of Easterly’s common stock issued and outstanding and entitled to vote at the Easterly special meeting, present in person or represented by proxy, constitute a quorum. In the absence of a quorum, a majority of Easterly stockholders, present in person or represented by proxy, will have power to adjourn the Easterly special meeting.

 

As of the record date for the Easterly special meeting, [·] shares of Easterly common stock would be required to achieve a quorum.

 

Q: How will Easterly’s Sponsor, directors and officers vote?

 

A:    In connection with the IPO, Easterly entered into agreements with the Sponsor and with Easterly’s independent directors, pursuant to which each agreed to vote their Founder Shares and any other shares acquired during and after the IPO in favor of the Business Combination Proposal. Neither the Sponsor nor Easterly’s directors or officers have purchased any shares during or after the IPO and neither Easterly nor the Sponsor, its directors or its officers have entered into agreements, and are not currently in negotiations, to purchase shares. Currently, the Sponsor, Easterly’s independent directors and their permitted transferees, own 25.0% of the issued and outstanding shares of Easterly common stock, consisting of 100% of the Founder Shares.

 

Q: How do I vote?

 

A:    If you were a holder of record of Easterly common stock on [       ], 2018, the record date for the Easterly special meeting of stockholders, you may vote or have your shares voted with respect to the applicable proposals:

 

  · in person at the Easterly special meeting of stockholders; or

 

  · by submitting a proxy to vote by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the Easterly special meeting of stockholders and vote in person, obtain a proxy from your broker, bank or nominee.

 

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Q: What will happen if I sign and return my proxy card without indicating how I wish to vote?

 

A:    If you are a record holder, then signed and dated proxies received by Easterly without an indication of how the stockholder of record intends to vote on a proposal will be voted in favor of each proposal presented to the stockholders.

 

Q: If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A:    No, except with respect to the Adjournment Proposal. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. Except for the Adjournment Proposal, we believe the proposals presented to the stockholders will be considered non-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker, or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker, or nominee is not voting your shares is referred to as a “broker non-vote.” Broker non-votes will not be counted for the purpose of determining the existence of a quorum or for purposes of determining the number of votes cast at the Easterly special meeting. Except with respect to the Adjournment Proposal, your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.

 

Q:    If I am not going to attend the Easterly special meeting of stockholders in person, should I return my proxy card instead?

 

A:    Yes. Whether you plan to attend the Easterly special meeting or not, please read this proxy statement carefully, and submit your proxy to vote by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

Q:    May I change my vote after I have submitted my signed proxy card?

 

A:    Yes. You may change your vote by sending a later-dated, signed proxy card to Easterly’s secretary at the address listed below so that it is received by its secretary prior to the Easterly special meeting of stockholders, or attending the Easterly special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to Easterly’s secretary, which must be received by Easterly’s secretary prior to the Easterly special meeting.

 

Q:    What should I do if I receive more than one set of voting materials?

 

A:    You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

 

Q:    Who will solicit and pay the cost of soliciting proxies?

 

A:    Easterly will pay the cost of soliciting proxies for the Easterly special meeting. Easterly has engaged Morrow Sodali LLC (“Morrow Sodali”) to assist in the solicitation of proxies for the Easterly special meeting. Easterly has agreed to pay Morrow Sodali a fee of $22,500, plus disbursements. Easterly will reimburse Morrow Sodali for reasonable out-of-pocket expenses and will indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses. Easterly also will reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Easterly’s common stock for their expenses in forwarding soliciting materials to beneficial owners of Easterly’s common stock and in obtaining voting instructions from those owners. Easterly’s directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

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Q:    What do I need to do now if I am an Easterly stockholder?

 

A:    You are urged to carefully read and consider the information contained in this proxy statement, including the annexes, and to consider how the Business Combination will affect you as an Easterly stockholder. You should then submit your proxy as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

Q: Who can help answer my questions?

 

A:    If you have questions about the proposals or if you need additional copies of the proxy statement or the enclosed proxy card, you should contact:

 

Easterly Acquisition Corp.
375 Park Avenue, 21st Floor
New York, NY 10152
Telephone: (646) 712-8300
Email: info@easterlyacquisition.com

 

You may also contact Easterly’s proxy solicitor at:

 

Morrow Sodali LLC
470 West Avenue, 3rd Floor
Stamford, CT 06902
Stockholders, please call toll free: (800) 662-5200
Banks and Brokerage Firms, please call collect: (203) 658-9400
Email: Easterly.info@morrowsodali.com

 

To obtain timely delivery, Easterly’s stockholders must request the materials no later than five business days prior to the Easterly special meeting.

 

You may also obtain additional information about Easterly from documents filed with the Securities and Exchanges Commission (the “SEC”) by following the instructions in the section entitled “Where You Can Find More Information.”

 

If you intend to seek redemption of your public shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to Easterly’s transfer agent prior to the Easterly special meeting of stockholders. If you have questions regarding the certification of your position or delivery of your stock, please contact:

 

Continental Stock Transfer & Trust Company
1 State Street Plaza, 30th Floor
New York, NY 10004
Attn: Mark Zimkind
E-mail: mzimkind@continentalstock.com

 

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SUMMARY OF THE PROXY STATEMENT

 

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the Business Combination, the proposals to be considered at the Easterly special meeting, you should read this entire proxy statement carefully, including the annexes and the other documents referred to herein. See also the section entitled “Where You Can Find More Information.”

 

Unless otherwise specified, all share calculations (i) assume no exercise of redemption rights by Easterly’s public stockholders in connection with the Business Combination Proposal, (ii) assume 18,700,000 shares of Easterly Class B common stock (which, together with the Class B Units of JH Capital issued to the JH Capital Class B Members in accordance with the terms of the Investment Agreement, are exchangeable for 18,700,000 shares of Easterly Class A common stock) are issued in the Business Combination and 2,500,000 Founder Shares are surrendered in exchange for the New Warrant to purchase 2,500,000 shares of Easterly Class A common stock, (iii) assume no shares of Easterly Class A common stock are issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans and (iv) do not include any shares of Easterly common stock issuable upon exercise of Easterly’s warrants.

 

All share and warrant numbers set forth in this proxy statement assume that all Easterly units are separated into their components of one share of Easterly common stock and one-half of a warrant to purchase one share of Easterly common stock, which will occur upon the closing of the Business Combination. Except as specifically set forth in the section entitled “Proposal No. 4 — Approval of Amendment to Easterly’s Amended and Restated Certificate of Incorporation to Effect a Two-for-Three Reverse Stock Split of All of the Outstanding Shares of Easterly Common Stock,” beginning on page 143 of this proxy statement, the share amounts set forth in this proxy statement do not account for the two-for-three reverse stock split, which will occur after the closing of the Business Combination, if approved by Easterly’s stockholders.

 

Parties to the Business Combination

 

Easterly

 

Easterly Acquisition Corp. (“Easterly”) is a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving Easterly and one or more businesses.

 

Easterly is a Delaware corporation formed in 2015. Its securities are traded on the Nasdaq Capital Market under the ticker symbols “EACQ,” “EACQW” and “EACQU.”

 

The mailing address of Easterly’s principal executive office is 375 Park Avenue, 21st Floor, New York, NY 10152.

 

JH Capital

 

JH Capital Group Holdings, LLC (“JH Capital”) is a diversified specialty finance company with operations spanning across seven states, provides a wide array of solutions for consumers and businesses across a broad range of assets. It is a national leader in purchasing charged off consumer debt from major financial institutions with a national debt settlement service, consumer and commercial loan origination platforms as well as a collection agency, which collectively work with individuals as they repay their obligations by offering several solutions to help individuals work towards financial recovery.

 

JH Capital manages its business under two reportable business segments, (i) Debt Purchasing and Collections and (ii) Advocacy and Lending Services.

 

JH Capital operates its debt purchasing and collections business through JH Portfolio Debt Equities, LLC (“JHPDE”), Credit Control, LLC (“Credit Control”) and CMAX Finance Partners (“CMAX”). JHPDE specializes in purchasing portfolios of charged-off consumer receivables from financial institutions. Credit Control is a collection agency licensed in all states and territories in the United States, providing both third-party collection services and first-party services, which cures past due amounts in the name of the client that are typically less than six months past due. CMAX is a licensed specialty loan origination platform for small and mid-sized third-party non-mortgage institutional debt buyers.

 

JH Capital operates its advocacy and lending business through Century Support Services, LLC (“CSS”) and New Credit America, LLC (“NCA”). CSS assists consumers in rehabilitating their credit profile by advocating on their behalf in the settlement of third-party unsecured debt, primarily credit card debt. NCA facilitates financing for selected customers for the purpose of restoring their financial health through an issuing bank partner.

 

JH Capital is a Delaware limited liability company formed in 2016. Prior to the Business Combination, there is no public market for JH Capital’s securities.

 

The mailing address of JH Capital’s principal executive office is 21800 Oxnard Street, Fifth Floor, Woodland Hills, CA 91367.

  

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The Founding Members

 

The Founding Members consist of Jacobsen Credit Holdings, LLC, a Delaware limited liability and an entity controlled by Douglas Jacobsen (“Jacobsen Holdings”), Kravetz Capital Funding LLC, a California limited liability company and an entity controlled by Norman Kravetz (“KCF”), and NJK Holding LLC, a Delaware limited liability company and an entity controlled by Norman Kravetz (“NJK Holding”).

 

Jacobsen Holdings is a newly created entity that is the vehicle for Douglas Jacobsen to hold his interests in JH Capital. Jacobsen Holdings was formed in 2017 in California. There is no public market for Jacobsen Holdings’ securities. The mailing address of Jacobsen Holdings’ principal executive office is 21800 Oxnard Street, Suite 500, Woodland Hills, CA 91367.

 

KCF is the holding company, owned by Norman and Glenda Kravetz, which historically has been the owner of CreditMax Holdings LLC, a JH Group Company, and its subsidiaries, including CMAX Finance LLC. KCF was formed in 2000 in California. There is no public market for KCF’s securities. The mailing address of KCF’s principal executive office is 21800 Oxnard Street, Suite 500, Woodland Hills, CA 91367.

 

NJK Holding is the holding company, owned by Norman Kravetz, of the entities engaged in the debt settlement and debt consolidation business, namely, Next Level Finance Partners LLC, New Credit America LLC, Century DS LLC, and Settlement Marketing Group LLC. NJK Holding was formed in 2014 in Delaware. There is no public market for NJK Holding’s securities. The mailing address of NJK Holding’s principal executive office is 21800 Oxnard Street, Suite 500, Woodland Hills, CA 91367.

 

The JH Capital Class B Members

 

The JH Capital Class B Members consist of the Founding Members (other than NJK Holding) and will also consist of the other holders of the Class B Units of JH Capital at the closing of the Business Combination, which are currently expected to be Credit Control Holdings, Inc., an entity controlled by Douglas Jacobsen, and Next Level Finance Partners, LLC, an entity controlled by Norman Kravetz.

 

The Business Combination and Consideration to the JH Capital Class B Members in the Business Combination

 

Pursuant to the Investment Agreement, the aggregate consideration to be paid to JH Capital for the Class A Units will consist of (i) an amount in cash equal to the cash and cash equivalents held by Easterly outside of the Trust Account, plus the amount of funds contained in the Trust Account, after giving effect to redemptions by Easterly’s public stockholders, less deferred underwriting fees of $7 million payable to Citigroup Global Markets Inc. and fees of $5 million payable to Cantor Fitzgerald & Co. and Jefferies LLC, less any reasonable (with respect to expenses incurred since April 27, 2017) and documented out-of-pocket transaction expenses of Easterly that are accrued and unpaid as of the closing that are estimated to be approximately $3.6 million, less any outstanding amount under the Convertible Promissory Note, dated as of March 17, 2016, issued by Easterly to Easterly Acquisition Sponsor, LLC (the “Convertible Promissory Note”), which is currently equal to $895,000, that has not been converted into warrants to purchase Easterly Class A common stock, and (ii) 18,700,000 shares of newly-issued Easterly Class B common stock, which will be issued to the Principal Members and the other Class B members of JH Capital (the “JH Capital Class B Members”). The JH Capital Class B Members will also be issued 18,700,000 non-voting Class B Units of JH Capital, provided that such number of JH Capital Class B Units and the equal number of shares of Easterly Class B common stock to be issued to the JH Capital Class B Members are subject to an equal reduction to the extent that certain of the JH Group Companies are not directly or indirectly wholly owned by JH Capital after the Reorganization. The Easterly Class B common stock will have one vote per share but will not be entitled to any economic interest in Easterly. The JH Capital Class B Units are entitled to distributions from JH Capital, but are not entitled to any voting or control rights over JH Capital, other than certain consent rights with respect to distributions, amendments to JH Capital’s limited liability company agreement and certain other matters affecting the JH Capital Class B Members. In addition, on the date of the closing of the Business Combination, JH Capital or one or more JH Group Companies will, or will cause a subsidiary of JH Capital or any JH Group Company to, make a cash distribution to Jacobsen Holdings and KCF in an aggregate amount equal to $1,000,000.

 

The JH Capital Class B Members’ Class B Units may be exchanged for shares of Easterly Class A common stock on a one-for-one basis (subject to certain customary anti-dilutive adjustments to the exchange ratio) or, at JH Capital’s option, cash, pursuant to an Exchange Agreement that Easterly will enter into with JH Capital and the JH Capital Class B Members at the closing of the Business Combination. The exchange ratio is subject to certain customary anti-dilutive adjustments if there is any subdivision or combination of the shares of Easterly Class B common stock or Class B Units that is not accompanied by an equivalent subdivision or combination of the Class A common stock or any subdivision or combination of the Easterly Class A common stock that is not accompanied by an equivalent subdivision or combination of the shares of Easterly Class B common stock and Class B Units. Upon any exchange of a Class B Unit by a JH Capital Class B Member in accordance with the terms of the Exchange Agreement, one share of Easterly Class B common stock held by such JH Capital Class B Member will be cancelled by Easterly. For more information about the Exchange Agreement, see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Exchange Agreement” and the form of the Exchange Agreement attached to this proxy statement as Annex D.

 

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In connection with the Investment Agreement, Easterly will also enter into the following agreements, each of which is discussed in this proxy statement: (i) a Third Amended and Restated Limited Liability Company Agreement of JH Capital, the form of which is attached to this proxy statement as Annex C, (ii) the Exchange Agreement relating to the exchange of JH Capital Class B Units into shares of Easterly Class A common stock, the form of which is attached to this proxy statement as Annex D, (iii) a Tax Receivable Agreement relating to the payment to the JH Capital Class B Members of a portion of specified tax savings, the form of which is attached to this proxy statement as Annex E and (iv) a Registration Rights Agreement providing registration rights for shares of Easterly Class A common stock issued upon the exchange of JH Capital Class B Units, the form of which is attached to this proxy statement as Annex F. For more information about each of these agreements, see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements.”

 

It is anticipated that, upon completion of the Business Combination, (i) Easterly’s public stockholders will retain an ownership interest of approximately 41.5% in the post-combination company, (ii) the Sponsor and Easterly’s current independent directors will retain an ownership interest of approximately 6.9% in the post-combination company (following the Founder Shares exchange) and (iii) the JH Capital Class B Members will own approximately 51.6% of the post-combination company. These ownership interests assume that no shares of Easterly common stock are elected to be redeemed in connection with the Business Combination Proposal and also assume that there are no reductions to the JH Capital Class B Units pursuant to the Investment Agreement. Further, the ownership percentage with respect to the post-combination company following the Business Combination does not take into account (i) the issuance of any shares (or options to acquire shares) under the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan (the “Omnibus Incentive Plan”), (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans. If the actual facts differ from these assumptions, Easterly’s stockholders will experience dilution of their ownership interest unless they elect to have their shares of Easterly common stock redeemed in connection with the Business Combination Proposal.

 

However, assuming (1) the issuance of the full number of shares of Easterly common stock described in clauses (i) through (iii) of the preceding paragraph (based on the current level of the Sponsor’s working capital loans with respect to clause (ii) and assuming that an aggregate principal amount of $35,000,000 of mezzanine loans are exchanged at a price of $10.00 per share with respect to clause (iii)), (2) none of Easterly’s stockholders exercise their redemption rights and (3) the Sponsor does not sell any of its Easterly Class A common stock to potential purchasers or current stockholders of Easterly at a purchase price equal to $0.005 per share, then ownership of the outstanding common stock of Easterly would be expected to be as follows: Easterly’s pre-Business Combination public stockholders will retain an ownership interest of approximately 41.8%; the JH Capital Class B Members will own approximately 31.2% (this amount does not include any of the 6,000,000 shares that may be issued to JH Capital Class B Members pursuant to the Omnibus Incentive Plan); the Sponsor and Easterly’s independent directors will own approximately 21.1%; and the mezzanine lenders who exchanged mezzanine loans for shares of Easterly Class A common stock will own approximately 5.8% of the outstanding common stock of the post-Business Combination company. See the section entitled “Unaudited Pro Forma Consolidated Financial Information” for further information.

 

The following table illustrates ownership levels in Easterly, assuming no redemptions by Easterly’s public stockholders in connection with the Business Combination Proposal: 

 

    Scenario 1(1)     Scenario 2(2)  
    No Shares of Easterly
Common Stock are
Redeemed
    Percentage of
Outstanding Shares
   

 

No Shares of Easterly
Common Stock are
Redeemed

    Percentage of
Outstanding Shares
 
Easterly public stockholders     15,015,577       41.5 %     25,015,577       41.8 %
The Sponsor and independent directors     2,500,000       6.9 %     12,645,000       21.1 %
JH Capital Class B Members     18,700,000 (3)     51.6 %     18,700,000 (3)     31.2 %
Mezzanine lenders                 3,500,000       5.8 %

 

(1) Scenario 1 does not take into account (i) the issuance of any shares (or options to acquire shares) under the Omnibus Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans.

 

(2) Scenario 2 assumes (1) the issuance of the full number of shares of Easterly common stock described in clauses (i) through (iii) of the preceding footnote (based on the current level of the Sponsor’s working capital loans with respect to clause (ii) and assuming that an aggregate principal amount of $35,000,000 of mezzanine loans are exchanged at a price of $10.00 per share with respect to clause (iii)), (2) none of Easterly’s stockholders exercise their redemption rights and (3) the Sponsor does not sell any of its Easterly Class A common stock to potential purchasers or current stockholders of Easterly at a purchase price equal to $0.005 per share.

 

(3) The Number of Shares of Easterly Class A common stock issuable to the JH Capital Class B Members in exchange for Class B Units of JH Capital pursuant to the terms of the Exchange Agreement. Assumes no reduction to the number of Class B Units issuable to the JH Capital Class B Members under the terms of the Investment Agreement.

 

Organizational Structure

 

The following diagram illustrates the anticipated corporate structure immediately following the Business Combination. The ownership percentages set forth below are calculated based on a number of assumptions described in more detail in this proxy statement.

 

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Other Agreements

 

New LLC Agreement

 

At the closing of the Business Combination, Easterly, JH Capital and the JH Capital Class B Members will enter into the New LLC Agreement, substantially in the form attached as Annex C to this proxy statement. The New LLC Agreement will provide, among other things, that Easterly is the sole managing member of JH Capital and that JH Capital will adopt a distribution policy under which it shall use reasonable best efforts to distribute, on an annual basis, an aggregate amount equal to $10,000,000, subject to applicable laws or regulatory requirements applicable to, or any debt of, JH Capital and its subsidiaries. In addition, JH Capital may make distributions in excess of $10,000,000, as reasonably determined by Easterly after reasonably considering the reasonably anticipated needs of JH Capital’s and its subsidiaries’ businesses. The first $10,000,000 distributed by JH Capital on an annual basis will be distributed pro rata to Easterly and the Principal Members based on the number of outstanding Class A Units and Class B-1 Units. Amounts in excess of $10,000,000 distributed on an annual basis will be distributed pro rata to Easterly and the JH Capital Class B Members (including the Principal Members) in proportion to their holdings of Class A Units and Class B Units.

 

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For more information on the New LLC Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — New LLC Agreement” and the full text of the form of New LLC Agreement which is attached as Annex C hereto.

 

Exchange Agreement

 

At the closing of the Business Combination, Easterly, JH Capital and the JH Capital Class B Members will enter into the Exchange Agreement, substantially in the form attached as Annex D to this proxy statement. Pursuant to the Exchange Agreement, the JH Capital Class B Members and such other holders of Class B Units from time to time party thereto will be entitled to exchange Class B Units, and surrender shares of Easterly’s Class B common stock for cancellation, in exchange for, at the option of JH Capital, a number of shares of Easterly’s Class A common stock or the cash equivalent of such shares.

 

For more information on the Exchange Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Exchange Agreement” and the full text of the form of Exchange Agreement which is attached as Annex D hereto.

 

Tax Receivable Agreement

 

At the closing of the Business Combination, Easterly will enter into the Tax Receivable Agreement, substantially in the form attached as Annex E to this proxy statement, with JH Capital and the JH Capital Class B Members. The Tax Receivable Agreement will generally provide for the payment by Easterly to JH Capital Class B Members that exchange Class B Units for shares of Easterly’s Class A common stock or cash, of 85% of the amount of net savings, if any, in U.S. federal, state and local income tax that Easterly actually realizes (or is deemed to realize in certain circumstances) in periods beginning at the closing of the Business Combination (which periods may extend, unless the Tax Receivable Agreement is terminated early in accordance with its terms, for more than 15 years following any exchange of Class B Units for shares of the Easterly’s Class A common stock or the cash equivalent thereof) as a result of: (i) certain increases in tax basis resulting from the Business Combination; (ii) certain tax attributes of JH Capital and its subsidiaries existing prior to the Business Combination; (iii) certain increases in tax basis resulting from exchanges of Class B Units; (iv) imputed interest deemed to be paid by Easterly as a result of payments it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments Easterly makes under the Tax Receivable Agreement.  Easterly will retain the benefit of the remaining 15% of the tax savings realized (or deemed realized).

 

For more information on the Tax Receivable Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Tax Receivable Agreement” and the full text of the form of Tax Receivable Agreement which is attached as Annex E hereto.

 

Registration Rights Agreement

 

At the closing of the Business Combination, Easterly will enter into the Registration Rights Agreement, substantially in the form attached as Annex F to this proxy statement, with the JH Capital Class B Members. Pursuant to the terms of the Registration Rights Agreement, the JH Capital Class B Members and their permitted transferees will be entitled to certain registration rights described in the Registration Rights Agreement with respect to the Easterly Class A common stock receivable by them upon the exchange of their Class B Units. Among other things, pursuant to the Registration Rights Agreement, as promptly as reasonably practicable and in no event later than 15 days following the consummation of the Business Combination, Easterly has agreed to file with the SEC a shelf registration statement relating to the offer and sale of the Registrable Securities (as defined in the Registration Rights Agreement) then held or issuable to the JH Capital Class B Members (and any permitted transferees), and to keep such shelf registration statement effective on a continuous basis until the date as of which all such Registrable Securities have been sold or another registration statement is filed under the Securities Act. If at any time during the 36-month period following the effectiveness of the shelf registration statement such shelf registration statement is not effective or otherwise available to the JH Capital Class B Members, the JH Capital Class B Members will also be entitled to certain additional registration rights such as the right to initiate the filing of registrations statements, including for underwritten offerings, and unlimited piggyback registration rights. The registration rights of the JH Capital Class B Members are subject to customary black-out periods, cutback provisions and other limitations as set forth in the Registration Rights Agreement. Easterly will agree to pay certain fees and expenses relating to registrations under the Registration Rights Agreement.

 

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For more information on the Registration Rights Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Registration Rights Agreement” and the full text of the form of Registration Rights Agreement which is attached as Annex F hereto.

 

Letter Agreement

 

Concurrently with the execution of the Investment Agreement, Easterly also entered into the Letter Agreement with the Sponsor, JH Capital and the Founding Members. Under the Letter Agreement, at the closing of the Business Combination, the Founding Members will have the option to purchase from the Sponsor at a price of $0.005 per share up to 500,000 shares of Easterly Class A common stock depending on the amount of shares that the Sponsor sells to Easterly stockholders or potential stockholders in connection with such stockholders’ or potential stockholders’ acquisition of Easterly Class A common stock or agreement not to redeem any shares of Easterly common stock. The Sponsor has agreed to use up to 1,000,000 of its shares of Easterly Class A common stock for such purposes and offer to the Founding Members half of the amount of shares that the Sponsor does not use for such purposes. The shares of Easterly Class A common stock transferred to the Founding Members in connection with the Letter Agreement will be subject to the conditions and restrictions set forth in the letter agreement, dated July 29, 2015, as it may be amended from time to time, by and among Easterly, the Sponsor and the other signatories thereto. In addition, pursuant to the Letter Agreement, the Sponsor will surrender to Easterly 2,500,000 shares of Easterly Class A common stock issued to the Sponsor prior to the IPO in exchange for the New Warrant to purchase 2,500,000 shares of Easterly Class A common stock at a purchase price of $0.01 per share. The New Warrant will be exercisable at a price of $0.01 per share, have a term of 5 years and may only be exercisable as follows: (x) 1,000,000 shares will be exercisable if the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $12.00, (y) an additional 1,000,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of the Easterly Class A common stock for 10 consecutive trading days is higher than $13.00 and (z) the final 500,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $14.00. To the extent such warrants are exercised, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely impact the market price of Easterly Class A common stock.

 

For more information on the Letter Agreement, please see the section entitled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Letter Agreement” and the full text of the Letter Agreement which is attached as Annex G hereto.

 

Redemption Rights

 

Pursuant to Easterly’s amended and restated certificate of incorporation, holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with its amended and restated certificate of incorporation. As of March 31, 2018, this would have amounted to approximately $10.18 per share. If a holder exercises its redemption rights, then such holder will be exchanging its shares of Easterly common stock for cash and will no longer own shares of Easterly common stock. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to Easterly’s transfer agent in accordance with the procedures described herein. Easterly has no specified maximum redemption threshold under its charter. In no event, however, will Easterly redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001. See the section entitled “Special Meeting of Easterly Stockholders — Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

 

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Accounting Treatment

 

The Business Combination will be accounted for using the acquisition method of accounting under the provisions of Accounting Standards Codification ("ASC") 805, "Business Combinations" (“ASC 805”). Pursuant to ASC 805, as of the date of this filing, Easterly has been determined to be the accounting acquirer based on the evaluation of the facts and circumstances, including the amount of redemptions of Easterly common stock as of the date of this filing. Under the acquisition method, the acquisition-date fair value of the consideration paid by Easterly to effect the Business Combination is allocated to the assets acquired and the liabilities assumed of JH Capital based on their estimated fair values. Prior to the closing of the Business Combination, JH Capital and the Founding Members will effect an internal reorganization after which (i) 100% of the following companies and their respective direct and indirect subsidiaries are contemplated to be owned directly or indirectly by JH Capital: Credit Control, LLC, Century DS, LLC, New Credit America, LLC and CreditMax Holdings, LLC and (ii) without duplication of the companies referenced in clause (i), 100% of the direct and indirect subsidiaries of Next Level Finance Partners, LLC are contemplated to be owned, directly or indirectly, by JH Capital. If the Reorganization is completed on the terms contemplated by the Investment Agreement, then, as of the closing, JH Capital will, directly or indirectly, own 100% of Credit Control, LLC, 100% of Century DS, LLC and 100% of New Credit America. However, as of the date of this filing, the Reorganization has not been completed. Therefore, Easterly cannot assure you that JH Capital will complete the aspects of the Reorganization that would result in JH Capital holding 100% of Credit Control, LLC, 100% of Century DS, LLC and 100% of New Credit America. While it is currently expected that, following the Reorganization, JH Capital will, directly or indirectly, own 100% of Credit Control, LLC, it is possible that, following the Reorganization, JH Capital may only own 60% of Credit Control, LLC. While it is currently expected that, following the Reorganization, JH Capital will indirectly own 100% of Century DS, LLC and 100% of New Credit America, LLC, it is possible that, following the Reorganization, JH Capital may only indirectly own 80% of Century DS, LLC and 80% of New Credit America, LLC. To the extent that any of Credit Control LLC, Century DS, LLC or New Credit America, LLC are not, directly or indirectly, wholly owned by JH Capital following the Reorganization, the number of Class B Units of JH Capital and the number of shares of Easterly Class B common stock issued to the JH Capital Class B Members will be reduced pursuant to the terms of the Investment Agreement.

 

Use of Non-GAAP Measures

 

Certain measures are included in this proxy statement that are “non-GAAP,” meaning (under U.S. financial reporting rules) they are not presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. Although other entities may use calculation methods that differ from those used by JH Capital for non-GAAP measures, Easterly’s management believes such measures are relevant to understanding the financial condition, capital position, and financial results of JH Capital and its business segments. Non-GAAP measures are reported to JH Capital’s management and board of directors through various internal reports.

 

The non-GAAP measures presented in this proxy statement are earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted EBITDA (“Adjusted EBITDA”) and Economic Earnings.

 

Refer to the tabular reconciliation of non-GAAP to GAAP measures and presentation of the most comparable GAAP items on page 204 of this proxy statement.

 

Appraisal Rights

 

Appraisal rights are not available to Easterly’s stockholders in connection with the Business Combination.

 

Easterly’s Reasons for the Business Combination

 

Easterly was organized for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Easterly sought to capitalize on the contacts and sources of its management team to identify, acquire and operate a business in the financial services industry, although Easterly was not limited to a particular industry or sector.

 

In particular, Easterly’s board considered the following positive factors, although not weighted or in any order of significance:

 

  · Easterly’s experience with specialty finance companies, proving an opportunity to be value-added partners to JH Capital.

 

  · JH Capital’s track record, including strong operating results and a strong track record of growth.

 

  · JH Capital’s strong future projections, much of which is contractually locked in.

 

  · JH Capital’s unique, consumer-centric approach and platform of services with end-to-end solutions for consumers at every stage of the distressed credit cycle, from default to rehabilitation.

 

  · A belief that the debt recovery industry will expand materially in the coming years due to general macroeconomic conditions becoming more favorable.

 

  · Increased regulatory compliance requirements, which has eliminated smaller players and provided a barrier to entry. Easterly believes that JH Capital has a best-in-class compliance program and management system.

 

  · JH Capital’s analytical culture, proprietary technology, and proprietary data, which Easterly believes strengthens its business relative to competitors.

 

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  · JH Capital’s experienced and motivated management team. JH Capital’s management team has significant experience building businesses. The executive management team has over 100 years of experience and a strong track record of execution success.

 

In making its recommendation, the Easterly board of directors also considered, among other things, the following potential deterrents to the Business Combination:

 

  · The historical net losses of JH Capital and the relatively short track record of certain JH Capital business lines.

 

  · The potential conflict of interests in the Business Combination.

 

  · The risk that the Business Combination would not close.

 

  · The risks associated with the charged-off consumer debt recovery industry.

 

  · The risks associated with JH Capital’s ability to obtain financing for its operations in the future.

 

  · The risks associated with JH Capital’s ability to execute its business plans and achieve financial results consistent with its projections.

 

Easterly’s board of directors concluded that these negative factors did not diminish or outweigh the benefits for entering into the Business Combination. See “Proposal No. 1 — The Business Combination Proposal — Background of the Business Combination” beginning on page 103.

 

Risk Factors

 

In evaluating the proposals set forth in this proxy statement, you should carefully read this proxy statement, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.”

 

Directors and Executive Officers of the Post-Business Combination Company

 

Pursuant to the terms of the Investment Agreement, Easterly is required to take all necessary action so that certain persons are elected or appointed, as applicable, to the positions of officers and directors of JH Capital Inc. until their successors are duly elected or appointed and qualified in accordance with applicable law. In this regard, the directors and executive officers upon consummation of the Business Combination are expected to be as follows:

 

Name  

Age

 

Position

Avshalom Kalichstein   43   Director
Norman Kravetz   70   Director; Chairman of the Board
Douglas Jacobsen   56   Director; Chief Executive Officer
Christopher Halmy   49   Director
Don De Amicis   63   Director
Anthony Riggio   46   President
Glenn Corey   59   Chief Financial Officer
Christopher Raymond   43   Chief Risk Officer
Irvin C. “Todd” Harrington, III   56   Senior Vice President, General Counsel and Corporate Secretary

  

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For so long as the aggregate number of shares of Easterly Class A common stock and Easterly Class B common stock beneficially owned by Jacobsen Holdings, any entity controlled by Douglas Jacobsen and all of their respective affiliates represents at least 10% of the total number of issued and outstanding shares of Easterly Class A common stock and Easterly Class B common stock, then Jacobsen Holdings will have a right to nominate one individual to be included in the slate of director nominees at each election of directors by the stockholders of Easterly. For so long as the aggregate number of shares of Easterly Class A common stock and Easterly Class B common stock beneficially owned by KCF, any entity controlled by Norman Kravetz and all of their respective affiliates represents at least 10% of the total number of issued and outstanding shares of Easterly Class A common stock and Easterly Class B common stock, then KCF will have a right to nominate one individual to be included in the slate of director nominees at each election of directors by the stockholders of Easterly.

 

For more information on the new directors and management of JH Capital Inc., see “Management of JH Capital Inc. After the Business Combination.”

 

Proposals to be Considered at the Easterly Special Meeting Other than the Business Combination

 

Adoption of Amendments to the Amended and Restated Certificate of Incorporation to Change Easterly’s Name, Reclassify the Existing Easterly Common Stock as Class A Common Stock, Designate the Class B Common Stock and to Remove Provisions Related to Easterly’s Status as a Blank Check Company

 

Pursuant to the terms of the Investment Agreement, upon the closing of the Business Combination, Easterly’s amended and restated certificate of incorporation will be amended to change its name to JH Capital Group Holdings, Inc. and remove certain provisions related to its status as a blank check company.

 

See the section entitled “Proposal No. 2 — Approval of Amendments to the Amended and Restated Certificate of Incorporation to Change Easterly’s Name, Reclassify the Existing Easterly Common Stock as Class A Common Stock, Designate the Class B Common Stock and Remove Provisions Related to Easterly’s Status as a Blank Check Company” for additional information.

 

Adoption of an Amendment to the Amended and Restated Certificate of Incorporation to Adopt Delaware as the Exclusive Forum for Certain Litigation

 

If approved, pursuant to the terms of the Investment Agreement, upon the closing of the Business Combination, Easterly’s amended and restated certificate of incorporation will be amended to provide that Delaware courts shall be the exclusive forum for certain litigation.

 

See the section entitled “Proposal No. 3 — Approval of Amendment to the Amended and Restated Certificate to Adopt Delaware as the Exclusive Forum for Certain Legal Actions” for additional information.

 

Adoption of Amendment to the Amended and Restated Certificate of Incorporation to Effect a Two-for-Three Reverse Stock Split of all of the Outstanding Shares of Easterly Common Stock

 

If approved, pursuant to the terms of the Investment Agreement, upon the closing of the Business Combination, Easterly’s amended and restated certificate of incorporation will be amended to effect a two-for-three reverse stock split of all of the outstanding shares of Easterly common stock.

 

See the section entitled “Proposal No. 4 — Approval of Amendment to the Amended and Restated Certificate to Effect a Two-for-Three Reverse Stock Split of All of Outstanding Shares of Easterly Common Stock” for additional information. Except as specifically set forth in that section, the share amounts set forth in this proxy statement do not account for the two-for-three reverse stock split.

 

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Adoption of Amendment to the Amended and Restated Certificate of Incorporation to Authorize an Automatic Increase in the Number of Directors Serving on the Board of Directors During Any Period When Holders of Any Series of Preferred Stock Have the Right to Elect Additional Directors

 

If approved, pursuant to the terms of the Investment Agreement, upon the closing of the Business Combination, Easterly’s amended and restated certificate of incorporation will be amended to authorize an automatic increase in the number of directors serving on board of directors during any period when holders of any series of preferred stock have the right to elect additional directors pursuant to the certificate of incorporation and to provide for the other terms applicable to the directors elected by holders of preferred stock.

 

See the section entitled “Proposal No. 5 — Approval of Amendment to the Amended and Restated Certificate to Authorize an Automatic Increase in the Number of Directors Serving on the Board of Directors During Any Period When Holders of Any Series of Preferred Stock Have the Right to Elect Additional Directors” for additional information.

 

Approval of the Nasdaq Proposal

 

Nasdaq Listing Rule 5635(a) requires stockholder approval where, among other things, the issuance of securities in a transaction exceeds 20% of the number of shares of common stock or the voting power outstanding before the transaction, and Nasdaq Listing Rule 5635(b) requires stockholder approval where the issuance of securities will result in a change of control. Easterly will issue 18,700,000 shares of Easterly Class B common stock (which is exchangeable for shares of Easterly Class A common stock), or 93.4% of the 20,015,577 currently outstanding shares of Easterly common stock, to the JH Capital Class B Members pursuant to the Business Combination (assuming no redemptions of Easterly’s public shares and no additional issuances of Easterly common stock). Therefore, Easterly is required to obtain the approval of its stockholders under Nasdaq Listing Rule 5635(a) and potentially Nasdaq Listing Rule 5635(b) depending on the level of redemptions of Easterly common stock.

 

See the section entitled “Proposal No. 6 — Approval of the Issuance of More Than 20% of Easterly’s Issued and Outstanding Common Stock in Connection with the Business Combination” for additional information.

 

Adoption of Omnibus Incentive Plan

 

Easterly’s board of directors has unanimously approved and adopted the JH Capital Group Holdings, Inc. 2018 Omnibus Equity Incentive Plan, and unanimously recommends that Easterly’s stockholders approve the Omnibus Incentive Plan. The purpose of the Omnibus Incentive Plan is to offer eligible employees, directors and consultants cash and stock-based incentive awards in order to attract, retain and reward these individuals and strengthen the mutuality of interests between them and Easterly’s stockholders. The Omnibus Incentive Plan provides for grants of stock options, stock appreciation rights, restricted and unrestricted stock, other stock-based awards, other cash-based compensation and performance awards. Directors, officers and other employees of the post-Business Combination company and its subsidiaries and affiliates, as well as others performing consulting or advisory services for the post-Business Combination company, will be eligible for grants under the Omnibus Incentive Plan. Generally, all classes of employees will be eligible to participate in the Omnibus Incentive Plan. The aggregate number of shares of common stock which may be issued (and for which awards may be granted) under the Omnibus Incentive Plan may not exceed 6,000,000, which is approximately 16.6% of Easterly’s outstanding common stock following the completion of the Business Combination, assuming no redemptions by Easterly’s public stockholders in connection with the Business Combination Proposal.

 

Quorum and Required Vote for Proposals for the Easterly Special Meeting of Stockholders

 

A quorum of Easterly stockholders is necessary to hold a valid meeting. A quorum will be present at the Easterly special meeting of stockholders if a majority in voting power of Easterly’s common stock issued and outstanding and entitled to vote at the Easterly special meeting is present in person or represented by proxy. Abstentions will count as present for the purposes of establishing a quorum.

 

The approval of the Business Combination Proposal, the Nasdaq Proposal, the Incentive Plan Proposal and the Adjournment Proposal require the affirmative vote of the holders of a majority of the shares of Easterly common stock that are voted on each respective proposal at the Easterly special meeting of stockholders. Accordingly, an Easterly stockholder’s failure to vote by proxy or to vote in person at the Easterly special meeting of stockholders, an abstention from voting, or, with respect to the Business Combination Proposal, the Nasdaq Proposal and the Incentive Plan Proposal, a broker non-vote will have no effect on the outcome of any vote on the Business Combination Proposal, the Nasdaq Proposal, the Incentive Plan Proposal or the Adjournment Proposal.

 

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The approval of certain Certificate Proposals requires the affirmative vote of the holders of a majority of the outstanding shares of Easterly common stock. However, the approval of the proposal to remove certain provisions related to Easterly’s status as a blank check company requires the affirmative vote of the holders of at least 65% of the outstanding shares of Easterly common stock. Accordingly, an Easterly stockholder’s failure to vote by proxy or to vote in person at the Easterly special meeting of stockholders, an abstention from voting or a broker non-vote will have the same effect as a vote “AGAINST” a Certificate Proposal.

 

All Proposals (other than the Business Combination Proposal and the Adjournment Proposal), are conditioned upon the approval of the Business Combination Proposal. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth in the proxy statement.

 

Recommendation to Easterly Stockholders

 

Easterly’s board of directors believes that each of the Business Combination Proposal, the Certificate Proposals, the Nasdaq Proposal, the Incentive Plan Proposal and the Adjournment Proposal to be presented at the Easterly special meeting of stockholders is advisable and in the best interests of Easterly and its stockholders and unanimously recommends that Easterly’s stockholders vote “FOR” each of the proposals.

 

When you consider the recommendation of Easterly’s board of directors in favor of approval of these proposals, you should keep in mind that Easterly’s directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as an Easterly stockholder. These interests include, among other things:

 

  · the approximately 2.4 million total Founder Shares that the Sponsor (or its members) will hold following the Business Combination, subject to the lock-up agreements, which would have a value at April 12, 2018 of $24.9 million based on the Stock Price;

 

  · the 72,000 total Founder Shares that Easterly’s independent directors will continue to own following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $738,000 based on the Stock Price;

 

  · the 6.75 million total Private Placement Warrants to purchase shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $5.4 million based on the Warrant Price;

 

  · the New Warrant to purchase 2,500,000 shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $25.6 million based on the Stock Price and assuming all the conditions to exercise were satisfied;

 

  · if Easterly is unable to complete a business combination within the required time period, the Convertible Promissory Note issued to the Sponsor, currently in the amount of $895,000, will not be repaid and all amounts owed thereunder will be forgiven except to the extent that Easterly has funds available to it outside of the Trust Account to repay such amounts and the Sponsor also will lose the opportunity to acquire up to an additional 895,000 warrants to purchase shares of Easterly Class A common stock at a conversion price of $1.00 per warrant, which would have a value at April 12, 2018 of $715,732 based on the Warrant Price;

 

  · if Easterly is unable to complete a business combination within the required time period, Easterly’s Chairman, its Chief Executive Officer and David Cody will be personally liable to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Easterly for services rendered or contracted for or products sold to Easterly, but only if such a vendor or target business has not executed a waiver of claims against the Trust Account and except as to any claims under its indemnity of the underwriters;

 

  · the continuation of one of Easterly’s officers and directors as a director (but not an officer) of JH Capital Inc. following the closing; and

 

  · the continued indemnification of current directors and officers of Easterly and the continuation of directors’ and officers’ liability insurance after the Business Combination.

  

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Further, each of Easterly’s directors, directly or indirectly, holds Founder Shares that are not subject to redemption and certain of Easterly’s directors indirectly hold Private Placement Warrants that would retire worthless if a Business Combination is not consummated; as a result, Easterly’s directors have a financial incentive to see a Business Combination consummated rather than lose whatever value is attributable to the Founder Shares and Private Placement Warrants. These interests may influence Easterly’s directors in making their recommendation that you vote in favor of the Business Combination Proposal, and the transactions contemplated thereby.

 

Regulatory Approval

 

Except as may be required pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the “HSR Act”), the parties are not currently aware of any federal or state regulatory approvals that must be applied for or obtained in connection with the Business Combination. However, with respect to the state debt collection and other similar licenses held by the JH Group Companies and their respective subsidiaries, certain notice waiting periods must expire before the Business Combination is consummated.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF JH CAPITAL

 

The following table contains summary historical financial data for JH Capital as of and for the year ended December 31, 2017, as of and for the year ended December 31, 2016 and for the year ended December 31, 2015. Such data as of and for the years ended December 31, 2017 and 2016 and for the year ended December 31, 2015 have been derived from JH Capital’s unaudited combined financial statements, which are included elsewhere in this proxy statement. The information below is only a summary and should be read in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of JH Capital” and “Information About JH Capital” and our unaudited combined financial statements, and the notes and schedules related thereto, which are included elsewhere in this proxy statement.

  

The financial data and information with respect to JH Capital included in this proxy statement has been prepared by JH Capital’s management, and Easterly is responsible for the contents of this proxy statement.  An independent registered public accounting firm has not audited, reviewed, compiled, or performed any procedures with respect to the financial data and information with respect to JH Capital herein.

 

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    For the Year 
Ended December 31,
 
    2017     2016     2015  
Statement of Operations Data:                        
Revenue                        
Revenue from finance receivables   $ 43,055     $ 31,454     $ 23,034  
Loan interest income, net     14,221       13,023       7,635  
Collection fee revenue     29,456       22,764       22,055  
Debt settlement revenue, net     43,700       23,652       6,504  
Fee and other revenue     3,085       5,086       5,062  
Total revenue     133,517       95,979       64,290  
Provision for loss, net     3,782       17,983       19,152  
Total revenues after provision for losses     129,735       77,996       45,138  
Operating expenses                        
Compensation and benefits     45,204       33,992       29,576  
Collection expenses     33,842       37,476       24,616  
Depreciation and amortization     22,355       14,443       5,839  
Other general and administrative     47,972       26,647       20,526  
Total operating expenses     149,373       112,558       80,557  
Loss from operations     (19,638 )     (34,562 )     (35,419 )
                         
Other expenses                        
Interest expense     34,460       25,883       14,940  
Other (income/expense)     (148 )     (801 )     1,098  
Total other expenses     34,312       25,082       16,038  
                         
Net loss     (53,950 )     (59,644 )     (51,457 )
Net income (loss) attributable to noncontrolling interests     25,954       (1,929 )     (9,793 )
Net loss attributable to JH Capital Founding Members   $ (79,904 )   $ (57,715 )   $ (41,664 )

 

    As of December 31,  
    2017    2016  
Condensed Balance Sheet Data:                
Assets                
Cash and cash equivalents   $ 16,948     $ 8,676  
Finance receivables, net of allowance     84,558       13,749  
Secured finance receivables, net of allowance     58,518       37,785  
Loan receivables, net of allowance     58,712       52,984  
Total assets     301,776       168,402  
Liabilities and stockholders' equity                
Senior and subordinated debt     390,594       256,679  
Total liabilities     448,862       296,890  
Total members' equity     (171,852 )     (128,488 )

  

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    For the Year
Ended December 31,
 
    2017     2016     2015  
Statement of Cash Flows Data:                        
Net cash used in operating activities   $ (39,332 )   $ (34,889 )   $ (28,464 )
Net cash used in investing activities   $ (108,901 )     (53,437 )     (49,780 )
Net cash provided by financing activities   $ 170,602       92,815       77,009  

 

    For the Year 
Ended December 31,
 
    2017     2016     2015  
Adjusted EBITDA(1)   $ 22,494     $ (1,335 )   $ (11,526 )

 

(1)Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by JH Capital's management and external users of JH Capital's financial statements, such as industry analysts, investors, and lenders in the evaluation of our operating performance. JH Capital defines Adjusted EBITDA as net income (loss) before adjustments for interest income (expense), net, depreciation and amortization, provision for losses, and other charges that are not indicative of ongoing operations. Adjusted EBITDA is not a measure of net income (loss) as determined by GAAP.

 

    For the Year
Ended December 31,
 
    2017     2016     2015  
Net loss   $ (53,950 )   $ (59,644 )   $ (51,457 )
Adjustments:                        
Interest expense     34,460       25,883       14,940  
Depreciation and amortization     22,355       14,443       5,839  
Non-recurring merger costs(1)     15,847              
Provision for loan losses(2)     3,782       17,983       19,152  
Adjusted EBITDA   $ 22,494     $ (1,335 )   $ (11,526 )
                         
Collections applied to principal(3)   $ 123,310     $ 124,378     $ 109,913  

 

(1) This amount is primarily comprised of legal and consulting fees in connection with the merger between JH Capital and Easterly. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(2) This amount includes provisions relating to the following: finance receivables, secured finance receives, and loan receivables.

(3) This amount represents collections applied to principal relating to loan receivables, finance receivables and secured finance receivables.

 

Economic Earnings

 

Economic Earnings is a financial operating performance measures that is not defined by GAAP and should not be considered as an alternative to net income (loss), or any other performance measures derived in accordance with GAAP. Economic Earnings is presented as a supplemental disclosure as management believes it provides useful information on our earnings from ongoing operations. We believe Economic Earnings is a useful measure because it measures the performance of our acquired debt portfolios in any one year by normalizing income for the year using a calculated yield.

 

Economic Earnings is adjusted to account for secured finance receivables as finance receivables by applying GAAP for loans acquired with deteriorated credit quality. Management and our investors use Economic Earnings to assess our financial and operating performance and to facilitate comparability to our competitors.

 

Our calculation of Economic Earnings may differ from the Economic Earnings, or similar calculations of other companies in our industry, limiting their usefulness as a comparative measure.

 

The following table show the reconciliation of net loss to Economic Earnings:

 

    For the year ended
December 31,
 
    2017     2016     2015  
    (Dollars in thousands)  
Net loss   $ (53,950 )   $ (59,644 )   $ (51,457 )
Adjustment for normalized yield     22,862       29,205       26,190  
Non-recurring merger costs(1)     15,847              
Economic earnings   $ (15,241 )   $ (30,439 )   $ (25,267 )

 

(1) Comprised of legal and consulting fees in connection with the merger between JH Capital and Easterly.

  

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SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION

 

The selected unaudited pro forma condensed consolidated financial information for the year ended December 31, 2017 combines the historical audited consolidated statement of operations of Easterly and the historical unaudited combined statement of operations of JH Capital, giving effect to the Business Combination as if it had been consummated on January 1, 2017. The selected unaudited pro forma condensed consolidated balance sheet as of December 31, 2017 combines the historical audited consolidated balance sheet of Easterly and the historical unaudited combined balance sheet of JH Capital, giving effect to the Business Combination as if it had been consummated on December 31, 2017. The selected unaudited pro forma condensed consolidated financial information has been derived from and should be read in conjunction with the unaudited pro forma consolidated financial information, including the notes thereto, which is included in this proxy statement under the section entitled “Unaudited Pro Forma Consolidated Financial Information.”

 

The selected unaudited pro forma condensed consolidated financial information is presented for informational purposes only and does not purport to represent what the combined company’s results of operations or financial condition would have been had the Business Combination actually occurred on the dates indicated, and does not purport to project the combined company’s results of operations or financial condition for any future period or as of any future date. The selected unaudited pro forma condensed consolidated financial information does not reflect any anticipated synergies, operating efficiencies or cost savings that may be realized as a result of the Business Combination. Further, as explained in the notes accompanying the unaudited pro forma consolidated financial information included under the section entitled “Unaudited Pro Forma Consolidated Financial Information,” the pro forma allocation of purchase consideration reflected in the selected unaudited pro forma condensed consolidated financial information is subject to adjustment and may vary from the actual allocation of purchase consideration that will be recorded at the time the Business Combination is completed. Additionally, the unaudited pro forma adjustments made in the selected unaudited condensed consolidated pro forma financial information, which are described in those notes, are preliminary and may be revised. All dollar amounts set forth in the below selected unaudited pro forma condensed consolidated financial information are presented in thousands. 

 

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    For the year ended 
December 31, 2017
 
    Easterly     JH
Capital
    Pro Forma
Combined
 
Statement of Operations Data:                        
Total revenue after provision for losses   $     $ 129,735     $ 104,326  
Operating expenses     1,475       149,373       139,144  
Operating loss     (1,475 )     (19,638 )     (34,818 )
Other income (expense)     1,232       (34,312 )     (25,642 )
Net loss     (243 )     (53,950 )     (60,460 )
Net income (loss) attributable to noncontrolling interests           25,954       21,210  
Net loss attributable to Combined Company   $ (243 )   $ (79,904 )   $ (81,670 )

 

    As of December 31, 2017  
    Easterly     JH
Capital
    Pro Forma
Combined
 
Balance Sheet Data:                        
Total current assets   $ 151,223     $ 56,428     $ 106,347  
Total assets     151,230       301,776       719,023  
Total current liabilities     1,705       18,966       20,462  
Total liabilities     9,895       448,862       377,149  
Total liabilities and equity   $ 151,230     $ 301,776     $ 719,023  

 

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COMPARATIVE PER SHARE DATA

 

The following table sets forth historical comparative share information for JH Capital and Easterly and unaudited pro forma combined and pro forma equivalent per share information after giving effect to the Business Combination, assuming that no holders of public shares exercise their redemption rights. The historical information should be read in conjunction with “Selected Historical Financial Information of JH Capital” included elsewhere in this proxy statement, the historical financial statements of JH Capital included elsewhere in this proxy statement and the historical financial statements of Easterly. The unaudited pro forma combined share information is derived from, and should be read in conjunction with, the unaudited pro forma consolidated financial information and related notes included elsewhere in this proxy statement.

 

The unaudited pro forma combined share information does not purport to represent what the actual results of operations of JH Capital and Easterly would have been had the Business Combination been completed or to project JH Capital and Easterly’s results of operations that may be achieved after the Business Combination. The unaudited pro forma book value per share information below does not purport to represent what the value of JH Capital and Easterly would have been had the Business Combination been completed nor the book value per share for any future date or period.

 

    Easterly
Historical(b)
    JH Capital
Historical(c)
    Pro Forma Combined
Assuming No
Redemptions(c)
    Pro Forma Equivalent
Assuming No
Redemptions(c)
 
As of and for the Year Ended December 31, 2017                                
Book value per share(a)   $ 0.25       N/A       N/A       N/A  
Shares outstanding (including redeemable stock)     20,022,612       N/A       N/A       N/A  
Basic earnings (loss) per share(b)   $ (0.19 )     N/A       N/A       N/A  
Cash dividends declared per share   $ -       N/A       N/A       N/A  
                                 
As of and for the Year Ended December 31, 2016                                
Book value per share(a)   $ 0.20       N/A       N/A       N/A  
Shares outstanding (including redeemable stock)     25,000,000       N/A       N/A       N/A  
Basic earnings (loss) per share(b)   $ (0.27 )     N/A       N/A       N/A  
Cash dividends declared per share   $ -       N/A       N/A       N/A  

 

(a) Book value per share is calculated using the following formula:
Book value per share = (Total Stockholders’ Equity/Total Outstanding Shares)

(b) The basic and diluted earnings (loss) per share calculation for Easterly excludes shares subject to possible redemption.

(c) Because JH Capital’s historical financial statements are being presented on a combined basis, the historical EPS calculation would include the addition of multiple classes and types of units across multiple legal structures and would not be meaningful. Further, in accordance with ASC 260, the presentation of historical EPS for the predecessor period is not required because JH Capital, as the predecessor entity to the combined merged company, has not issued outstanding common or potential common stock that is, or has previously been, traded on a stock exchange.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Easterly and JH Capital make forward-looking statements in this proxy statement. These forward-looking statements relate to expectations for future financial performance, business strategies and expectations for their businesses and their combined business following the Business Combination, and the timing and ability for Easterly and JH Capital to complete the Business Combination. Specifically, forward-looking statements may include statements relating to:

 

  · the benefits of the Business Combination;

 

  · the future financial performance of JH Capital and its subsidiaries following the Business Combination;

 

  · JH Capital’s ability to develop or acquire new sources of debt, improve its existing services and increase the value of its services;

 

  · JH Capital’s ability to increase its revenue and its revenue growth rate;

 

  · expectations concerning relationships with third parties, including sellers of charged off consumer debt and third-party collection agencies that JH Capital uses to collect a portion of its receivables;

 

  · government regulation, including compliance with regulatory requirements and changes in market rules, taxes and environmental laws;

 

  · the effects of seasonal trends on JH Capital’s results of operations;

 

  · JH Capital’s ability to borrow additional funds and access capital markets, as well as its indebtedness and the possibility that it may incur additional indebtedness in the future;

 

  · the sufficiency of JH Capital’s cash and cash equivalents and cash generated from operations to meet its working capital and capital expenditure requirements;

 

  · operating and financial restrictions placed on JH Capital and its subsidiaries that are contained in its credit facilities and other material agreements;

 

  · expectations regarding the calculation of Business Combination consideration under different potential scenarios;

 

  · JH Capital’s ability to successfully enter new markets and manage its expansion; and

 

  · other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek” or “target,” or similar expressions.

 

These forward-looking statements are based on information available as of the date of this proxy statement, and expectations, forecasts and assumptions as of that date, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing Easterly’s or JH Capital’s views as of any subsequent date, and Easterly and JH Capital do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

In addition, you should not place undue reliance on forward-looking statements in deciding how to grant your proxy, instruct your nominee how your vote should be cast or whether to vote your shares on the proposals set forth in this proxy statement. As a result of a number of known and unknown risks and uncertainties, Easterly’s, JH Capital’s and their combined businesses’ actual results or performance may be materially different from those expressed or implied by their forward-looking statements. Some factors that could cause actual results to differ include, among others:

 

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  · the occurrence of any event, change or other circumstance that could give rise to the termination of the Investment Agreement;

 

  · a delay in completing, or the inability to complete, the transactions contemplated by the proposed Business Combination, due to a failure to obtain the approval of the stockholders of Easterly, a failure to satisfy other conditions to closing in the Investment Agreement or some other reason;

 

  · the risk that the proposed Business Combination disrupts JH Capital’s current plans and operations;

 

  · the reaction of JH Capital’s customers, vendors and partners to the Business Combination;

 

  · the inability to realize anticipated benefits of the Business Combination, which could result from, among other things, competition, the inability to integrate the Easterly and JH Capital businesses or the inability of the combined business to grow and manage growth profitably;

 

  · costs related to the Business Combination;

 

  · the outcome of any legal proceedings that might be instituted against Easterly or JH Capital, including any legal proceedings relating to the proposed Business Combination;

 

  · changes in applicable laws or regulations;

 

  · the potential risk of redemptions by current Easterly stockholders in connection with the consummation of the Business Combination or the relative post-Business Combination ownership percentages;

 

  · the possibility that Easterly or JH Capital might be adversely affected by other economic, business or competitive factors; and

 

  · other risks and uncertainties indicated in this proxy statement, including those indicated under the section entitled “Risk Factors.”

 

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RISK FACTORS

 

You should carefully consider the following risk factors, in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” and the financial statements and notes to the financial statements included herein. Easterly and JH Capital may face additional risks and uncertainties that are not presently known to them, or that Easterly and JH Capital currently deem immaterial, which may also impair their business.

 

Risk Factors Relating to JH Capital’s Business

 

The following risk factors apply to the business and operations of JH Capital and will also apply to the business and operations of the combined company following the completion of the Business Combination.

 

Financial, economic and other macroeconomic conditions can affect the ability of consumers to pay their obligations and can affect lending practices, which could harm JH Capital’s financial results.

 

Financial, economic and macroeconomic conditions globally and locally directly affect unemployment, credit availability, and real estate values. Adverse conditions, economic changes and financial disruptions place financial pressure on the consumer, which may reduce JH Capital’s ability to collect on its consumer receivable portfolio and may adversely affect the value of its consumer receivable portfolios. Increased financial pressure on financially distressed consumers may result in additional regulatory requirements or restrictions on JH Capital’s operations and increased litigation filed against JH Capital. These conditions could increase JH Capital's costs and harm its business, financial condition, and operating results.

 

In addition to JH Capital’s distressed debt purchase and collection businesses, JH Capital also offers advocacy and lending services to consumers. These services can also be adversely impacted by deteriorating financial, economic or other macroeconomic conditions, or a significant rise in inflation could cause personal bankruptcy and insolvency filings to increase, and the ability of consumers to pay their debts could be adversely affected. If JH Capital’s borrowers default under a finance receivable held directly by JH Capital, JH Capital will bear a risk of loss of the outstanding principal and accrued but unpaid interest of the finance receivable, which could adversely affect JH Capital’s cash flow from operations. The costs to service JH Capital’s loans may also increase without a corresponding increase in JH Capital’s finance charge income.

 

If conditions in major credit markets deteriorate, the amount of consumer or commercial lending and financing could be reduced, thus decreasing the amount of potentially purchasable nonperforming loans that JH Capital depends on for its debt purchasing operations.

 

Other factors associated with the economy that could influence JH Capital’s performance include the financial stability of the lenders on JH Capital’s bank loans and credit facilities and JH Capital’s access to capital and credit. The financial turmoil that adversely affected the banking system and financial markets in recent years resulted in a tightening in the credit markets. Such turbulence in the global capital markets can result in disruptions in the financial sector and affect lenders with whom JH Capital has relationships. Disruptions in the financial sector may increase JH Capital’s exposure to credit risk and adversely affect the ability of lenders to perform under the terms of their lending arrangements with JH Capital. Failure by JH Capital’s lenders to perform under the terms of JH Capital’s lending arrangements could cause JH Capital to incur additional costs that may adversely affect JH Capital’s liquidity, financial condition and results of operations. Although there has been some improvement, a worsening of current conditions could have a number of follow on effects on JH Capital’s business, including a decrease in the value of its financial investments and the insolvency of lending institutions, including the lenders on JH Capital’s bank loans and credit facilities, resulting in JH Capital’s difficulty in or inability to obtain credit. These and other economic factors could have an adverse effect on JH Capital’s financial condition and results of operations.

 

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JH Capital may not be able to continually replace its nonperforming loans with additional portfolios at prices sufficient to operate efficiently and profitably.

 

In order for JH Capital’s debt purchasing segment to operate profitably, JH Capital must acquire and service a sufficient amount of nonperforming loans to generate revenue that exceeds its expenses and collections. Fixed costs such as salaries and other compensation expenses constitute a significant portion of JH Capital’s overhead and, if JH Capital does not replace the nonperforming loan portfolios it services with additional portfolios at appropriate prices, JH Capital’s profits may be adversely impacted. The availability of portfolios made available to JH Capital could be impacted by the following:

 

  · defaults in consumer debt;

 

  · continued origination of loans by originating institutions at sufficient volumes;

 

  · continued sales of nonperforming loan portfolios by originating institutions and portfolio resellers at sufficient volumes and acceptable prices;

 

  · competition in the marketplace;

 

  · JH Capital’s ability to develop and maintain favorable relationships with key major credit originators and portfolio resellers;

 

  · JH Capital’s ability to obtain adequate data from credit originators or portfolio resellers to appropriately evaluate the collectability of, estimate the value of, and collect on portfolios; and

 

  · changes in laws and regulations governing consumer lending, bankruptcy, and collections.

 

Furthermore, heightened regulation of the credit card and consumer lending industry or changing credit origination strategies may result in decreased availability of credit to consumers, potentially leading to a future reduction in nonperforming loans available for purchase from debt owners. JH Capital cannot predict how its ability to identify and purchase receivables and the quality of those receivables would be affected if there were a shift in lending practices, whether caused by changes in the regulations or accounting practices applicable to debt owners, a sustained economic downturn or otherwise.

 

Moreover, there can be no assurance that debt owners will continue to sell their nonperforming loans consistent with recent levels or at all, or that JH Capital will be able to continue to offer competitive bids for those portfolios. Because of the length of time involved in collecting on acquired portfolios and the variability in the timing of JH Capital’s collections, JH Capital may not be able to identify trends and make changes in its purchasing strategies in a timely manner. If JH Capital is unable to maintain its debt purchasing business or adapt to changing market needs as well as its current or future competitors, JH Capital may experience reduced access to nonperforming loan portfolios at appropriate prices and, therefore, reduced profitability.

 

Currently, a number of large banks that historically sold nonperforming loans in the U.S. are not selling such debt. This includes sellers of bankrupt accounts, some of whom have elected to stop selling such accounts because they believe that regulatory guidance concerning sales of bankruptcy accounts is ambiguous. Should these conditions worsen, it could negatively impact JH Capital’s ability to replace its receivables with additional portfolios sufficient to operate profitably.

 

JH Capital’s business may be negatively impacted by certain terms in JH Capital’s debt purchasing agreements.

 

Certain terms under the agreements pursuant to which JH Capital purchases finance receivable and secured finance receivable portfolios may negatively impact JH Capital’s ability to achieve anticipated economic inflows from JH Capital’s asset base. For example, these terms may limit JH Capital’s ability to engage in certain collection activities. In addition, these terms may result in certain portfolios being repurchased by the original creditor under certain circumstances. If JH Capital is unable to achieve anticipated economic inflows from its asset base as a result of these terms, JH Capital’s business may suffer.

 

JH Capital may experience losses on portfolios consisting of new types of receivables due to its lack of collection experience with these receivables, which could harm JH Capital’s business, financial condition and operating results.

 

JH Capital continually looks for opportunities to expand the classes of assets that make up the portfolios it acquires. Therefore, JH Capital may acquire portfolios consisting of assets with which it has little or no collection experience. JH Capital’s lack of experience with these assets may hinder its ability to generate expected levels of profits from these portfolios. Further, JH Capital’s existing methods of collections may prove ineffective for these new receivables, and JH Capital may not be able to collect on these portfolios. JH Capital’s inexperience with these receivables may have an adverse effect on its business, financial condition and operating results.

 

JH Capital’s secured finance receivables may be subject to impairment based on the fair value measurement of underlying collateral assets.

 

The fair value of the underlying collateral for JH Capital’s secured finance receivables is estimated based on management’s expectation of future cash flows and a market based discount rate.

 

There are risks associated with estimates of future cash flows. For example, there may be substantial differences between actual and expected performance of the receivables over time, which may cause fluctuations in the estimated fair value measurement of JH Capital’s assets. Changes in the fair value of the collateral assets may result in material impairment charges being recognized.

 

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For financial reporting purposes, JH Capital utilizes the interest method of revenue recognition for determining their income recognized on finance receivables, which is based on an analysis of projected cash flows that may prove to be less than anticipated and could lead to reductions in future revenues or the incurrence of allowance charges.

 

JH Capital utilizes the interest method to determine income recognized on finance receivables under the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). Under this method, pools of receivables that JH Capital acquires are modeled upon their projected cash flows. A yield is then established which, when applied to the unamortized purchase price of the receivables, results in the recognition of income at a constant yield relative to the remaining balance in the pool. Each pool is analyzed on a quarterly basis to assess the actual performance compared to that derived from JH Capital’s models. Under ASC 310-30, rather than lowering the estimated yield if the collection estimates are not received or projected to be received, the carrying value of a pool would be written down to maintain the then current yield and is shown as a reduction in revenue in the combined income statements with a corresponding valuation allowance offsetting finance receivables, net, on the combined balance sheets. As a result, if the accuracy of the modeling process deteriorates or there is a significant decline in anticipated future cash flows, JH Capital could incur reductions in future revenues resulting from additional allowance charges, which could reduce its profitability in a given period.

 

If JH Capital’s estimates of finance receivable losses are not adequate to absorb actual losses, JH Capital’s financial condition and results of operations could be adversely affected.

 

JH Capital maintains an allowance for finance receivable and loan losses. To estimate the appropriate level of allowance for finance receivable losses, JH Capital considers known and relevant internal and external factors that affect finance receivable collectability, including (a) the total amount of finance receivables outstanding, (b) historical finance receivable charge-offs, (c) JH Capital’s current collection patterns, (d) economic trends, and (e) JH Capital’s historic loss experience. If customer behavior changes as a result of economic conditions and if JH Capital is unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect JH Capital’s allowance for finance receivable losses, JH Capital’s allowance may be inadequate. JH Capital’s allowance for finance receivable losses is an estimate, and if actual finance receivable losses are materially greater than JH Capital’s allowance for finance receivable losses, JH Capital’s results of operations could be adversely affected. Neither state regulators nor federal regulators regulate JH Capital’s allowance for finance receivable losses.

 

In June 2016, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

 

The ASU changes the way that entities will be required to measure credit losses for certain financial instruments, such as financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments.

 

The new standard requires that the credit losses be based upon an “expected credit loss” approach rather than the “incurred loss” approach as is currently required under GAAP.

 

The new ASU will require JH Capital to measure all expected credit losses for its loan receivables and other accounts or trade receivables financial assets based on factors such as historical experience, current conditions, and reasonable forecasts of collectability.

 

It is anticipated that the expected credit loss model may require earlier recognition of credit losses than the incurred loss approach, which may mean larger credit loss allowances needing to be recognized than is currently the case.

 

The new ASU will become effective for JH Capital for fiscal years beginning January 1, 2020. JH Capital is currently assessing the impact that the adoption of ASU 326 will have on JH Capital’s combined financial statements.

 

If JH Capital’s estimates of accrued liabilities for potential liabilities are not adequate to absorb actual losses, JH Capital’s financial condition and results of operations could be adversely affected.

 

JH Capital is involved in judicial, regulatory, and arbitration proceedings or investigations concerning contested claims and other matters arising from its business activities that are typical in the industry. JH Capital believes that it has adopted reasonable compliance procedures and believes it has meritorious defenses in all material litigation pending against JH Capital; however, there can be no assurance as to the ultimate outcome of any such judicial, regulatory, or arbitration proceedings or investigations. As is typical, JH Capital establishes accruals for potential liabilities arising from such judicial, regulatory, and arbitration proceedings or investigations when it is probable that such liabilities have been incurred and the amount of the losses can be reasonably estimated. However, actual losses may be higher than the amount accrued for a certain matter, or in the aggregate. In addition, JH Capital may still incur legal costs for a matter even if it has not accrued a liability. An unfavorable resolution of any such judicial, regulatory, or arbitration proceedings or investigations could adversely impact JH Capital’s business, financial condition, results of operations or liquidity.

 

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A portion of JH Capital’s collections relies upon its success in individual lawsuits brought against consumers and JH Capital’s ability to collect on judgments in its favor.

 

JH Capital generates a portion of its revenue by collecting on judgments that are granted by courts in lawsuits filed against consumers. A decrease in the willingness of courts to grant these judgments, a change in the requirements for filing these cases or obtaining these judgments, or a decrease in JH Capitals’s ability to collect on these judgments could have an adverse effect on JH Capital’s business, financial condition and operating results. 

 

If JH Capital’s use of the accretion method of accounting for finance receivables were to be challenged by the Internal Revenue Service (“IRS”), an adverse determination could result in JH Capital having to amend prior year tax returns and pay deferred taxes, interest and penalties.

 

For tax purposes, JH Capital’s debt buying segment utilizes the interest method to determine income recognized on finance receivables (as further described in the above risk factor entitled “For financial reporting purposes, JH Capital utilizes the interest method of revenue recognition for determining their income recognized on finance receivables, which is based on an analysis of projected cash flows that may prove to be less than anticipated and could lead to reductions in future revenues or the incurrence of allowance charges”) and the accretion method of accounting for its finance receivables, where appropriate. While the IRS has not challenged JH Capital’s use of accretion method of accounting for tax purposes, any future challenge by the IRS may result in litigation and possibly deferred taxes, interest and penalties against JH Capital. Any such challenge and the resulting penalties could potentially adversely affect JH Capital’s results of operations and liquidity.

 

The occurrence of cyber incidents, or a deficiency in JH Capital’s cyber-security, could negatively impact JH Capital’s business by disrupting its operations, compromising or corrupting its confidential information or damaging its image, all of which could negatively impact JH Capital’s business and financial results.

 

JH Capital’s business is highly dependent on its ability to process and monitor a large number of transactions and data, including customers’ personal data, across markets. As JH Capital’s geographical reach expands, maintaining the security of its systems and infrastructure becomes more significant. Privacy laws in the U.S. and elsewhere govern the collection and transmission of personal data. As JH Capital’s reliance on technology has increased, so have the risks posed to its systems, both internal and those JH Capital has outsourced. JH Capital’s three primary risks that could directly result from the occurrence of a cyber incident are operational interruption, damage to its image, and private data exposure. Private data may include customer information, JH Capital’s employees’ personally identifiable information, or proprietary business information such as underwriting and collections methodologies. JH Capital has implemented solutions, processes, and procedures to help mitigate these risks, but these measures, as well as the organization’s increased awareness of JH Capital’s risk of a cyber incident do not guarantee that JH Capital’s business, reputation or financial results will not be negatively impacted by such an incident. To date, interruptions of JH Capital’s systems have been infrequent and have not had a material impact on its operations. However, should such a cyber incident occur, JH Capital may be required to expend significant additional resources to notify affected consumers, modify its protective measures or to investigate and remediate vulnerabilities or other exposures, and JH Capital may be subject to fines, penalties, litigation costs and settlements and financial losses that may not be fully covered by its cyber insurance.

 

If JH Capital’s technology and telecommunications systems were to fail, or if JH Capital is not successfully able to anticipate, invest in, or adopt technological advances within its industry, it could have an adverse effect on JH Capital’s operations.

 

JH Capital’s success depends in large part on sophisticated computer and telecommunications systems, including both internal and third-party systems. The temporary or permanent loss of JH Capital’s computer and telecommunications equipment and software systems, through casualty, operating malfunction, software virus, errors or other design defects, or service provider failure, could disrupt its operations. In the normal course of its business, JH Capital must record and process significant amounts of data quickly and accurately to properly bid on prospective acquisitions of receivable portfolios and to access, maintain, and expand the databases it uses for its collection and lending activities, subject to its Ethical Wall Policy (as defined in the section entitled “Information About JH Capital — Nature of the Business — Ethical Wall between Business Segments”). Any simultaneous failure of JH Capital’s information systems and their backup systems would interrupt JH Capital’s business operations.

 

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In addition, JH Capital’s business relies on computer and telecommunications technologies, and its ability to integrate new technologies into its business is essential to JH Capital’s competitive position and its success. JH Capital may not be successful in anticipating, investing in, or adopting technological changes on a timely or cost-effective basis. Computer and telecommunications technologies are evolving rapidly and are characterized by short product life cycles.

 

JH Capital continues to make significant modifications to its information systems to ensure that they continue to be adequate for its current and foreseeable demands and continued expansion, and JH Capital’s future growth may require additional investment in these systems. These system modifications may exceed JH Capital’s cost or time estimates for completion or may be unsuccessful. If JH Capital cannot update its information systems effectively, its business, financial condition and operating results may be adversely affected.

 

Some aspects of JH Capital’s platform include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect JH Capital’s business.

 

Some aspects of JH Capital’s platform include software covered by open source licenses, which may include, by way of example, GNU General Public License and the Apache License. Open source license terms are often ambiguous, and there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses. Therefore, the potential impact of such terms on JH Capital’s business is uncertain. If portions of JH Capital’s proprietary software are determined to be subject to an open source license, JH Capital could be required to publicly release the affected portions of its source code, re-engineer all or a portion of its technologies or otherwise be limited in the licensing of its technologies, each of which could reduce or eliminate the value of JH Capital’s technologies and loan products. There can be no assurance that efforts JH Capital takes to monitor the use of open source software to avoid uses in a manner that would require it to disclose or grant licenses under its proprietary source code will be successful, and such use could inadvertently occur. If portions of JH Capital’s proprietary software are determined to be subject to an open source license, such determination could harm JH Capital’s intellectual property position and have a material adverse effect on its business, results of operations, cash flow, and financial condition. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with use of open source software cannot be eliminated, and could adversely affect JH Capital’s business.

 

JH Capital is dependent upon third parties to service a substantial portion of its consumer receivable portfolios and perform other related services. In addition, JH Capital’s debt purchasing business relies on issuing banks to originate all loans and comply with federal, state and other laws.

 

Third Party Servicers

 

JH Capital uses outside collection services to collect a substantial portion of its charged-off receivables and enters into agreements with various other third parties to perform other related services. JH Capital is dependent upon the efforts of third-party collection agencies and attorneys to help service and collect its charged-off receivables, and other third parties to perform other related services. JH Capital’s third-party collection agencies and attorneys could fail to perform collection services for JH Capital adequately, remit those collections to JH Capital or otherwise perform their obligations adequately, and JH Capital’s other third-party service providers could fail to perform other related services. In addition, one or more of those third-party collection agencies, attorneys or service providers could cease operations abruptly or become insolvent, or JH Capitals’s relationships with such collection agencies, attorneys or service providers may otherwise change adversely. Further, JH Capital might not be able to secure replacement third-party collection agencies, attorneys or service providers or promptly transfer account information to its new third-party collection agencies, attorneys or in-house in the event JH Capital’s agreements with its third-party collection agencies and attorneys were terminated. Any of the foregoing factors could cause JH Capital’s business, financial condition and operating results to be adversely affected.

 

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Issuing Banks

 

In its advocacy and lending business segment, JH Capital also relies on issuing banks to originate all loans and to comply with various federal, state and other laws. JH Capital’s primary issuing bank for such purposes is Cross River Bank, a New Jersey-chartered industrial bank that handles a variety of consumer and commercial financing programs.

 

JH Capital’s agreements with Cross River Bank are non-exclusive and do not prohibit Cross River Bank from working with JH Capital’s competitors or from offering competing services. JH Capital’s current agreements with Cross River Bank have initial terms ending in January 2020, with two automatic, one-year renewal terms. Cross River Bank operates as a true-lender, originating all loans for JH Capital, 95% of which are subsequently sold to JH Capital and 5% of which are retained by Cross River Bank pursuant to such agreements. Cross River Bank currently offers loan programs through other online marketplaces and other alternative lenders. Cross River Bank could decide that working with JH Capital is not in its interest, could make working with it cost prohibitive or could decide to enter into exclusive or more favorable relationships with JH Capital’s competitors. In addition, Cross River Bank may not perform as expected under JH Capital’s agreements including potentially being unable to accommodate JH Capital’s projected growth in loan volume. JH Capital could in the future have disagreements or disputes with Cross River Bank or other issuing banks, which could negatively impact or threaten JH Capital’s relationship.

 

Cross River Bank is subject to oversight by the FDIC and the State of New Jersey and must comply with complex rules and regulations, licensing and examination requirements, including requirements to maintain a certain amount of regulatory capital relative to its outstanding loans. JH Capital is a service provider to Cross River Bank, and as such, JH Capital is subject to audit by Cross River Bank in accordance with FDIC guidance related to management of third-party vendors. JH Capital is also subject to the examination and enforcement authority of the FDIC as a bank service company covered by the Bank Service Company Act. If Cross River Bank were to suspend, limit or cease its operations or JH Capital’s relationship with Cross River Bank were to otherwise terminate, JH Capital would need to implement a substantially similar arrangement with another issuing bank, utilize its existing state licenses for lending and obtain additional state licenses for lending, or curtail JH Capital’s operations. If JH Capital needs to enter into alternative arrangements with a different issuing bank to replace its existing arrangements, JH Capital may not be able to negotiate a comparable alternative arrangement. Transitioning loan originations to a new issuing bank is untested and may result in delays in the issuance of loans or, if JH Capital’s platform becomes inoperable, may result in JH Capital’s inability to facilitate loans through its platform. If JH Capital is unsuccessful in maintaining its relationships with Cross River Bank or other issuing banks, JH Capital’s ability to provide loan products could be materially impaired and its operating results would suffer.

 

JH Capital and its issuing bank partner are subject to borrower protection laws and federal and state consumer protection laws.

 

JH Capital and its issuing bank partner must also comply with regulatory regimes, including those applicable to consumer credit transactions. Certain state laws generally regulate interest rates and other charges and require certain disclosures. In addition, other federal and state laws may apply to the origination and servicing of loans facilitated through JH Capital’s platform, including, among others: state laws and regulations that impose requirements related to loan disclosures and terms, credit discrimination, credit reporting, debt servicing and collection and unfair or deceptive business practices; the Truth-in-Lending Act and Regulation Z promulgated thereunder; Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which prohibits unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service; the Equal Credit Opportunity Act and Regulation B promulgated thereunder; the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act; the Fair Debt Collection Practices Act (“FDCPA”) and similar state debt collection laws, which provide guidelines and limitations on the conduct of third-party debt collectors in connection with the collection of consumer debts; the Gramm-Leach-Bliley Act, which includes limitations on financial institutions’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties; the Bankruptcy Code, which limits the extent to which creditors may seek to enforce debts against parties who have filed for bankruptcy protection; the Servicemembers Civil Relief Act, which allows military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties; the Electronic Fund Transfer Act and Regulation E promulgated thereunder; the Electronic Signatures in Global and National Commerce Act and similar state laws; and the Bank Secrecy Act, which relates to compliance with anti-money laundering, customer due diligence and record-keeping policies and procedures.

 

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While JH Capital has developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations. In particular, the USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with FinCEN. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions and limit JH Capital’s ability to get regulatory approval of acquisitions. Recently several banking institutions have received large fines for non-compliance with these laws and regulations.

 

JH Capital is subject to the regulatory and enforcement authority of the Consumer Financial Protection Bureau (“CFPB”), as a facilitator, servicer or acquirer of consumer credit. In addition, the CFPB has recently announced that it intends to expand its supervisory authority, through the use of “larger participant rules,” to cover other aspects of JH Capital’s business, such as the markets for consumer installment loans. The CFPB is also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision. The CFPB has not announced specifics regarding its proposed rulemaking and, consequently, there continues to be uncertainty as to how the CFPB’s strategies and priorities, including any final rules, will impact JH Capital’s businesses and results of operations going forward. JH Capital currently offers consumer installment loans in a number of states in the United States.  Any adverse legislative or regulatory changes in any one of JH Capital’s states, but particularly in any of JH Capital’s larger states could have a material adverse effect on JH Capital’s business, prospects, and results of operation or financial condition.

 

The CFPB has also issued civil investigative demands to many companies that it regulates, and is currently examining practices regarding the collection of consumer debt. In addition, the CFPB has issued guidance in the form of bulletins on debt collection and credit furnishing activities generally, including one that specifically addresses representations regarding credit reports and credit scores during the debt collection process, and another that focuses on the application of Title X of the Dodd-Frank Act’s prohibition of “unfair, deceptive, or abusive” acts or practices on debt collection. There can be no assurance that new industry regulations currently under consideration by the CFPB would not have an adverse effect on JH Capital’s business, results of operations, and financial condition.

 

Failure to comply with these laws and regulatory requirements applicable to JH Capital’s business may, among other things, limit JH Capital’s or a collection agency’s ability to collect all or part of the principal of or interest on loans. As a result, JH Capital may not be able to collect its servicing fee with respect to the uncollected principal or interest, and investors may be discouraged from investing in loans. In addition, non-compliance could subject JH Capital to damages, revocation of required licenses, class action lawsuits, administrative enforcement actions, rescission rights held by investors in securities offerings and civil and criminal liability, which may harm JH Capital’s business and its ability to maintain its marketplace and may result in borrowers rescinding their loans.

 

Where applicable, JH Capital will seek to comply with state small loan, loan broker, servicing and similar statutes. In U.S. jurisdictions with licensing or other requirements that JH Capital believes may be applicable to it, JH Capital complies with the relevant requirements through the operation of its marketplace with issuing banks or JH Capital will be seeking to obtain required licenses. Nevertheless, if JH Capital is found to not have complied with applicable laws, JH Capital could lose one or more of its licenses or authorizations or face other sanctions or penalties or be required to obtain a license in such jurisdiction, which may have an adverse effect on JH Capital’s ability to continue to facilitate loans through its marketplace, perform its servicing obligations or make its marketplace available to borrowers in particular states, which may harm its business.

 

Further, the regulatory framework for marketplaces such as JH Capital’s is evolving and uncertain. It is possible that new laws and regulations will be adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways, that would affect the operation of JH Capital’s marketplace and the way in which JH Capital interacts with borrowers.

 

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JH Capital’s ability to collect and enforce its finance receivables may be limited under federal and state laws, regulations and policies.

 

The businesses conducted by JH Capital’s multiple operating companies are subject to licensing and regulation by governmental and regulatory bodies in the many jurisdictions in which JH Capital and its operating companies operate. Federal and state laws and regulations may limit JH Capital’s ability to collect and enforce its finance receivables regardless of any act or omission on JH Capital’s part. Some laws and regulations applicable to credit issuers may preclude JH Capital from collecting on nonperforming loans it purchases if the credit issuer previously failed to comply with applicable laws in generating or servicing those receivables. Collection laws and regulations also directly apply to JH Capital’s business. Some laws, among other things, also may limit the interest rate and the fees that a credit grantor may impose on JH Capital’s consumers, limit the time in which JH Capital may file legal actions to enforce consumer accounts, and require specific account information for certain collection activities. In addition, local requirements and court rulings in various jurisdictions also may affect JH Capital’s ability to collect. Such laws and regulations are extensive and subject to change.

 

A variety of federal and state laws and regulations govern the collection, use, retention, transmission, sharing and security of consumer data. Under Dodd-Frank, it is unlawful for any provider of consumer financial products or services to engage in any unfair, deceptive or abusive act or practice, and the CFPB is authorized to take action against organizations that engage in such acts or practices. To date, the CFPB has not promulgated implementing regulations; rather, it enforces the prohibition against unfair, deceptive or abusive acts or practices on a case-by-case basis. Section 5 of the Federal Trade Commission Act (FTC Act) prohibits unfair and deceptive acts or practices in or affecting commerce. In addition, there are state consumer protection laws and regulations that mirror or are similar to the prohibition against unfair, deceptive or abusive acts or practices under the Dodd-Frank Act or the prohibition against unfair or deceptive acts or practices under the FTC Act. For business reasons and to facilitate compliance with such laws and regulations, JH Capital maintains, pursuant to its Ethical Wall Policy, an ethical wall between its Debt Purchasing and Collection business segment and its Advocacy and Lending business segment to prevent the flow of certain information, including consumer data, between such business segments.

 

Consumer protection and privacy protection laws and regulations, changes in the ways that existing laws and regulations are interpreted or enforced and any procedures that may be implemented as a result of regulatory consent orders may adversely affect JH Capital’s ability to collect on its finance receivables and may harm JH Capital’s business. JH Capital’s failure to comply with laws or regulations applicable to JH Capital could limit its ability to collect on its receivables, which could reduce JH Capital’s profitability and harm its business.

 

If the loans originated by JH Capital’s lending operations were found to violate a state’s usury laws, and/or JH Capital were found to be the true lender (as opposed to its issuing bank(s)), JH Capital may have to alter its business model and JH Capital’s business could be harmed.

 

The interest rates that are charged to borrowers are enabled by legal principles including (i) the application of federal law to enable an issuing bank that originates the loan to export the interest rates of the jurisdiction where it is located, (ii) the application of common law “choice of law” principles based upon factors such as the loan document’s terms and where the loan transaction is completed to provide uniform rates to borrowers, and (iii) the application of principles that allow the transferee of a loan to continue to collect interest as provided in the loan document. Cross River Bank, the primary issuing bank of the loans originated through JH Capital’s marketplace, is chartered in, and operates out of, New Jersey. Certain states have no statutory interest rate limitations on personal loans, while other jurisdictions have a maximum rate. In some jurisdictions, the maximum rate is less than the current maximum rate offered by Cross River Bank through JH Capital’s platform. If the laws of such jurisdictions were found to govern the loans originated by JH Capital (in conflict with the principles described above), those loans could be in violation of such laws.

 

If a borrower were to successfully bring claims against JH Capital for state usury law violations, and the rate on that borrower’s personal loan was greater than that allowed under applicable state law, JH Capital could be subject to fines and penalties, including the voiding of loans and repayment of principal and interest to borrowers. JH Capital might decide to limit the maximum interest rate on certain loans originated through its marketplace, and JH Capital might decide to originate loans under state-specific licenses, where such a ruling is applicable. These actions could adversely impact JH Capital’s business. Further, if JH Capital were unable to partner with another issuing bank, JH Capital would have to substantially modify its business operations from the manner currently contemplated and would be required to maintain state-specific licenses and only provide a limited range of interest rates for personal loans, all of which would substantially reduce JH Capital’s operating efficiency and attractiveness to investors and possibly result in a decline in its operating results.

 

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JH Capital’s business, as well as the business of other industry participants, may be negatively impacted by the results of industry applicable litigation (for example, litigation challenging lending arrangements where a bank or other third party has made a loan and then sells and assigns it to an entity that is engaged in assisting with the origination and servicing of a loan). Additional state consumer protection laws would be applicable to the loans JH Capital originates if JH Capital were re-characterized as a lender, and the loans could be voidable or unenforceable. In addition, JH Capital could be subject to claims by borrowers, as well as enforcement actions by regulators.

 

Investigations or enforcement actions by governmental authorities may result in changes to JH Capital’s business practices; negatively impact its receivables portfolio purchasing volume; make collection of receivables more difficult; or expose JH Capital to the risk of fines, penalties, restitution payments and litigation.

 

JH Capital’s debt collection activities and business practices are subject to review from time to time by various governmental authorities and regulators, including the CFPB. These reviews may involve governmental authority consideration of individual consumer complaints, or could involve a broader review of JH Capital’s debt collection policies and practices. Such investigations could lead to assertions by governmental authorities that JH Capital is not complying with applicable laws or regulations. In such circumstances, authorities may request or seek to impose a range of remedies that could involve potential compensatory or punitive damage claims, fines, restitution payments, sanctions or injunctive relief, that if agreed to or granted, could require JH Capital to make payments or incur other expenditures that could have an adverse effect on its financial position. The CFPB has the authority to obtain cease and desist orders, recover costs, and impose monetary penalties (ranging from $5,000 per day to over $1 million per day, depending on the nature and gravity of the violation). In addition, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state Attorneys General and other state regulators to bring civil actions to remedy violations under state law. Government authorities could also request or seek to require JH Capital to cease certain of its practices or institute new practices. Negative publicity relating to investigations or proceedings brought by governmental authorities could have an adverse impact on JH Capital’s reputation and could result in financial institutions reducing or eliminating sales of receivables portfolios to JH Capital which would harm its business and negatively impact its results of operations. Moreover, changing or modifying JH Capital’s internal policies or procedures, responding to governmental inquiries and investigations and defending lawsuits or other proceedings could require significant efforts on the part of management and result in increased costs to JH Capital’s business. In addition, such efforts could divert management’s full attention from JH Capital’s business operations. All of these factors could have an adverse effect on JH Capital’s business, results of operations, and financial condition.

 

Class action suits and other litigation could divert JH Capital’s management’s attention from operating JH Capital’s business and increase its expenses.

 

In the normal course of business, from time to time, JH Capital has been named and may be named in the future as a defendant in various legal actions, including governmental investigations, examinations or other proceedings, arbitrations, class actions and other litigation, arising in connection with JH Capital’s business activities. Claims include failure to comply with applicable laws and regulations and improper or deceptive origination and servicing practices. Certain of the legal actions include claims for substantial compensatory and punitive damages, or claims for indeterminate amounts of damages. While the arbitration provisions in JH Capital’s customer agreements historically have limited JH Capital’s exposure to consumer class action litigation, there can be no assurance that JH Capital will be successful in enforcing JH Capital’s arbitration clause in the future. There may also be legislative, administrative or regulatory efforts to directly or indirectly prohibit the use of pre-dispute arbitration clauses, including by the CFPB, or JH Capital may be compelled as a result of competitive pressure or reputational concerns to voluntarily eliminate pre-dispute arbitration clauses. An unfavorable outcome in a class action suit or other legal proceeding could adversely affect JH Capital’s results of operations, financial condition, cash flows and liquidity. Even if JH Capital prevails or the basis for the legal proceeding is groundless, considerable time, energy and resources may be needed to respond, and such class action lawsuits or other legal proceedings could adversely affect JH Capital’s results of operations, financial condition and cash flows.

 

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The collection, processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.

 

JH Capital receives, transmits and stores a large volume of personally identifiable information and other user data while also maintaining, pursuant to its Ethical Wall Policy, an ethical wall between its Debt Purchasing and Collection business segment and its Advocacy and Lending business segments to prevent the improper flow of certain information between such business segments. There are federal and state laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data. Specifically, personally identifiable information is increasingly subject to legislation and regulations in numerous U.S. jurisdictions, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. This regulatory framework for privacy issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. JH Capital could be adversely affected if legislation or regulations are expanded to require changes in business practices or privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect JH Capital’s business, financial condition and results of operations. JH Capital’s failure to comply with applicable privacy policies or federal or state laws and regulations or any compromise of security that results in the unauthorized release of personally identifiable information or other user data could damage JH Capital’s reputation, discourage potential borrowers from using its marketplace or result in fines or proceedings brought against JH Capital, its issuing banks or other third parties by governmental agencies, borrowers, investors or other third parties, one or all of which could adversely affect JH Capital’s business, financial condition and results of operations. In addition to laws, regulations and other applicable common law rules regarding privacy and privacy advocacy, industry groups or other private parties may propose new and different privacy standards. JH Capital could also be subject to liability for the inappropriate use of information made available by it. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with JH Capital’s practices. Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability for JH Capital, damage its reputation, inhibit use of its platform and harm its business.

 

Investment Company Act considerations could affect JH Capital’s method of doing business.

 

JH Capital intends to continue conducting JH Capital’s business operations so that neither JH Capital nor any of JH Capital’s multiple operating companies are required to register as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”). JH Capital is a holding company that conducts its businesses primarily through multiple operating companies and is not an investment company because JH Capital’s operating companies are primarily engaged in the non-investment company business of consumer finance. JH Capital’s operating companies rely on exemptions from registration as an investment company, including pursuant to Sections 3(c)(4) and 3(c)(5) of the Investment Company Act. JH Capital relies on guidance published by the SEC staff or on JH Capital’s analyses of such guidance to determine JH Capital’s operating companies’ qualification under these and other exemptions. To the extent that the SEC staff publishes new or different guidance with respect to these matters, JH Capital may be required to adjust JH Capital’s business operations accordingly. Any additional guidance from the SEC staff could provide additional flexibility to JH Capital, or it could inhibit JH Capital’s ability to conduct JH Capital’s business operations. If JH Capital fails to qualify for an exemption or exception from the Investment Company Act in the future, JH Capital could be required to restructure JH Capital’s activities or the activities of JH Capital’s multiple operating companies, which could negatively affect JH Capital. In addition, if JH Capital or one or more of JH Capital’s operating companies fail to maintain compliance with the applicable exemptions or exceptions and JH Capital does not have another basis available to it on which JH Capital may avoid registration, and JH Capital were therefore required to register as an investment company under the Investment Company Act, JH Capital would become subject to substantial regulation with respect to JH Capital’s capital structure, management, operations, transactions with affiliated persons, holdings, and other matters, which could have an adverse effect on JH Capital.

 

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Negative publicity and unfavorable media coverage could negatively affect JH Capital’s business.

 

Negative publicity about JH Capital’s industry or JH Capital, including the quality and reliability of JH Capital’s marketplace, effectiveness of the credit decisioning or scoring models used in the marketplace, the effectiveness of JH Capital’s collection efforts, alleged conduct in collecting debt from consumers, statements regarding investment returns, changes to JH Capital’s marketplace, JH Capital’s ability to effectively manage and resolve borrower complaints, privacy and security practices, use of loan proceeds by certain borrowers of JH Capital or other companies in its industry for illegal purposes, litigation, regulatory activity and the experience of borrowers with JH Capital’s marketplace or services, even if inaccurate, could adversely affect JH Capital’s reputation and the confidence in, and the use of, JH Capital’s marketplace and could adversely affect JH Capital’s position in the marketplace in which it competes and JH Capital’s ability to purchase charged-off receivables, each of which could harm JH Capital’s business and operating results. Harm to JH Capital’s reputation can arise from many sources, including employee misconduct, misconduct by JH Capital’s partners or partners of partners, other online credit marketplaces, outsourced service providers or other counterparties, failure by JH Capital or its partners to meet minimum standards of service and quality, inadequate protection of borrower information and compliance failures and claims.

 

Interest rate fluctuations may adversely affect JH Capital’s borrowing costs, profitability, liquidity and transaction volume.

 

JH Capital’s profitability may be directly affected by the level of and fluctuations in interest rates, whether caused by changes in economic conditions or other factors, that affect JH Capital’s borrowing costs. Interest rates are highly sensitive to many factors that are beyond JH Capital’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence the amount of interest JH Capital pays on its revolving credit facilities or any other floating interest rate obligations JH Capital may incur. JH Capital’s profitability and liquidity could be materially adversely affected during any period of higher interest rates. In addition, nearly all loans facilitated through JH Capital’s platform are issued with fixed interest rates. If interest rates continue to rise, potential borrowers could seek to defer loans as they wait for interest rates to settle. If interest rates decrease after a loan is made, borrowers may prepay their loans to take advantage of the lower rates, which may adversely affect JH Capital’s business.

 

Credit and other information that JH Capital receives from borrowers or third parties about a borrower may be inaccurate or may not accurately reflect the borrower’s creditworthiness, which may cause JH Capital to inaccurately price loans facilitated through its marketplace.

 

JH Capital’s ability to review and select qualified borrowers depends on obtaining borrower credit information from consumer reporting agencies, such as TransUnion, Experian or Equifax, and JH Capital assigns loan grades to loan requests based on its credit decisioning and scoring models that take into account reported credit score, other information reported by the consumer reporting agencies and the requested loan amount, in addition to a variety of other factors. A credit score or loan grade assigned to a borrower may not reflect that borrower’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate consumer reporting data, and JH Capital does not verify the information obtained from the borrower’s credit report. Additionally, there is a risk that, following the date of the credit report that JH Capital obtains and reviews, a borrower may have: become delinquent in the payment of an outstanding obligation; defaulted on a pre-existing debt obligation; taken on additional debt; or sustained other adverse financial events.

 

In addition, borrowers supply a variety of information that may be inaccurate or incomplete. To verify a borrower’s identity, income or employment, JH Capital’s verification process and teams connect to various data sources, directly or through third-party service providers. For example, JH Capital often does not verify a borrower’s stated tenure, job title or home ownership status.

 

If borrowers default on loans that are not priced correctly because the information provided by the borrowers or third parties is inaccurate, the loans may not perform as expected and JH Capital’s reputation may be harmed.

 

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If the credit decisioning and scoring models JH Capital uses contain errors, do not adequately assess risk, or are otherwise ineffective, JH Capital’s reputation and its relationships with borrowers could be harmed and its market share could decline.

 

JH Capital’s ability to attract borrowers to, and build trust in, its marketplace is significantly dependent on its ability to effectively evaluate a borrower’s credit profile and likelihood of default. To conduct this evaluation, JH Capital utilizes credit decisioning and scoring models that assign a risk profile to each borrower. JH Capital’s credit decisioning and scoring models are based on algorithms that evaluate a number of factors, which may not effectively predict future loan losses. If these models fail to adequately assess the creditworthiness of its borrowers, JH Capital may experience higher than forecasted losses. JH Capital continually refines these algorithms based on new data. However, there is no guarantee that the credit decisioning and scoring models that JH Capital uses have accurately assessed the creditworthiness of its borrowers, or will be effective in assessing creditworthiness in the future.

 

Similarly, if any of these credit decisioning and scoring models contain programming or other errors, are ineffective or the data provided by borrowers or third parties is incorrect or stale, JH Capital’s loan pricing and approval process could be negatively affected, resulting in incorrect approvals or denials of loans.

 

JH Capital’s ability to execute JH Capital’s growth strategy may not have the planned results.

 

JH Capital’s growth strategy is subject to significant risks, some of which are beyond JH Capital’s control, including:

 

  · The prevailing laws and regulatory environment of each state in which JH Capital operates or seeks to operate and to the extent applicable, federal laws and regulations, which are subject to change at any time;

 

  · JH Capital’s ability to obtain and maintain any regulatory approvals, government permits or licenses that may be required;

 

  · The degree of competition in new markets and its effects on JH Capital’s ability to attract new customers;

 

  · JH Capital’s ability to obtain adequate financing for its expansion plans; and

 

  · JH Capital’s ability to attract, train and retain qualified personnel to staff its new operations.

 

If JH Capital does not compete effectively in its target markets, increase its loan originations, or expand to new markets, JH Capital may not succeed in growing its business and JH Capital’s business and results of operations could be adversely affected.

 

The consumer and small business lending market is highly competitive and evolving. JH Capital competes with financial products and companies that attract borrowers, investors or both. With respect to borrowers, JH Capital primarily competes with traditional financial institutions, such as banks, credit unions, credit card issuers and other consumer and specialty finance companies. Many of JH Capital’s competitors have significantly greater resources than JH Capital has, operate with different business models, have different cost structures or participate selectively in different market segments.

 

To continue to grow its business, JH Capital must continue to increase loan originations through its marketplace by attracting a large number of new borrowers who meet JH Capital’s lending standards. JH Capital’s ability to attract qualified borrowers depends in large part on the success of its marketing efforts, particularly as JH Capital continues to grow its marketplace and introduce new loan products. If any of JH Capital’s marketing channels become less effective, or the cost of these channels were to significantly increase, JH Capital may not be able to attract new borrowers in a cost-effective manner or convert potential borrowers into active borrowers in its marketplace.

 

Any new loan products and changes to JH Capital’s marketplace or platform could fail to attain sufficient market acceptance for many reasons, including: JH Capital’s failure to predict market demand accurately and supply loan products that meet this demand in a timely fashion; negative publicity about JH Capital’s loan products; competition with established financial institutions; delays in releasing new loan products; and the introduction or anticipated introduction of competing products by its competitors.

 

Any failure to successfully address additional markets and loan products or develop a broader base of borrowers could result in loss of market share or slower growth, which would harm JH Capital’s business, financial condition and results of operations. The adverse effect on JH Capital’s financial results may be particularly acute because of the significant development, marketing, sales and other expenses it will have incurred in connection with the new loan products or enhancements.

 

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JH Capital’s centralized headquarters functions are susceptible to disruption by catastrophic events, which could have a material adverse effect on JH Capital’s business, results of operations and financial condition.

 

Following the Business Combination, JH Capital’s headquarters building is expected to continue to be located in California for the foreseeable futures.  JH Capital’s information systems and administrative and management processes are primarily provided to JH Capital’s operations from its California headquarters, and they could be disrupted if a catastrophic event, such as severe weather, natural disaster, power outage, act of terror or similar event, destroyed or severely damaged JH Capital’s headquarters. Any such catastrophic event or other unexpected disruption of JH Capital’s headquarters functions could have a material adverse effect on JH Capital’s business, results of operations and financial condition.

 

Fraudulent activity associated with JH Capital’s platform could negatively impact its operating results, brand and reputation and cause the use of JH Capital’s loan products and services to decrease and JH Capital’s fraud losses to increase.

 

JH Capital is subject to the risk of fraudulent activity associated with its platform, issuing banks, borrowers, and third parties handling borrower information. JH Capital has taken measures to detect and reduce the risk of fraud, but these measures need to be continually improved and may not be effective against new and continually evolving forms of fraud or in connection with new product offerings. The level of JH Capital’s fraud charge-offs and results of operations could be materially adversely affected if fraudulent activity were to significantly increase. High profile fraudulent activity or significant increases in fraudulent activity could lead to regulatory intervention, negatively impact JH Capital’s operating results, brand and reputation and lead JH Capital to take steps to reduce fraud risk, which could increase its costs.

 

JH Capital’s risk management efforts may not be effective.

 

JH Capital could incur substantial losses and JH Capital’s business operations could be disrupted if JH Capital is unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational risks related to JH Capital’s business, assets and liabilities. To the extent JH Capital’s models used to assess the creditworthiness of potential borrowers do not adequately identify potential risks, the valuations produced would not adequately represent the risk profile of the borrower and could result in a riskier finance receivable profile than originally identified. JH Capital’s risk management policies, procedures, and technique may not be sufficient to identify all of the risks JH Capital is exposed to, mitigate the risks JH Capital has identified or identify concentrations of risk or additional risks to which JH Capital may become subject in the future.

 

JH Capital's credit facilities provide its lenders with a first-priority lien against substantially all of JH Capital's assets and contains certain affirmative and negative covenants and other restrictions on its actions, and they could therefore limit JH Capital's operational flexibility or otherwise adversely affect its financial condition.

 

JH Capital has senior secured revolving credit facilities, which JH Capital may draw upon from time to time. The loan agreements for JH Capital's credit facilities contain restrictive financial and non-financial covenants, which place constraints on its ability to, among other things, pay dividends, incur indebtedness, place liens on assets, merge or consolidate, make investments, and enter into certain affiliate transactions. Failure to satisfy any one of the covenants could result in negative consequences, including acceleration of indebtedness, exercise of its lenders rights with respect to collateral pledged, the inability to source alternative financing on favorable terms, and the inability to continue to purchase distressed debt needed to operate its business.

 

In addition, any debt financing JH Capital secures in the future, in addition to or in lieu of its credit facilities, could involve restrictive covenants relating to its capital raising activities and other financial and operational matters, which may make it more difficult for JH Capital to obtain additional capital and to pursue business opportunities, including potential acquisitions. If JH Capital is unable to obtain adequate financing or financing on terms satisfactory to JH Capital when it requires it, JH Capital's ability to continue to support its business growth, liquidity needs, and to respond to business challenges could be impaired, and its business operations may be impacted negatively.

 

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JH Capital may in the future utilize financing arrangements in which JH Capital sells or securitizes finance receivables and loans, and pursuant to which JH Capital may be required to indemnify, or repurchase such finance receivables from, purchasers of such finance receivables and loan that JH Capital may sell or securitize, if JH Capital’s finance receivables and loans fail to meet certain criteria or characteristics or under other circumstances, which could adversely affect JH Capital’s results of operations, financial condition and liquidity.

 

Currently, JH Capital does not have any material sales or securitization arrangements in place for its finance receivables and loans. However, JH Capital may enter into such sale or securitization arrangements in the future and the documents governing JH Capital’s potential future finance receivable and loan sales and securitizations may contain provisions that would require JH Capital to indemnify the purchasers of such securitized finance receivables and loans, or to repurchase such affected finance receivables, under certain circumstances. While sale and securitization documents vary, they generally contain customary provisions that may require JH Capital to repurchase finance receivables if:

 

  · JH Capital’s representations and warranties concerning the quality and characteristics of the finance receivable and loans are inaccurate;

 

  · there is a borrower fraud; or

 

  · JH Capital fails to comply, at the individual finance receivable and loan level or otherwise, with regulatory requirements in connection with the origination and servicing of the finance receivables and loans.

 

As a result of the current market environment, JH Capital believes that many purchasers of loans (including through securitizations) are particularly aware of the conditions under which originators must indemnify purchasers or repurchase finance receivables, and would benefit from enforcing any repurchase remedies that they may have. At its extreme, JH Capital’s potential exposure to repurchases or its indemnification obligations under JH Capital’s representations and warranties could include the current unpaid balance of all finance receivables that JH Capital may sell or securitize and which are not subject to settlement agreements with purchasers.

 

The risk of loss on the finance receivables and loans that JH Capital may securitize would be recognized in JH Capital’s allowance for finance receivable and loan losses since all of JH Capital’s consumer loan securitizations are recorded on-balance sheet. If JH Capital were required to indemnify purchasers or repurchase finance receivables and loans that it sells that result in losses that exceed JH Capital’s reserve for sales recourse, or recognize losses on securitized finance receivables and loans that exceed its recorded allowance for finance receivable losses associated with JH Capital’s securitizations, this could adversely affect JH Capital’s results of operations, financial condition and liquidity.

 

JH Capital may make acquisitions that prove unsuccessful and any mergers, acquisitions, dispositions or joint venture activities may change its business and financial results and introduce new risks.

 

From time to time, JH Capital may make acquisitions of, or otherwise invest in, other companies that could complement its business, including the acquisition of entities in diverse geographic regions and entities offering greater access to businesses and markets that JH Capital does not currently serve. The acquisitions JH Capital may make may be unprofitable or may take some time to achieve profitability. In addition, JH Capital may not successfully operate the businesses that it acquires, or may not successfully integrate these businesses with its own, which may result in JH Capital’s inability to maintain its goals, objectives, standards, controls, policies, culture, or profitability. Through acquisitions, JH Capital may enter markets in which it has limited or no experience. Any acquisition may result in a potentially dilutive issuance of equity securities, and the incurrence of additional debt which could reduce JH Capital’s profitability. JH Capital may also pursue dispositions and joint ventures from time to time. Any such transactions could change JH Capital’s business lines, geographic reach, financial results or capital structure. JH Capital could be larger or smaller after any such transactions and may have a different investment profile.

 

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JH Capital may consume resources in pursuing business opportunities, financings or other transactions that are not consummated, which may strain or divert its resources.

 

JH Capital anticipates that the investigation of various transactions, and the negotiation, drafting, and execution of relevant agreements, disclosure documents and other instruments with respect to such transactions, will require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific transaction, JH Capital may fail to consummate the transaction for any number of reasons, including those beyond its control. Any such event could consume significant management time and result in a loss to JH Capital of the related costs incurred, which could adversely affect JH Capital’s financial position and its business.

 

JH Capital is dependent on its management team for the adoption and implementation of JH Capital’s strategies and the loss of its services could have an adverse effect on JH Capital’s business.

 

JH Capital’s management team has considerable experience in finance, banking, consumer collections, and other industries. JH Capital believes that the expertise of its executives obtained by managing businesses across numerous other industries has been critical to the enhancement of its operations. The management teams at each of JH Capital’s multiple operating companies are also important to the success of their respective operations. The loss of the services of one or more key members of management could have an adverse effect on JH Capital’s business, financial condition and operating results.

 

Regular turnover among managers and other employees at JH Capital makes it more difficult for JH Capital to operate and increases JH Capital’s costs of operations, which could have an adverse effect on its business, results of operations and financial condition.

 

Turnover of JH Capital’s employees increases JH Capital’s cost of operations and makes it more difficult to operate JH Capital.  If JH Capital is unable to keep its employee turnover rates consistent with historical levels or if unanticipated problems arise from its high employee turnover, JH Capital’s business, results of operations and financial condition could be adversely affected.

 

If JH Capital fails to attract and retain its highly skilled employees needed to support its business, JH Capital may not be able to achieve its anticipated level of growth and JH Capital’s business could suffer.

 

JH Capital believes its success depends on the efforts and talents of its employees, including software engineers, financial personnel and marketing professionals. JH Capital’s future success depends on its continued ability to attract, develop, motivate and retain highly qualified and skilled employees. Competition for highly skilled technical and financial personnel is extremely intense. JH Capital may not be able to hire and retain these personnel at compensation levels consistent with its existing compensation and salary structure. Many of the companies with which JH Capital competes for experienced employees have greater resources than JH Capital has and may be able to offer more attractive terms of employment.

 

Employee misconduct or misconduct by third parties acting on JH Capital’s behalf could harm JH Capital by subjecting JH Capital to monetary loss, significant legal liability, regulatory scrutiny and reputational harm.

 

JH Capital’s reputation is critical to maintaining and developing relationships with JH Capital’s existing and potential customers and third parties with whom JH Capital does business. There is a risk that JH Capital’s employees or third party contractors could engage in misconduct that adversely affects JH Capital’s business. For example, if an employee or a third party contractor were to engage in, or be accused of engaging in, illegal or suspicious activities including fraud or theft, JH Capital could suffer direct losses from the activity and, in addition, JH Capital could be subject to regulatory sanctions and suffer serious harm to JH Capital’s reputation, financial condition, customer relationships and ability to attract future customers. Employee or third-party misconduct could prompt regulators to allege or to determine based upon such misconduct that JH Capital has not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect violations of such rules. It is not always possible to deter employee or third-party misconduct. The precautions that JH Capital takes to detect and prevent misconduct may not be effective in all cases. Misconduct by JH Capital’s employees or third party contractors, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on JH Capital’s reputation and JH Capital’s business.

 

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The unaudited financial statements of JH Capital included in this document may not be indicative of what JH Capital’s actual financial position or results of operations were for prior periods.

 

JH Capital’s combined financial statements for the years ending December 31, 2015, December 31, 2016 and December 31, 2017, each as included in this proxy statement, have not been audited. The financial data for those periods included in this proxy statement are based on management accounts, and have not been audited by an independent registered public accounting firm. Although management believes that these unaudited combined financial statements have been prepared on a basis that is consistent with audited combined financial statements, there is a risk that this unaudited financial information may contain errors that might have been detected in an audit and such financial information may not be reflective of JH Capital’s historical results for those periods. Any differences between the financial information presented for these unaudited periods in this proxy statement and JH Capital’s actual historical results may be material. The combined company intends to file audited financial statements of JH Capital for the years ending December 31, 2016 and December 31, 2017 and unaudited financial statements of JH Capital for the year ending December 31, 2015 in a Current Report on Form 8-K within four business days of the closing of the Business Combination. Accordingly, you are cautioned not to place undue reliance on such information that may not necessarily be indicative of what JH Capital’s actual financial position or results of operations were. See the section entitled “Selected Historical Financial Information of JH Capital” for more information.

 

JH Capital has identified a material weakness in its internal controls over financial reporting.

 

As a public company, JH Capital will be required to maintain internal control over financial reporting and to report any material weaknesses in those internal controls, subject to any exemptions that it avails itself to under the JOBS Act. For example, JH Capital will be required to perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. JH Capital is in the process of designing, implementing, and testing internal control over financial reporting required to comply with this obligation.

 

In connection with the preparation of JH Capital’s financial statements for the years ended December 31, 2015, 2016 and 2017, JH Capital identified material weaknesses in the design and operating effectiveness of its internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of JH Capital’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses JH Capital identified indicated that JH Capital did not maintain a sufficient complement of resources with an appropriate level of accounting expertise, knowledge and training commensurate with the complexity of its financial accounting and financial reporting requirements to allow for appropriate monitoring and accounting for ASC 310-30 purchased credit impaired loans, evaluation of cash flows expected to be collected for the ASC 310-30 loan portfolios, accounting for purchases of loans under ASC 860, non-monetary exchange transactions, ASC 310 for deferred loan fees and costs and goodwill impairment.

  

We have worked to design an organizational structure and a control environment that aligns with best practices in financial services. We are in the process of filing the new positions created and assessing the talent of our existing employees. In addition, we have hired external consultants to continue to prepare us to be well positioned to meet all control and process testing standards. During 2017, JH Capital took certain actions to remediate the material weaknesses, which included hiring management-level personnel with technical accounting expertise, designing adequate review procedures in its accounting and finance organization, and identifying and implementing improved processes and controls. If JH Capital fails to remediate the material weaknesses, or if JH Capital identifies other material weaknesses in its internal controls over financial reporting in the future, JH Capital may not be able to detect errors on a timely basis and the financial statements of JH Capital may contain material misstatements. Because of the material weaknesses that JH Capital identified, JH Capital is restating its previously issued audited financial statements, which could cause investors to lose confidence in JH Capital’s financials information. Any of these circumstances could have a material adverse effect on JH Capital’s financial performance.

 

JH Capital has identified material errors in its previously issued financial statements and is in technical violation of certain terms of its credit facilities and certain regulatory requirements.

 

JH Capital has identified material errors in previously issued financial statements of the JH Group Companies and their subsidiaries. JH Capital is also in technical violation of certain terms of its credit facilities. JH Capital is in discussions with its lenders to address these technical violations, and JH Capital believes that such technical violations and changes to certain of its accounting practices that contributed to these technical violations will not have a material adverse effect on its operations or capital sources. JH Capital expects to have amended its credit facilities as necessary so as not to be in technical violation of any terms on or before the closing of the Business Combination. JH Capital is also in technical violation of certain regulatory requirements related to the delivery of financial statements, but JH Capital is in discussions with its regulators to address these technical violations and does not believe that such technical violations would have a material adverse effect on its operations or capital sources.

 

JH Capital has incurred net losses in the past and may incur net losses in the future.

 

JH Capital anticipates that for the foreseeable future its operating expenses will include expenses associated with the enhancement of its compliance systems, the growth initiatives of JH Capital’s business and JH Capital’s drive to attract borrowers and further enhance and develop its loan products and platform. These efforts may prove more expensive than JH Capital currently anticipates, and JH Capital may not succeed in increasing its revenue sufficiently to offset these higher expenses. JH Capital may incur additional net losses in the future and may not maintain profitability on a quarterly or annual basis.

 

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JH Capital records a significant amount of goodwill. If JH Capital is required to recognize goodwill impairment, it could have an adverse effect on JH Capital’s financial condition.

 

JH Capital anticipates recording a significant amount of goodwill as a result of its business acquisitions. Goodwill is not amortized, but is tested for impairment at the reporting unit level. Goodwill is required to be tested for impairment annually and between annual tests if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There are numerous risks that may cause the fair value of a reporting unit to fall below its carrying amount, which could lead to the recognition of goodwill impairment. These risks include, but are not limited to, adverse changes in macroeconomic conditions, the business climate, or the market for the entity's products or services; significant variances between actual and expected financial results; negative or declining cash flows; lowered expectations of future results; failure to realize anticipated synergies from acquisitions; significant expense increases; a more likely-than-not expectation of selling or disposing all or a portion of a reporting unit; the loss of key personnel; and an adverse action or assessment by a regulator.

 

JH Capital’s goodwill impairment testing involves the use of estimates and the exercise of judgment, including judgments regarding expected future business performance and market conditions. Significant changes in JH Capital’s assessment of such factors, including the deterioration of market conditions, could affect its assessment of the fair value of one or more of JH Capital’s reporting units and could result in a significant goodwill impairment charge in a future period.

 

Other intangible assets, such as client and customer relationships, non-compete agreements and trademarks, are amortized. Risks such as those that could lead to the recognition of goodwill impairment, could also lead to the recognition of other intangible asset impairment.

 

JH Capital may not be able to adequately protect the intellectual property rights upon which it relies and, as a result, any lack of protection may diminish JH Capital’s competitive advantage and harm its business.

 

JH Capital relies on proprietary software programs and valuation and collection processes and techniques, and JH Capital believes that these assets provide it with a competitive advantage. JH Capital may consider its proprietary software, processes, and techniques to be trade secrets, but they may not be protected by patent or registered copyright. JH Capital also relies on a combination of copyright, trade secret, trademark and other rights, as well as confidentiality procedures and contractual provisions to protect its proprietary technology, underwriting and credit decisioning credit data, processes and other intellectual property. However, the steps JH Capital takes to protect its intellectual property rights may be inadequate. Third parties may seek to challenge, invalidate or circumvent JH Capital’s copyright, trade secret, trademark and other rights or applications for any of the foregoing. JH Capital’s competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to its industry. From time to time, third parties may claim that JH Capital is infringing on their intellectual property rights, and JH Capital may be found to be infringing on such rights. JH Capital may, however, be unaware of the intellectual property rights that others may claim cover some or all of its technology or services.

 

In order to protect JH Capital’s intellectual property rights, it may be required to spend significant resources. Litigation brought to protect and enforce JH Capital’s intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of its intellectual property. In addition, any claims or litigation could cause JH Capital to incur significant expenses and, if successfully asserted against JH Capital, could require that JH Capital pay substantial damages or ongoing royalty payments, prevent JH Capital from offering its loan products or operating its platform or require that JH Capital comply with other unfavorable terms. JH Capital’s failure to secure, protect and enforce its intellectual property rights could seriously adversely affect its brand and adversely impact JH Capital’s business.

 

JH Capital’s indebtedness could adversely affect its financial health and could harm JH Capital’s ability to react to changes to its business.

 

As described in greater detail in Note 10, “Senior and Subordinated Debt” to JH Capital’s combined financial statements, as of December 31, 2017, JH Capital’s total long-term indebtedness outstanding was approximately $395.5 million, including $346.8 million in senior secured debt and $48.7 million in mezzanine debt. JH Capital’s indebtedness could have important consequences to investors of JH Capital. For example, it could:

 

  · increase JH Capital’s vulnerability to general economic downturns and industry conditions;

 

  · require JH Capital to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of JH Capital’s cash flow to fund working capital, capital expenditures and other general corporate requirements;

 

  · limit JH Capital’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates;

 

  · place JH Capital at a competitive disadvantage compared to competitors that have less debt;

 

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  · increase JH Capital’s exposure to market and regulatory changes that could diminish the amount and value of JH Capital’s inventory that JH Capital borrows against under its secured credit facilities; and

 

  · limit, along with the financial and other restrictive covenants contained in the documents governing JH Capital’s indebtedness, its ability to borrow additional funds, make investments and incur liens, among other things.

 

Any of these factors could adversely affect JH Capital’s business, financial condition and operating results. If JH Capital does not have sufficient free cash flow to service its debt, JH Capital may be required to refinance all or part of its existing debt, sell assets, borrow more money, or sell securities, none of which JH Capital can guarantee it will be able to do.

 

Servicing JH Capital’s indebtedness requires a significant amount of cash, and JH Capital may not have sufficient free cash flow from its business to pay JH Capital’s substantial indebtedness.

 

JH Capital’s ability to make scheduled payments of the principal of, to pay interest on or to refinance its indebtedness depends on JH Capital’s future performance, which is subject to economic, financial, competitive and other factors beyond JH Capital’s control. JH Capital’s business may not continue to generate cash flow from operations in the future sufficient to service its indebtedness and make necessary capital expenditures. If JH Capital is unable to generate adequate cash flow, JH Capital may be required to adopt one or more alternatives, such as selling assets, restructuring indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive. JH Capital’s ability to refinance its indebtedness will depend on the capital markets and JH Capital’s financial condition at that time. JH Capital may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on its debt obligations which could, in turn, adversely affect JH Capital’s business, financial condition and operating results.

 

Despite JH Capital’s current indebtedness levels, JH Capital may still incur more indebtedness or take other actions which would intensify the risks discussed above.

 

Despite JH Capital’s current combined indebtedness levels, JH Capital and its subsidiaries may also incur additional indebtedness in the future, some of which may be secured indebtedness under JH Capital’s senior secured revolving credit facilities, subject to the restrictions contained in JH Capital’s debt instruments. Although JH Capital’s credit facilities and some of JH Capital’s other existing debt currently limit the ability of JH Capital and certain of its subsidiaries to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, additional indebtedness incurred in compliance with these restrictions, including additional secured indebtedness, could be substantial. Also, these restrictions will not prevent JH Capital from incurring obligations that do not constitute indebtedness. To the extent new indebtedness or other new obligations are added to JH Capital’s current levels, the risks described above could intensify. Moreover, if the facilities under the revolving credit facilities are repaid or mature, JH Capital may not be subject to similar restrictions under the terms of any subsequent indebtedness.

 

JH Capital may not be able to continue to satisfy the covenants in its debt agreements.

 

JH Capital’s debt agreements impose a number of restrictive covenants. Failure to satisfy any one of these covenants could result in negative consequences including the following, each of which could have an adverse effect on JH Capital’s business, financial condition and operating results:

 

  · acceleration of outstanding indebtedness;

 

  · exercise by JH Capital’s lenders of rights with respect to the collateral pledged under certain of JH Capital’s outstanding indebtedness;

 

  · JH Capital’s inability to continue to purchase receivables needed to operate its business; or

 

  · JH Capital’s inability to secure alternative financing on favorable terms, if at all.

 

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Increases in interest rates could adversely affect JH Capital’s business, financial condition and operating results.

 

Portions of JH Capital’s outstanding debt bear interest at a variable rate. Increases in interest rates could increase JH Capital’s interest expense which would, in turn, lower JH Capital’s earnings. JH Capital utilizes derivative financial instruments, such as interest rate swap agreements, to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows. JH Capital periodically evaluates its derivative financial instruments to determine if its interest hedge strategy should be modified based upon current and forward looking market conditions. These strategies may not be effective in protecting JH Capital against the effects of fluctuations from movements in interest rates. Increases in interest rates could adversely affect JH Capital’s business, financial condition and operating results.

 

Risk Factors Relating to Easterly and the Business Combination

 

The following risk factors apply to the business and operations of Easterly and to the Business Combination and will also apply to the business and operations of the combined company following the completion of the Business Combination.

 

Subsequent to the consummation of the Business Combination, Easterly may be required to take writedowns or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

 

Although Easterly has conducted due diligence on JH Capital, Easterly cannot assure you that this diligence revealed all material issues that may be present in JH Capital’s business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Easterly’s and JH Capital’s control will not later arise. As a result, Easterly may be forced to later write down or write-off assets, restructure its operations, or incur impairment or other charges that could result in losses. Even if Easterly’s due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with its preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on its liquidity, the fact that Easterly reports charges of this nature could contribute to negative market perceptions about Easterly or its securities. In addition, charges of this nature may cause it to be unable to obtain future financing on favorable terms or at all.

 

The post-Business Combination company may apply the net proceeds released from the Trust Account in a manner that does not increase the value of your investment.

 

If the Business Combination is consummated, the funds held in the Trust Account will be released to pay (i) cash to JH Capital in exchange for the Class A Units, (ii) unpaid franchise and income taxes of Easterly, (iii) Easterly stockholders who properly exercise their redemption rights, and (iv) fees, costs and expenses (including $7 million in deferred underwriting compensation to the underwriters of the IPO, regulatory fees, advisory fees, legal fees, accounting fees, printer fees, and other professional fees) that were incurred by Easterly or JH Capital. The deferred underwriting commissions will not change as a result of the amount of redemptions of Easterly shares. The per share amount that Easterly will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commission Easterly will pay to the underwriters. The deferred underwriting commission will not be paid in the event that the Business Combination is not completed.

 

Following the consummation of the Business Combination, the post-Business Combination company will be entitled to use the funds in the Trust Account. Other than the foregoing uses, the post-Business Combination company does not have specific plans for any funds remaining from the Trust Account and will have broad discretion regarding how to use the funds that remain. These funds could be used in a manner with which you may not agree or applied in ways that do not improve the post-Business Combination company’s results of operations or increase the value of your investment.

 

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The working capital available to the post-Business Combination company after the Business Combination will be reduced to the extent Easterly’s stockholders exercise their redemption rights in connection with the Business Combination and will also be reduced to the extent of transaction expenses of each of Easterly and JH Capital, which will be payable by the combined company. This may adversely affect the post-Business Combination company’s business and future operations.

 

The amount of working capital available to the combined company after the Business Combination will depend in part on the extent to which Easterly stockholders exercise their right to redeem their shares into cash in connection with the Business Combination. Easterly currently has $153.0 million in the Trust Account that will be available as working capital after the Business Combination. This amount could be reduced to as low as zero. Easterly has no specified maximum redemption threshold under its charter. In no event, however, will Easterly redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001. The combined company’s working capital will be reduced in proportion to such redemptions, and will also be reduced to the extent of all transaction expenses, which will be payable by the combined company. Reduced working capital may adversely affect the combined company’s business and future operations.

 

Upon the closing of the Business Combination, JH Capital will be obligated to pay certain transaction expenses and fees as well as other expenses required to complete the Business Combination, and the post-Business Combination company may not have sufficient funds at closing to repay these amounts.

 

The post-Business Combination company will also be obligated to pay closing fees and expenses related to the Business Combination at the closing of the Business Combination, some of which cannot be determined at this time. JH Capital is also obligated to guarantee the obligations of its subsidiaries under certain loan facilities from and after the closing of the Business Combination. If sufficient funds are not in the Trust Account at closing to pay for such obligations, costs and expenses, the post-Business Combination company will be required to raise additional funds on terms that may not be favorable or renegotiate such obligations, which may result in additional costs and expenses to the post-Business Combination company. If the post-Business Combination company cannot satisfy such obligations via additional financings or through renegotiation, it may be in default on such obligations and will not have sufficient capital to fund the operations of the business, and its business, financial condition and results of operations could be adversely affected.

 

Anti-takeover provisions contained in Easterly’s current and proposed amended and restated certificates of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

 

Easterly’s current amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in its management without the consent of its board of directors. These provisions include:

 

  · no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

  · the exclusive right of Easterly’s board of directors to elect a director to fill a vacancy created by the expansion of Easterly’s board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on its board of directors;

 

  · the ability of Easterly’s board of directors to determine whether to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

  · a prohibition on stockholder action by written consent, which forces stockholder action to be taken only at a meeting of Easterly’s stockholders;

 

  · the requirement that an annual meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, or the board of directors, which may delay the ability of Easterly’s stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

  · limiting the liability of, and providing indemnification to, Easterly’s directors and officers;

 

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  · controlling the procedures for the conduct and scheduling of stockholder meetings; and

 

  · advance notice procedures that stockholders must comply with in order to nominate candidates to Easterly’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of Easterly’s board of directors.

 

These provisions, alone or together, could delay hostile takeovers and changes in control of Easterly or changes in its management. In connection with the Business Combination, Easterly intends to amend and restate its current amended and restated certificate of incorporation in the form of the amended and restated certificate of incorporation attached as Annex B, which will retain these provisions.

 

As a Delaware corporation, Easterly is also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware (“DGCL”), which, among other things, prevents Easterly from engaging in certain business combinations with stockholders holding more than 15% of Easterly’s outstanding common stock without approval of the holders of at least two-thirds of Easterly’s outstanding common stock (excluding shares held by such stockholders holding 15% or more of Easterly’s shares). Any provision of Easterly’s amended and restated certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for its stockholders to receive a premium for their shares of its common stock, and could also affect the price that some investors are willing to pay for its common stock.

 

Easterly’s proposed amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by Easterly’s stockholders which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with it.

 

Easterly’s proposed amended and restated certificate of incorporation designates the Court of Chancery in the State of Delaware as the sole and exclusive forum for any Easterly stockholder (including a beneficial owner) to bring certain litigation that may be initiated by Easterly stockholders which could limit Easterly’s stockholders’ ability to obtain a favorable judicial forum for disputes with it.

 

Unless Easterly consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on its behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of its directors, officers or other employees to Easterly or its stockholders, (iii) any action asserting a claim against it or any its directors, officers or other employees arising pursuant to any provision of the DGCL or its certificate of incorporation or bylaws, or (iv) any action asserting a claim against Easterly or any its directors, officers or other employees governed by the internal affairs doctrine. This forum selection provision in Easterly’s proposed amended and restated certificate of incorporation may limit Easterly stockholders’ ability to obtain a favorable judicial forum for disputes with it or any of Easterly’s directors, officers or other employees.

 

If Easterly is unable to effect a business combination by June 30, 2018, Easterly will be forced to liquidate and the warrants will expire worthless.

 

If Easterly does not complete a business combination by June 30, 2018 or extend such deadline to a later date by obtaining the approval of Easterly’s stockholders at a special meeting of Easterly’s stockholders, its amended and restated certificate of incorporation provides that it will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible, subject to lawfully available funds therefor, redeem 100% of 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 (less $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 rights of the 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 of directors in accordance with applicable law, dissolve and liquidate, subject in each case to Easterly’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law. In the event of liquidation, there will be no distribution with respect to Easterly’s outstanding warrants. Accordingly, the warrants will expire worthless.

 

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For illustrative purposes, based on funds in the Trust Account of $153.0 million on March 31, 2018, the estimated per share redemption price would have been approximately $10.18.

 

If Easterly is forced to liquidate, its stockholders may be held liable for claims by third parties against Easterly to the extent of distributions received by them.

 

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 public stockholders upon the redemption of 100% of the public shares in the event Easterly does not consummate an initial business combination by June 30, 2018 may be considered a liquidation distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, Easterly intends to redeem its public shares as soon as reasonably possible following June 30, 2018 in the event Easterly does not consummate an initial business combination and, therefore, Easterly does not intend to comply with those procedures.

 

Because Easterly will not be complying with Section 280, Section 281(b) of the DGCL requires Easterly to adopt a plan, based on facts known to it at such time that will provide for the payment of all existing and pending claims or claims that may be potentially brought against Easterly within the 10 years following dissolution. However, because Easterly is a blank check company, rather than an operating company, and its operations have been limited to searching for prospective target businesses, the only likely claims to arise would be from vendors (such as lawyers, investment bankers, and consultants) or prospective target businesses. If Easterly’s plan of distribution complies with Section 281(b) of the DGCL, any liability of its stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution. There can be no assurance that Easterly will properly assess all claims that may be potentially brought against it. As such, Easterly’s stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of its stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of the Trust Account distributed to Easterly’s public stockholders upon the redemption of 100% of the public shares in the event its does not consummate an initial business combination within the required timeframe 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 Easterly is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by Easterly’s stockholders. Furthermore, because Easterly intends to distribute the proceeds held in the Trust Account to its public stockholders promptly after June 30, 2018 in the event it does not consummate an initial business combination, this may be viewed or interpreted as giving preference to Easterly’s stockholders over any potential creditors with respect to access to or distributions from Easterly’s assets. Furthermore, Easterly’s board of directors may be viewed as having breached its fiduciary duties to Easterly’s creditors and/or may have acted in bad faith, thereby exposing itself and Easterly to claims of punitive damages, by paying Easterly’s stockholders from the Trust Account prior to addressing the claims of creditors. There can be no assurance that claims will not be brought against Easterly for these reasons.

 

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If Easterly is unable to complete the Business Combination by June 30, 2018, the amended and restated certificate of incorporation provides that Easterly shall cease operations and promptly dissolve and wind up. In such event, third parties may bring claims against Easterly and, as a result, the proceeds held in the Trust Account could be reduced and the per share liquidation price received by stockholders could be less than $10.00 per share.

 

Easterly must complete a business combination by June 30, 2018 or extend such deadline to a later date by obtaining the approval of Easterly’s stockholders at a special meeting of Easterly’s stockholders, when, pursuant to its amended and restated certificate of incorporation, it will cease all operations except for the purpose of winding up and it will be required to dissolve and liquidate. In such event, third parties may bring claims against it. Although Easterly has obtained waiver agreements from many of the vendors and service providers it has engaged and prospective target businesses with which it has negotiated, whereby such parties have waived any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of Easterly’s public stockholders, there is no guarantee that such parties will not bring claims seeking recourse 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 advantage with respect to a claim against Easterly’s assets, including the funds held in the Trust Account. Further, Easterly could be subject to claims from parties not in contract with it who have not executed a waiver. Darrell Crate, Easterly’s Chairman, Avshalom Kalichstein, its Chief Executive Officer and director, and David Cody have agreed that they will be jointly and severally liable to Easterly if and to the extent any claims by a vendor for services rendered or products sold to it, or a prospective target business with which it has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account or to any claims under Easterly’s indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, then they will not be responsible to the extent of any liability for such third-party claims. Easterly has not independently verified whether they have sufficient funds to satisfy their indemnity obligations, and Easterly has not asked Messrs. Crate, Kalichstein or Cody to reserve for such indemnification obligations. Therefore, Easterly cannot assure you that they would be able to satisfy those obligations. If they assert that they are unable to satisfy their obligations or that they have no indemnification obligations related to a particular claim, Easterly’s independent directors would determine whether to take legal action against them to enforce their indemnification obligations. While Easterly currently expects that its independent directors would take legal action on Easterly’s behalf against them to enforce their indemnification obligations to it, it is possible that Easterly’s independent directors, in exercising their business judgment, may choose not to do so if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable, or if the independent directors determine that a favorable outcome is not likely. If Easterly’s independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to Easterly’s public stockholders may be reduced below $10.00 per share.

 

If the Adjournment Proposal is not approved, and an insufficient number of votes have been obtained to authorize the consummation of the Business Combination, Easterly’s directors will not have the ability to adjourn the Easterly special meeting to a later date in order to solicit further votes, and, therefore, the Business Combination will not be approved.

 

If approved by the stockholders, the Adjournment Proposal will provide Easterly’s directors with additional time, if needed, to solicit proxies in favor of the proposals. If the Adjournment Proposal is not approved, and the remaining proposals fail to pass such that the Business Combination cannot be consummated, the Business Combination will not be completed. Because Easterly must consummate a business combination by the termination date of June 30, 2018 or extend such deadline to a later date by obtaining the approval of Easterly’s stockholders at a special meeting of Easterly’s stockholders, if the Business Combination is not approved, Easterly may not be able to consummate another transaction within the remaining time period, and as a result, it is likely that Easterly will have to redeem all of its public shares for their pro rata portions of the Trust Account and, promptly following such redemption, dissolve and liquidate.

 

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The Sponsor and Easterly’s independent directors have agreed to vote in favor of the Business Combination, regardless of how Easterly’s public stockholders vote.

 

Unlike blank check companies in which the founders agree to vote their founder shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, the Sponsor and Easterly’s independent directors have agreed to vote any shares of Easterly common stock owned by them in favor of Easterly’s initial business combination. As of the date hereof, the Sponsor and Easterly’s independent directors own shares equal to 25.0% of Easterly’s issued and outstanding shares of Easterly common stock. Accordingly, it is more likely that the necessary stockholder approval will be received for the Business Combination than would be the case if the Sponsor and Easterly’s independent directors agreed to vote any shares of Easterly common stock owned by them in accordance with the majority of the votes cast by Easterly’s public stockholders.

 

Easterly’s stockholders will experience immediate dilution of their ownership interests as a consequence of the issuance of common stock as consideration in the Business Combination. Having a minority share position will likely reduce the influence that its current stockholders have on the management of Easterly.

 

Easterly expects to issue 18,700,000 shares of Easterly Class B common stock (which, together with Class B Units, are exchangeable for 18,700,000 shares of Easterly Class A common stock) at the closing of the Business Combination to the JH Capital Class B Members. As a result, the public stockholders will hold 15,015,577 shares or approximately 41.5% of the post-Business Combination company, the Sponsor and the independent directors will hold will hold 2,500,000 shares or approximately 6.9% of the post-Business Combination company and the JH Capital Class B Members will hold 18,700,000 shares or approximately 51.6% of the post-Business Combination company. These percentages assume no Easterly shares are redeemed in connection with the Business Combination Proposal and also assume that there are no reductions to the JH Capital Class B Units pursuant to the Investment Agreement, and the assumed transaction expenses are as set forth in the unaudited pro forma consolidated financial statements. If the actual facts are different than these assumptions, the percentage ownership retained by Easterly’s existing stockholders will be different. This percentage also does not take into account (i) the issuance of up to 6,000,000 shares (or options to acquire shares) under the Omnibus Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans. If the actual facts differ from these assumptions, Easterly’s stockholders will experience dilution of their ownership interest unless they elect to have their shares of Easterly common stock redeemed in connection with the Business Combination Proposal. If Easterly’s stockholders experience dilution, a further minority share position may reduce the influence that Easterly’s current stockholders have on its management.

 

However, assuming (1) the issuance of the full number of shares of Easterly common stock described in clauses (i) through (iii) of the preceding paragraph (based on the current level of the Sponsor’s working capital loans with respect to clause (ii) and assuming that an aggregate principal amount of $35,000,000 of mezzanine loans are exchanged at a price of $10.00 per share with respect to clause (iii)), (2) none of Easterly’s stockholders exercise their redemption rights and (3) the Sponsor does not sell any of its Easterly Class A common stock to potential purchasers or current stockholders of Easterly at a purchase price equal to $0.005 per share, then ownership of the outstanding common stock of Easterly would be expected to be as follows: Easterly’s pre-Business Combination public stockholders will retain an ownership interest of approximately 41.8%; the JH Capital Class B Members will own approximately 31.2% (this amount does not include any of the 6,000,000 shares that may be issued to JH Capital Class B Members pursuant to the Omnibus Incentive Plan); the Sponsor and Easterly’s independent directors will own approximately 21.1%; and the mezzanine lenders who exchanged mezzanine loans for shares of Easterly Class A common stock will own approximately 5.8% of the outstanding common stock of the post-Business Combination company. You should read “Unaudited Pro Forma Consolidated Financial Information” for further information. Consequently, the ability of Easterly’s current stockholders following the Business Combination to influence management of Easterly through the election of directors will be substantially reduced.

 

If Easterly’s stockholders fail to comply with the redemption requirements specified in this proxy statement, they will not be entitled to redeem their shares of Easterly common stock for a pro rata portion of the Trust Account.

 

Holders of public shares are not required to affirmatively vote against the Business Combination Proposal in order to exercise their rights to redeem their shares for a pro rata portion of the Trust Account. In order to exercise their redemption rights, they are required to submit a request in writing and deliver their stock (either physically or electronically) to Easterly’s transfer agent at least two business days prior to the Easterly special meeting of the Stockholders. Stockholders electing to redeem their shares will receive their pro rata portion of the Trust Account less franchise and income taxes payable, calculated as of two business days prior to the anticipated consummation of the Business Combination. See the section entitled “Special Meeting of Easterly Stockholders” for additional information on how to exercise your redemption rights.

 

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Stockholders of Easterly who wish to have their shares redeemed for a pro rata portion of the Trust Account must comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising redemption rights.

 

Public stockholders who wish to redeem their shares for a pro rata portion of the Trust Account must, among other things, tender their certificates to Easterly’s transfer agent or deliver their shares to the transfer agent electronically through the DTC prior to 5:00 p.m., New York time, on the second business day prior to the Easterly special meeting of stockholders. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and Easterly’s transfer agent will need to act to facilitate this request. It is Easterly’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because Easterly does not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. If it takes longer than anticipated to obtain a physical certificate, stockholders who wish to redeem their shares may be unable to obtain physical certificates by the deadline for exercising their redemption rights and thus will be unable to redeem their shares.

 

Public stockholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking redemption rights with respect to more than 15% of the public shares.

 

A public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group,” will be restricted from seeking redemption rights with respect to more than 15% of the public shares. Accordingly, if you hold more than 15% of the public shares and the Business Combination Proposal is approved, you will not be able to seek redemption rights with respect to the full amount of your shares and may be forced to hold the shares in excess of 15% or sell them in the open market. Easterly cannot assure you that the value of such excess shares will appreciate over time following the Business Combination or that the market price of Easterly common stock will exceed the per-share redemption price.

 

Directors of Easterly have potential conflicts of interest in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other proposals described in this proxy statement.

 

When considering Easterly’s board of directors’ recommendation that Easterly’s stockholders vote in favor of the approval of the Business Combination Proposal and approval of the other proposals, Easterly’s stockholders should be aware that directors and executive officers of Easterly have interests in the Business Combination that may be different from, or in addition to, the interests of its stockholders. These interests include:

 

  · the approximately 2.4 million total Founder Shares that the Sponsor (or its members) will hold following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $24.9 million based on the Stock Price;

 

  · the 72,000 total Founder Shares that Easterly’s current independent directors will continue to own following the Business Combination, subject to lock-up agreements, which would have a value at April 12, 2018 of $738,000 based on the Stock Price;

 

  · the 6.75 million total Private Placement Warrants to purchase shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $5.4 million based on the Warrant Price;

 

  · the New Warrant to purchase 2,500,000 shares of Easterly Class A common stock that the Sponsor (or its members) will hold following the Business Combination, which would have a value at April 12, 2018 of $25.6 million based on the Stock Price and assuming all the conditions to exercise were satisfied;

 

  · if Easterly is unable to complete a business combination within the required time period, the Convertible Promissory Note issued to the Sponsor, currently in the amount of $895,000, will not be repaid and all amounts owed thereunder will be forgiven except to the extent that Easterly has funds available to it outside of the Trust Account to repay such amounts and the Sponsor also will lose the opportunity to acquire up to an additional 895,000 warrants to purchase shares of Easterly Class A common stock at a conversion price of $1.00 per warrant, which would have a value at April 12, 2018 of $715,732 based on the Warrant Price;

 

  · if Easterly is unable to complete a business combination within the required time period, Easterly’s Chairman, its Chief Executive Officer and David Cody will be personally liable to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Easterly for services rendered or contracted for or products sold to Easterly, but only if such a vendor or target business has not executed a waiver of claims against the Trust Account and except as to any claims under Easterly’s indemnity of the underwriters;

 

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  · the continuation of one of Easterly’s officers and directors as a director (but not an officer) of JH Capital Inc. following the closing; and

 

  · the continued indemnification of current directors and officers of Easterly and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

Further, each of Easterly’s directors, directly or indirectly, holds Founder Shares that are not subject to redemption and certain of Easterly’s directors indirectly hold Private Placement Warrants that would retire worthless if a Business Combination is not consummated; as a result, Easterly’s directors have a financial incentive to see a Business Combination consummated rather than lose whatever value is attributable to the Founder Shares and Private Placement Warrants. These interests may influence Easterly’s directors in making their recommendation that you vote in favor of the Business Combination Proposal, and the transactions contemplated thereby.

 

The exercise of discretion by Easterly’s directors and officers and JH Capital in agreeing to changes to the terms of or waivers of closing conditions in the Investment Agreement may result in a conflict of interest when determining whether such changes to the terms of the Investment Agreement or waivers of conditions are appropriate and in the best interests of Easterly’s stockholders.

 

In the period leading up to the closing of the Business Combination, other events may occur that, pursuant to the Investment Agreement, would require Easterly or JH Capital to agree to amend the Investment Agreement, to consent to certain actions or to waive rights that it is entitled to under those agreements. Such events could arise because of changes in the course of JH Capital’s or Easterly’s business, a request by such party to undertake actions that would otherwise be prohibited by the terms of the Investment Agreement or the occurrence of other events that would have a material adverse effect on JH Capital’s or Easterly’s business and would entitle the other party to terminate the Investment Agreement. In any of such circumstances, it would be in the discretion of the other party, acting through its board of directors, to grant its consent or waive its rights. The existence of the financial and personal interests of the directors described elsewhere in this proxy statement may result in a conflict of interest on the part of one or more of the directors between what he may believe is best for Easterly and its stockholders and what he may believe is best for himself or his affiliates in determining whether or not to take the requested action. As of the date of this proxy statement, neither Easterly nor JH Capital believe there will be any changes or waivers that its directors and officers would be likely to make after stockholder approval of the Business Combination has been obtained. While certain changes could be made without further stockholder approval, if there is a change to the terms of the transaction that would have a material impact on the Easterly stockholders, Easterly will be required to circulate a new or amended proxy statement or supplement thereto and resolicit the vote of Easterly’s stockholders with respect to the Business Combination Proposal.

 

Easterly or JH Capital may waive one or more of the conditions to the Business Combination.

 

Easterly or JH Capital may agree to waive, in whole or in part, some of the conditions to its respective obligations to complete the Business Combination, to the extent permitted by its existing amended and restated certificate of incorporation and applicable laws. For example, it is a condition to Easterly’s obligations to close the Business Combination that the representations and warranties of JH Capital are true and correct in all respects as of the date of the Investment Agreement and as of the date of the closing of the Business Combination (or an earlier date to the extent that an earlier date is referenced in the representation and warranty), except, for certain of the representations and warranties, for such inaccuracies that, individually or in the aggregate, would not result in a Material Adverse Effect (as defined in the Investment Agreement) on JH Capital and its subsidiaries taken as a whole. Under applicable law and each company’s existing charter, neither of JH Capital or Easterly is able to waive the condition that its respective stockholders approve the Business Combination.

 

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Easterly’s financial statements included in this proxy statement do not take into account the consequences to Easterly of a failure to complete a business combination by June 30, 2018.

 

If the proceeds held outside the Trust Account and any loans under the Convertible Promissory Note are insufficient to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a business combination, Easterly may need to raise additional capital through additional loans or additional investments from the Sponsor, an affiliate of the Sponsor or certain of Easterly’s officers and directors. None of the Sponsor, any affiliate of the Sponsor, or Easterly’s officers and directors are under any obligation to loan Easterly funds. The uncertainty regarding the lack of resources to pay the above noted expenses raises substantial doubt about Easterly’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should Easterly be unable to continue operations.

 

Easterly and JH Capital will be subject to business uncertainties and contractual restrictions while the Business Combination is pending.

 

Uncertainty about the effect of the Business Combination on employees and third parties may have an adverse effect on Easterly and JH Capital. These uncertainties may impair Easterly’s or JH Capital’s ability to retain and motivate key personnel and could cause third parties that deal with any of them to defer entering into contracts or making other decisions or seek to change existing business relationships. If key employees depart because of uncertainty about their future roles and the potential complexities of the Business Combination, Easterly’s or JH Capital’s business could be harmed.

 

Easterly will incur significant transaction and transition costs in connection with the Business Combination.

 

Easterly expects to incur significant, non-recurring costs in connection with consummating the Business Combination and JH Capital operating as a public company. Easterly may incur additional costs to maintain employee morale and to retain key employees. Easterly will also incur significant fees and expenses relating to financing arrangements and legal, accounting and other transaction fees and costs associated with the Business Combination. Some of these costs are payable regardless of whether the Business Combination is completed.

 

The unaudited pro forma financial information included in this document may not be indicative of what Easterly’s actual financial position or results of operations would have been.

 

The unaudited pro forma financial information in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what the post-Business Combination company’s actual financial position or results of operations would have been had the Business Combination been completed on the dates indicated. See the section entitled “Unaudited Pro Forma Consolidated Financial Information” for more information.

 

Easterly’s ability to consummate the Business Combination successfully and operate the business successfully thereafter will be largely dependent upon the efforts of certain key personnel, including the key personnel of JH Capital, all of whom Easterly expects to stay with JH Capital following the Business Combination. The loss of such key personnel could negatively impact the operations and profitability of the post-combination business.

 

Easterly’s ability to successfully effect the Business Combination and successfully operate the business is dependent upon the efforts of certain key personnel including the key personnel of JH Capital. Although Easterly expects all of such key personnel to remain with JH Capital following the Business Combination, it is possible that Easterly will lose some key personnel, the loss of which could negatively impact the operations and profitability of Easterly’s post-combination business. Furthermore, while Easterly has scrutinized individuals it intends to engage to stay with JH Capital following the Business Combination, Easterly’s assessment of these individuals may not prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause it to have to expend time and resources helping them become familiar with such requirements.

 

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Easterly has not obtained an opinion from an independent financial advisor, and consequently, there is no assurance from an independent source that the price Easterly is paying for JH Capital is fair to Easterly’s stockholders from a financial point of view.

 

Easterly is not required to and has not obtained an opinion from an independent financial advisor that the price Easterly is paying for JH Capital is fair to Easterly’s stockholders from a financial point of view. The Easterly board of directors has determined that the Business Combination consideration is fair from a financial point of view. The determination has been made by Easterly’s board of directors based upon standards generally accepted by the financial community, such as potential sales, earnings and cash flow, and the price for which comparable businesses or assets have been valued. Easterly’s stockholders will be relying on the judgment of Easterly’s board of directors with respect to such matters.

 

Risk Factors Related to Easterly Common Stock

 

The following risk factors apply to ownership of Easterly common stock and will also apply to ownership of the common stock of the combined company following the completion of the Business Combination.

 

There can be no assurance that Easterly’s common stock and warrants will be approved for listing on Nasdaq following the closing, or if approved, that Easterly will be able to comply with the continued listing standards of Nasdaq.

 

Easterly’s common stock, units and warrants are currently listed on the Nasdaq Capital Market. Easterly’s continued eligibility for listing may depend on the number of its shares that are redeemed. If, after the Business Combination, Nasdaq delists its common stock and warrants from trading on its exchange for failure to meet the listing standards, Easterly and its stockholders could face significant material adverse consequences including:

 

  · a limited availability of market quotations for Easterly securities;

 

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

 

  · a limited amount of analyst coverage; and

 

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

 

However, continued Nasdaq listing eligibility is a condition to the closing of the Business Combination.

 

Nasdaq may delist Easterly’s securities from trading on its exchange prior to the Business Combination, which could limit investors’ ability to make transactions in Easterly’s securities and subject it to additional trading restrictions.

 

Easterly cannot assure you that Easterly’s securities will continue to be listed on Nasdaq in the future and prior to the Business Combination. In order to continue listing Easterly’s securities on Nasdaq prior to the Business Combination, Easterly must maintain certain financial, distribution and stock price levels. Generally, Easterly must maintain a minimum amount in stockholders’ equity (generally $2,500,000) and a minimum number of holders of its securities (generally 300 round-lot holders). Additionally, in connection with the Business Combination, Easterly will be required to demonstrate compliance with Nasdaq’s initial listing requirements, which are more rigorous than Nasdaq’s continued listing requirements, in order to continue to maintain the listing of its securities on Nasdaq. For instance, Easterly’s stock price would generally be required to be at least $4.00 per share and its stockholders’ equity would generally be required to be at least $5.0 million. Easterly cannot assure you that it will be able to meet those initial listing requirements at that time.

 

On April 2, 2018, Easterly received a notification letter from the staff of the Listing Qualifications Department of The Nasdaq Stock Market notifying it that it no longer complies with Nasdaq Listing Rule 5550(a)(3) for continued listing due to its failure to maintain a minimum of 300 public holders of Easterly common stock. As a result, as of April 2, 2018, Easterly had 45 calendar days to submit a plan to regain compliance. If NASDAQ accepts Easterly’s plan, NASDAQ can grant an exception of up to 180 calendar days from April 2, 2018 to regain compliance. Easterly intends to submit to NASDAQ, within the requisite time, a plan to regain compliance. If NASDAQ does not accept Easterly’s plan, Easterly will have the opportunity to appeal NASDAQ’s decision to a NASDAQ Listing Qualifications Panel. If Easterly timely appeals, its securities would remain listed pending such decision. There can be no assurance that, if Easterly does appeal, such appeal would be successful.

 

If Nasdaq delists Easterly’s securities from trading on its exchange and Easterly is not able to list its securities on another national securities exchange, Easterly expects its securities could be quoted on an over-the-counter market. If this were to occur, Easterly could face significant material adverse consequences, including:

 

  · a limited availability of market quotations for its securities;

 

  · reduced liquidity for its securities;

 

  · a determination that its common stock is a “penny stock” which will require brokers trading in Easterly common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for its securities;

 

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  · a limited amount of news and analyst coverage; and

 

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

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because Easterly’s units, common stock and warrants are currently listed on Nasdaq, its units, common stock and warrants are covered securities. Although the states are preempted from regulating the sale of Easterly’s securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While Easterly is not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the state of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if Easterly were no longer listed on Nasdaq, its securities would not be covered securities and Easterly would be subject to regulation in each state in which it offers its securities.

 

Members of the Sponsor and its affiliates will have significant influence over the post-Business Combination company after the Business Combination, which could limit your ability to influence the outcome of key transactions, including a change of control.

 

Immediately following the completion of the Business Combination, the Sponsor may beneficially own approximately 6.9% of the post-Business Combination company’s outstanding common stock (assuming no redemptions from the Trust Account or issuances of additional Easterly Class A common stock) and approximately 45.9% of its outstanding warrants (assuming none of the Convertible Promissory Note is converted into additional warrants). Because of the degree of concentration of voting power (and the potential for such power to increase upon the purchase of additional stock or the exercise of warrants), your ability to elect members of the post-Business Combination company’s board of directors and influence its business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends, may be diminished. Similarly, in the event the Sponsor or anyone else acquires an interest in excess of 50%, they will collectively have the power to determine matters submitted to a vote of the post-Business Combination company’s stockholders without the consent of its other stockholders, will have the power to prevent a change in the post-Business Combination company’s control and could take other actions that might be favorable to themselves. Even with less than a 50% ownership interest, any stockholders with a significant percentage of the post-Business Combination company’s stock may be able to strongly influence or effectively control its decisions.

 

Additionally, members of the Sponsor are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with it. Such members of the Sponsor may also pursue acquisition opportunities that may be complementary to the post-Business Combination company’s business, and, as a result, those acquisition opportunities may not be available to it.

 

The JH Capital Class B Members will have significant influence over the post-Business Combination company after the Business Combination, which could limit your ability to influence the outcome of key transactions, including a change of control.

 

Immediately following the completion of the Business Combination, the JH Capital Class B Members may collectively beneficially own, and be entitled to vote, approximately 51.6% of the post-Business Combination company’s outstanding common stock (assuming no redemptions from the Trust Account or issuances of additional Easterly Class A common stock). Because of the degree of concentration of voting power (and the potential for such power to increase upon the purchase of additional stock) and the director nomination rights described in the next paragraph, your ability to elect members of the post-Business Combination company’s board of directors and influence its business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends, may be diminished.

 

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In addition, for so long as the aggregate number of shares of Easterly Class A common stock and Easterly Class B common stock beneficially owned by Jacobsen Holdings, any entity controlled by Douglas Jacobsen and all of their respective affiliates represents at least 10% of the total number of issued and outstanding shares of Easterly Class A common stock and Easterly Class B common stock, then Jacobsen Holdings will have a right to nominate one individual to be included in the slate of director nominees at each election of directors by the stockholders of Easterly. For so long as the aggregate number of shares of Easterly Class A common stock and Easterly Class B common stock beneficially owned by KCF, any entity controlled by Norman Kravetz and all of their respective affiliates represents at least 10% of the total number of issued and outstanding shares of Easterly Class A common stock and Easterly Class B common stock, then KCF will have a right to nominate one individual to be included in the slate of director nominees at each election of directors by the stockholders of Easterly.

 

Since the Sponsor, Easterly’s officers, directors and their affiliates will lose their entire investment in Easterly if the Business Combination is not completed, they may have had a conflict of interest in identifying and selecting JH Capital for Easterly’s initial business combination.

 

After giving effect to the July 3, 2015 stock dividend, expiration of Easterly’s overallotment that was partially exercised and the transfer of 72,000 shares to Easterly’s independent directors, the Sponsor currently owns an aggregate of 4,928,000 Founder Shares for an aggregate purchase price of $25,000. In addition, the Sponsor purchased 6,750,000 Private Placement Warrants, at a price of $1.00 per warrant, in a private placement that occurred simultaneously with the completion of the IPO. All of such Founder Shares and Private Placement Warrants will be worthless if an initial business combination is not consummated. The personal and financial interests of the Sponsor, Easterly’s officers, directors and their affiliates may have influenced their motivation in identifying and selecting JH Capital for its target business combination and consummating the Business Combination.

 

If the Business Combination’s benefits do not meet the expectations of investors or securities analysts, the market price of Easterly’s securities may decline.

 

If the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the market price of Easterly’s securities may decline. The market values of Easterly’s securities at the time of the Business Combination may vary significantly from their prices on the date the Investment Agreement was executed, the date of this proxy statement, or the date on which Easterly’s stockholders vote on the Business Combination. Because the share exchange ratio in the Investment Agreement will not be adjusted to reflect any changes in the market price of Easterly common stock, the market value of Easterly common stock issued in the Business Combination may be higher or lower than the values of these shares on earlier dates.

 

Warrants will become exercisable for Easterly common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to Easterly’s stockholders, and could adversely impact the market price of Easterly Class A common stock.

 

If the Business Combination is completed, outstanding warrants to purchase an aggregate of 17,638,000 shares of Easterly Class A common stock will become exercisable in accordance with the terms of the warrant agreement governing those securities. These warrants will become exercisable 30 days after the completion of the Business Combination. The exercise price of these warrants will be $11.50 per share, or $202.8 million in the aggregate for all shares underlying these warrants, assuming none of the warrants are exercised through “cashless” exercise. In addition, Easterly may issue additional warrants (with terms and conditions identical to the Private Placement Warrants) to the Sponsor to satisfy outstanding working capital loans owed to the Sponsor by Easterly, currently in the amount of $895,000. The Sponsor has the right to elect to receive cash or warrants (valued at $1 per warrant) to satisfy such loans up to a maximum of 1,000,000 warrants. To the extent such warrants are exercised, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of Easterly Class A common stock.

 

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In addition, following the closing of the Business Combination, the New Warrant to purchase an aggregate of 2,500,000 shares of Easterly Class A common stock will become exercisable in accordance with the terms of the New Warrant. The New Warrant will have a term of 5 years and may only be exercisable as follows: (x) 1,000,000 shares will be exercisable if the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $12.00, (y) an additional 1,000,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of the Easterly Class A common stock for 10 consecutive trading days is higher than $13.00 and (z) the final 500,000 shares will be exercisable if (A) Easterly has raised gross proceeds of at least $200,000,000 from the sale of its equity securities, including the gross proceeds released to Easterly from the Trust Account and the amount of the Fortress Loan, and (B) the average of the volume weighted averages of the trading price of a share of Easterly Class A common stock for 10 consecutive trading days is higher than $14.00. The exercise price of these warrants will be $0.01 per share, or $25,000 in the aggregate for all shares underlying these warrants, assuming none of the warrants are exercised through “cashless” exercise. To the extent such warrants are exercised, additional shares of Easterly Class A common stock will be issued, which will result in dilution to the holders of Easterly Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of Easterly Class A common stock.

 

If, following the Business Combination, securities or industry analysts do not publish or cease publishing research or reports about the post-Business Combination company, its business, or its market, or if they change their recommendations regarding the post-Business Combination company’s Class A common stock adversely, the price and trading volume of its Class A common stock could decline.

 

The trading market for the post-Business Combination company Class A common stock will be influenced by the research and reports that industry or securities analysts may publish about it, its business, its market, or its competitors. Securities and industry analysts do not currently, and may never, publish research on Easterly. If no securities or industry analysts commence coverage of the post-Business Combination company, its stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover Easterly change their recommendation regarding its stock adversely, or provide more favorable relative recommendations about its competitors, the price of Easterly Class A common stock would likely decline. If any analyst who may cover Easterly were to cease coverage of Easterly or fail to regularly publish reports on it, Easterly could lose visibility in the financial markets, which in turn could cause Easterly’s stock price or trading volume to decline.

 

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of the post-Business Combination company’s income or other tax returns could adversely affect the post-Business Combination company’s financial condition and results of operations.

 

The post-Business Combination company will be subject to income taxes in the United States, and its domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. The post-Business Combination company’s future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

  · changes in the valuation of Easterly’s or JH Capital’s deferred tax assets and liabilities;

 

  · expected timing and amount of the release of any tax valuation allowances;

 

  · tax effects of stock-based compensation;

 

  · costs related to intercompany restructurings; or

 

  · lower than anticipated future earnings in jurisdictions where it has lower statutory tax rates and higher than anticipated future earnings in jurisdictions where it has higher statutory tax rates.

 

In addition, the post-Business Combination company may be subject to audits of Easterly’s or JH Capital’s income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on its financial condition and results of operations.

 

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The post-Business Combination company’s Class A common stock price could be extremely volatile, and, as a result, you may not be able to resell your shares at or above the price you paid for them.

 

In recent years the stock market in general has been highly volatile. As a result, the market price and trading volume of the post-Business Combination company’s securities is likely to be similarly volatile, and investors in the post-Business Combination company’s securities may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to the post-Business Combination company’s results of operations or prospects, and could lose part or all of their investment. The price of the post-Business Combination company’s common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this proxy statement and others such as:

 

  · variations in operating performance and the performance of its competitors or alternative energy companies in general;

 

  · actual or anticipated fluctuations in the post-Business Combination company’s quarterly or annual operating results;

 

  · publication of research reports by securities analysts about the post-Business Combination company’s or its competitors or its industry;

 

  · the public’s reaction to the post-Business Combination company’s press releases, its other public announcements and its filings with the SEC;

 

  · the post-Business Combination company’s failure or the failure of its competitors to meet analysts’ projections or guidance that the post-Business Combination company’s or its competitors may give to the market;

 

  · additions and departures of key personnel;

 

  · strategic decisions by the post-Business Combination company’s or its competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

  · the passage of legislation or other regulatory developments affecting the post-Business Combination company or its industry;

 

  · speculation in the press or investment community;

 

  · changes in accounting principles;

 

  · terrorist acts, acts of war or periods of widespread civil unrest;

 

  · natural disasters and other calamities; and

 

  · changes in general market and economic conditions.

 

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert the post-Business Combination company’s management’s attention and resources, and could also require it to make substantial payments to satisfy judgments or to settle litigation.

 

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The requirements of being a public company may strain the post-Business Combination company’s resources and divert management’s attention.

 

As a public company, Easterly is subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Following the Business Combination, JH Capital Inc. will also be subject to the same requirements. Compliance with these rules and regulations increase the post-Business Combination company’s legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increase demand on its systems and resources, particularly after the post-Business Combination company is no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that the post-Business Combination company maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve the post-Business Combination company’s disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect the post-Business Combination company’s business and operating results. The post-Business Combination company may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase its costs and expenses.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. The post-Business Combination company intends to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If its efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against the post-Business Combination company and its business may be adversely affected.

 

Your percentage ownership in the post-Business Combination company may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.

 

Following the completion of the Business Combination, the post-Business Combination company’s board of directors has the authority, without action or vote of its stockholders, to issue all or any part of its authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of Easterly’s authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which the post-Business Combination company’s stockholders vote and, in the case of issuances of preferred stock, would likely result in your interest in the post-Business Combination company being subject to the prior rights of holders of that preferred stock.

 

There may be sales of a substantial amount of the post-Business Combination company’s common stock after the Business Combination by Easterly’s current stockholders, and these sales could cause the price of the post-Business Combination company’s common stock to fall.

 

After the Business Combination, there is expected to be 36,215,577 shares of common stock outstanding (assuming no redemptions by Easterly stockholders in connection with the Business Combination Proposal and no reductions to the JH Capital Class B Units pursuant to the Investment Agreement). Following completion of the Business Combination, approximately 6.9% of the post-Business Combination company’s outstanding common stock will be held by the Sponsor and Easterly’s independent directors and 51.6% will be held by the JH Capital Class B Members. These percentages do not take into account (i) the issuance of up to 6,000,000 shares (or options to acquire shares) under the Omnibus Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 20,138,000 shares of Easterly common stock that will remain outstanding following the Business Combination or any additional warrants that Easterly may issue to the Sponsor to repay working capital loans owed by Easterly to the Sponsor (currently in the amount of $895,000) or (iii) any shares of Easterly Class A common stock issued in exchange for JH Group Companies’ or their respective subsidiaries’ mezzanine loans. If the actual facts differ from these assumptions, Easterly’s stockholders will experience dilution of their ownership interest unless they elect to have their shares of Easterly common stock redeemed in connection with the Business Combination Proposal.

 

However, assuming (1) the issuance of the full number of shares of Easterly common stock described in clauses (i) through (iii) of the preceding paragraph (based on the current level of the Sponsor’s working capital loans with respect to clause (ii) and assuming that an aggregate principal amount of $35,000,000 of mezzanine loans are exchanged at a price of $10.00 per share with respect to clause (iii)), (2) none of Easterly’s stockholders exercise their redemption rights and (3) the Sponsor does not sell any of its Easterly Class A common stock to potential purchasers or current stockholders of Easterly at a purchase price equal to $0.005 per share, then ownership of the outstanding common stock of Easterly would be expected to be as follows: Easterly’s pre-Business Combination public stockholders will retain an ownership interest of approximately 41.8%; the JH Capital Class B Members will own approximately 31.2% (this amount does not include any of the 6,000,000 shares that may be issued to JH Capital Class B Members pursuant to the Omnibus Incentive Plan); the Sponsor and Easterly’s independent directors will own approximately 21.1%; and the mezzanine lenders who exchanged mezzanine loans for shares of Easterly Class A common stock will own approximately 5.8% of the outstanding common stock of the post-Business Combination company. You should read “Unaudited Pro Forma Consolidated Financial Information” for further information.

 

No later than 15 days following the Business Combination, Easterly is required to file a shelf registration statement relating to the offer and sale of the Registrable Securities (as defined in the Registration Rights Agreement) owned by the JH Capital Class B Members and certain of their permitted transferees. Future sales of the post-Business Combination company’s common stock may cause the market price of its securities to drop significantly, even if its business is doing well.

 

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In addition, Easterly entered into a registration rights agreement with respect to the Founder Shares, shares of Easterly common stock underlying the Private Placement Warrants, any warrants issued in exchange for repayment of the Convertible Promissory Note and the New Warrant and all shares issued to a holder with respect to the securities referred above by way of any stock split, stock dividend, recapitalization, combination of shares, acquisition, consolidation, reorganization, share exchange, or similar event, which securities Easterly collectively refer to as “registrable securities.” Under the registration rights agreement, Easterly has agreed to register for resale under a shelf registration statement all of the shares held by holders of Founder Shares and issuable upon conversion of Easterly warrants. The Sponsor is also entitled to a number of demand registration rights. Holders of registrable securities will also have certain “piggyback” registration rights with respect to registration statements filed subsequent to the Business Combination.

 

Upon effectiveness of the registration statements Easterly files pursuant to the registration rights agreements, these parties may sell large amounts of Easterly common stock in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in Easterly’s stock price or putting significant downward pressure on the price of Easterly Class A common stock.

 

Sales of substantial amounts of Easterly Class A common stock in the public market after the Business Combination, or the perception that such sales will occur, could adversely affect the market price of Easterly Class A common stock and make it difficult for it to raise funds through securities offerings in the future.

 

Easterly’s stockholders are subject to significant dilution upon the occurrence of certain events which could result in a decrease in the Easterly Class A common stock price.

 

As of April 12, 2018, Easterly had 36,639,388 shares of its common stock reserved or designated for future issuance upon the exercise of the public warrants, the Private Placement Warrants, the New Warrant, warrants issuable upon conversion of the Convertible Promissory Note and the Fortress Warrant, and options or grants of shares pursuant to the Omnibus Incentive Plan. Further, Easterly may from time to time make an offer to its warrant holders to exchange their outstanding warrants for shares of its common stock, a fewer number of warrants with more favorable terms, or a combination thereof.

 

Sales of substantial amounts of Easterly’s common stock into the public markets by the holders of these warrants and options following their exercise will be dilutive to Easterly’s existing stockholders and could result in a decrease in the Easterly Class A common stock price.

 

Easterly has not registered the shares of Easterly Class A common stock issuable upon exercise of the public warrants under the Securities Act or states securities laws at this time, and such registration may not be in place when an investor desires to exercise public warrants, thus precluding such investor from being able to exercise its public warrants and causing such public warrants to expire worthless.

 

Easterly has not registered the shares of Easterly Class A common stock issuable upon exercise of the public warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, Easterly has agreed to use its best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the Easterly Class A common stock issuable upon exercise of the public warrants, and to use its best efforts to take such action as is necessary to register or qualify for sale, in those states in which the public warrants were initially offered by it, the shares issuable upon exercise of the public warrants, to the extent an exemption is not available. Easterly cannot assure you that it will be able to do so. If the Easterly shares issuable upon exercise of the public warrants are not registered under the Securities Act, Easterly will be required to permit holders to exercise their public warrants on a cashless basis, under certain circumstances specified in the amended and restated warrant agreement. However, no public warrant will be exercisable for cash or on a cashless basis, and Easterly will not be obligated to issue any shares to holders seeking to exercise their public warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, unless an exemption is available. In no event will Easterly be required to issue cash, securities or other compensation in exchange for the public warrants in the event that it is unable to register or qualify the shares underlying the public warrants under the Securities Act or applicable state securities laws. If the issuance of the Easterly shares upon exercise of the public warrants is not so registered or qualified, the holder of such public warrant shall not be entitled to exercise such public warrant and such public warrant may have no value and expire worthless. In such event, holders who acquired their public warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Easterly Class A common stock included in the units. If and when the public warrants become redeemable by Easterly, it may exercise its redemption right even if it is unable to register or qualify the underlying shares of Easterly Class A common stock for sale under all applicable state securities laws.

 

Because there are no current plans to pay cash dividends on the post-Business Combination company’s Class A common stock for the foreseeable future, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.

 

The post-Business Combination company may retain future earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of the board of directors and will depend on, among other things, its results of operations, financial condition, cash requirements, contractual restrictions and other factors that the board of directors may deem relevant. In addition, the post-Business Combination company’s ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness it or its subsidiaries incur. As a result, you may not receive any return on an investment in the post-Business Combination company’s common stock unless you sell such common stock for a price greater than that which you paid for it. See the section entitled “Price Range of Securities and Dividends — Dividends — Dividend Policy of Easterly.”

 

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The New LLC Agreement will provide that JH Capital will adopt a distribution policy under which it shall use reasonable best efforts to distribute, on an annual basis, an aggregate amount equal to $10,000,000, subject to applicable laws or regulatory requirements applicable to, or any debt of, JH Capital and its subsidiaries. In addition, JH Capital may make distributions in excess of $10,000,000, as reasonably determined by Easterly after reasonably considering the reasonably anticipated needs of JH Capital’s and its subsidiaries’ businesses. The first $10,000,000 distributed by JH Capital on an annual basis will be distributed pro rata to Easterly and the Principal Members based on the number of outstanding Class A Units and Class B-1 Units. Amounts in excess of $10,000,000 distributed on an annual basis will be distributed pro rata to Easterly and the JH Capital Class B Members (including the Principal Members) in proportion to their holdings of Class A Units and Class B Units. However, although Easterly will receive its pro rata shares of such distributions, there can be no assurance that Easterly will dividend any amounts of such distributions to Easterly’s stockholders.

 

Unlike some other blank check companies, Easterly does not have a specified maximum redemption threshold. The absence of such a redemption threshold will make it easier for Easterly to consummate the Business Combination even if a substantial number of Easterly stockholders redeem.

 

Since Easterly has no specified maximum redemption threshold, its structure is different in this respect from the structure that has been used by some blank check companies. Previously, some blank check companies would not be able to consummate a business combination if the holders of such companies’ public shares elected to redeem or convert more than a specified percentage of the shares sold in such companies’ initial public offerings, which percentage threshold was typically between 19.99% and 39.99%.

 

As a result, Easterly may be able to consummate the Business Combination even though a substantial number of Easterly public stockholders have redeemed their shares. In no event, however, will Easterly redeem public shares in an amount that would cause its net tangible assets to be less than $5,000,001. Redemptions of Easterly public shares by Easterly public stockholders will decrease the amount of cash available to the combined company following the closing of the Business Combination.

 

Activities taken by affiliates of Easterly or the Founding Members to purchase, directly or indirectly, public shares will increase the likelihood of approval of the Business Combination Proposal and other proposals and may affect the market price of Easterly’s securities during the buyback period.

 

In connection with the stockholder vote to approve the proposed Business Combination, the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed for a per-share pro rata portion of the Trust Account in conjunction with their consideration of a proposal to approve the Business Combination. No such person will make any such purchases when such persons are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. It is expected that such a purchase would include a contractual acknowledgement that such stockholder, although still the record holder of Easterly’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. To the extent required to comply with applicable securities laws, Easterly expects that any purchase by the Sponsor would be reported promptly on an amendment to the Sponsor’s Schedule 13D. In the event that the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Although none of the Sponsor, Easterly’s directors, officers, advisors, the Founding Members or their respective affiliates currently anticipate paying any premium purchase price for such public shares, in the event such parties do, the payment of a premium may not be in the best interest of those stockholders not receiving any such additional consideration. There is no limit on the number of shares that could be acquired by the Sponsor, Easterly’s directors, officers or advisors, the Founding Members or their respective affiliates or the other stockholders or their directors, officers or advisors, or their respective affiliates, or the price such persons may pay. Other stockholders will experience a reduction in book value per share compared to the value received by stockholders that have their shares purchased by them at a premium.

 

 

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If such transactions are effected, the consequence could be to cause the Business Combination to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Business Combination Proposal and other proposals and would likely increase the chances that such proposals would be approved. If the market does not view the Business Combination positively, purchases of public shares may have the effect of counteracting the market’s view, which would otherwise be reflected in a decline in the market price of Easterly’s securities. In addition, the termination of the support provided by these purchases may materially adversely affect the market price of Easterly’s securities.

 

As of the date of this proxy statement, no agreements with respect to the private purchase of public shares by the persons described above have been entered into with any such investor or holder. Easterly will file a Current Report on Form 8-K with the SEC to disclose private arrangements entered into or significant private purchases made by any of the aforementioned persons that would affect the vote on the Business Combination Proposal or other proposals.

 

Easterly public stockholders do not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. Therefore, in order to liquidate your investment, holders may be forced to sell their public shares or warrants, potentially at a loss.

 

Easterly’s public stockholders are entitled to receive funds from the Trust Account only upon the earlier to occur of: (i) the consummation of its initial business combination; (ii) the expiration or termination of any tender offer conducted by it in connection with a proposed business combination not otherwise withdrawn; (iii) the redemption of its public shares if it is unable to consummate a business combination by June 30, 2018, subject to applicable law; or (iv) otherwise upon its liquidation or in the event its board of directors resolves to liquidate the Trust Account and ceases to pursue the consummation of a business combination prior to June 30, 2018 (Easterly’s board of directors may determine to liquidate the Trust Account prior to such expiration if it determines, in its business judgment, that it is improbable within the remaining time to identify an attractive business combination or satisfy regulatory and other business and legal requirements to consummate a business combination). In addition, if Easterly is unable to consummate an initial business combination by June 30, 2018 or extend such deadline to a later date by obtaining the approval of Easterly’s stockholders at a special meeting of Easterly’s stockholders, for any reason, compliance with Delaware law may require that Easterly submit a plan of dissolution to its then-existing stockholders for approval prior to the distribution of the proceeds held in the Trust Account. In that case, public stockholders may be forced to wait beyond June 30, 2018 before they receive funds from the Trust Account. In no other circumstances will a public stockholder have any right or interest of any kind in the Trust Account. Accordingly, to liquidate your investment, holders may be forced to sell their public shares or warrants, potentially at a loss.

 

The JOBS Act permits “emerging growth companies” like Easterly and the post-Business Combination company to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.

 

Easterly qualifies, and it is expected that the post-Business Combination company will continue to qualify, as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, Easterly, including following the Business Combination, is eligible for and intends to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements. Easterly and the post-Business Combination company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which Easterly had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which Easterly has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of Easterly common stock in the IPO.

 

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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as Easterly is an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Easterly intends to take advantage of the benefits of this extended transition period.

 

As a result of Easterly’s election to take advantage of these exemptions available to it under the JOBS Act, the financial statements of Easterly and the post-Business Combination company may not be comparable to companies that comply with public company effective dates for new reporting requirements. We cannot predict if investors will find Easterly’s or the post-Business Combination company’s common stock less attractive because it will rely on these exemptions. If some investors find Easterly common stock less attractive as a result, there may be a less active trading market for such common stock and its stock price may be more volatile.

 

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the post-Business Combination company’s business and stock price.

 

JH Capital is not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and therefore is not required to make a formal assessment of the effectiveness of its internal control over financial reporting for that purpose. As a publicly traded company, Easterly is required to comply with the SEC’s rules implementing Section 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in Easterly’s quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Following the Business Combination, JH Capital Inc. will also be required to comply with such rules. Though JH Capital Inc. will be required to disclose changes made in its internal controls and procedures on a quarterly basis, JH Capital Inc. will not be required to make its first annual assessment of its internal control over financial reporting pursuant to Section 404 until the year following its first annual report required to be filed with the SEC. Pursuant to the JOBS Act, JH Capital Inc.’s independent registered public accounting firm will not be required to attest to the effectiveness of its internal control over financial reporting until the later of the year following JH Capital Inc.’s first annual report required to be filed with the SEC or the date it is no longer an emerging growth company, which may be up to five full fiscal years following the IPO.

 

To comply with the requirements of being a public company, the post-Business Combination company may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. In addition, the post-Business Combination company may identify material weaknesses in its internal control over financial reporting that it may not be able to remediate in time to meet the applicable deadline imposed upon it for compliance with the requirements of Section 404.

 

If Easterly or the post-Business Combination company identifies weaknesses in its internal control over financial reporting, are unable to comply with the requirements of Section 404 in a timely manner or to assert that its internal control over financial reporting is effective, or if its independent registered public accounting firm is unable to express an opinion as to the effectiveness of its internal control over financial reporting, investors may lose confidence in the accuracy and completeness of its financial reports and the market price of the post-Business Combination company’s common stock could be negatively affected, and the post-Business Combination company could become subject to investigations by Nasdaq (the exchange on which Easterly’s securities are listed), the SEC or other regulatory authorities, which could require additional financial and management resources. Additionally, financial resources, as well as management’s time and attention, will need to be allocated to remediating existing weaknesses, as described in more detail under the risk factor entitled “JH Capital has identified a material weakness in its internal controls over financial reporting.”

 

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Following the consummation of the Business Combination, Easterly’s only significant asset will be ownership of approximately 48.4% of JH Capital. Easterly will have no operations of its own and no independent ability to generate revenue, and may not have sufficient funds to pay taxes, pay dividends on the Easterly Class A common stock, if any, or make payments under the Tax Receivable Agreement.

 

Following the consummation of the Business Combination, Easterly will have no direct operations and no significant assets other than the ownership of approximately 48.4% of JH Capital (assuming no shares of Easterly common stock are elected to be redeemed in connection with the Business Combination Proposal, no adjustments are made to the number of Class B Units held by the JH Capital Members pursuant to the Investment Agreement and no shares of Easterly Class A common stock are issued in exchange for JH Group Companies’ and their subsidiaries’ mezzanine loans). With no operations of its own and no independent ability to generate revenue, Easterly will accordingly be dependent upon distributions from JH Capital to pay its taxes, pay dividends to stockholders and make payments under the Tax Receivable Agreement. Easterly is required to pay taxes on its allocable share of the taxable income of JH Capital without regard to whether JH Capital distributes any cash or other property to it. Although the New LLC Agreement requires JH Capital to make pro rata distributions to the holders of its Units (including Easterly) to enable such holders to pay taxes on their allocable shares of the taxable income of JH Capital (based on an assumed tax rate and certain other factors), JH Capital must have sufficient available cash in order to make these distributions. Further, although Easterly intends to cause JH Capital to make sufficient distributions to allow it to make payments under the Tax Receivable Agreement and pay dividends, if any, to its stockholders, deterioration in the financial condition, earnings or cash flow of JH Capital for any reason could limit or impair JH Capital’s ability to pay such distributions. Additionally, to the extent that Easterly needs funds and JH Capital is restricted from making such distributions under applicable law or regulation or under the terms of its financing arrangements, or is otherwise unable to provide such funds, it could materially adversely affect Easterly’s liquidity and financial condition.

 

Except as described in the section of this proxy titled “Price Range of Securities and Dividends — Dividends — Dividend Policy of JH Capital Inc. Following the Business Combination”, payments of dividends, if any, will be at the discretion of Easterly’s board of directors after taking into account various factors, including Easterly’s business, operating results and financial condition, current and anticipated cash needs (including Easterly’s obligation to make payments under the Tax Receivable Agreement), plans for expansion and any legal or contractual limitations on its ability to pay dividends. Any financing arrangement that Easterly enters into in the future may include restrictive covenants that limit Easterly’s ability to pay dividends. In addition, JH Capital is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of JH Capital (with certain exceptions) exceed the fair value of its assets.

 

Although Easterly may be entitled to tax benefits relating to additional tax depreciation or amortization deductions as a result of the tax basis step-up it receives in connection with exchanges of Class B Units into Easterly Class A common stock and related transactions, Easterly will be required to pay the exchanging members of JH Capital 85% of these tax benefits under the Tax Receivable Agreement.

 

Holders of Class B Units may, subject to certain conditions and transfer restrictions, exchange their Class B Units for Easterly Class A common stock, or, at the election of JH Capital, cash, pursuant to the Exchange Agreement. These exchanges are expected to result in increases in Easterly’s allocable share of the tax basis of the tangible and intangible assets of JH Capital. These increases in tax basis may increase (for tax purposes) depreciation and amortization deductions and therefore reduce the amount of income tax that Easterly would otherwise be required to pay in the future, although the Internal Revenue Service (“IRS”) or any applicable foreign, state or local tax authority may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

 

In connection with the Business Combination, Easterly will enter into the Tax Receivable Agreement, which provides for the payment by it to exchanging holders of Class B Units of 85% of income tax benefits, if any, that Easterly realizes (or is deemed to realize in certain circumstances) as a result of these increases in tax basis and of certain other tax benefits, including income tax benefits attributable to payments under the Tax Receivable Agreement. This payment obligation is an obligation of Easterly and not of JH Capital. While the actual increase in Easterly’s allocable share of JH Capital’s tax basis in its assets, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of Easterly Class A common stock at the time of the exchange and the amount and timing of Easterly’s income, Easterly expects that as a result of the possible size and frequency of the exchanges and the resulting increases in the tax basis of the tangible and intangible assets of JH Capital, the payments that Easterly expects to make under the Tax Receivable Agreement will be substantial and could have a material adverse effect on the financial condition of Easterly. The payments under the Tax Receivable Agreement are not conditioned upon continued ownership of Easterly by the holders of Class B Units. See “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Tax Receivable Agreement.”

 

The exchanging holders of Class B Units will not be required to reimburse Easterly for any excess payments that may previously have been made under the Tax Receivable Agreement, for example, due to adjustments resulting from examinations by taxing authorities. Rather, excess payments made to such holders will be netted against payments otherwise to be made, if any. As a result, in certain circumstances Easterly could make payments under the Tax Receivable Agreement in excess of Easterly’s actual income tax savings, which could materially impair Easterly’s financial condition.

 

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In certain cases, payments under the Tax Receivable Agreement may be accelerated or significantly exceed the actual benefits Easterly realizes in respect of the tax attributes subject to the Tax Receivable Agreement.

 

The Tax Receivable Agreement provides that, in the event that Easterly exercises its right to early termination of the Tax Receivable Agreement, or in the event of a change in control of Easterly as defined in the Tax Receivable Agreement where holders of Class B Units elect to accelerate Easterly’s obligations under the Tax Receivable Agreement with respect to such holders, the Tax Receivable Agreement will terminate, and Easterly will be required to make a lump-sum payment to the JH Capital Class B Members (and any other holder of Class B Units as of such date that is a party to the Tax Receivable Agreement) equal to the present value of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement, which lump-sum payment would be based on certain assumptions, including those relating to Easterly’s future taxable income and that all holders of Class B Units who are parties to the Exchange Agreement would exchange their Class B Units on the date of the termination. In such events, the payments to holders of Class B Units could be substantial and could exceed the actual tax benefits that Easterly receives because the amounts of such payments would be calculated assuming that Easterly would have been able to use the potential tax benefits each year for the remainder of the amortization periods applicable to the basis increases, and that tax rates applicable to Easterly would be the same as they were in the year of the termination.

 

Decisions made by officers and directors of the post-Business Combination company in the course of running its business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by the JH Capital Class B Members and the holders of Class B Units under the Tax Receivable Agreement. For example, the earlier disposition of assets following an exchange or acquisition transaction may accelerate payments under the Tax Receivable Agreement and increase the present value of such payments, and the disposition of assets before an exchange or acquisition transaction may increase an existing owner’s tax liability without giving rise to any rights of the JH Capital Class B Members or holders of Class B Units to receive payments under the Tax Receivable Agreement.

 

There may be a material negative effect on Easterly’s liquidity if the payments under the Tax Receivable Agreement exceed the actual income tax savings that it realizes in respect of the tax attributes subject to the Tax Receivable Agreement or if distributions to Easterly by JH Capital are not sufficient to permit Easterly to make payments under the Tax Receivable Agreement after it has paid taxes and other expenses. Furthermore, Easterly’s obligations to make payments under the Tax Receivable Agreement could make it a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are deemed realized under the Tax Receivable Agreement. Easterly may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement to the extent its cash resources are insufficient to meet its obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise, which may have a material adverse effect on its financial condition.

 

Easterly may not be able to realize all or a portion of the tax benefits that are expected to result from the acquisition of Class B Units from the other JH Capital Class B Members.

 

Under the Tax Receivable Agreement, Easterly is entitled to retain 15% of the total tax savings it realizes (or is deemed to realize in certain circumstances) as a result of increases in tax basis created by exchanges of Class B Units for Easterly Class A common stock or cash, and as a result of certain other tax benefits, including income tax benefits attributable to payments under the Tax Receivable Agreement. Easterly’s ability to realize, and benefit from, these tax savings depends on a number of assumptions, including that it will earn sufficient taxable income each year during the period over which the tax benefits are available and that there are no adverse changes in applicable law or regulations. If Easterly’s actual taxable income were insufficient to fully utilize such tax benefits or there were adverse changes in applicable law or regulations, it may be unable to realize all or a portion of these expected benefits and its cash flows and stockholders’ equity could be negatively affected.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 

 

The following unaudited pro forma consolidated balance sheet as of December 31, 2017, and the unaudited pro forma consolidated statement of operations for the year ended December 31, 2017, combine the historical financial statements of Easterly and JH Capital, after giving effect to the Business Combination. Easterly and JH Capital shall collectively be referred to herein as the “Companies.” The Companies, subsequent to the Business Combination, shall be referred to herein as the “Combined Company.” All references in this section to “we,” “our” or “us” refer to the Combined Company.

 

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2017, give pro forma effect to the Business Combination as if it had been consummated on January 1, 2017. The unaudited pro forma consolidated balance sheet as of December 31, 2017, assumes that the Business Combination was consummated on December 31, 2017.

 

The unaudited pro forma consolidated balance sheet and statement of operations as of, and for the year ended December 31, 2017, were derived from JH Capital’s unaudited combined financial statements as of and for the year ended December 31, 2017, and Easterly’s audited consolidated financial statements as of and for the year ended December 31, 2017.

 

The Business Combination will be accounted for using the acquisition method of accounting under the provisions of ASC 805. Pursuant to ASC 805, Easterly has been determined to be the accounting acquirer based on the evaluation of the facts and circumstances. The unaudited pro forma adjustments are based on information currently available, assumptions, and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma consolidated financial information.

 

Pursuant to the terms of the Investment Agreement and upon consummation of the Business Combination, Easterly will pay off in full the Convertible Promissory Note, to the extent any outstanding amount has not been converted into warrants to purchase Easterly Class A common stock. In addition, and unrelated to the Investment Agreement, JH Capital will repay JH Capital debt of $77.1 million along with $3.5 million of prepayment and other loan fees. Collectively these repayments will be referred to as the “Debt Repayment”.

 

In addition to giving effect to the Business Combination and related Debt Repayment, the unaudited pro forma consolidated financial information presents the following redemption scenario (“Redemption Scenario”), as some of Easterly’s stockholders have elected to redeem their shares of common stock. The Redemption Scenario gives effect to the following actual redemptions which occurred subsequent to December 31, 2017, as if they had occurred during the period.

 

· $72,000 Actual Redemptions: This scenario reflects the actual share redemptions that occurred on March 29, 2018, for 7,035 shares of Easterly Common Stock at a redemption price of approximately $10.18 per share, resulting in an aggregate payment of approximately $72,000 out of the Trust Account.

 

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2017 is not necessarily indicative of what the actual results of operations would have been had the Business Combination, Debt Repayment, and related Redemption Scenario taken place on the date indicated, nor is it indicative of the future consolidated results of operations of the Combined Company. The unaudited pro forma consolidated financial information should be read in conjunction with the accompanying notes and the sections entitled “Information About JH Capital,” “JH Capital Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the historical financial statements and notes thereto of Easterly and the historical financial statements and notes thereto of JH Capital included elsewhere herein.

 

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The unaudited pro forma consolidated financial information has been prepared to illustrate the effect of the Business Combination, Debt Repayment, and related Redemption Scenario and has been prepared for informational purposes only and should not be relied upon. The historical financial statements have been adjusted in the unaudited pro forma consolidated financial information to give effect to pro forma events that are (1) directly attributable to the Business Combination, Debt Repayment, and related Redemption Scenario (2) factually supportable and (3) with respect to the statement of operations, expected to have a material continuing impact on the results of the Combined Company.

 

As described in greater detail in Annex E attached to this proxy statement, in connection with the closing of this transaction, the Companies will enter into a Tax Receivable Agreement with each of the JH Capital Class B Members that will require the Combined Company to pay to those JH Capital Class B Members who exchange Class B Units for Easterly Class A common stock or cash, 85% of the amount of net savings, if any, in U.S. federal, state and local income tax that the Combined Company actually realizes (or is deemed to realize in certain circumstances) as a result of: (i) certain increases in tax basis resulting from the Business Combination; (ii) certain tax attributes of JH Capital and its subsidiaries existing prior to the Business Combination; (iii) certain increases in tax basis resulting from exchanges of Class B Units; (iv) imputed interest deemed to be paid by the Combined Company as a result of payments it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments the Combined Company makes under the Tax Receivable Agreement. Due to the uncertainty in the amount and timing of future exchanges of Class B Units by the JH Capital Class B Members, the unaudited pro forma consolidated financial information assumes that no exchanges of Class B Units have occurred and therefore no increases in tax basis in JH Capital’s assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if all of the JH Capital Class B Members were to exchange their Class B Units, the Combined Company would recognize a deferred tax asset of approximately $9.4 million, assuming (i) all exchanges occurred on the same day; (ii) a price of $10.20 per share of Easterly Class A common stock; (iii) a constant corporate tax rate of 25.9%; (iv) the Combined Company will have sufficient taxable income to fully utilize the tax benefits; and (v) no material changes in tax law. For each 5% increase (decrease) in the amount of Class B Units exchanged by the JH Capital Class B Members, the Combined Company’s deferred tax asset would increase (decrease) by approximately $0.9 million, assuming that the price per share and corporate tax rate remain the same. For each $1.00 increase (decrease) in the assumed share price of $10.20 per share, the Combined Company’s deferred tax asset would increase (decrease) by approximately $4.8 million, assuming that the number of Class B Units exchanged by the JH Capital Class B Members and the corporate tax rate remain the same. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that the Combined Company will recognize will differ based on, among other things, the timing of the exchanges, the price of shares of Easterly Class A common stock at the time of the exchange, and the tax rates then in effect.

 

As a public company, the Combined Company will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. The Combined Company expects to incur additional annual expenses related to these steps relating to, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. Pro forma adjustments relating to these costs have not been included in the unaudited pro forma consolidated financial information presented herein.

 

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

December 31, 2017

(dollars in thousands)

 

    Historical as of
December 31, 2017
    Pro Forma Adjustments for Non-Acquired     As Adjusted for Non-Acquired     Pro Forma Adjustments for Business Combination and Debt Repayment           Pro Forma Adjustments for Purchase Price Allocation and Noncontrolling         Pro Forma Adjustments for Actual Share         Pro Forma  
    Easterly     JH Capital     Entities (4)     Entities     (Other adjustments)           Interest         Redemptions         Combined  
ASSETS                                                              
Cash and cash equivalents   $ 14     $ 16,948     $ (58 )   $ 16,904     $ 51,038     5(d)   $ (1,000 )   5(d-vii)     $ (72 )   5(d-ix)     $ 66,870  
Restricted cash     151,209       18,937             170,146       (151,209 )   5(d-vi)                               18,937  
Accounts and other receivables, net           20,543       (3 )     20,540                                           20,540  
Finance receivables, net of allowance           84,558             84,558                                           84,558  
Secured finance receivables, net of allowance           58,518             58,518                   45,612     5(a)                 104,130  
Loan receivables, net of allowance           58,712             58,712                   3,077     5(a)                 61,789  
Notes and accounts receivable - related-parties           2,713       (606 )     2,107                                           2,107  
Property and equipment, net           4,810       (28 )     4,782                                           4,782  
Intangible assets, net           26,703             26,703                   73,109     5(a)                 99,812  
Goodwill           1,428             1,428                   249,563     5(a)                 251,991  
                                                    1,000     5(d-vii)                        
Other assets     7       7,906       (54 )     7,859                   (4,352 )   5(g)                 3,507  
Deferred tax asset                                             5(b)                  
Total Assets   $ 151,230     $ 301,776     $ (749 )   $ 452,257     $ (100,171 )         $ 367,009           $ (72 )         $ 719,023  
                                                                                   
LIABILITIES, MEZZANINE EQUITY AND MEMBERS' EQUITY                                                                                  
Liabilities                                                                                  
Accounts payable and accrued expenses   $ 1,705     $ 18,966     $ (209 )   $ 20,462     $ -           $           $           $ 20,462  
Senior and subordinated debt           390,594             390,594       (50,000 )   5(d–v)       5,700     5(g)                 346,294  
Notes and accounts payable - related-parties     1,190       28,909       (1,823 )     28,276       (27,086 )   5(d–v)                                
                                      (1,190 )   5(d-ii)                                      
Participation liabilities           5,061             5,061       -                                     5,061  
Other liabilities     7,000       5,332             12,332       (7,000 )   5(d–iv)                               5,332  
Total Liabilities     9,895       448,862       (2,032 )     456,725       (85,276 )           5,700                         377,149  
Commitments                                                                                  
Common stock, subject to possible redemption or tender 13,544,944 shares at redemption value at December 31, 2017     136,335                   136,335       (136,335 )   5(e)                              
Mezzanine Equity                                                                                  
Redeemable Class A membership interest           24,766             24,766                                           24,766  
Members’ Equity                                                                                  
Preferred stock, $.0001 par value; 1 million shares authorized; none issued and outstanding                                                                  
Common stock - Class A, $.0001 par value; 100 million shares authorized; 6,477,668 shares issued and outstanding (excludes 13,544,944 shares subject to possible redemption at December 31, 2017)     1                   1       1     5(e)                             2  
Common stock - Class B shares, 18.7 million shares issued and outstanding                             -             2     5(c)                 2  
Additional paid-in capital     8,022                   8,022       136,334     5(e)     190,738     5(c)     (72 )    5(d-ix)       143,282  
                                                    (191,740 )   5(i)                    
Accumulated deficit     (3,023 )                 (3,023 )     (14,895 )   5(f)                             (17,918 )
Capital attributable to JH Capital Founding Members           (232,236 )     1,283       (230,953 )                 230,953     5(h)                  
Accumulated other comprehensive income (loss)                                                                  
Total Stockholder's Equity attributable to Combined Company     5,000       (232,236 )     1,283       (225,953 )     121,440             229,953             (72 )           125,368  
Noncontrolling interest           60,384             60,384                   131,356     5(i)                 191,740  
Total Liabilities, Mezzanine Equity and Members’ Equity   $ 151,230     $ 301,776     $ (749 )   $ 452,257     $ (100,171 )         $ 367,009           $ (72 )         $ 719,023  

 

See accompanying notes to the unaudited pro forma consolidated financial information.

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED December 31, 2017

(dollars in thousands, except share and per share amounts)

 

    Historical for the Year Ended
December 31, 2017
    Pro Forma           Pro Forma
Adjustments for
    Pro Forma        
    Easterly     JH Capital     Adjustments
for Non-
Acquired
Entities (4)
    As Adjusted
for Non-
Acquired
Entities
    Business
Combination
and Debt
Repayment
    Adjustments
for Actual
Share
Redemptions
    Pro Forma
Combined
 
                                           
Revenue                                                        
Revenue from finance receivables   $     $ 43,055     $     $ 43,055     $ (24,987 )6(a)   $     $ 18,068  
Loan interest income, net           14,221             14,221                   14,221  
Collection fee revenue           29,456             29,456                   29,456  
Debt settlement revenue, net           43,700             </