more facts - response from marcel equity

30 May 2012
Dear Fellow Shareholder

WORSE NEWS – CRITICAL THAT YOU ACT NOW TO PREVENT DESTRUCTION OF SHAREHOLDER VALUE
VISIT WWW.ANEWHYRO.COM FOR MORE INFORMATION

I write to you again as a fellow shareholder extremely concerned about the recent releases by the Hyro Board. In particular, yesterday, the Board announced a small revision to the proposed sale of Hyro’s business to KIT Digital but nothing much has really changed. The revised proposal still sells all the Company’s assets at a significant discount, valuing them at approximately $8million, NOT the $17.2million the Board has been promoting.
SOME MORE FACTS
THE KIT PROPOSAL IS NOT AN EXIT
The KIT proposal is a sale of all the Company’s assets in exchange for an investment in KIT Digital. The Hyro Board is proposing to sell the Company assets for KIT Digital shares at US$8.57 a share (subject to a top up). If Hyro shareholders want KIT Digital shares you can buy them at their current price of US$3.76.
The proposal DOES NOT provide liquidity for your investment in Hyro. KIT DIGITAL is a US/Czech company that is in financial turmoil. KIT shares have dropped over 70% in three months. Hyro cannot dispose of these shares for up to 12 months. Market and exchange risks will impact this investment. Further there is no guarantee that Hyro will be able to sell them for their market value. Even after these shares are sold, all other liabilities will need to be repaid BEFORE any return to shareholders.
NO REAL CASH ON SETTLEMENT
The consideration for the purchase is now $2million in cash and 1.8 million in KIT Digital shares. As revealed by KIT Digital in its release to the market (and not by Hyro), the Share Purchase Agreement requires Hyro to hand over $2million cash to Kit Digital on settlement. Therefore KIT Digital is NOT REALLY paying any cash at all!! The exposure to KIT Digital’s share price remains.
THE MARCEL PROPOSAL
Yesterday’s announcement by the Board has sought to cast significant doubt on the viability of the Marcel proposal by stating that it does not provide the Company with sufficient funds to continue as a “going concern” and that by voting against the KIT proposal you are potentially endangering your investment. In other words a BAD Deal is better than doing nothing or going with the Marcel proposal.


So if this is the case then:
• What has changed in two months since the Board signed off on the 31 December 2011 accounts that it had sufficient funds for the next 12 months?
• Why did the Board say in the Notice of Meeting on 27 April 2012 that they recommended the 2.3million share incentive for Bill Votsaris because of “THE POSITIVE CIRCUMSTANCES OF THE COMPANY BEFORE AND AFTER THE TRANSACTION”
• Why did the Board enter a $3million 5 year Convertible Note Facility with relevant representations of solvency etc with PFG in March 2012 if it now needs a further $2.7million to enable it to meet its commitments?
• Why would the Board recommend paying a BONUS of 700,000 shares to Anthony Poiner for 5 months work only to see the Company potentially failing?

In short none of this makes any sense.

MARCEL IMPROVES ITS OFFER

Let me be clear on what Marcel is doing.
• We have skin in the game. We are already a holder of 8% of Hyro’s shares. We value the Company and what it can do, and we are willing to invest more time and money into it. Marcel has a clear strategy for Hyro. This is set out at www.anewhyro.com
• The current Board and management have presided over the destruction of 90% of shareholder value during the past 4 years!!!
• Marcel has today improved its offer to invest $1.6million into the Company by removing the requirement for the issue of options and thereby making all funds immediately available to the Company on the issue of the share placement.
• On current information that was available to us, we do not believe we would need in the vicinity of $2.7million to execute OUR business plan.
• We have a plan to reduce expenses by $1million from the current overheads by removing expensive non-productive resources and wasteful overhead. We shared this with Hyro’s Independent Expert.
• We have a plan to grow and improve profitability over a 12 month period. Again shared with the Independent Expert.
• We will have a Board and leadership that will bring skills and know how that is required to leverage Hyro’s assets and client base.
• We are confident, with support from other major shareholders, that if there is a shortfall in funding to execute our plan we can then raise the additional amount required.
• We are INVESTING in Hyro and seeking to GROW SHAREHOLDER VALUE over the next few years for the benefit of all shareholders.
THE MARCEL PROPOSAL WILL PROVIDE SHAREHOLDERS LIQUIDITY AT BETTER VALUE THAN THE KIT DIGITAL DEAL.
WHAT DOES IT MEAN THAT MARCEL HAS NO AGREEMENT WITH PFG (Holders of the Convertible Bond)?

Marcel has presented and discussed its proposal with PFG. Although there is no formal agreement in place, we believe that should the current deal NOT proceed we WILL be able to conclude a successful renegotiation with PFG. However, in the unlikely event that that is not possible we have had alternative discussions with other financiers and believe we can arrange to repay the PFG loan.

UNDERSTANDING HYRO’S RECENT ANNOUNCEMENTS:
• Under the Share Purchase Agreement with KIT Digital, $2million cash is required to be handed over by Hyro on settlement. Therefore Hyro will NOT receive $2million from KIT Digital as the two transactions (the requirement to pay over $2million to Hyro and the requirement of Hyro to pay KIT Digital $2million on settlement) will cancel each other out!!
• The Board of Hyro has negotiated a $2million cash payment to PFG on settlement. Therefore any cash in the Company will immediately go to PFG and NOT to shareholders.
• On the current KIT Digital share price (US$3.76 @ 30/5/12) you are only likely to receive $0.20 per share in the next 12 months!! This is significantly less than Hyro’s current market value.
• The Board of Hyro has made a statement that $2.7million is required to maintain ITS business plan. This is contrary to the Hyro Board’s annual report to shareholders issued in April 2012.
• The Board of Hyro has engaged an independent expert, and yet as required by ASIC rulings, has not released details of their expert nor their findings, other than the KIT Digital deal is “superior”.
• Following pressure from Marcel and other shareholders, the Board has issued a supplementary Notice of Meeting seeking to correct many of the misrepresentations in the original Notice of Meeting. Notwithstanding this the Notices are still defective in that:
o They do not enable a shareholder to understand what the sale to KIT Digital means to them in terms of the amount that they may get in the next 12 months.
o There is no real attempt to outline the risks of holding KIT Digital shares during the next 12 months.
o There is no analysis of the taxation consequences to a shareholder that may receive a taxable distribution from the Company instead of a capital gain on the sale of shares.
o There are no statements as to why the financial arrangements with Mr Votsaris in 2008 were NOT disclosed to shareholders as required by the listing rules and the Corporations Law.
o The Directors are seeking to overcome complying with the Corporations Law with regard to related party transactions in respect of the payment to Mr Votsaris yet provide no justification as to WHY the payment is REASONABLE in the current circumstances.



KIT Digital is in more trouble:
• KIT Digital’s share price has continued to fall.
• KIT Digital is currently subject to a shareholders’ Securities Fraud Lawsuit (See http://finance.yahoo.com/news/investor-alert-former-louisiana-attorney-143600269.html)


To prevent the destruction of shareholder value we are asking fellow shareholders to take action by voting AGAINST the sale to KIT Digital and the unjustified and substantial financial rewards to Votsaris and Poiner. Vote AGAINST resolutions 4, 5, 6, 7 and 8.


I am asking shareholders who support saving our company from a disastrous deal to appoint me, Gary Cohen, as their proxy. All you need to do to vote AGAINST resolutions 4, 5, 6, 7 and 8 is:
• Complete and return your personalised proxy form that was mailed to you by Hyro, OR
• Vote online at www.boardroomlimited.com.au/vote/hyroagm2012.
You will need to enter your personalised reference numbers that can be found on your proxy form, OR
• Fax your proxy form to +61 2 9290 9655

For your vote to count it must be received no later than 10am Sydney time on Tuesday, 5 June 2012.
For more information please visit our website at www.anewhyro.com
If you have any questions or need any help completing your proxy form, please contact the information line on 1300 788 737.

Sincerely



Gary Cohen
Chief Executive Officer
Marcel Equity Pty Limited

Continually updated details of the Marcel Equity plan can be found on the website www.anewhyro.com which we encourage you to visit.